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TMI Blog2023 (10) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant. It was noted that the main inputs for manufacture of spectacles are lens and frames. The lens (blanks) were procured from various listed vendors, of standard sizes and fixed to the frame using a sophisticated technical process which involves a higher level of precision. The department was of the view that after fitment of the lens in to the frames a distinct new marketable commodity viz. "spectacle" emerges. Hence, it appeared that these activities undertaken by the appellant amounts to manufacture of spectacles as provided in section 2 (f) of Central Excise Act, 1944 which attracts Central Excise duty at 2% (without CENVAT Credit) vide Notification No.16/2012-CE dated 17.03.2012 and at 6% (with CENVAT Credit) vide Notification No.19/2012 - CE dated 17.03.2012. Also, the appellant did not obtain registration from the Central Excise department for the manufacture of excisable goods. Show Cause Notice was issued to the appellants proposing to demand duty for the spectacles cleared by them for the period from August 2012 to June 2017 along with interest and also for imposing penalties. The Show Cause Notice further proposed separate penalty on M/s. Susila Girisan, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not manufactured by Appellant No.1. It is manufactured by a third party who is a central excise assessee. Accordingly, the appellant receives the duty-paid lens is received by way of outright purchase. After power is tested of a patient, these duty-paid lenses are made to specifications and specific power which is set out in the prescription. Similarly, the duty-paid frames are also received by Appellant No.1 by way of purchase from vendors. The duty-paid lens which is received is fitted on to the frame purchased by the patient and then delivered to the patient. Thus, neither the lens nor the frame is manufactured by the Appellant. Importantly, the spectacle delivered is not marketable as an asset or chattel or goods transferable from hand to hand. It is made to the specific requirement of only one patient. It does not possess the characteristic of marketability. In this regard, the Ld. Counsel argued that it is a settled legal principle that the "twin tests" criteria, i.e., "Manufacture and "Marketability" needs to be satisfied in order to levy excise duty on the goods. The following decisions were relied. i) Board of Trustees vs. CCE, A.P. - 2007 (216) ELT 513 (SC) at para 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is manufacture, will equally apply to Central Excise Law. The decision of Hon'ble Supreme Court in (1976) 1 SCC 834 at Para 14 - State of Tamil Nadu vs. Pyare Lal Malhotra, was referred by the Ld. Counsel. 4.5. These decisions have been relied upon recently by the Hon`ble Madras High Court in the case of Titan Company Limited, M/s. Premier Optical Pvt Ltd, Mrs. Geetanjali D Souza Prabhu Vs Commissioner of Central Excise, LTU and Others reported in 2021 (10) TMI 1029- MAD HC at para 20 to 23 and the Hon`ble Madras High Court has held that the aforesaid activity of fitting to lens into frames does not amount to manufacture. 4.6. Again, the billing is done separately for the two articles; namely lens and frame. There is no value addition undertaken at the hands of the Appellant. Only activity of fitting is involved. The Appellant No.1 does not contribute any raw material to either the frame or the lens. The Appellant is also duty bound to maintain transparency to its patients as regards the cost of the lens and the frame. For this simple reason and also because there is no value addition undertaken at the hands of the Appellant No.1, except the activity of fitment, the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to assembly of lens with frame and delivery. Balance of Rs.7,24,759/- pertains to ready-to-sell items available in the shop. These are usually spectacles with zero power or other accessories. Similarly for the year 2013-14, the total figure adopted in the Show Cause Notice comes to Rs.10,03,23,973/-. Out of this, the revenue generated out of assembly and delivery comes to Rs.9,89,66,610/- and outright sales comes to Rs.13,57,363/-. It is pointed out that there is no liability at all to pay excise duty on the figures pertaining to outright sales and have to be excluded from the demand. The Ld. Counsel asserted that there is much error in quantification of the demand. 4.10. The Ld. Counsel argued on the issue of limitation also. Appellant No.1 is a service tax assessee. During the periodical service tax audits conducted, various financial statements including Profit and Loss account and Balance Sheet have been submitted to the service tax department. In the course of these audits, there has been due disclosure. In addition to this, the Appellant No.1 is an Income Tax assessee. The income generated through spectacle sales has been disclosed in the audited books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be used by the customers. The spectacles prescribed to the customers attained the specification only at the hands of the appellant's technicians who are employed to do various process on the frames and lenses. Without subjecting the lens (blanks) to various processes, the spectacles cannot provide clarity of vision to the customer. 5.1. The test of 'manufacture' lies in the emergence of a distinct new good after undertaking various processes. The decision of Hon'ble Supreme Court in the case of Delhi Cloth and General Mills Company Ltd. 1977 (1) ELT (J 199) (SC) was relied by the Ld. AR to argue that when a new distinct product emerges which can be put in the market to be bought and sold, the activity amounts to manufacture. In the present case, the frames and blanks undergo various processes and a new distinct product namely "spectacles" is created. These spectacles are goods which can be ordinarily brought and sold in the market. It is submitted that the demand of duty, interest and penalties have been correctly upheld by the Commissioner (Appeals). 6. Heard both sides. 7. The issue to be decided is whether the activity of the appellant of fitting the lens on to the frames to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase powered spectacles in bulk and resell them. The activity of the appellant can be considered only as an assembly of the lens and the frames. The activity does not fall within the definition of manufacture as defined in Section 2 (f) of Central Excise Act, 1944. 11. This view is supported by the decision of the Hon'ble High court, in the case of Titan Company Limited and others (supra) 2021 (10) TMI 1029 Madras High Court. In the said case, the High court was considering the very same issue whether the petitioners are liable to pay Excise duty for the activity of fixing prescription lenses in spectacle frames. The relevant para reads as under: 15. A perusal of the show cause notice reveals that the activity carried out in the show rooms was the manufacture and clearance of spectacles carrying Titan Eye+' Brand. Though adverse inferences are sought to be drawn by the respondents on other grounds as well, such as violation of conditions contained in Notification 8/2003-CE dated 01.03.2003, this point has not been argued and both the parties before me have confined the scope of the arguments to (i) whether the respondents were right in law in having issued the impugned s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and grinding to required size. vi. Keep the lens in the grooving machine, if grooving is required. vii. Fit the lens so made, in the frame selected by the customer, to get a complete spectacle. He also informed that the spectacles were delivered to the customer with a spectacle case, lens cleaning cloth, invoice. Titan Eye warranty card in a paper bag, that all these goods were provided by M/s Titan. The officers also resumed certain documents, sample spectacle case, lens cleaning cloth, paper bag, etc. under Panchnama dated 27.08.2015, drawn on the spot (RUD-3). 19. In addition a warranty was also extended to the customers. All in all, the Revenue is of the view that the processes involved in the activity were complex and complicated enough to constitute 'manufacture' Moreover, the activities led to the conversion of raw materials, being prescription lenses and spectacle frames, into a marketable commodity, being a spectacle, a commercially distinct product. 20. To a pointed query put by the Court, the petitioners would specifically confirm that manufacture of the power lens i.e., the conversion of lens blanks into prescription lens is a taxable activity and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs. 12. As seen above, categorically held by the Hon'ble High Court that the activity of fitting the power lens into the frames does not amount to manufacture. After appreciating the facts and evidence and also following the decision of the Jurisdictional High Court in the case of M/s. Titan Company Limited (supra) we hold that the activity does not amount to manufacture. The demand cannot be sustained. The issue on merits is answered in favour of the assessee and against the Revenue. 13. The Ld. Counsel has argued on the issue of limitation also. The department has derived the figures from the income tax returns filed by the appellant. Several audits were conducted as the appellant is registered with service tax commissionerate. Further the issue is purely interpretational in nature. There is no evidence that appellant has suppressed facts with intent to evade payment of duty. Taking these aspects in to consideration, we hold that the show cause notice issued invoking the extended period cannot sustain. The issue on limitation is answered in favour of assessee and against the department. 14. In the result, the impugned order is entirely set aside. The appeals are allowed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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