2000 (2) TMI 338 - AT - Central Excise

Issues Involved:

1. Demand and recovery of Central Excise duty on reprocessed Pan Masala.
2. Applicability of Rule 173H of the Central Excise Rules.
3. Whether reprocessing amounts to 'manufacture' under Section 2(f) of the Central Excises and Salt Act.
4. Impact of the omission of the word "remaking" from Rule 173H(1)(b).
5. Whether reprocessed goods must be cleared to the same parties from whom they were received.

Detailed Analysis:

1. Demand and Recovery of Central Excise Duty on Reprocessed Pan Masala:

The appellants were engaged in manufacturing Pan Masala and received show cause notices from the Department demanding recovery of Central Excise duty for clearances made without payment of duty. The Department alleged that the goods were fresh goods cleared under the pretense of being reprocessed goods received under D-3s, intending to evade duty. The total amount of duty sought was Rs. 3,07,024.07.

2. Applicability of Rule 173H of the Central Excise Rules:

The appellants argued that Rule 173H did not require goods received for reprocessing to be cleared to the same parties from whom they were received. They cited the Tribunal's decision in Antifriction Bearings Corporation Limited v. Collector of Central Excise, Pune, which supported their interpretation. The Department contended that accepting this interpretation would render Rule 173L redundant, arguing that the appellants should have followed Rule 173L instead.

3. Whether Reprocessing Amounts to 'Manufacture' Under Section 2(f) of the Central Excises and Salt Act:

The appellants contended that their reprocessing did not amount to 'manufacture' as defined under Section 2(f) of the Act. They explained that the process involved de-flavouring and re-flavouring the same mixture without any material change. They relied on Supreme Court decisions in Union of India v. Delhi Cloth and General Mills Co. Ltd., Collector of Central Excise v. Jayanth Oil Mills Pvt. Ltd., and Collector of Central Excise, Mumbai v. Kiran Spinning Mills, which held that no new substance emerged from such reprocessing. The Department, however, argued that the reprocessing amounted to 'manufacture' as per Chapter Note 3 of Chapter 21 of the Central Excise Tariff Act.

4. Impact of the Omission of the Word "Remaking" from Rule 173H(1)(b):

The Department pointed out that the word "remaking" was omitted from Rule 173H(1)(b) by Notification No. 5/89 dated 22-2-1989, arguing that this omission meant the reprocessing did not fall under Rule 173H. The appellants countered that the omission was inconsequential as their reprocessing did not amount to 'manufacture' and thus did not require the word "remaking" to be present in the Rule.

5. Whether Reprocessed Goods Must Be Cleared to the Same Parties from Whom They Were Received:

The Department alleged that the appellants cleared reprocessed goods to parties other than those from whom they were received, thus disqualifying them from the benefits of Rule 173H. The appellants argued that Rule 173H did not stipulate such a requirement, and the Tribunal's decision in Antifriction Bearings Corporation Ltd. supported their stance. The Tribunal held that Rule 173H could apply even if the original identity of the repaired goods was lost, provided no commercially distinct article was created.

Conclusion:

The Tribunal found that the reprocessing did not amount to 'manufacture' as no new substance was created, and the same ingredients were used in the reprocessed Pan Masala. The omission of the word "remaking" from Rule 173H(1)(b) was deemed inconsequential. The Tribunal also held that Rule 173H did not require reprocessed goods to be cleared to the same parties from whom they were received. Consequently, the orders of the lower authorities were set aside, and the appeal was allowed.

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