2014 (2) TMI 352 - AT - Central Excise

Duty demand - Appellants are engaged in the manufacture of photo album classifiable under heading No. 48.20 - Liability to pay duty on the PVC films being manufactured by them out of lay flat tubings - Imposition of penalties - Invocation of extended period of limitation - Confirmation of interest - Whether by adopting the process of edge cutting of the tubular form of PVC film, the appellant can be said to have undertaken the process of manufacture, in terms of provisions of provisions of Rule 2(f) of the Central Excise Act, 1944 - Held that - process of cutting or slitting of steel sheet in coil form to specific sizes not does not amount to manufacture, since no new, different and distinct articles emerged from the process - appellants are only edge cutting the PVC polytubings so as to make the in-leaves for the photo albums there can be no doubt about the fact that mere edge cutting of tubing so as to split it into one PVC film will not be covered by the definition appearing under section 2(f) of the Central Excise Act. PVC product remains PVC product only and it is only shape of such PVC film which is being changed from the tubular form to lay flat form. Otherwise there is no difference in the composition of the product which only remains PVC film. Process of edge cutting will not get covered by the definition of manufacture - starting product and the final product which fall under separate sub- headings would also not changethe scenario. Accordingly, we hold that appellants are not indulging into any act of manufacture of polyethylene sheets from polyethylene lay flat tubings and the confirmation of demand is not justified - there is no requisite to arrive at finding of limitation but for academic reason we hold that inasmuch as the demand stand raised by invocation of longer period and there being no evidence of suppression or malafide intention on the part of the assessee, invocation of longer period of limitation is not justified. Accordingly, we hold that demand is barred by limitation - Decided in favour of assessee.

Summary

Issues:
Manufacture of PVC films from lay flat tubings, Duty liability on PVC films, Interpretation of Central Excise Act, 1944, Application of case laws on manufacturing process.

Manufacture of PVC films from lay flat tubings:
The case involved the appellants engaged in the manufacture of photo albums using lay flat tubings, PVC sheets, and other materials. The Revenue contended that the process of edge cutting the lay flat tubings resulted in the emergence of PVC films, which should be classified under a different heading and attract duty liability. The issue was whether this process constituted "manufacture" under the Central Excise Act, 1944. The Tribunal examined the technical aspects of the process, distinguishing between lay flat tubings and PVC films, and analyzed relevant case laws to determine the definition of manufacture. The Tribunal concluded that the mere edge cutting of tubular PVC film into flat form did not amount to manufacture as the essential character of the product remained unchanged.

Duty liability on PVC films:
The Revenue initiated proceedings against the appellants, demanding duty payment on the PVC films manufactured from lay flat tubings. The original adjudicating authority confirmed the demands, leading to appeals before the Commissioner (Appeals). While the Commissioner upheld the duty confirmation, he remanded the matter to examine the appellants' claim for exemption and filing of declarations. The Tribunal, after considering the facts and legal arguments, held that the appellants were not liable to pay duty on the PVC films as the process did not amount to manufacture. Consequently, the demand for duty, interest, and penalties was set aside.

Interpretation of Central Excise Act, 1944:
The Tribunal referred to Section 2(f) of the Central Excise Act, 1944, which defines "manufacture." By analyzing various judicial decisions, including those by the Hon'ble Supreme Court, the Tribunal established the criteria for determining whether a process qualifies as manufacture. The Tribunal emphasized that the process must result in the emergence of a new substance with distinct characteristics to be considered as manufacture under the Act. Applying this interpretation to the case at hand, the Tribunal concluded that the edge cutting process did not meet the threshold for manufacture, thereby absolving the appellants from duty liability.

Application of case laws on manufacturing process:
The Tribunal extensively discussed and applied several landmark judgments by the Hon'ble Supreme Court and other courts regarding the definition of manufacture in excise law. By citing cases involving processes like converting tarpaulin sheets, cutting tissue paper, mixing polymers with bitumen, and other activities, the Tribunal established a consistent legal framework for determining what constitutes manufacture. The Tribunal aligned the facts of the present case with the principles laid down in these judgments to arrive at a decision favorable to the appellants. The application of these case laws played a crucial role in guiding the Tribunal's analysis and decision-making process.

In conclusion, the Appellate Tribunal CESTAT New Delhi ruled in favor of the appellants, holding that the process of edge cutting lay flat tubings to produce PVC films did not amount to manufacture under the Central Excise Act, 1944. The Tribunal set aside the duty demands, interest, and penalties imposed on the appellants, emphasizing that the essential character of the product remained unchanged despite the process. The decision was supported by a detailed analysis of the manufacturing process, legal interpretations, and precedent case laws, ensuring a comprehensive and well-founded judgment in favor of the appellants.