2024 (10) TMI 1539 - AT - Central Excise

Process amounting to manufature - undertaking several activities on bought out items - levy of excise duty on the activities performed on bought-out items - HELD THAT - The customers get a complete finished product in un-assembled/ dis-assembled form under the brand name KOHLER which has a different identity, end use, nomenclature different from the individual parts going into the finished product with the names of EOLIA SHOWER ONLY TRIM , HEALTH FAUCET W/WHITE SDSPRAY, M HOSE and INLINE STOP VALVE TRIM or other similar products falling in these group categories. The process undertaken by the appellant falls within the expression incidental and ancillary to the manufacture of final products and amounts to manufacture within the scope of Section 2(f) of the Central Excise Act, 1944. As regards BOTTLE TRAP FLOOR DRAIN and similar items, the appellant has claimed that PVD process undertaken in the appellant s factory by which parts are cleaned, preheated and coated with zirconium nitride through Vacuum Chamber with the help of specific amount of gases and as a result of these process the colour of parts get changed to yellow alike the process of gold plating, Brand name i.e. KOHLER is then embossed/laser marked on these items dos not amount to manufacture as PVD coating constitutes merely makes products rust-free and this process does not change any function of the product except colour does not bring into existence a new product. While applying the ratio laid down by the Hon ble Apex Court in UNION OF INDIA VERSUS JG. GLASS INDUSTRIES LTD. 1997 (12) TMI 110 - SUPREME COURT , it is found that the process of PVD is not merely a colour changing or making the product rust-free. Without undertaking the process, the articles in dispute cannot be used as they will be highly corrosive and rust prone being always in contact with the water and will have practically no shelf life. The process of PVD is not applied merely to enhance the visual appeal but is necessary to make the product worth of its use. The process clearly falls within the definition of manufacture under Section 2(f) of the Central excise Act being incidental and ancillary to the manufacture of the finished goods. The appeal is partly dismissed and partly allowed.

Summary

Issues Involved:

1. Whether the processes undertaken by the appellant amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
2. Whether the appellant is liable to pay excise duty on the activities performed on bought-out items.
3. Applicability of case laws cited by the appellant in support of their contention.
4. Appropriateness of the demands confirmed by the adjudicating authority.

Issue-wise Detailed Analysis:

1. Whether the processes undertaken by the appellant amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944:

The appellant argued that the activities performed on the bought-out items, such as laser marking, packing, PVD coating, and assembling, do not constitute "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. The appellant relied on various judgments, including Union of India v. Delhi Cloth and General Mills Co. Ltd., to assert that not every process resulting in a change in the product amounts to manufacture. The Tribunal, however, found that for items like "EOLIA SHOWER ONLY TRIM," "HEALTH FAUCET W/WHITE SDSPRAY, M HOSE," and "INLINE STOP VALVE TRIM," the processes undertaken were incidental and ancillary to the manufacture of final products. The Tribunal held that these processes resulted in a new product with a distinct identity, end use, and nomenclature, thereby falling within the scope of "manufacture."

2. Whether the appellant is liable to pay excise duty on the activities performed on bought-out items:

The appellant contested the excise duty demands on the grounds that no new product emerged from the processes performed on the bought-out items. The Tribunal upheld the demands for categories such as "EOLIA SHOWER ONLY TRIM," "HEALTH FAUCET W/WHITE SDSPRAY, M HOSE," "INLINE STOP VALVE TRIM," "BOTTLE TRAP," and "FLOOR DRAIN," stating that the processes added substantiality to the visual appeal, feel, value, and marketability of the items, thus constituting manufacture. However, for the category "LOURE DOUBLE ROBE HOOK," the Tribunal found that mere branding and packaging did not amount to manufacture and ordered the demand to be dropped.

3. Applicability of case laws cited by the appellant in support of their contention:

The appellant cited several case laws to support their argument that the processes did not amount to manufacture. The Tribunal noted that the appellant mis-applied the case law in the matter of Union of India v. J.G. Glass Industries Ltd. The Supreme Court had laid down a two-fold test to determine whether a process amounts to manufacture: whether a different commercial commodity comes into existence or whether the original commodity ceases to exist, and whether the commodity serves no purpose but for the process. The Tribunal found that the processes undertaken by the appellant, especially PVD coating, were necessary to make the products usable and rust-free, thus falling within the definition of manufacture.

4. Appropriateness of the demands confirmed by the adjudicating authority:

The Tribunal confirmed the demands for excise duty for the categories where the processes amounted to manufacture. The amounts of Rs. 1,61,46,303/- and Rs. 3,50,53,785/- already deposited by the appellant were appropriated against these demands. The Tribunal partially allowed the appeal by dropping the demand for the "LOURE DOUBLE ROBE HOOK" category, where the processes did not constitute manufacture.

Conclusion:

The Tribunal concluded that the appeal is partly dismissed and partly allowed. The demand for excise duty is upheld for certain categories of products where the processes amounted to manufacture, while it is dropped for others where the activities did not constitute manufacture under the Central Excise Act, 1944.