TMI Blog1985 (4) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule without obtaining Central Excise licences and without filing classification lists and price lists or paying duty. They were accordingly called upon to show cause why penalties should not be imposed upon them under Rules 9(2), 52A, 173Q and 226 of the Central Excise Rules; why the cassettes seized from their premises should not be confiscated; and why duty should not be demanded on the recorded cassettes/spools removed without payment of duty. (A show cause notice was also issued to M/s. Rashtrothana Parishat, to whom some recorded cassettes had been disposed of, asking them to show cause why the cassettes found with them should not be confiscated, but ultimately those cassettes were released without penal action). 3. All the appellants replied to the show cause notices. Basically their defence was that they were not aware that the work carried out by them amounted to manufacture of excisable goods and attracted Central Excise duty. Cadmas Internationals took the stand that they were only advertisement agents, and that they had got radio spots and sponsored programmes recorded by M/s. Prabhat Studios, and since they were not themselves the manufacturers, the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. For convenience we reproduce below relevant extracts from Item No. 59 :- 59. ARTICLES OF A KIND USED FOR SOUND OR SOUND AND IMAGE RECORDING, WHETHER RECORDED OR NOT, NAMELY :- (1) Magnetic tapes of width not exceeding 6.5 millimeters for sound recording, whether in spools or in reels or in any other form or packing, but excluding cassette tapes. (2) Sound recorded magnetic tapes of width not exceeding 6.5 millimeters, whether in spools or in reels or in any other form or packing but excluding sound recorded cassette tapes. (3) Cassette tapes for sound recording. (4) Sound recorded cassette tapes. It will be seen that sub-items (1) and (2) go together, covering unrecorded/ recorded magnetic tapes for sound recording (excluding cassette tapes); while sub-items (3) and (4) go together, covering unrecorded/recorded cassette tapes for sound recording. Shri Sogani did not dispute that recording of magnetic spools or cassette tapes would in principle amount to manufacture, and attract levy of duty under sub-items (2) and (4) respectively. He however contended that the spools or tapes in the present case were not finished goods which could come to the market and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with advertising or sales promotion material, Shri Sogani submitted that this was not so. According to him, when the proviso referred to articles not being intended for the promotion of sale, the intention was to exclude those cassettes which, while carrying music or other attractive material were intended to be given away in order to promote the sale of other goods. According to him this was not so in the present case and therefore the goods would not be hit by the second proviso, and they would therefore be eligible for the exemption under the notification. 10. Shri Sogani also raised a question of limitation. He pointed out that the show cause notices extended to a period of more than six months prior to the date of issue. According to him the extended time limit under Rule 9(2) was not applicable to these cases, because there was no intention on the part of the appellants to suppress their activities. They were genuinely ignorant that they were liable to Central Excise formalities or duty. Shri Sogani submitted that several other firms or organisations had been carrying on similar activities. In Bangalore itself All India Radio and S.J. Polytechnic were doing such recordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be the intention behind the notification to operate it in the manner suggested by Shri Sogani. 15. As regards Shri Sogani s argument that the demands should be limited to six months prior to the date of show cause notice, Shri Tayal submitted that the cases were covered by Rule 9, which had been invoked in the show cause notices. That rule provided for an extended time limit of five years in cases where the circumstances in the proviso to Section 11A applied, namely where there had been suppression of facts etc. Shri Tayal submitted that in this case the facts regarding manufacture of the excisable goods had been suppressed by the appellants. He invited our attention to the statement of Shri M.C. Jayadeva, General Manager of M/s Rashtrothana Parishat, who had arranged for M/s. Prabhat Sound Studios to supply them with recorded cassettes copied from master spools furnished by Rashtrothana Parishat. Shri Jayadeva had deposed that, on seeing the newspapers about the excisability of cassettes, he had made a casual enquiry with the persons concerned with M/s. Prabhat Sound Studios, and they had informed him that they were supplying pre-recorded cassettes and that M/s. Rashtrothana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility. For this purpose marketability has to be considered with reference to the goods as a whole. We can think of other examples, such as ready-made garments, spectacles, or orthopedic aids. A particular specimen of each of the above may be of use only to a few persons or even to a single person. That does not mean that it would not be excisable, because ready-made garments as a class can be marketed. So also spectacles and orthopaedic aids are marketable as a class and each specimen would have commercial value with reference to the purchaser. So also the absence of a label would not affect the liability. It is not as if every excisable article comes with a complete description or with a label or even with a packing. We therefore reject this argument of Shri Sogani and hold that the recorded spools/cassettes were excisable. We have noted that, leaving aside the argument that they were not excisable, their classification under sub-items (2) and (4) respectively has not been disputed. 21. We would like to add that the above argument of Shri Sogani cannot in any case apply to those of the goods which were sold and supplied to M/s. Rashtrothana Parishat for resale to the public in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges; and (d) Individual customers as in (c) above, except that the cassettes/tapes were supplied by the manufacturer-appellants. (Since the cases were not considered on the basis of the above notification, there is no clear allocation of the total number of cassettes/tapes on the above lines, although some relevant information can be gleaned from the two orders). 24. In the light .of our observations in para 22 above, cases where cassettes/tapes were furnished by the customers and recording was done by the manufacturer-appellants on the basis of recording and other incidental charges, would qualify for exemption in terms of Notification No. 102/82, provided (a) the recorded cassettes/tapes were not meant for sale by the customers; and (b) even where they were not meant for sale, the recording was not of sales promotion material. Other cases viz. where there was a sale of cassettes by the manufacturer-appellants or by their customers, or where the recording was of sales promotion material, would not qualify for exemption in terms of the notification. The extent or relief which might be due to the appellants in terms of the above criteria is indicated in para 35 of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sette as ₹ 12.50, based on the price paid by them on their purchases of blank cassettes. He also found that they had charged rupee one to rupees two as recording charges for each cassette. Taking the average rate for recording charges as ₹ 1.50 per cassette, the Additional Collector took the value of a recorded C-60 cassette as ₹ 14/-. In regard to the cassettes of other running lengths (called sizes for convenience) in the case of the other appellants, the Additional Collector took the value on pro rata basis from the value of ₹ 14/- for a C-60 recorded cassette. Thus, he assessed the value ofC-30, C-45, C-90 and C-120 cassettes as ₹ 7, ₹ 10.50, ₹ 21 and ₹ 28 respectively. 29. Before the Additional Collector it was argued on behalf of the appellants that in accordance with the judgment of the Calcutta High Court in the case of Free India Dry Accumulators v. Union ofIndia - 1980 E.L.T. 168 (Cal.) the value of raw materials supplied by the customers to the manufacturer would not form part of the manufacturing cost (that is, assessable value). The Additional Collector however pointed out that in appeal the Calcutta High Court had r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has also been disputed. In the case of M/s Soundtrek, the total number of cassettes alleged to have been manufactured and removed without payment of duty was 8,789. However, on the basis of the explanations given by them in regard to certain cassettes, e.g. that even recorded cassettes rejected by customers had been included in the above number, the Additional Collector accepted their contention in regard to 1698 cassettes and held that the number of cassettes removed without payment of duty was 7091. Shri Sogani wished to reiterate the submissions of M/s. Soundtrek with regard to the number of cassettes. They had relied on a certificate from M/s. Rashtrothana Parishat that out of 3015 cassettes recorded for them, 1733 were received and sold. before March 1982, that is before the imposition of duty. The Additional Collector rejected this certificate as appearing to be an afterthought. Again, M/s. Soundtrek had claimed that out of 1295 cassettes recorded by them and supplied to M/s. R.K. Electricals, the latter had given back 920 cassettes for recording. The Additional Collector did not accept this contention as he found that the records of M/s. Soundtrek did not show any credit g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that M/s. Prabhat Associates were liable to pay duty on the cassettes recorded by Shri Raghu of M/s. Soundtrek since the manufacturing process was done at the premises of Prabhat Associates. We find that in this case also the Additional Collector has been quite reasonable and had accepted the number of cassettes as given by Prabhat Associates, although he has not accepted their plea to exclude the number of cassettes admittedly recorded in their premises by Soundtrek. (These 251 cassettes were included in the show cause notice issued to M/s. Soundtrek, and consistently with the view taken by him in the case of Prabhat Associates, the Additional Collector did not demand duty on them from Soundtrek). Shri Sogani did not also dispute the figures. He however argued that the value assumed on a pro rata basis-was not correct. We are not going into this aspect further, as we have already dealt with it earlier. 34. As regards Cadmas Internationals no duty was demanded, since the Additional Collector did not hold them guilty of removing any specific number of cassettes. (He however imposed on them a penalty of ₹ 1,000/- for having been involved in manufacturing and selling the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the offences charged. The penalties imposed on them by the Additional Collector were therefore justified. However, bearing in mind the substantial amounts of duty which they will have to pay, and purely as a matter of grace, we reduce the penalties on M/s. Prabhat Sound Studios, M/s. Prabhat Associates and M/s. Soundtrek to ₹ 1,000/-each. So far as M/s. Cadmas Internationals, since they were not a manufacturer, producer or licensee of a warehouse, they could not be penalised under Rule 173Q, and we accordingly set aside the penalty of ₹ 1,000/- imposed on them under that Rule. 38. Subject to the modifications set cut in paras 35 and 37 above, we confirm the two orders of the Additional Collector and reject all the four appeals. 39. [Order per : M. Gouri Shankar Murthy, Member (Judicial)]. - I am sorry, I am unable to agree with my learned Brothers on the issue of excisability or the Appellants liability to pay the duty demanded or the fines levied. 40. It would appear to me that, in the facts and circumstances of the case, it is not mere marketability of the articles in question that is solely decisive of excisability but manufacture by the Appellants of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c)(i) the manufacture of articles described in Item 59- articles of a kind used for sound ......recording -is complete with the manufacture of the magnetic or cassette tapes, [Item 59(1) and (3)]. Nothing more is required to render them fit for use for sound recording; (ii) in fact, the expression whether recorded or not occurring in Item 59, makes it amply clear that the manufacture of the articles in question is complete even without recording; (iii) it is not, therefore, as if recording the blank tape or cassette is a process incidental or ancillary to the completion of manufacture of the excisable goods in Item 59 of the Schedule- articles of a kind used for sound ...... recording ; (d) (i) the original definition of manufacture had been enlarged, as already stated, from time to time, so as to include within its ambit various specified processes in relation originally to tobacco and salt but ultimately to about nine items, including the latest in the Finance Bill of 1985; (ii) it stands to reason that but for the said amendments manifesting the legislative intent to enlarge the meaning and scope of manufacture , the processes adverted to therein and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A, 15-AA, 16-A, 16-B, 22-E, 22-F(3), 33-A, 33-B, 33BB, 33-D, 34(2)(ii), 37-A, 40, 48 and 51]. The expression is purely descriptive in sixteen items out of them. For example, it cannot be contended that assembly is an act of manufacture because of the use of the aforesaid expression in Item 40. It is only on account of the inclusions of some of the processes referred to in Item 4 in the definition of manufacture that they assume the character of manufacture and not on account of the use of the expression whether or not in Item 4 of the Schedule; (iii) nor does the separate categorisation, without more, of articles of a kind used for sound...... recording into blank magnetic or cassette tapes [Item 59(1) and 59(3) of the Schedule] and 2nd recorded magnetic cassette tapes [Item 59(2) and 59(4)] lead, irresistably and un-equivocally, to the conclusion that recording sound on duty paid magnetic or cassette tapes is manufacture . The rationale of the categorisation is not far to seek, if it is noted that each of the categories is brought to duty at the identical rate ad valorem and it is not inconceivable that the manufacturer of tapes may also proceed to record sound on them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list of goods notified under R. 56A for being afforded a set-off of the duty previously paid, cannot lead to the inference that recording sound is a manufacture. Nor is it that the second category of such excisable goods, namely, sound recorded magnetic or cassette tapes specifically mentioned so as to be entitled to the benefit thereof, if indeed, they are separately leviable to duty merely on recording sound as a manufacture and not to be identified with the blank tapes or cassettes on which duty was already paid; (g) (i) nor can it be said that recording of sound on blank magnetic or cassette tapes is manufacture , inasmuch as, a new substance-not merely a change in the substance-a transformation resulting in a new and different article having a distinctive name, character and use (all three of them and not merely one of them) had emerged. [1977 E.L.T. 199 = AIR 1963 S.C. 791 at 794 - Union of India v. Delhi Cloth Mills; AIR 1981 S.C. 1014 - Chowgule v. Union of India, (1906) 2 K.B. 352 - McNicol v. Pinch and other cases]. The processing is irrelevant if the original commodity continues to possess its original identity [1980 E.L.T. 343 = AIR 1980 S.C. 1227 - Dy. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded magnetic or cassette tapes. Admittedly- (a) the Appellants were not manufacturing sound recorded magnetic tapes . [Item 59(2) of Schedule] or Sound recorded cassette tapes . [Item 59(4) of the Schedule] as such; (b) in fact, they were not manufacturing any articles of a kind used for sound or sound and image recording [Item 59 of the Schedule], that is to say, magnetic tapes or cassette tapes-at all. All that they were doing was recording sound on duty paid magnetic tapes or cassette tapes either purchased by them from the market or supplied to them by the customers. In either case, there is no evidence that when they recorded sound they were virgin tapes, not used earlier for sound recording. Not that this would make for any difference, except in the cascading effect of a multiple levy each time a single tape is re-recorded, if indeed, recording sound or image and sound on duty paid tapes is a manufacture in terms of the relevant provisions of the Act and the intent to levy duty at every such recording was manifest in the Schedule; (c) while it may be that once an article is named or clearly described in the Schedule, it becomes assessable to duty, provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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