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TMI Blog2023 (12) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Drill Rods/Pipes' falling under chapter sub-heading 73042200 of CETA, but were not paying the Central Excise duties leviable on the said product. Accordingly investigation was initiated against the Appellants. It appeared from the evidences collected during the investigation that Drill rods and Drill Pipes are the term used interchangeably for the same commodity in the common parlance of trade; that 'Drill Rods/Drill Pipes' are used for the purpose of drilling by way of fitting it to the various Drilling machineries and drill bits. The said product known to the market having specific character and technical use; the products had specific demand in the market. The products were manufactured by a series of processes performed on the various raw material viz. Round Bars and Seamless Steel Tube/ Pipes. The process performed by the Appellant to make 'Drill Rods/Drill Pipes were incidental and ancillary to completion of a manufactured product having distinct name, character and use and hence appeared as amounting to 'manufacture' within the ambit of definition as provided under Section 2(f) of the Central Excise Act, 1944. The Products 'Drill Pipes' were the goods specified at chapter s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, but mere marketability or sale ability of product is not enough for fastening Central Excise Duty liability inasmuch as the process undertaken must first amount to manufacture and only then central excise duty could be recovered by the revenue. He placed reliance on the following decisions: * Collector Vs. Technoweld Industries 2003 (155) ELT 209 * (ii)Indian Aluminium Company Ltd. - 1995 (77) ELT 268 (SC) 2.2 He further submits that the fact that Range, Divisional and audit officers have accepted for a long time that the processes undertaken by the appellant company had not been manufacturing excisable goods in the nature of drill pipes/rods/tube is established on record of this case, and therefore the order of the Commissioner taking a different view in the present matter is wholly illegal and without jurisdiction. The Commissioner's order holding that the appellant company had manufactured drill pipes/ rods/tube and that the process undertaken by the appellant company on seamless pipes/tubes of steel amount to manufacture is therefore ex-facie illegal and liable to be set aside. 2.3. He also submits that finding recorded by the Learned Commissioner in impugned order sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 042390 covers casing and tubing, and not drill pipes. The confirmation of demand under a tariff classification not having different products like casing and tubing is also a clear error of jurisdiction, and the impugned order fastening liabilities on the appellant company under an apparently inapplicable classification is incorrect and without jurisdiction. 2.6. He also submits that the Commissioner has committed a further grave error in holding that seamless pipes received by the appellant company were converted into drill pipes and that these were two different products though Note No.1 (p) of Chapter 72 of the Tariff makes it very clear that any hollow drill bars and rods suitable for drills were to be classified in Heading No. 7304 and therefore the goods procured by the appellant company were drill pipes which remained pipes even after cutting/threading operations. In adjudication, the appellant has referred to this statutory note and also to purchase orders issued by the customer thereby establishing that it was an established trade practice of supplying drill rods by manufacturers of accessories after undertaking the above types of operations on seamless pipes/ tubes and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (93) ELT 509 (Tri.) * M/s Kanthal India Ltd. - 1999 (31) RLT 547 (Tri.) * M/s Kartar Steels Pvt. Ltd. - 1997 (93) ELT 443 (Tri.) 2.9. He further submits that the imposition of penalty on the appellant company as well as its director is also illegal and without any jurisdiction because there has not been any reason whatsoever for which even a taoken penalty could have been imposed on the appellants herein. While holding that there was no suppression of facts on part of the appellant company, the Commissioner has referred to various documents like audit reports, orders granting rebate, declarations in Annexure -24, verification reports of Range and Division Assistant Commissioner and also to the bonafide belief held by the appellants that the goods were not excisable. Shri Sanjay Jayantibhai Gandhi was working as a Director and had not dealt with any excisable goods in his capacity as a Director of the said Company. Under these circumstance Rule 26 of Central Excise Rule, 2002 does not attract against him. Hence penalty imposed on him under Rule 26 of the Rules deserve to be set aside in the interest of justice. 2.10. As regard the revenue appeal, he submits that the appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection earlier, the respondent would have paid duty on the finished goods and taken Cenvat credit on the central excise duty paid inputs and raw materials. Thus, the situation would be revenue neutral as the Cenvat Credit would have been admissible to the respondent itself. He placed reliance on the following judgments: * CCE -Ahmedabad-II Vs. Quippo Energy Pvt. Ltd. - 2023 (5) TMI 135 -CESTAT AHEMDABAD. * M/s Nabros Pharma Pvt. Ltd. Vs. CCE & ST -Ahmedabad -III- 2022 (9) TMI 272-CESTAT Ahmedabad. * M/s. John Energy Ltd. Vs. CCE & ST - Ahmedabad-III 2018 (11) TMI 1389 -CESTAT Ahmedabad. * M/s Jay Yusin Ltd. - 2000 (119) ELT 718 (T-LB) 3. Shri Rajesh Nathan, Learned Assistant Commissioner (AR) appearing on behalf of the Revenue, as regard the assesee's appeal are concerned reiterates the findings of the impugned order. 3.1. As regard the Revenue's appeal he submits that Learned Commissioner has erred in passing the impugned order to the extent of dropping demand of Rs. 2,82,95,429/- on limitation. 3.2. He further submits that reliance placed on various Audit reports conducted over period of time, is misplaced, in as much as, the audit carried out by the department was on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onafide belief on account of M/s Vulcan Lavals Ltd. decisions reported at 1985(22) ELT 123, that the processes carried out by them were not a process of 'manufacture' under Section 2(f) of the Act attracting levy of Central Excise Duty. The assessee is duty paying unit and have been paying central excise duty on "Connectors", and therefore being a Central Excise assessee for so long, they were very much aware that the Central Excise Tariff has undergone change in 1985, and also further amendments from time to time. Thus it cannot be held that the assessee were under bonafide belief on account of the decision in the case of M/s Vulcan Levals Ltd., Pune rendered in the context of earlier tariff classification. The adjudicating authority has also erred in holding that there is hardly any value addition in the process being carried out by them; and that the assessee could have taken CENVAT Credit on the raw materials, in which case, it would have been a revenue neutral situation. In order to record such findings by the adjudicating authority, efforts should have been made to identify the cost of manufacture, other over heads, and then to compare the same with transaction value at which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een very well described under Panchanam dated 15.04.2011. We find that the process of manufacturing of drill rods/ drill pipes from raw material stage to final product stage is that the Round Bars and Semaless pipe are their main raw materials. The Round Bar are used to manufacture connectors (Male and Female). The Round bar is cut into required size on the bandsaw machine before subjecting it to machining operations (on the lathe machine) that is, drilling to make solid round bars into hollow state, turning to make the outer diameter of appropriate size, threading and slotting. The product namely, Connector, is thus manufactured. In Drill Pipe Section, Seamless pipes of different diameters which are another major raw material for Drill Rods were stored. In the said section, on Lathe Machines the seamless pipes are cut into required size and then boring and beveling operations to make the pipe suitable for further welding with connectors are carried out at both the ends of the said pipes so that the connectors (Male and Female) can be fitted at both ends of the seamless pipes and thereafter are welded together. The welding of the connector with the seamless is carried out manually. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2(f) of the Central Excise Act, 1944. We also find the raw materials used for manufacture of 'Drill Pipes /Drill Rods are distinct product specified in the First Schedule to Central Excise Tariff Act, 1985. 4.4. As discussed above the process undertaken by the appellant satisfies the test 'manufacture' as above and consequently we conclude that the resultant products of the appellant are liable to payment of Excise duty. 4.5. As regard the demand of duty of Rs. 9,89,159/- confirmed by the Ld. Commissioner for Spindle Subs/Bits Subs/Connectors, we find that the same is confirmed on the ground that the said goods had been cleared by the appellant for home consumption on the commercial invoices were over and above of those mentioned in the ER-1 returns of the corresponding months and therefore no Central Excise duty has been paid on such goods. Whereas Appellant argued that goods for which this demand of duty is confirmed were duly accounted for in statutory records of the appellant company and appropriate duty was paid on these goods while their clearance from the factory, and such clearances were also recorded in ER-1 returns. Since the said facts cannot be verified at this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd clearances of the disputed goods i.e 'Drill Rods/Pipes'. Further, on perusal of the statements recorded by the investigating officers we find that the appellant was having full knowledge as to what is to meant by 'manufacture' but still they mis-stated that the processes under taken by them do not amount to manufacture. Further intention to evade payment of duty on disputed goods is further established by the revenue that Appellant not maintaining any 'Daily Stock Accounts as prescribed under Rule 10 of the Central Excise Rules 2002. 4.8. We also note that the appellants have not taken registration or filed any returns related to the disputed goods. From the show cause notice, it is clear that the DGCEI started investigation only due to a receipt of information that Appellant are manufacturing disputed goods but they are not paying duty. Keeping in view these facts, we are of the considered view that this is a case of fraud, mis-statement and there was suppression of facts with intent of evade payment of duty and extended period of limitation under proviso to Section 11A is invokable and, therefore, the demand raised for the five years is correct. We also note that the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the cardboard packages and are known differently in the commercial as well as common circles. That the appellant's products are cleansing products and deserved to be classified under Chapter 34 and the adjudicating authority has rightly classified them under Heading 3402.90. 15. As regards limitation, it was submitted on behalf of the Revenue that the letter dated 8th March, 1994 written by the appellant did not state the entire facts. The same was vague and lacking in particulars. In the letter, it was not disclosed by the appellant that the products were being marketed as "cleanser" and gave the impression as if they are only re-packing the raw material into smaller packs. It was not disclosed that a new name has been given to the products. That the appellant did not disclose the applicability and functions of the products. The correspondence between T. Paul & Sons and M/s. Philips India Ltd. clearly indicates that there was a doubt as to whether the products would invite the Central Excise duty. To overcome this, they obtained the opinion of an Advocate and the Advocate advised them that instead of solvent, the word 'thinner' should be printed on the carton to avoid the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstead of 'solvent' on the cartons." 4.9. The appellants have also pleaded that they had a bona fide belief that their goods are not chargeable to duty. We fail to understand this plea. Evidences on record clearly indicate that they were aware that the goods are chargeable to duty and their process is amount to manufacture. Statement recorded during the investigation indicates that they were fully aware about their duty liability and manufacture of the disputed goods. We also note that in somewhat similar situation in the case of Tamilnadu Petroproducts Ltd. v. CCE, Chennai reported in 2004 (176) E.L.T. 116, the Tribunal has observed as under : - "28. As regards the invocation of the proviso to Section 11A of the C.E. Act, 1944, I find that suppression of facts from the department is very clear from the evidence available on record as the appellants, to suit the requirement of their customers, and to derive the consequential benefit by them, cleared the goods under a different name, without bringing it to the notice of the department. The appellants have suppressed the fact is supported by evidence on record in the form a letter signed by Shri S. Karthikeyan of the appellants to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly changed the nomenclature of the goods and the tariff heading thereto, is established by the above correspondence exchanged between the Senior Officers of the appellants Company. Therefore, mens rea on their part is established by evidence on record. In the background of the evidence as discussed above, the charge against the appellants that they have suppressed the fact from the department is brought home by evidence on record. Therefore, the proviso to Section 11A has been correctly invoked. So far as penalty under Section 11AC is concerned, I find that the Commissioner has taken into consideration the date of introduction of the provisions of Section 11AC and has proportionately imposed the mandatory penalty and it cannot be considered to be excessive warranting any reduction and I confirm the same in entirety. I also uphold the order of the lower authority in regard to demand of interest. 39. Ld. counsel now refers to the department's allegation that the appellants had suppressed material facts rendering themselves liable to penalty under Section 11AC of the Central Excise Act. He submits that, as far back as on 8-2-1996, the appellants had filed a fresh classification list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es at which the so called "wastes" had emerged. In the present case, the department had alleged mis-declaration of polyester chips as wastes. According to the assessee, chips, which spilled over during bagging were unusable and, therefore, "waste". However, no such details have been mentioned in the classification list particularly when it urged that "wastes" had emerged at different stages of production. In the circumstances, we are not inclined to interfere with the impugned judgment of the Tribunal." 4.10. Now coming to the penalty imposed under Rule 26 of CER, 2002 on Shri Sanjay Jayantilal Gandhi, Director (Commercial), we find that revenue disputed that earlier adjudication order passed vide OIO dated 31.01.2013, the authority had imposed a personal penalty of Rs. 50 Lacs. However in the present OIO the penalty stands reduced to Rs. 5 Lacs. Appellant also disputed that penalty of Rs. 5 Lacs not imposable. We find that the penalty imposed by the Learned Commissioner in impugned order is proper. Penalties are very much on the lower side and are not incommensurate with the acts and omissions of person concerned. The finding given by the Learned Commissioner clearly held that Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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