1999 (10) TMI 153 - AT - Central Excise

Summary

Issues Involved:
1. Whether the conversion of big stones into small stones amounts to 'manufacture' under the Central Excise law.
2. Whether the demand raised by the Revenue is time-barred and if the extended period of limitation can be legally invoked.

Detailed Analysis:

Issue 1: Conversion of Big Stones into Small Stones as 'Manufacture'

The appellants argued that their activity of crushing bigger stones into smaller stones did not constitute 'manufacture' as defined under Section 2(f) of the Central Excise Act. They contended that no new product or distinct substance was produced by this process, and thus, no Central Excise duty could be legally claimed from them. They supported their argument with several case laws, including C.C.E., Bombay v. Kiran Spinning Mills and C.C.E., Aurangabad v. Shree Vindhya Paper Mills.

The Tribunal examined the definition of 'manufacture' under Section 2(f) of the Central Excise Act, which includes any process incidental or ancillary to the completion of a manufactured product. Chapter Note No. 2 of Chapter 25 of the Central Excise Tariff Act was also considered, which lists processes like washing, crushing, grinding, etc., as falling within the definition of 'manufacture'.

The Tribunal concluded that the process of crushing big stones into smaller stones (Bajjri) by mechanical means results in a new substance with a distinct name, character, and use in the commercial market. The produced substance, Bajjri, is used differently than big stones in construction works, indicating a fundamental change in character. Therefore, the Tribunal held that the conversion of big stones into Bajjri amounts to 'manufacture' under the Central Excise Act. The Tribunal referenced the case of Hindustan Construction Co. Ltd. and Continental Construction Ltd., where it was held that crushing boulders into smaller stones amounts to 'manufacture'.

Issue 2: Extended Period of Limitation

The appellants contended that the extended period of limitation could not be invoked by the Revenue because the officers were aware of their activities, and nothing was concealed. They argued that the extended period under the proviso to Section 11-A of the Act should not apply.

The Tribunal found no evidence that the Revenue was aware of the appellants' activities. The appellants did not inform the Revenue about their manufacturing activities, and thus, no knowledge could be attributed to the Revenue. The Tribunal noted that the appellants were required to inform the Department before starting the crushing activities. Since the appellants kept the Revenue in the dark, they could not prevent the Revenue from invoking the extended period of limitation for raising the demand of excise duty beyond six months.

Conclusion and Modification in Penalty

The Tribunal dismissed both appeals but reduced the penalty in Appeal No. E/1157/94-C from Rs. 1,50,000/- to Rs. 1,00,000/-. The rest of the order in Appeal No. E/1157/94-C was sustained. No interference in the matter of excise duty and penalty was called for in Appeal No. E/502/94-C.

In conclusion, both appeals were dismissed subject to the modification in the penalty amount in Appeal No. E/1157/94-C.