2015 (9) TMI 515 - AT - Central Excise

Extended period of limitation - Manufacture - SSI Exemption - activities of drilling, punching holes, welding and bending etc. on job work basis - bonafide belief - appellant categorically stated inter alia that they are only job worker carried out fabrication and received labour charges and also stated that he was not aware that such fabrication undertaken by them would attract excise duty - Held that - the appellants genuinely believed that mere cutting, bending, welding of steel rods/sheets not amount to manufacture and held no new commodity emerged out and there is merit in appellant s justification. It is pertinent to state that the dutiability of structurals and parts thereof was held in favour of Revenue only by the Tribunal s Larger Bench decision in the case of Mahindra & Mahindra Ltd. Vs CCE (2005 (11) TMI 103 - CESTAT, NEW DELHI ). Therefore, there is enough justification in favour of the appellant and there was no suppression of facts with intent to evade non-payment of duty. Hon ble Supreme Court in the case of Uniworth Textile Ltd. Vs CCE (2013 (1) TMI 616 - SUPREME COURT) clearly ruled that mere non payment of duty is not equivalent to collusion or wilful suppression of facts and in order to invoke extended period specific and explicit allegation must be proved by the Revenue. In the present case, the adjudicating authority has not brought out any such allegation of suppression of facts. - Demand set aside.

Issues Involved:
1. Whether the activities carried out by the appellants amount to "manufacture" under Section 2(f) of the Central Excise Act.
2. Whether the demand for excise duty is hit by limitation and if the extended period is justifiable.
3. Whether the value of goods fabricated by a sub-contractor should be included in the appellant's value of clearances.
4. Whether penalties under Section 11AC and Rule 25 of the Central Excise Rules are applicable.

Issue-wise Detailed Analysis:

1. Whether the activities carried out by the appellants amount to "manufacture" under Section 2(f) of the Central Excise Act:

The appellants, a Small Scale Industry (SSI) unit, engaged in the fabrication of scaffolding materials, performed activities such as drilling, punching holes, welding, and bending on steel pipes and sheets supplied by various construction companies. The adjudicating authority held that these activities amounted to "manufacture" as per Section 2(f) of the Central Excise Act and classified the goods under Chapter 7308 of the Central Excise Tariff Act, 1985. The appellants contended that no new commodity emerged from these processes, and there was no marketability since the fabricated items were returned to the principal suppliers without any sale. They relied on various Supreme Court and Tribunal decisions which held that similar activities did not constitute "manufacture."

2. Whether the demand for excise duty is hit by limitation and if the extended period is justifiable:

The show cause notice (SCN) was issued on January 30, 2008, covering the period from 2004-05 to 2006-07, invoking the extended period under the proviso to Section 11A of the Central Excise Act. The appellants argued that the demand was hit by limitation as there was no suppression of facts or misdeclaration with the intent to evade duty. They claimed to be under a bona fide belief, supported by various Tribunal decisions, that their activities did not amount to "manufacture." The Tribunal found that there was no evidence of willful suppression of facts with the intent to evade duty. The mere statement in the SCN that non-payment of duty came to light due to investigations was insufficient to prove suppression. The Tribunal referred to the Supreme Court's decision in Uniworth Textile Ltd. v. CCE, which ruled that mere non-payment of duty is not equivalent to collusion or willful suppression of facts.

3. Whether the value of goods fabricated by a sub-contractor should be included in the appellant's value of clearances:

The Revenue appealed against the adjudicating authority's decision to exclude the value of clearances amounting to Rs. 34,18,463/-, Rs. 2,17,56,220/-, and Rs. 1,22,83,948/- for the years 2004-05, 2005-06, and 2006-07 respectively, which were fabricated by the sub-contractor M/s. Cutmax Engineering. The Tribunal upheld the adjudicating authority's decision, noting that no proceedings were initiated against the sub-contractor, and no SCN was issued to M/s. Cutmax Engineering. Therefore, the exclusion of the value of goods fabricated by the sub-contractor was justified.

4. Whether penalties under Section 11AC and Rule 25 of the Central Excise Rules are applicable:

Since the demand itself was held to be time-barred, the Tribunal concluded that no penalties could be imposed on the appellants. The Tribunal emphasized that the appellants were under a bona fide belief that their activities did not amount to "manufacture" due to several Tribunal decisions in their favor.

Conclusion:

The Tribunal set aside the impugned order on the grounds of limitation, without delving into the merits of the case. The assessee's appeal was allowed, and the Revenue's appeal was rejected. The cross-objection filed by the assessee in the Revenue's appeal was disposed of. The Tribunal pronounced the judgment in open court on September 4, 2015.

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