2002 (8) TMI 542 - AT - Central Excise

Tribunal: Paper conversion not manufacturing. Limitation period invoked. Duty demand outside jurisdiction not upheld.

The Tribunal held that the conversion of paper reels into reams does not amount to manufacturing activity. It ruled that the cost of slitting reel form ... Valuation - Processing cost - Captive consumption Issues Involved:1. Whether the activity of cutting jumbo reels into reams amounts to manufacture.2. Whether the Department can demand differential duty on an activity not amounting to manufacture carried out by third-party converters outside the factory.3. Whether the Department can invoke the larger period of limitation under Section 11A.4. Whether duty can be demanded on activities carried out outside the jurisdiction of the Commissioner of Central Excise, Vishakapamam.5. Whether Section 11D was violated under the facts and circumstances.Issue-wise Detailed Analysis:1. Manufacturing Activity:The appellants argued that the conversion of paper reels into reams does not amount to manufacture. They cited several case laws, including CCE v. Popular Cotton Covering Works and CCE v. Bloom Products India Pvt. Ltd., which supported the view that such conversion does not constitute a manufacturing activity. The Tribunal agreed, stating, 'No manufacturing activity exigible could be considered as to take place when jumbo rolls are slit.'2. Differential Duty on Non-Manufacturing Activity:The appellants contended that duty should be paid on the goods in the form they leave the factory, and the cost of conversion outside the factory should not be included in the assessable value. They relied on case laws such as Century Pulp & Paper v. CCE, Meerut, which emphasized that the assessable value should be determined based on the goods as they are removed from the factory. The Tribunal found that the cost of slitting reel form into ream form cannot be added to the assessable value even if the depot premises are considered 'not outside' the factory.3. Larger Period of Limitation:The appellants argued that the larger period of limitation under Section 11A could not be invoked as the Department was aware of the slitting activity since 1991. They provided evidence of correspondence and permissions granted by the Department. The Tribunal noted that while the Department was aware of the slitting activity, there was a 'conspicuous silence as regards the collection of amounts over and above the value at which duty was paid at the factory gate,' which justified the invocation of the larger period in one notice.4. Duty on Activities Outside Jurisdiction:The appellants argued that duty cannot be demanded on activities carried out outside the jurisdiction of the Commissioner of Central Excise, Vishakapamam. The Tribunal found that the demand was not on activities but on the additional value realized, and therefore, this issue did not hold.5. Violation of Section 11D:The Tribunal did not find any specific arguments or evidence regarding the violation of Section 11D and left this issue open for de novo proceedings.Conclusion:The Tribunal concluded that the cost of slitting activity could not be added to the assessable value. They remanded the matter back for re-determining the values with specific instructions:- For the period prior to the amendment, prices of similar goods sold to other buyers at the factory gate should be applied for reels removed for slitting at depots.- For the period subsequent to the amendment, and when comparable prices are not available, valuation should be done by applying Rule 6b(ii) of the Valuation Rules.The Tribunal left the question of limitation and the imposition of penalties open for both sides in the de novo proceedings. The appeals were disposed of in these terms for de novo adjudication.