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TMI Blog2015 (6) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... 1AB Nil 2. Hindustan Pencils (P) Ltd. E/1855/2012 July 2009 to October 2009 29/07/2010 27,61,143/- alongwith interest under Section 11AB Nil 3. Hindustan Pencils (P) Ltd. E/1856/2012 September 2010 to July 2011 03/10/2011 99,55,580/- alongwith interest under Section 11AB Rs. 10 lakhs 4. Hindustan Pencils (P) Ltd. E/60625/2013 August 2011 to May 2012 28/08/2012 1,45,12,731/- alongwith interest under Section 11AB Rs. 10,000/- 5. Sanghvi Woods (P) Ltd. E/1891/2012 September 2010 to July 2011 03/10/2011 2,05,36,239/- alongwith interest under Section 11AB Rs. 22 lakhs 6. Sanghvi Woods (P) Ltd. E/1892/2012 October 2009 to August 2010 30/10/2010 1,11,92,925/- alongwith interest under Section 11AB Rs. 12 lakhs 7. Sanghvi Woods (P) Ltd. E/52106/2014 August 2011 to May 2012 28/08/2012 1,59,50,623/- alongwith interest under Section 11AB Rs. 25,000/- The penalties in these cases have been imposed under Rule 25 of the Central Excise Rules, 2002. 1.1 The facts leading to filing of appeals by M/s Hindustan Pencils (P) Ltd. (hereinafter referred to as HPPL) are, in brief, as under. 1.1.1 HPPL in their factory at SIDCO Industrial Complex, Samirpur Road, Bari Brahamna, Jammu, manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006, May 2006, June 2006, July 2006 and August 2006 on the ground that the process undertaken by the appellant does not amount to manufacture and, hence, no duty is payable and accordingly the question of exemption under Notification No. 56/02-CE would not arise. The Assistant Commissioner in para 7 of the order described the process of making wooden pencil slats starting from the timber logs and thereafter relying upon two judgments of Hon ble Kerala High Court in the cases of Deputy Commissioner vs. B. Thampan reported in (1995) 96 STC 631 (Ker D.B.) and Deputy Commissioner vs. N. Janardanan reported in (1995) 96 STC 632 (Ker D.B.) held that the process being undertaken by HPPL does not amount to manufacture. The appellants filed appeal before the Commissioner (Appeals) against the order-in-original dated 13/11/06 of the Assistant Commissioner and the Commissioner (Appeals) vide order-in-appeal dated 29/06/07 upheld the Assistant Commissioner s order. No appeal was filed either by the HPPL or by the Department against the aforesaid order. 1.1.2 Sometime in 2009 the Jurisdictional Central Excise Authorities reopened this matter they after studying the process being undertaken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not dutiable, informed that they are stopping the payment of duty on clearances of pencil slats w.e.f. 22/08/06. According to the appellant they intended to avail the exemption of the Notification No. 56/02-CE by the way of substantial expansion by more than 25% increase in their installed capacity and for this purpose, after undertaking the capacity expansion they had also approached the District Industry Centre for issue of the necessary certificate, but in view of the Department s advice that their product pencil slats is not excisable, they neither perused with the District Industry Centre for necessary certificate nor did they avail of this exemption. In the case of this appellant also, the Department issued a show cause notice dated 03/10/10 for demand of duty amounting to Rs. 1,11,92,925/- for the period from October 2009 to August 2010 alongwith interest on it under Section 11AB and also for imposition of penalty. Subsequently another show cause notice dated 03/10/11 was issued for demand of duty amounting to Rs. 2,05,36,239/- for the period from September 2010 to July 2011 alongwith interest on it under Section 11AB and also for imposition of penalty. Thereafter a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e process that the same does not amount to manufacture, the Department just on the basis of decision of the Tribunal in the case of Lion Pencil Pvt. Ltd. vs. CCE, Bombay reported in 1996 (87) E.L.T. 314 (Tri.) cannot reverse its stand, that in this judgment, the Tribunal had not considered the judgments of the Hon ble Kerala High Court in the cases of Deputy Commissioner vs. B. Thampan reported in (1995) 96 STC 631 (Ker DB) and Deputy Commissioner vs. N. Janardanan reported in (1995) 96 STC 632 (Ker DB) and hence this judgment of the Tribunal is per-incurium, that once the Department in the case of HPPL vide Assistant Commissioner s order dated 13/11/06 had taken stand that pencil slats being made by them are not excisable as the process undertaken does not amount to manufacture and similarly once the Department had advised the other appellant SWPL that the pencil slats being manufactured by them are not excisable, the Department is barred from changing its stand by the principle of res-judicata, that in this regard he relies upon the judgment of the Tribunal in the case of CCE, Bangalore vs. AVRA & Co. Bangalore reported in 1987 (31) E.L.T. 238 (Tri.) and also of the Apex court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded limitation period under proviso to Section 11A (1) and imposing the penalty on the appellant under Rule 25 (1) of the Central Excise Rules, when the entire process being undertaken by the appellant was known to the Department from the very beginning and it is the Departmental officers who after studying the manufacturing process of the appellants had informed them that the process being manufactured by them does not amount to manufacture, that this fact is absolutely clear from para 9 of the order-in-original dated 13/11/06 passed by the Assistant Commissioner in the case of HPPL, wherein the Assistant Commissioner has observed that the manufacturing process of the product, in question, has been studied by the Headquarters Preventive Central Excise Commissionerate, Jammu & Kashmir and on this basis, the Assistant Commissioner (Preventive) has intimated that the activity has been carried out by the assessee cannot be treated as manufacture in terms of Central Excise Law, that in view of this, the Department subsequently cannot allege that the appellant have suppressed any material facts from the Department and invoke extended limitation period under proviso to Section 11A (1), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable and as such the decision relating to sales tax matter does not has any precedence value in Central Excise matters. Shri Pramod Kumar in his written submissions also enclosed a list of a few vendors offering pencil slates for sale which had been down-loaded from the website www.alibaba.com and pleaded that this shows that pencil slats is a product known to the market. He also pleaded that the Commissioner has correctly relied upon the Tribunal s judgment in the case of Lion Pencils Pvt. Ltd. vs. CCE, Bombay (supra) wherein the Tribunal after examining this issue in detail had held that the process undertaken in converting wooden blocks into pencil slats for use in manufacture of pencil, amounts to manufacture as the wooden slats are subjected to heat treatment with the aid of steam at 80?centigrade and pressure ranging from 150 to 175 PSI with a view to penetrate the colouring matter into crevices and this process results in softening of the wood and removal of natural resins. He pleaded that the Tribunal s judgment in the case of Paharpur Cooling Towers P. Ltd. vs. CCE reported in 1988 (36) E.L.T. 364 (Tri.) relied upon by the learned Counsel for the appellant is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption notification No. 56/02-CE and had claimed refund of the duty paid through PLA in the manner prescribed in this notification, the other appellant SWPL were planning to avail of this exemption by undertaking substantial expansion by increased in their installed capacity by more than 25%, but at the point of time when the dispute arose, they were not yet started for availing of this exemption. In both the cases, the Department informed the appellants that their product pencil slat is not excisable and they stopped the payment of duty. At that time, the Department had relied upon the judgment of Hon ble Kerala High Court in the case of Deputy Commissioner vs. B. Thampan reported in (1995) 96 STC 631 (Ker D.B.) and Deputy Commissioner vs. N. Janardanan reported in (1995) 96 STC 632 (Ker D.B.) wherein it had been held that pencil slats are nothing but timber cut into small pieces of wooden planks and, hence, are essentially timber. 8. In the case of Deputy Commissioner vs. B. Thampan reported in (1995) 96 STC 631 (Ker D.B.), and Deputy Commissioner vs. N. Janardanan reported in (1995) 96 STC 632 (Ker D.B.) the Kerala Sales Tax Tribunal on the question as to whether purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of both sides. We find that? timber slats were subjected to heat treatment with the aid of steam for providing temperature 80oC and pressure 150 to 175 PSI with a view to penetrate the colouring material into crevices. We also find that these processes can help in softening of wood and removal of natural resins resulting in loss of density. Now the basic question is whether these processes brought into existence a new product or not. A new product definitely should have qualities or properties different from what it has been processed from. Timber slats cannot withstand a temperature of 80oC and pressure of 150 to 175 PSI unless they are treated. This clearly provided timber slats with different properties as this high temperature in the process provided timber slats a character of penetration of colouring material. Further we also find that treatment of softening the product and removal of natural resins from the timber slats, provided the product distinct quality with definite character and use. The ld. Counsel submitted at this stage that no evidence has been brought on record by the department to prove that the timber slats after processing were differently known. We find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he slats obtained by slicing the boiled wooden blocks are called un-stain slats. There is no dispute that these slats are meant only for manufacture of pencils. The question is as to whether this process would amount to manufacture. 11. In terms of the Apex court s judgment in the case of Union of India vs. Delhi Cloth & General Mills reported in 1977 (1) E.L.T. J (199) (SC) (para 14) while manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use . In the same judgment in para 15, 16 and 17 the Apex court has held that to become goods, an article must be something which can ordinarily come to the market to be brought and sold. Since the excise duty is on the goods manufactured in India, for charging excise duty on a product, there must be manufacture in the sense that by the process to which some raw material has been subjected, a new and different article having a distinct name, character and uses has emerged and that article is goods in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed into goods which are different and/or new after a particular process, such goods being marketable as such. It is in this category that manufacture of goods can be said to take place . On the basis of the above criteria the Apex court held that sterilisation of syringes and needles would not amount to manufacture. 12. In the present case, the question as to whether making of pencil slats from timber logs amounts to manufacture has to be examined on the basis of the criteria prescribed in the above-mentioned judgments of the Apex court. 13. From the manufacturing process described in the appeal memo and also in the order of the Assistant Commissioner it is clear that there is transformation of timber block into a new commodity in course of making of pencil slats from timber logs/wood blocks in as much as (a) boiling of wooden blocks results in certain changes in the wood which makes it soft and (b) subjecting the un-stained slats to pressure at high temperature in the pressure vessel and treating them with certain chemicals and colouring matter gives the pencil slats changes their properties which makes them suitable for use in the manufacture of pencil. The penci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognised by pencil manufacturers in and outside the country. But, according to the slat manufacturers, such recognitions seldom translate into money. Shortage of raw materials and high prices are the perennial challenges being faced the industry. The cost of raw materials has increased with the ban on selection felling and clear felling of trees in the forest areas. The softwood industries were forced to source raw materials from private properties, mostly in the rural areas. Pencil slats are manufactured from the softwood of Vatta or Macranga Peltata, a resinous tree. The Vatta wood is collected from Palakkad, Thrissur and from eastern part of Kollam district. The manufacturers get the softwood for Rs. 275 per cubic metre. The trunk of the tree is cut into blocks of 3.75 to 5 feet. They are then sliced into rectangular pieces of 185 mm length, 80 mm breadth, and 6 mm thickness and are sun dried. As many as 900 such pieces form a bundle which is then transported to various pencil manufacturers across the globe. A bundle fetch them Rs. 1,400 and an average of 300-400 bundles are transported from each such units in Kollam. The pencil slats from Kollam are of high demand in places i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact on the part of the appellants. We find that in both the cases the appellants were initially paying duty on the pencil slats. While HPPL were availing all exemption under Notification No.56/02-CE, the other appellant SWPL were planning to avail of this exemption, as according to them they had undertaken substantial expansion by the way of more than 25% increase in their installed capacity and for availing of the exemption Notification No. 56/02-CE they were waiting for the certificate from the District Industry Centre, but in the meantime the Central Excise authorities advised them that the process undertaken by them does not amount to manufacture and that they are not required to pay any duty. In the case of HPPL, the Jurisdictional Assistant Commissioner passed an adjudication order holding that the process undertaken by them does not amount to manufacture and in this order, not only the manufacturing process of the appellant was discussed, para 9 of this order also mentions that manufacturing process of the product, in question, was studied by the Headquarters Preventive Central Excise Commissionerate Jammu & Kashmir and the observations of the Assistant Commissioner (Preven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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