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2015 (12) TMI 743 - SUPREME COURT

2015 (12) TMI 743 - SUPREME COURT - 2015 (326) E.L.T. 625 (SC) - Manufacture - marketability - process of cold-rolling of stainless steel patta/pattis - whether cold-rolled pattas are distinct marketable commodities - Invocation of extended period of limitation - Held that:- A categorical finding was given by the Adjudicating Authority that goods are of different use and have a distinct identity of their own in the market which was sufficient to hold that the new commodity has come into existenc .....

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box were found installed and other parts were not found in the said rolling mills. - it is difficult to accept that the assessee was under bona fide belief that excise duty was not payable and that it was not permissible for the Department to avail the larger period of limitation by invoking proviso to Section 11A of the Act. - impugned notice is not time barred - Decided against Assessee. - Civil Appeal Nos. 5784-5788 of 2007, Civil Appeal Nos. 9196-9202 of 2012 - Dated:- 14-12-2015 - A. K. Sik .....

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ibunal (CESTAT) was correct in holding that the process of cold-rolling of stainless steel patta/pattis amounts to manufacture in view of Chapter No.4 of Chapter No.72 of the Central Excise Tariff Act, 1985, when the said Chapter Note was not even referred to or relied upon in the show cause notice? (c) Whether in the facts and circumstances of the case, extended period of limitation under proviso to Section 11A of the Act was invokable for demanding duty from the assessee and for imposing penal .....

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s only to reduce the gauge of the SS patta/patti. After so reducing the gauge by the process of cold-rolling, the SS patta/patti are sent back to the suppliers. For this purpose, the assessee receives job charges from the suppliers of the materials. The assessee claims that apart from cold-rolling, no other process was undertaken by the assessee on the SS patta/patti. The assessee had undertaken this activity during the period between November 1995 and March 1997. It is also the case of the asse .....

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abad issued a show cause notice dated 15.05.2000 to the assessee contending that the process of coldrolling undertaken by the assessee amounts to manufacture within the meaning of Section 2(f) of the Act and accordingly, the show cause notice sought to demand duty of ₹ 24,06,310/- from the assessee for the period from 1995-96 to 1996-97 by invoking the extended period of limitation under proviso to Section 11A of the Act. 4. After considering the reply of the assessee, the Commissioner of .....

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ti, the Tribunal by a 2-1 majority held that the process of cold-rolling amounts to manufacture in view of Chapter Note 4 to Chapter 72. The majority of the Tribunal further held that the extended period of limitation under proviso to Section 11A of the Act is invokable and accordingly confirmed the duty demands and the penalties imposed by the Commissioner. 5. It is in the aforesaid backdrop the questions of law formulated/raised by the appellants need to be decided. 6. We first advert to the c .....

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mm 7220.10 - Not further worked than hot-rolled, whether or not in coils 15% 7220.20 - Not further worked than cold-rolled (coldreduced) 15% 7220.90 - Other 15% 7. We find that in the Order-in-Original passed by the Adjudicating Authority on the question as to whether cold-rolled pattas are distinct marketable commodities, he relied upon the Harmonised Commodity Description and Coding System (HSN) published by World Custom Organisation to facilitate uniform classification of goods traded in the .....

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of products of hot rolled and never has a layer of scale. (b) The dimensional tolerances are smaller for cold rolled products. (c) Thin-Flat products are usually produced by cooled rolling. (d) Microscopic examination of cold-worked products reveals a marked deformation of the grains and grain orientation parallel to the direction of working. By contrast, products obtained by hot process show almost regular grains owing to recrystallisation; (e) He also opined that cold rolling in the true sens .....

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tc.), the products of this heading are in general use for purposes different from those of their hot rolled counterparts, which they increasingly tend to replace. They are used, in particular, in the manufacture of automobile bodies, metal furniture, domestic appliance, and central heating radiators and for producing angles, shapes and sections by cold process (either forming or profiling). They are easy to coat (by tinplating, electroplating, varnishing, enamelling, lacquering, painting, coatin .....

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strips are entirely different than hot-rolled strips which forms the principle raw material for the manufacture of CR strips. A categorical finding was given by the Adjudicating Authority that goods are of different use and have a distinct identity of their own in the market which was sufficient to hold that the new commodity has come into existence as for a product to be marketable it is not necessary that the products should be actually marketed but they should be capable of marketing since co .....

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mparts quality of hardening to the products in question and this process entails changes in the characteristics. The Judicial Member also passed a brief order holding that the case was covered by the judgment of this Court in Steel Strips Ltd. wherein it was held that cold-rolling of steel strips reduced out of the duty paid hot-rolled steel strips do not undergo a process of manufacture. The Judicial Member also observed that there was nothing on record to show that the mere passing of hot-roll .....

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tire process and discuss the same with reference to the technical literature. 11. After going through the said order, we are inclined to concur with the reasons and rationale given by the Third Member holding the entire process to be 'manufacture' within the meaning of Section 2(f) of the Act. Since, we are agreeing with the said reasoning, it would be apt to reproduce the relevant portion thereof: 5. In this context, the Harmonized System of Nomenclature known as HSN Explanatory Notes w .....

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, hot-rolled, in irregularly would coils, other bars and rods, angles, shapes, sections and wire). These products are obtained by plastic deformation, either hot, directly from ingots or semi-finished products (by hot-rolling, forging or hot-drawing); or cold, indirectly from hot finished products (by cold rolling, extrusion, wire, drawing, bright-drawing), followed in some cases by finishing operations (e.g., cold-finished bars obtained by centreless grinding or by precision turning). In the ca .....

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ant operational distinction between the hot-rolling and cold-rolling is that, hot-rolling is a rolling done at a temperature between the point of rapid recrystallization and that of the beginning of fusion, while cold rolling is carried out at ambient or room temperatures which is below the recrystallization temperature. 5.1 The cold-rolled strips have the following properties which may be shared by certain hotrolled products:- (a) because of the strain or work hardening they have undergone, col .....

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cesses because of the strain or work hardening, the cold-worked product becomes very hard. Therefore, when hot-rolled strips, which are flatrolled products, are subjected to cold rolling, such cold-worked product would be very hard and would possess great tensile strength. The process of cold-rolling on such flat products would harden them and, therefore, it is a process of hardening. The fact that hardening can be achieved by heat treatment of steel cannot lead to a conclusion that no hardening .....

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etal can be achieved, equally so by a cold-reducing or cold-rolling or cold-working, hardening of the flat rolled product/strips can be achieved. Heat treatment for hardening or tempering may be suited for particular products while cold-rolling or cold-working may be suited for hardening or tempering other kinds of products. Therefore, by merely referring to hardening or tempering by process of heat treatment, one cannot shut out the entire cold-rolling or cold-working processes which bring abou .....

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recrystallization temperature is known as cold working. In that chapter, there is an analysis done on principles of hot and cold working of metals and their effects on mechanical properties. The purposes of hot working and its advantages as well as purposes and advantages of cold working are narrated. While stating the principles of hot and cold working, the very first distinction drawn is that in hot working, metal working is performed on a metal held at such a temperature that the metal does n .....

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g, squeezing, bending, shearing etc. 5.2 Cold rolling is a process by which the sheet metal or strip is introduced between rollers and then compressed and squeezed. The amount of strain introduced determines the hardness and other material properties of the finished product. Cold rolled sheet can be produced in various conditions such as skinrolled, quarter hard, full hard depending on how much cold work has been performed. This cold working (hardness) is often called temper, although this has n .....

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dening (workhardening). It is the same as cold reduction, except that the working method is limited to rolling. Cold rolling changes the mechanical properties of strip and produces certain useful combinations of hardness, strength, stiffness, ductility and other characteristics known as tempers. 5.3 It is not disputed that cold-rolled sheet products are used in a wide variety of end applications such as appliances-refrigerators, washers, dryers, and other small appliances, automobiles-exposed as .....

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thinner thicknesses that are not generally attainable in the hot rolled state. Cold reduction operation induces very high strains (work hardening) into the sheet. Thus, the sheet not only becomes thinner, but also becomes much harder, less ductile, and very difficult to form. However, after the cold-reduced product is annealed (heated to high temperature), it becomes very soft and formable. Tempering is a form of cold rolling that gives the steel a precise amount of hardness on the outer surface .....

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was undertaking cold-rolling process on its coldrolling mills on the hot-rolled strips which were sent to it for the job work of reducing the gauge. The process of reducing the gauge by coldrolling was also a process of hardening or tempering because cold-rolled products become hard and possess a very high tensile strength by the process of cold-rolling. The fact that a degree of hardness can be achieved will not dilute the applicability of the Chapter Note 4 because every degree of hardening o .....

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ketable. Admittedly, none of the parties sending the goods for job work to the appellant-assessee adopted the procedure of sending the goods for job work, as contemplated by Rule 57F of the Central Excise Rules, 1944 and, therefore, there can arise no question of the goods having been sent for job work under Rule 57F. It was not the case of any of these appellants that the goods were sent in accordance with the provisions of Rule 57F of the said Rules. 12. The other question raised in the appeal .....

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n the aforesaid process as according to it, this process did not amount to manufacture and no excise duty was paid. It is only on the basis of intelligence report that assessee was evading central excise duty that the matter came to the notice of the Revenue which led to the exercise of issuing of notice. It so happened that on the basis of intelligence, the Officers of Central Excise Department visited and searched the said factory premises on 25.03.1999 in the presence of two independent panch .....

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20 gauge) of hot-rolled SS patta, received from various parties on two cold-rolling installed in the factory from November, 1995 to March, 1997; (b) That hot-rolled SS pattas after annealing and picking process were received from various units in his factory and after reducing the gauge from (15 to 20 gauge) in his factory, the same was sent back to senders on job charges of ₹ 1.50 per KG for the said process; (c) That they closed the said two rolling mills in April, 1977 and sold out the .....

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er bona fide belief that excise duty was not payable and that it was not permissible for the Department to avail the larger period of limitation by invoking proviso to Section 11A of the Act. All the Authorities below have rejected this argument of the assessee. The Tribunal while upholding the view of the Commissioner agreed with the reasons given by the Commissioner in the following manner: The Commissioner has also for valid reasons held that the extended period of limitation was applicable a .....

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