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TMI Blog2024 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... c demand from the buyer after the said process, the product is then coated. After all these process, the final product is manufactured. After receiving said lumps, the principal manufacturer used to send the same for crushing to the appellant (job worker). After crushing of lumps, the appellant return it back the goods to the principal and at the factory of principal manufacturer, the crushed lumps are then further grinded by the principal manufacturer and sometime after doing the same coating with Stearic Acid, Titanium Dioxide, the final product is cleared under Chapter 38 of Central Excise Tariff Act. In some cases uncoated final product is cleared by the principal manufacturer under Chapter 25 of the Central Excise Tariff. The goods cleared under Chapter 38 attract duty of the Central Excise at the prescribed rates whereas the goods cleared under Chapter 25 attracts nil rate of duty. The case of the department is that the activity of crushing of lumps by the job worker is liable to service tax as in the case of clearance of goods by the Principal manufacturer under Chapter 25 at nil rate of duty, the appellant being a job worker are not entitled for the exemption notification n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd perused the records. 5. We find that the only issue to be decided in the present case is that whether the activity of crushing of lumps is the activity which amounts to manufacture in terms of Section 2(f) of Central Excise Act, 1944. Section 2(f) is reproduced below. "Section 2(f) of the Central Excise Tariff Act, 1985 has been substituted by Section 4 of the Act, which reads as under : (f) "manufacture" includes any process : (i) incidental or ancillary to the completion of manufactured product; (ii) which is specified in relation to any goods in the section or chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; and the word "manufacture" shall be construed accordingly and shall includes not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account." As per the above Section 2(f) from the sub-clause (ii) of Section 2(f), it is clear that in relation to any goods in the section or Chapter notes if the activity is specified as amounting to manufacture is resultant goods will qualify as manufactured goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wdered spice is put to that prompted the establishment of an entire industry. Furthermore, without such processing there would be an unsatiated demand for powdered spice which would have to be undertaken, with additional labour, in domestic kitchens. Every aspect of 'manufacture', as settled by judicial determination, is, thus, complied with. The applicability of the decision in Jayakrishna Flour Mills (P) Ltd. to the impugned products is beyond question. 30. In view of the above, we conclude that 'manufacturing' as held by the dispute that is wanting in the decision in Sara Spices which resolved an entirely different dispute. We also conclude that the test for 'manufacture', as laid down in Delhi Cloth and General Mills Ltd and other decisions that enlarged upon it, complied with in the conversion of 'wheat' to 'wheat products', is, unqualifiedly, existent in the conversion of 'spice' to 'spice powders' in the present dispute 3. The department had raised demand in both the appeals on the ground that the activity of conversion of the spices into powder would not amount to manufacture and the demand was confirmed by the Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Notes of the Schedule to the Central Excise Tariff Act, 1985. If any process is specified in the section or Chapter Note to be a manufacture then under the definition it shall be a `manufacture", otherwise not. By artificial definition of the word `manufacture" the Legislature have retained the power to equate any process with `manufacture" by providing accordingly in the section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985. Chapter Note 2 of Chapter 25 does not equate the process of crushing as amounting to manufacture but merely enumerated the forms of products falling under the Headings Nos. 25.01, 25.03 and 25.05 in which they can be taxed. The intention of the Legislature is clearly not to equate the process of crushing as amounting to manufacture. 10. The intention of the Legislature can be further seen on a comparison of Chapter Note 2 of Chapter 25, Chapter Note 2 of Chapter 9, Chapter Note 3 of Chapter 2, Chapter Note 2 of Chapter 26, Chapter Note 6 of Chapter 2 Chapter Note 4 of Chapter 33, Chapter Note 6 of Chapter 2 and Chapter Note 2 of Chapter 83. Chapter Note 2 of Chapter 25 does not provide that the process of crushing referred to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases lime stone in lump form or excavates it from their mines and then crushes it by putting it in crusher machine to obtain the desired sizes of lime stone chips, as per the requirement of the buyer by screening. He has further stated that the company had purchased lime stone in lump form from M/s. R.S. Minerals, Maihar and M/s. Diwan Lime Co. Pvt. Ltd., Maihar. According to him, prior to 1-4-1989 the company had no crusher, so they used to get the lime stone crushed into particular size by supplying lime to Subash Stone Crusher, Maihar; Rakesh Stone Crusher, Katni, Vijay Stone Crusher, Maihar and MaaSharda Stone Crusher, Baraiya and thereafter by their own crusher at Reusa. Apart from their own crusher, they are getting the lime stone crushed from M/s. Subash Stone Crusher. They were selling crushed lime stone of particular size to Durgapur Steel Plant only. It is further stated that he did not know that the crushing of lime stone falls under Heading 25.05 and attracts excise duty at 12 per cent. 13. The statement of the Law Officer of the petitioner No. 1 company clearly establishes that lime stone crushed by processing through crusher to a particular size, as per the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Excise duty. The manufacturer is liable to pay penalty on account of certain acts or omissions committed by them. Under Rule 173Q of the Central Excise Rules, 1944, a maximum limit of penalty which could be levied is provided and, therefore, the penalty could not be wholly disproportionate to the incidence of infringement. In Hindustan Steel Ltd. v. State of Orissa [1978 (2) E.L.T. (J 159) (SC) = AIR 1970 SC 253) it has been held that : "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay excise duty, as they were not engaged in the `manufacture" of lime stone chips. Conversion of lime stone lumps into lime stone chips was never taken to be a `manufacturing" process by the petitioners. 18. The proceeding for imposition of penalty being quasi-criminal in nature, the burden to prove the alleged offence is on the excise department. No facts or circumstances are brought about by the department nor are considered by the 2nd respondent to show deliberate avoidance of payment of duty. There is nothing in the Excise Act or the Rules framed thereunder that the authority is bound to impose penalty, the moment there is default in payment of duty. The petitioners were under a bonda fide belief that they are not liable to pay excise duty on the lime stone chips. The Collector Central Excise, while passing orders (Annexures M & N) imposing penalty has not at all taken into consideration this aspect of the case. Therefore, we are of the opinion, that as the petitioners were under a bona fide belief about their liability to pay excise duty, the Collector, Central Excise has acted rather harshly in imposing penalty of Rs. 5,00,000/- and Rs. 50,000/- under Annexures M & N. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Empire Industries Ltd. reported in 1985 (20) E.L.T. 179, the Tribunal has held that the name, character and use of soap stone lumps and soap stone powder are not the same, they are two distinct products and therefore their conversion into powder amounts to manufacture as envisaged in Section 2(f) of the Central Excises and Salt Act, Paras 6 and 7 of the said decision being relevant are reproduced below : * * * * * We have held that the Diaspore and Prophylite in the form of lumps as obtained from mines are materials which are different in character and use from the powder or smaller sized lumps which are produced by crushing or grinding of the mined lumps of Diaspore and Prophylite. For these reasons, on the ratio of the Tribunal"s decision in the case of Associated Soap Stone Distributing Co. (P) Ltd. v. Collector of Central Excise, Indore (supra) we hold that crushing or grinding of mined lumps of minerals Diaspore and Prophylite into powder or smaller lumps according to the specifications of the consumers amounts to manufacture in terms of Section 2(f) of the Central Excises and Salt Act. 8. In support of their contentions the appellants have relied upon the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os fibre) and though the appellants also mentioned the cases of retreating of worn out tyres and processing of pineapples into canned slices which processes were held to be not amounting to manufacture, we observe that nothing really turns on these rival authorities. The same process may result in a new and different product in the case of one commodity but not so in the case of another commodity. The case of each commodity, therefore, stands on its own individual circumstances. "Whatever may be the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes such a process which will be part of "manufacture". Any process or processes creating something else having a distinctive name, character and use would be manufacture" [1985 (20) E.L.T. 179 S.C. - in the case of M/s. Empire Industries Ltd. supra]. 7. Applying the well-known test laid down by the Supreme Court as reiterated above, we observe that soap stone powder was different in appearance as compared to soap stone lumps. The Collector, who examined the samples of both, has observed that while the lumps were having a yellowish colour, the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the Assistant Collector in the order-in-original on the basis of submissions made by the appellants. So long as the new product which has emerged after several processes which finds a market and is marketable and is also traded having a different name, character and use from the original product, the manufacturing activities are complete and the product has to be considered as "goods". This is a well laid down principle and settled law from the rulings given by the Hon"ble Supreme Court. Therefore, the contention of the appellants that there is no process of manufacture in this case is not tenable. As observed earlier in the ruling cited by the advocate, the concept of manufacture was considered keeping with the new goods that emerged after several processes the product had undergone. 10. The Assistant Collector has rejected the appellants" claim for classification under Chapter Heading 23.02 which deals with preparations of a kind used in the animal feed including dog and cat feed. The reasoning given by the Assistant Collector for rejecting this heading is not seriously challenged and I find that there is no ground to interfere with the said findings. However, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on merits that the crushing of stones into small stones of size would constitute manufacture. Even while holding so we are of the view that the longer period of limitation would not be applicable as the issue cannot be said to have been free from doubt. The appellants would be entitled to the benefit of doubt. The above judgment was upheld by the Hon'ble Supreme Court reported at 1999 (106) ELT A67 (SC). 5. In view of above judgments, it is settled that crushing of lumps/stones into powder amounts to manufacturing activity in terms of Section 2(f) of Central Excise Act, 1944. In the present case, the Revenue has demanded Service Tax under business Auxiliary Service, the definition of the same under Section 65(19) of the Finance Act is reproduced below : "(19) "business auxiliary service" means any service in relation to,- (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation.-For the removal of doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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