TMI Blog2015 (6) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 pencil slats obtained by the above process have no other use except in the manufacture of pencil. Pencil slats are specifically covered by HSN sub-heading 44219040. Harmonised commodity description and coding system, generally referred to as harmonised system of nomenclature (HSN), is a multi purpose international product nomenclature developed by the world customs organisation and it harmonises customs and trade procedure and thus reduces the cost relating to international trade. Moreover when the manufacturing units of both the appellants were located in the areas notified under Notification 56/02-CE and HPPL was in fact availing of this exemption, there would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT Per. Rakesh Kumar :- Since the point of dispute in these seven appeals is common, the same were heard together and are being disposed of by a common order. The details of these appeals are as under:- Sl. No. Name of the Appellant appeal No. Period of dispute Date of Show cause notice Amount of duty confirmed (Rs.) Penalty imposed (Rs.) 1. Hindustan Pencils (P) Ltd. E/1854/2012 November 2009 to August 2010 09/12/2009 7,24,736/-alongwith interest under Section 11AB 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 ₹ 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 ₹ 10,000/- 5. Sanghvi Woods (P) Ltd. E/1891/2012 September 2010 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d could be taken as self-credit in the Assessee s PLA to be verified by the Jurisdictional Assistant Commissioner subsequently or by making application to the Assistant Commissioner and taking the credit in PLA after sanction of the refund by the Assistant Commissioner. This exemption notification was applicable, among other units, to the new industrial units which have commenced their commercial production on or after 14th day of June, 2002. It appears that HPPL had opted for this exemption and had filed refund claims to the Jurisdictional Assistant Commissioner in terms of this exemption notification for refund of the duty paid through the PLA during certain months. However, the Assistant Commissioner vide order-in-original dated 13/11/06 rejected the refund claim for the month of March 2006, April 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 tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner, the details of which are mentioned above. The appeal No. 1855/2012, 1856/2012 and 60625/2013 have been filed against these orders of the Commissioner. 1.2 The second appellant M/s Sanghvi Wood P. Ltd. (hereinafter referred to as SWPL), Industrial Complex, Bari Brahamna, Jammu also manufacture pencil slats. From the facts narrated by SWPL in their memorandum of appeal, it appears that earlier being under bonafide belief that their product is excisable, they had paid duty on the clearances of pencil slats upto 31st July 2006. However, according to them, in August 2006 they were informed by the office of Assistant Commissioner, Central Excise, Jammu that pencil slats were not dutiable. SWPL under their letter dated 21/08/06 addressed to the Assistant Commissioner referring to the Department s advice that their product is 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 expansio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.) wherein Hon ble Kerala High Court held that converting soft wood into pencil slats no new commodity emerges and does not amount to manufacture, that this decision had been taken by the Assistant Commissioner after studying the process being undertaken by the appellant, as in his order dated 13/11/06 in the case of HPPL, the Assistant Commissioner mentions the process being undertaken by the appellant and also the fact that manufacturing process of the product, in question, had been studied by the Headquarters Preventive branch of the Central Excise Commissionerate, Jammu Kashmir, that once the Department has taken a decision after studying the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ywood scantling does not convert them into a new and commercial product so as to be excisable, that in the present case the pencil slats which had been obtained by cutting the wooden blocks obtained by sawing of timber logs remain timber and their boiling to soften the same and heat and pressure treatment is only to enable the absorption of colouring material and anti termite chemicals for preserving the wood and as such basic character and uses do not change and no new product having distinct, commercial identity and uses emerges, that the process undertaken by the appellant in this case does not pass the test of manufacture as laid down by the Apex court in the case of Union of India vs. Delhi Cloth General Mills reported in 1977 (1) E.L.T. J (199) (S.C.), that in any case, there is absolutely no justification for invoking extended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of these processes are a commodity distinct and different from the timber logs and have distinct name, character and uses and are known, as such, in the commercial parlance. He, pleaded that the pencil slats being manufactured by the appellant are being stock transferred to the other manufacturing units located in other parts of the country and though these transactions may not involve sale, but the same do indicate that the pencil slats are capable of being brought into the market for being bought and sold as the same are required for the manufacture of pencil. He, pleaded that the Kerala High Court s judgment 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.) being with regard to the sales tax are not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial is wooden logs (timber) which is cut into blocks and blocks are further cut into smaller blocks. The smaller blocks are then boiled in order to soften the wood so that the same can be sliced easily into thin slats. The slats are thereafter naturally dried. These rectangular pieces of wood are called un-stained slats. The un-stained slats are, thereafter, fed into pressure vessel where the same are subjected to pressure at high temperature and are treated with anti-termite chemicals and colouring material. The slats emerging after this process are called stained slats. It is these slats which are cleared by the appellants to pencil manufacturing uses and are used for manufacture of pencils. There is no dispute that both the appellants HPPL and SWPL were initially paying duty on the clearances of pencil slats. While HPPL were availing of 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese two judgments of the Kerala High Court that the Department had earlier held that converting wooden logs into pencil slats does not amount to manufacture as no new commodity has been emerged. 9. However, subsequently the Department has revised its stand on this issue, relying upon the Tribunal s judgment dated 23/7/96 in the case of Lion Pencils Pvt. Ltd. vs. CCE, Bombay reported in 1996 (87) E.L.T. 314 (Tri.). In this case also the question before the Tribunal was as to whether converting timber into stained pencil slats amounts to manufacture. The Tribunal in this judgment after taking into consideration the process involved in making seasoned (stained) pencil slats from timber held that the process amounts to manufacture. In this regard the finding of the Tribunal in para 6 of the order are as under :- 6. Heard the submissions 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. CCE, Bombay (supra) we are of the view that above-mentioned judgments of Hon ble Kerala High Court, are in respect of the pencil slats obtained simply by cutting certain types of softwood blocks into small pieces of planks and the same would not be applicable to the facts of this case, as in the present case, undisputedly, the timber logs are cut into blocks, which are further cut into smaller blocks and, thereafter, these smaller blocks are subjected to the process of boiling to soften the wood and it is the softened wooden blocks which are sliced into the slats. The slats, thereafter, are subjected to further processing in the pressure vessel where they are subjected to pressure at high temperature and also treated with the colouring material and into termite chemicals. The slats obtained by this process are stained slats while the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is obviously no manufacture involved. Processes which remove foreign matter from goods complete in themselves and/or processes which clean goods that are complete in themselves fall within this category. (2) Where the goods remain essentially the same after the particular process, again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and the changes brought about by the said process. (3) Where the goods are transformed into something different and/or new after a particular process, but the said goods are not marketable. Examples within this group are the Brakes India case and cases where the transformation of goods having a shelf life which is of extremely shall duration. In these cases also no manufacture of goods takes place. (4) Where the goods are transformed 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the state. The district produces the largest number of slats used for making pencils in the country. At present, around 3,000 people are employed in as many as 150 slat units in Kollam, against the 5,000 employees in the early 2000. Slat manufacturing requires skill in cutting softwood, and most of the people who are now working in the sector are from the rubber industry. Slat manufacturers continue to depend on manual labour as they find mechanisation cost prohibitive. Mechanisation of pencil slat manufacturing units costs over ₹ 50 lakh, and as an industry which is persistently troubled by various issues, most manufacturers refrain from making such huge investments. In fact, most units will not survive for more than two years, said C Sreejith, owner of Kailas slat manufacturing unit at Chathannoor. Slats produced in the state have been recognised 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view has been taken by the Apex court in the case of Elson Machines Pvt. Ltd. vs. CCE reported in 1988 (38) E.L.T. 571 (S.C.), wherein the Apex court has held that the Central Excise authorities are not estopped from taking a view different than in the classification list as there is estopped against the law. This judgment of the Apex court is the background of the fact that earlier the Jurisdictional Assistant Commissioner had approved the classification list by accepting the classification claimed by the assessee and subsequently on finding that the earlier decision was wrong, the Department had revised the classification. In view of this, the plea of the appellant regarding res-judicata is not acceptable. 15. Another plea of the appellant is that in the circumstances of the case, the longer limitation period would not apply, as there was absolutely no suppression of any 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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