2025 (3) TMI 567 - AT - Central Excise

Process amounting to manufacture or not - applicability of Note 1(g) to Chapter 74 for classification of the product - HELD THAT - For goods are to be classified taking into consideration the scope of headings / sub-headings related Section Notes Chapter Notes and the General Rules for the Interpretation (GIR) of the First Schedule to the Central Excise Tariff Act 1985. Rule 1 of the GIR provides that the classification of goods shall be determined according to the terms of the headings of the tariff and any relative Section notes or Chapter notes and thus gives precedence to this while classifying a product. Rules 2 to 6 provide general guidelines for classification of goods under the appropriate sub-heading. In the event of the goods cannot be classified solely on the basis of GIR 1 and if the headings and legal notes do not otherwise require the remaining Rules 2 to 6 may then be applied in sequential order. Further while classifying goods the foremost consideration is the statutory definition if any provided in the Central Excise Tariff Act. In the absence of any statutory definition or any guideline provided by the statute the trade parlance theory is to be adopted for ascertaining as to how the goods are known in the common trade parlance for the purpose of dealing between the parties. It is found that the weight of the product or the reduction of dimensions from a particular size to another size is not the pre-requisite for classification of the product under chapter heading 7409. Thickness of the product being above 0.15mm is the key determinative factor for classification of the product under chapter heading 7409. It is also found process of drawing or re-drawing is not mentioned as a process amounting to manufacture for the product of chapter heading 7409 and such process would amount to manufacture of products only in respect of chapter heading 7411. Hence the conclusion arrived at by the learned Commissioner does not have any legal basis for classification of the disputed goods under chapter heading 7409. Nothing specific has been mentioned about the machinery processes undertaken to treat the activity of drawing to be treated as a process and to state that manufacturing has been undertaken by the appellants to treat the same as independent evidence. Further the adjudicating authority cannot depend on part of such panchanama which is convenient to the department and leave the other part where it is factually incorrect to dismiss it as an inadvertent mistake. since it is not supporting their case. In other words any evidence in order to rely upon the same for proving a case has to be taken in its entirety. In view of the above the impugned order did not examine the issues in proper perspective and failed to prove the allegation of clandestine removal for confirmation of demands raised in the SCNs. In the case of Collector of Central Excise Vs. Technoweld Industries 2003 (3) TMI 123 - SUPREME COURT the Hon ble Supreme Court have held that there is no manufacture of a new product It was also held that the process of drawing wire from wire rods did not amount to manufacture. Conclusion - i) The process of drawing and re-drawing copper products did not constitute manufacture under the Central Excise Act as it did not result in a new and distinct product. ii) The classification of the products under heading 7409 was incorrect as the process did not amount to manufacture for that heading. iii) The denial of cross-examination of witnesses was unjustified rendering the statements inadmissible as evidence. The impugned order set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment were:

• Whether the process of drawing and re-drawing copper flats into copper patta/patti constitutes "manufacture" under the Central Excise Act, 1944, necessitating the payment of excise duty.
• The correct classification of the resultant product under the Central Excise Tariff Act, 1985, specifically whether it falls under Chapter 74 and the implications of Note 1(g) to Chapter 74.
• Whether the procedural requirements, including the right to cross-examine witnesses whose statements were relied upon, were adhered to during the adjudication process.
• Evaluation of the evidence supporting allegations of clandestine removal of goods without payment of excise duty.

2. ISSUE-WISE DETAILED ANALYSIS

Manufacture and Classification:

• Relevant legal framework and precedents: The relevant legal provisions include Section 2(f) of the Central Excise Act, 1944, which defines "manufacture," and the classification rules under the Central Excise Tariff Act, 1985. The judgment also references the Supreme Court decision in Laminated Packings (P) Ltd., which established that if a process results in a commercially distinct product, it constitutes manufacture.
• Court's interpretation and reasoning: The Tribunal analyzed whether the transformation of copper flats into patta/patti resulted in a new product. It was determined that both products fell under the same tariff heading (7409), and the process of drawing or re-drawing was not specified as manufacturing for this heading.
• Key evidence and findings: The Commissioner relied on the physical transformation and marketability of the products to assert manufacture. However, the Tribunal found that the Commissioner misapplied the legal framework, as the transformation did not meet the statutory definition of manufacture.
• Application of law to facts: The Tribunal concluded that the process did not result in a new commercially distinct product as both the input and output were classified under the same tariff heading.
• Treatment of competing arguments: The appellants argued that the process did not constitute manufacture, supported by the absence of a new tariff classification. The Tribunal agreed, emphasizing the importance of statutory definitions and classification notes over physical transformation alone.
• Conclusions: The Tribunal concluded that the process did not amount to manufacture under the Central Excise Act, and the classification under the same heading negated the need for excise duty.

Procedural Compliance and Evidence:

• Relevant legal framework and precedents: Section 9D of the Central Excise Act, 1944, outlines the procedure for relying on statements as evidence, including the right to cross-examine witnesses.
• Court's interpretation and reasoning: The Tribunal found that the Commissioner failed to allow cross-examination of witnesses, which is a critical procedural requirement. The Tribunal referenced prior judgments emphasizing the necessity of adhering to procedural safeguards.
• Key evidence and findings: The Tribunal noted the reliance on statements from company employees and panchanama proceedings without allowing cross-examination, undermining the evidentiary basis for the conclusions drawn.
• Application of law to facts: The Tribunal determined that the failure to permit cross-examination rendered the evidence inadmissible, thereby weakening the case for clandestine removal.
• Treatment of competing arguments: The appellants contended that procedural lapses invalidated the evidence, a position upheld by the Tribunal based on statutory requirements and judicial precedents.
• Conclusions: The Tribunal concluded that the procedural deficiencies, particularly the denial of cross-examination, invalidated the evidentiary basis for the allegations of clandestine removal.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "If by application of labour and skill an object is transformed to the extent that is commercially known differently, it will suffice to say that manufacture has taken place for the purpose of Central Excise... However, the process of 'drawing or re-drawing' is not mentioned as a process amounting to manufacture for the product of chapter heading 7409."
• Core principles established: The judgment reinforced the principle that classification and statutory definitions take precedence over physical transformation in determining manufacture. It also underscored the necessity of procedural compliance, particularly the right to cross-examine, in upholding evidentiary standards.
• Final determinations on each issue: The Tribunal set aside the impugned order, concluding that the process did not constitute manufacture and that procedural lapses invalidated the evidence of clandestine removal. The appeals were allowed in favor of the appellants.