2025 (6) TMI 1260 - AT - Central Excise

Process amounting to manufacture - activity of processing steel wire ropes and assembling them with various accessories - invocation of extended period of limitation. Process amounting to manufacture or not - HELD THAT - In the instant case the appellants import/procure steel wire rope. The steel wire rope (Twisted) is loaded onto a reeling machine; thereafter the rope is fed into cutting and fusing machine; the ends are fused so that the strands do not come out/gets operated; the cut length of steel wire rope is then taken to crimping machine which fixes one and of the wire into the stud/hooked stud; the wire length affixed with stud is packed in 10 in a polybag; accessories like fasteners eyebolts nuts washers ferrule etc are also packed in a separate polybag and both polybags are put into a carton. After seeing the process undertaken by the appellant the question that has to be seen is as to whether the processes undertaken by the appellant have resulted in new product with a distinct name character or use and if the same is marketable. The finding of the lower authority agreed upon that the appellant was manufacturing a new commodity a commodity different from its raw material and components; it is known in the market by a separate name Gripple Hanger System ; the functions and use of Gripple Hanger System is different from the raw material used; the new commodity Gripple Hanger System is clearly marketable and is sold at higher value than the individual components put together; the commodity does not remain just steel wire rope with stud it becomes a totally new commodity; manufacturing activity take place and a new product with new usage and marketability comes into existence. the galvanized wire and hanger made by the appellant are not the same goods; galvanized wire is cut fused and crimped alongwith accessories like eye bolts studs fasteners locks etc and is cleared as single item viz. the hanger; the appellant issues only a single invoice for all these items wherein the price for all these items is charged as the Hanger of a particular specification . Therefore the appellants have not made out the case in their favour on merits. Extended period of limitation - HELD THAT - In the impugned case the fact of the non-payment of excise duty on clearance of finished goods from 01.05.2011 to 30.04.2013 came to the knowledge of the department while conducting the audit on 27.08.2015. It is found that other than making bland averment that the appellants had manufactured and clandestinely cleared excisable goods without following the due process of law and that they have suppressed the facts of their manufacture and clearance of excisable goods over and above the exemption limit and that they have not taken central excise registration with an intent to evade payment of duty the show cause notice does not bring out any positive act or omission on the part of the appellants with cogent evidence to show that the appellants had an intent to evade payment of duty. It has been held in a number of cases that extended period cannot be invoked if the show cause notice is issued on the basis of an audit objection. It is found that neither the show cause notice nor the impugned order contradicts the possibilities of entertaining such a reasonable belief by the appellants. Therefore in the facts and circumstances of the case the Revenue has not made out a case for extension of the period of limitation in terms of Section 11A (4) of Central Excise Act 1944. Therefore the duty demanded along with penalty for the extended period cannot be sustained. To that extent the appeal succeeds partly on limitation. Conclusion - i) The excise duty demand for the period within normal limitation upheld confirming that the appellant s activity constituted manufacture. ii) The demand and penalty for the period prior to registration are set aside for being time-barred due to lack of evidence warranting extended limitation. Appeal allowed in part.

Summary

Two principal issues were considered by the Tribunal in this appeal: (1) whether the appellant's activity of processing steel wire ropes and assembling them with various accessories amounts to "manufacture" under the Central Excise law, thereby attracting excise duty; and (2) whether the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 is invocable for the demand relating to the period prior to the appellant's registration.

Regarding the first issue, the core legal question was whether the processes undertaken by the appellant resulted in the creation of a new product having a distinct name, character, and use, which would constitute "manufacture" within the meaning of the statute and judicial precedents. The second issue involved the applicability of extended limitation period provisions in the absence of clear evidence of intent to evade duty, collusion, or suppression of facts by the appellant.

Issue 1: Whether the appellant's activity amounts to manufacture attracting excise duty

The legal framework governing this issue includes the Central Excise Act, 1944, and well-established Supreme Court precedents interpreting the term "manufacture." The Court reiterated the settled principle that "manufacture" means bringing into existence a new product and not merely effecting some change in an existing substance. The new product must have a distinctive name, character, or use, and be marketable as a separate commercial commodity.

Key precedents relied upon include:

• Delhi Cloth & General Mills Co. Ltd. (1977) - Manufacture requires emergence of a new substance, not just a change.
• South Bihar Sugar Mills Ltd. (1978) - Emphasized marketability and distinctiveness of the new product.
• Moti Laminates Pvt. Ltd. (1995) - Highlighted that the identity of the original commodity must cease, and a new article must be produced.
• J.G. Glass Industries Ltd. (1998) - Propounded a twofold test: whether a different commercial commodity comes into existence and whether the original commodity's identity ceases.
• XL Telecom Limited (1999) - Held that mere putting together of duty-paid items in a kit does not amount to manufacture if the articles retain their individual character and use.
• Tarpaulin International (2010) and Servo-Med Industries Pvt. Ltd. (2015) - Clarified the parameters of manufacture vis-`a-vis processing and assembly.

The appellant contended that their activity was limited to cutting, fusing, crimping steel wire ropes, and assembling with bought-out accessories, which did not result in manufacture of a new product but merely packaged existing items. They relied heavily on the XL Telecom Limited decision, arguing that assembling items into a kit with a distinct name does not suffice for manufacture if the individual components retain their character and use.

The Revenue's case was that the appellant's processes resulted in a new product known as "Gripple Hanger System," which is distinct from the raw materials and components in name, character, and use. The product is marketable as a composite item, sold at a higher value than the sum of individual parts. The processes undertaken-cutting, fusing, crimping, and assembling-were not mere packaging but manufacturing steps resulting in a new commercial commodity.

On analysis, the Tribunal found that the appellant imported steel wire rope in running length and procured various accessories domestically. The appellant's processes included loading the wire rope onto machines, cutting it to length, fusing the ends to prevent strand separation, crimping studs/hooks onto the wire, bundling lengths, packing accessories separately, and then packing all into a cardboard box with a packing list. The final product was invoiced and sold as the "Gripple Hanger System," not simply as cut wire or individual components.

The Tribunal emphasized that the product's distinct market name and the fact that the wire no longer remained just wire but became part of a hanger system satisfied the twin tests from J.G. Glass Industries Ltd.: a new commercial commodity emerged, and the identity of the original commodity ceased. The appellant's own invoices described the product as a hanger system, negating their argument that the product was merely a collection of parts.

The Tribunal distinguished the XL Telecom Limited case, noting that in that case the kit's components retained their individual character and use, whereas here the wire was transformed and integrated into a new product with different function and marketability. The Tribunal thus upheld the original and appellate authorities' findings that the appellant's activity amounted to manufacture attracting excise duty.

Issue 2: Invocability of extended period of limitation under Section 11A(4)

The second issue concerned whether the extended period of limitation could be invoked for the excise duty demand relating to the period from 01.05.2011 to 30.04.2013, prior to the appellant's Central Excise registration in April 2013.

The Revenue alleged that the appellant clandestinely manufactured and cleared excisable goods without registration and payment of duty, and that the appellant suppressed facts with intent to evade duty, thus justifying extended limitation.

The appellant countered that the demand was based on audit objections without any positive act or omission evidencing intent to evade duty. They also submitted that they entertained a bona fide belief that their activity did not attract excise duty and that they voluntarily obtained registration and paid duty under protest once the matter was under investigation.

The Tribunal examined the show cause notice and found it lacked cogent evidence of collusion, suppression, or fraudulent intent. It was held that mere non-payment of duty, non-registration, or non-filing of returns does not automatically imply intent to evade duty. The Tribunal relied on a consistent line of judicial precedents holding that extended limitation cannot be invoked solely on audit objections or inaction without evidence of intent.

Accordingly, the Tribunal held that the extended period of limitation was not invocable in this case, and the demand and penalty for the period 01.04.2011 to 13.04.2013 were set aside. The rest of the demand, falling within the normal limitation period, was confirmed.

Significant holdings and core principles established:

"Manufacture" under Central Excise law requires that the process undertaken must result in a new product having a distinct name, character, and use, which is marketable as a separate commercial commodity. Mere assembly or packaging of bought-out items retaining their individual character does not amount to manufacture. However, if the original commodity loses its identity and a new commercial article emerges, the activity is manufacture attracting excise duty.

The Tribunal stated: "The commodity does not remain just steel wire rope with stud, it becomes a totally new commodity; manufacturing activity take place and a new product with new usage and marketability comes into existence."

Regarding limitation, the Tribunal held that invocation of extended limitation under Section 11A(4) requires clear evidence of intent to evade duty, collusion, or suppression of facts. Mere audit objections or non-payment without such evidence do not justify extended limitation.

In conclusion, the Tribunal upheld the excise duty demand for the period within normal limitation, confirming that the appellant's activity constituted manufacture. However, the demand and penalty for the period prior to registration were set aside for being time-barred due to lack of evidence warranting extended limitation.