2022 (3) TMI 402 - AT - Central Excise

Process amounting to manufacture - whether conversion of Crude Sulphur Lumps/Granules into Sulphur Powder, would amount to manufacture , as per the definition of said phrase contained in Section 2(f) ibid? - extended period of limitation - HELD THAT - The appellants have amply demonstrated that the conversion activities undertaken by them do not fall within the scope and ambit of the definition of manufacture , provided in Section 2(f) ibid. In this context, it is noticed that the appellants have filed various declarations from time to time and also different correspondences were exchanged between them and the department, conveying the fact of manufacture of Pesticides, Fungicides Sulphur Powder; that the letter dated 04.01.2007 was addressed to the department, explaining that the process of pulverizing of Crude Sulphur into powder form etc. would not amount to manufacture, as there is no change in characteristic, properties, quality, grade, etc.; that on 20.10.2008 again, the process of manufacture of Sulphur Powder was explained to the Preventive Officers, during their visit to the factory; that the appellants filed further declaration before the department on 08.04.2009, explaining inter alia, with the help of drawings designs that the process undertaken for conversion of Crude Sulphur into Sulphur Powder by pulverization process will not amount to manufacture. It can safely be concluded that the ingredients itemized in the proviso clause appended to Section 11A ibid have no application in the case of the present appellants for invocation of the extended period of limitation for confirmation of the adjudged demands. The present appeals are allowed by way of remand to the learned Commissioner of Central Excise, having jurisdiction over the factory of the appellants to decide and adjudicate on the subject issue, whether the disputed goods emerge as a result of manufacturing activity and confirm to the definition of manufacture contained in the definition clause provided under Section 2(f) ibid.

Issues Involved:
1. Whether the conversion of Crude Sulphur Lumps/Granules into Sulphur Powder amounts to 'manufacture' as per Section 2(f) of the Central Excise Act, 1944.
2. Whether the extended period of limitation can be invoked for confirmation of duty demand in the case.
3. Proper consideration of relevant legal precedents and judgments in determining the manufacturing status of the disputed goods.

Issue 1: Conversion of Crude Sulphur into Sulphur Powder

The case involved the appellants engaged in the conversion of Crude Sulphur into Sulphur Powder, disputing whether this activity constitutes 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The appellant contended that the conversion process did not amount to manufacture, citing various Supreme Court judgments supporting their claim. They also argued that if considered manufacturing, the product should be classified under a different tariff item with a nil rate of duty. The department disagreed, initiating proceedings against the appellants. The Tribunal found that the lower authorities did not adequately address the issue, especially in light of previous adjudication orders. Therefore, the case was remanded for fresh consideration by the adjudicating authority, emphasizing a thorough review of whether the disputed goods meet the definition of 'manufacture' under Section 2(f).

Issue 2: Extended Period of Limitation

Regarding the invocation of the extended period of limitation for confirming duty demands, the Tribunal analyzed the applicability of Section 11A of the Central Excise Act, 1944. The department had invoked the proviso clause of Section 11A based on alleged fraud or suppression of facts by the appellants. However, the Tribunal noted that previous adjudication orders had held similar activities as not constituting manufacturing. As a result, the Tribunal concluded that the charges of fraud or suppression were not substantiated in this case, and the extended period of limitation was not justified. The impugned order confirming duty demands beyond the normal period was deemed time-barred, and the appeal was allowed in favor of the appellant.

Issue 3: Proper Consideration of Legal Precedents

The Tribunal emphasized the importance of considering relevant legal precedents and judgments in determining the manufacturing status of the disputed goods. It highlighted that while the principles of res judicata do not directly apply in tax law, the authorities should judiciously analyze previous decisions and distinguish them if necessary. The Tribunal clarified that the proviso clause of Section 11A, allowing an extended period of limitation in cases of fraud or suppression, should be sparingly invoked and required substantial evidence to justify its application. In this case, the Tribunal found that the department's actions did not meet the criteria for invoking the extended period of limitation, emphasizing the need for a thorough examination of facts and legal principles in such matters.

In conclusion, the Tribunal remanded the case for a fresh adjudication on the manufacturing status of the disputed goods, highlighted the importance of properly considering legal precedents, and ruled in favor of the appellant regarding the extended period of limitation issue.

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