2000 (3) TMI 466 - AT - Central Excise

Summary

Issues Involved:
1. Whether the process carried out by the appellants on rails amounts to manufacture.
2. Whether the demand for Central Excise Duty is time-barred.

Issue-wise Detailed Analysis:

1. Whether the process carried out by the appellants on rails amounts to manufacture:

The appellants, M/s. J. Sons Corporation Ltd, received rough rails from Indian Railways and converted them into stock rails and tongue rails. The Commissioner held these products as excisable goods, distinct in commercial parlance from ordinary rails, and capable of performing specific functions that ordinary rails cannot. The Commissioner relied on the Supreme Court decision in Laminated Packagings (P) Ltd v. C.C.E., 1990 (49) E.L.T. 326 (S.C.).

The appellants argued that the process of cutting and sharpening rails does not amount to manufacture as defined in Section 2(f) of the Central Excise Act. They contended that no new product with a distinct name, character, or usage comes into existence. They cited several judgments, including Delhi Cloth & General Mills v. Union of India, 1977 (1) E.L.T. (J 199) (S.C.), and R.S. Steel Works v. C.C.E., 1993 (64) E.L.T. 469 (T), to support their claim that mere processing does not constitute manufacture.

The respondents argued that the process undertaken by the appellants results in distinct commodities used for specific purposes, meeting the tests laid down by the Supreme Court in Union of India v. J.G. Glass Industries Ltd., 1998 (97) E.L.T. 5 (S.C.). They cited several cases, including Richardson and Cruddas (1972) Ltd. v. CCE, 1988 (38) E.L.T. 176, to argue that the process amounts to manufacture.

The Tribunal considered the submissions and noted that under Section 3 of the Central Excise Act, excise duty is levied on goods produced or manufactured in India. The Supreme Court in Union of India v. Delhi Cloth and General Mills, 1977 (1) E.L.T. (J 199) (S.C.) defined manufacture as bringing into existence a new substance with a distinct name, character, or use. The Tribunal applied the two-fold test from J.G. Glass Industries Ltd., supra, and observed that the processes undertaken by the appellants did not result in a new commercial commodity. The original identity of the rails remained unchanged, and their use continued to be the movement of trains.

The Tribunal concluded that the processes of cutting, bending, and sharpening did not amount to manufacture under Section 2(f) of the Central Excise Act. Thus, excise duty was not leviable on stock rails and tongue rails.

2. Whether the demand for Central Excise Duty is time-barred:

The appellants argued that the demand was hit by the time limit, as the show-cause notice was issued on 4-3-1997 for the period from 1989-90 to 1994-95. They contended that the demand beyond five years from the date of issue of the notice was void ab initio. They relied on the decision in National Organic Chemical Industries v. C.C.E., 1987(30) E.L.T. 463 (T), upheld by the Supreme Court.

The respondents argued that the demand was not time-barred, as the show-cause notice was issued as per the Tribunal's directions. They contended that the extended period of limitation was invocable due to the appellants' failure to disclose the manufacture of impugned goods.

The Tribunal, having allowed the appeal on the aspect of 'manufacture', did not consider the question of whether the extended period of limitation was invocable.

Conclusion:

The Tribunal held that the processes undertaken by the appellants did not amount to manufacture under Section 2(f) of the Central Excise Act. Consequently, excise duty was not leviable on stock rails and tongue rails. The appeal filed by the appellants was allowed, and the question of the extended period of limitation was not addressed.