2001 (5) TMI 662 - AT - Central Excise

Tribunal ruling: Cutting foil not manufacturing, but making 'chapati wrap' is. Duty demand upheld.

The Tribunal held that the activity of cutting jumbo rolls of aluminum foil into smaller lengths and repacking did not amount to manufacture under Section ... Manufacture - Demand - Limitation - Penalty Issues Involved:1. Whether the activity of cutting jumbo rolls of aluminium foil into smaller lengths and repacking amounts to manufacture under Section 2(f) of the Central Excise Act.2. Whether the activity of placing an interleaf of paper between pieces of aluminium foil to make 'chapati wrap' amounts to manufacture under Section 2(f) of the Central Excise Act.3. Whether the demand of Central Excise duty raised in the Show Cause Notice (SCN) dated 12-7-1999 is barred by limitation.Issue-wise Detailed Analysis:1. Activity of Cutting Jumbo Rolls of Aluminium Foil:The primary issue was whether the activity of cutting jumbo rolls of aluminium foil into smaller lengths and repacking them amounted to manufacture under Section 2(f) of the Central Excise Act. The appellants argued that their activity did not amount to manufacture as it did not change the character or use of the commodity. They cited various judgments and trade notices to support their bona fide belief that their activity was not manufacturing. The Tribunal referred to its decision in the case of S.R. Tissues Pvt. Ltd. v. CCE, New Delhi, where a similar activity was held not to amount to manufacture. The Tribunal concluded that the mere cutting of jumbo rolls into smaller lengths did not bring about any change in nomenclature or characteristics, and thus, the activity did not amount to manufacture under Section 2(f) of the Central Excise Act.2. Activity of Making 'Chapati Wrap':The second issue was whether the activity of placing an interleaf of paper between pieces of aluminium foil to make 'chapati wrap' amounted to manufacture. The Tribunal found that unlike aluminium home foils, a chapati wrap is a product made out of two different inputs, namely aluminium foil and paper, and had a distinct commercial identity. The product was known in the market as chapati wrap and not as aluminium foil. The Tribunal held that the activity resulted in a product with a different name, character, and use, thus passing the two-fold test laid down by the Supreme Court in J.G. Glass Industries. Therefore, it was held that the activity amounted to manufacture under Section 2(f) of the Central Excise Act, making chapati wrap an excisable commodity.3. Limitation on Demand of Central Excise Duty:The third issue was whether the demand of Central Excise duty raised in the SCN dated 12-7-1999 was barred by limitation. The appellants argued that they were under a bona fide belief that their activities did not amount to manufacture and hence were not excisable. They cited various trade notices and judicial decisions to support their claim. However, the Tribunal found that the appellants did not disclose their activity of making chapati wrap to the department and were engaged in the manufacture and clearance of chapati wrap without Central Excise registration and payment of duty. The Tribunal upheld the Commissioner's finding of suppression with intent to evade duty and held that the extended period of limitation was rightly invoked for demanding duty on chapati wrap. The Tribunal remanded the classification part of the dispute relating to chapati wrap back to the adjudicating authority for fresh reasoned decision and re-quantification of duty demand.Conclusion:The Tribunal set aside the impugned orders and allowed the appeals partly on merit and partly by remand. The adjudicating authority was directed to decide the classification afresh, re-quantify the demand of duty, and decide afresh on the confiscability of the seized goods and the penal and interest liability of the manufacturer. The penalties imposed under Section 11AC and Rule 209A were also set aside due to the lack of findings to support the imposition of such penalties.