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2015 (3) TMI 784 - SUPREME COURT

2015 (3) TMI 784 - SUPREME COURT - 2015 (318) E.L.T. 353 (SC) - Demand of differential duty - clearance of goods after processing but as such - reversal of credit - activity is amount to manufacture or not - purchase of bumpers, grills, etc., on which the process of Electro Deposition anti-rust so that the shelf life of the said bumpers, grills, etc., would be generally increased) - Held that:- Appellants purchase inputs, avail MODVAT Credit of duty paid thereon subject them to the process of E. .....

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were cleared as such in the said matter. It has been emphasized by the learned counsel for the appellants that words "as such" were not mentioned in Rule 57-F at the relevant time. In our view the absence of these words does not make any difference as Rule 57-F of the Central Excise Rules deals with the "Manner of Utilization of Inputs and the Credit".

It is clear that bumpers and grills are most certainly of commercial use in themselves whether the process of ED coating is applied o .....

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and it is only after all the conditions under the said sub-rules are met that duty attributable to inputs contained in partially processed inputs would then become dutiable - Impugned order set aside - Decided in favour of assessee. - CIVIL APPEAL NO. 8190 OF 2003 - Dated:- 12-3-2015 - A.k. Sikri And Rohinton Fali Nariman JJ. For the Appellant : Mr. V. Lakshmikumaran, Adv. Mr. M. P. Devanath, Adv. Mr. R. Ramachandran, Adv. Ms. L. Charanaya, Adv. Mr. Aditya Bhattacharya, Adv. Mr. Prashanth S. Shi .....

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DVAT credit taken on these inputs before processing, and hence a substantial increase in the value of these inputs has escaped payment of duty on account of value addition in such inputs after processing. More specifically, what was alleged was that various spare parts relatable to motor vehicles that were manufactured by the appellant and were procured by it in the form of bumpers, grills, etc., on which the process of Electro Deposition anti-rust so that the shelf life of the said bumpers, gri .....

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2.1997 or post 31.03.2000 when this rule was twice amended. For the period in question, the said rule together with its amendments is set as hereinbelow: - Rule for the period August 1996 to 28.2.1997 "57F(1) The inputs in respect of which a credit of duty has been allowed under rule 57A- (i) may be used in or in relation to the manufacture of final products for which such inputs have been brought into the factory; or (ii) shall be removed, after intimating the Assistant Commissioner of Cen .....

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r in relation to the manufacture of final products. (2) The inputs may be removed, after intimating the Assistant Commissioner of Central Excise concerned, in writing, for home consumption or for export under bond. (3) All removals of inputs for home consumption shall be made - (a) on payment of duty equal to the amount of credit availed in respect of such inputs; and (b) under the cover of invoice prescribed under rule 52A." Rules for the period 1.4.2000 to 28.2.2001 "Explanation - Wh .....

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nner, bring into being a new marketable commodity as such. The bumpers, grills, etc., continued to be bumpers, grills, etc., even after the process of ED Coating. The learned Commissioner of Central Excise by its order dated 28.02.2002 set out the show cause notice and the reply in some detail and ultimately came to the conclusion that on account of certain deductions, the duty that was evaded by the appellants herein was ₹ 1,68,07,499/- instead of ₹ 2,00,20,310/- as stated in the sh .....

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e arguments of both sides found as follows: - 5.1 We have considered the submissions of both the sides. The facts which are not in dispute are that the Appellants purchase inputs, avail MODVAT Credit of duty paid thereon subject them to the process of E.D. Coating and remove the same on payment of duty equivalent to the amount of MODVAT Credit availed by them initially at the time of receipt of the inputs. It is thus apparent that the inputs are removed from the factory after undertaking the pro .....

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ny difference as Rule 57-F of the Central Excise Rules deals with the "Manner of Utilization of Inputs and the Credit". The said Rules provides for the manner of use of inputs as under: (i) In or in relation to the manufacture of final products for which such inputs have been brought into the factory; or (ii) Removed from the factory for home consumption or for export under bond. 5.2 Proviso to Rule 57-F(1) or subsequently Sub-rule (3) of Rule 57-F provided that where the inputs are re .....

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those inputs would not be payment of appropriate amount of duty. The duty of excise has to be discharged on the intrinsic value of the goods as held by the Supreme Court in the case of Sidhartha Tubes Ltd., Supra. Accordingly, the Appellants have to discharge the duty liability after including the cost of E.D. Coating in the value of the goods. The Appellants, however, would be eligible to take the MODVAT Credit of duty paid on coating material subject to the satisfaction of the jurisdictional E .....

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nput that is mentioned in Rule 57F(1) ceases to be an input covered by the proviso to sub-rule (ii) thereof. It is his short submission that the "inputs" being bumpers, grills, etc., continued to be the same inputs for the purpose of the proviso despite the fact that there may be value addition on account of ED coating. He cited various judgments in support of his submissions which will be adverted to a little later in this judgment. On the other hand, Shri Guru Krishna Kumar, learned .....

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gments which will also be adverted to a little later in this judgment. In addition, he referred us to Rule 57F (3) and Rule 57F(3A) which, according to him, would show that whenever there is a value addition to an input, the said value addition would also be liable to duty. We have heard learned counsel for the parties. In our view, on the true construction of Rule 57F(1), it would be clear that the "input" that is removed from the factory for home consumption is bumpers, grills, etc., .....

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an important distinction was made between manufacture and processing. It was held that processing and manufacture are distinct concepts in law and only such processing as results in a transformation, namely, that a new and different article emerges having a distinct name, character or use, that excise duty, which is only on manufacture, can be levied. The relevant portion of the judgment is as hereunder: - "14. The other branch of Mr. Pathak's argument is that even if it be held that t .....

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e "processing to manufacture" and for this we can find no warrant in law. The word "manufacture" used as a verb is generally understood to mean as "bringing into existence a new substance" and does not mean merely "to produce some change in a substance," however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, Vol. 26, from an American judgment. The passage ru .....

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r the Central Excises and Salt Act, 1944 must be the "bringing into existence of a new substance known to the market". "But", says the learned Counsel, look at the definition of "manufacture" in the definition clause of the Act and you will find that "manufacture" is defined thus: Manufacture includes any process incidental or ancillary to the completion of a manufactured product." S.2(f) 19. We are unable to agree with the learned Counsel that by ins .....

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ss incidental to the manufacture of the article. Thus in the very Item under which the excise duty is claimed in these cases, we find the words "in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power". The definition of 'manufacture' as in S.2(f) puts is beyond any possibility of controversy that if power is used for any of the numerous processes that are required to turn the raw material into a finished article known to the mar .....

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senior counsel, referred us to various judgments laid down by this Court. First, he referred us to 'Sidhartha Tubes Limited v. Collector of Central Excise' [2000 (10) SCC 194]. Since this judgment was also the only judgment relied upon by CEGAT in the impugned order, it is a little important to understand what exactly was held therein. In this case, the appellant manufactured mild steel pipes and tubes. At this stage, the product was known as "black pipe". Part of the producti .....

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ed pipes, the value of galvanised pipes would include the element of the cost of galvanisation. From this judgment, Shri Guru Krishna Kumar, learned senior counsel, wanted us to accept as the ratio of the judgment that duty must be paid on value addition despite the fact that the process of galvanisation would not amount to manufacture. Not only is this not the ratio of the judgment as we see it but it would, in fact, conflict with other judgments directly on the point. In Commissioner of Centra .....

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ls cannot conveniently be used as such for household or sanitary purposes. If therefore, for the sake of convenience, they are required to be cut into various shapes and sizes so that they can conveniently be used as table napkins, etc., this would not mean that the table napkins, etc., would be a new product distinct from the jumbo roll. The end use of both jumbo rolls and toilet rolls, etc., would remain the same, namely, for household or sanitary use. It was then held following Union of India .....

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of ED coating is applied or not. Importantly, this Court laid down that value addition without any change in name, character or end use of goods cannot possibly constitute criteria to decide as to what is manufacture. This court said in this behalf: - "21. Lastly, in the instant case, the Commissioner as an adjudicating authority has held that there was a value addition of 180%. He found that jumbo rolls of tissue papers were purchased by the assessee @ ₹ 30/- to ₹ 70/- per kg. .....

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eristics of the product. In the present case, as stated above, there is no change in the nature or characteristics of the tissue paper in the jumbo roll and the nature and characteristics of the tissue paper in the table napkin, facial tissues etc. Therefore, without such change in the nature or characteristics of the tissue paper, value addition on account of transport charges, sales tax, distribution and selling expenses and trading margin cannot be an indicia to decide what is manufacture. Th .....

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eparate use are also relevant factors which the Courts should consider in deciding the applicability of Section 2(f) of the Act. Therefore, value addition based on price difference only without any change in the name, character or end-use is a dangerous criteria to be applied in judging what constitutes "manufacture". Lastly, the end-use in both the entries 4803 & 4818.90 is the same, namely, for sanitary or household purposes. In the circumstances, value addition criteria as appli .....

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elves without the process of drilling, trimming and chamfering. This judgment has been distinguished in para 13 of the judgment which has been cited above, namely, Commissioner of Central Excise, New Delhi v. S.R. Tissues Pvt. Ltd. [2005 (186) E.L.T. 385]. Unlike the facts in the Brakes India Limited judgment, on the facts here, bumpers, grills, etc., are of commercial use and liable to duty as such, even without any ED coating. Shri Guru Krishna Kumar, learned senior counsel, then cited Siddhar .....

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ure of the levy is the normal price, as defined under section 4(1)(a) of the Act. It is not disputed that galvanization as a process does not amount to manufacture. However, on facts, it has been found by the commissioner that the process of galvanization has taken place before the product is cleared from the place of removal, as defined under section 4(4)(b). Further, on facts, the commissioner has found that galvanization has added to the quality of the product. It has increased the value of t .....

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se Act, 1944 before one comes to valuation of goods under Section 4. On the facts of the present case, we have first, therefore, to arrive at whether there is "manufacture" at all and only subsequently does the question arise as to if this is so, what is the valuation of the processed goods and whether duty is payable upon them. We have found on facts that for the purposes of the proviso to Rule 57F(ii), the inputs that were not ultimately used in the final product but were removed fro .....

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ore apply when such inputs are removed from the factory for home consumption, the duty of excise payable being the amount of credit that has been availed in respect of such inputs under Rule 57A. We now, come to the second argument made by Shri Guru Krishna Kumar, learned senior counsel, namely, that from a reading of Rule 57F (3) and 57F(3A), that Rule 57F(1) should be construed in such a way that the moment an input which falls under the said Rule has a value addition on account of processing .....

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ture of final products, to a place outside the factory,- (a) For the purposes of test, repairs, refining, re-conditioning or carrying out any other operation necessary for the manufacture of the final products and return the same to his factory, for,- (i) further use in the manufacture of the final product; or (ii) removing the same without payment of duty under bond for export; or (iii) removing the same after payment of duty for home consumption. Provided that the waste, if any, arising in the .....

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such operation is also returned to the said factory: Provided further that the said waste need not be returned to the said factory after the appropriate duty of excise leviable thereon has been paid. (3A) Where a manufacturer intends to remove the inputs as such, or after the inputs have been partially processed during the course of manufacture of final products to a place outside the factory for the purposes specified in sub-rule(3), the manufacturer shall do so after debiting an amount equival .....

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