2016 (11) TMI 1091 - AT - Central Excise

Manufacture - whether packeting of pre-determined quantity of various O Ring & U Cap seals in plastic bags would amount to manufacture or otherwise? - Clandestine removal - during the period June 1999 to March 2004, appellant had cleared Seal kits for Pneumatic Cylinders & valves without Central Excise duty - Held that - we find that the said invoice, as raised by the supplier, clearly indicates that the O Ring & U Cap seals are manufactured and cleared while the invoice raised by the appellant indicate the same as Seal kits which indicate that there are miscellaneous bought out spare items and were constituted items for particular valve. The question of considering this packeting as manufacture does not arise as the O Ring & U Cap seals were already marketable when the supplier/manufacturer had manufactured the same and cleared to appellant. Subsequent packeting of pre-determined quantity of these in a plastic bag has not made the products further marketable. In the absence of any note to the chapter that packeting of pre-determined quantity would amount to manufacture, this activity in our view cannot be considered as a manufacturing activity. O Ring & U Cap seals which were purchased by the appellant from various manufacturers and packeting the same as spares would not amount to manufacture by any stretch of imagination - appeal allowed.

Summary

Issues:
Whether packeting of pre-determined quantity of various O Ring & U Cap seals in plastic bags amounts to manufacture or not.

Analysis:
The appeal was directed against an Order-in-Appeal dated 22.06.2005, where the appellant, a manufacturer of Pneumatic Cylinders & valves, was found to have cleared Seal kits without paying Central Excise duty. The First Appellate Authority held that the Seal kits constituted a manufacturing activity as they contained various O Ring & U Cap seals put together by the appellant. The appellant contended that these Seal kits were not manufactured but were bought-out items supplied in the same form received. The appellant argued that the packeting of these seals did not amount to manufacture under Section 2(f) of the Central Excise Act, 1944. The appellant relied on various citations to support their argument.

The Departmental Representative argued that the packeting of O Ring & U Cap seals constituted manufacturing as the Seal kits were used as spares for Pneumatic Cylinders & valves. The authorities concluded that the Seal kits were manufactured items based on the specific arrangement of seals in the packets. The Departmental Representative cited case laws to support the manufacturing classification.

After hearing both sides, the Tribunal analyzed the definition of manufacture under Section 2(f) of the Central Excise Act, 1944. The Tribunal found that the packeting of O Ring & U Cap seals by the appellant did not amount to manufacturing. The Tribunal noted that the seals were already marketable when purchased from manufacturers, and repackaging them did not enhance their marketability. The Tribunal referenced previous cases where similar issues were decided in favor of the assessee. Therefore, the Tribunal held that the packeting of seals by the appellant did not constitute manufacturing.

The Tribunal set aside the impugned order and allowed the appeal, concluding that the packeting of O Ring & U Cap seals by the appellant did not amount to manufacture under the Central Excise Act, 1944.

This detailed analysis covers the central issue of whether the packeting of seals by the appellant constituted manufacturing activity under the Central Excise Act, 1944, providing a comprehensive overview of the arguments presented and the Tribunal's decision.