1988 (8) TMI 202 - AT - Central Excise

Summary

Issues Involved:

1. Admissibility of additional evidence at the appellate stage.
2. Validity of the show cause notice issued without assigning reasons.
3. Eligibility for exemption under Notification No. 119/75-C.E.
4. Nature of the manufacturing process and its impact on the identity of raw materials.

Issue-wise Detailed Analysis:

1. Admissibility of Additional Evidence at the Appellate Stage:

The appellants sought to introduce an affidavit as additional evidence, asserting that the ingredients in their product did not undergo chemical transformation. The respondent opposed this, citing a Supreme Court judgment that additional evidence should not be admitted at the appellate stage to fill gaps in the presentation of the case. The Tribunal agreed with the respondent, noting that the appellants had sufficient opportunity to present this evidence before the lower authorities but failed to do so. Consequently, the application to admit the additional evidence was dismissed following the Supreme Court judgment in State of U.P. v. Manbodhan Lal Srivastava.

2. Validity of the Show Cause Notice Issued Without Assigning Reasons:

The appellants argued that the show cause notice issued on 11-2-1981 was invalid as it did not assign any reasons for denying the exemption under Notification No. 119/75-C.E. They cited a Madras High Court judgment requiring specific allegations in the show cause notice. The respondent countered that the appellants did not raise this issue before the lower authorities. The Tribunal found that the appellants' reply to the show cause notice did not mention the lack of reasons and that this issue was not raised in the review application. Therefore, the Tribunal concluded that the appellants could not raise this point at this stage.

3. Eligibility for Exemption Under Notification No. 119/75-C.E.:

The appellants argued that the exemption should apply as the raw materials did not lose their identity in the finished product, citing several judicial decisions supporting a liberal interpretation of the notification. The respondent contended that the identity of the raw materials was lost, distinguishing the present case from others where the notification was applied. The Tribunal referred to a Larger Bench decision, which held that the term "manufacture" includes processes incidental or ancillary to the completion of the manufactured product. The Tribunal concluded that the process applied by the appellants was a primary process of manufacture, not merely incidental or ancillary, and thus the benefit of the notification was not admissible.

4. Nature of the Manufacturing Process and Its Impact on the Identity of Raw Materials:

The lower authorities had denied the exemption on the ground that the raw materials underwent a complete transformation into a new and distinct product. The appellants argued that the raw materials did not lose their identity in the finished product. The Tribunal, however, found that the process applied was a primary manufacturing process, which resulted in a new product distinct from the raw materials. This conclusion was based on the Larger Bench decision, which emphasized that the job worker must return the same article received from the customer, subjected only to incidental or ancillary processes. The Tribunal held that the appellants' process did not meet this criterion.

Conclusion:

The Tribunal upheld the lower authorities' decision, denying the benefit of Notification No. 119/75-C.E. to the appellants. The appeal was dismissed, with the Tribunal emphasizing that the process applied by the appellants was a primary manufacturing process resulting in a new product, thus disqualifying them from the exemption.