2004 (2) TMI 387 - SC - Central Excise

Product not taxable under Item No. 35 where laminating/metallising lacquer on pre-purchased film not considered manufacture

The SC allowed the appeals, holding the product does not fall under Item No. 35 because it was not produced out of goods under Headings 39.01-39.15; ... Classification of goods - List showing the item as falling under Tariff item 3920.36 and 3920.38 - exemption under Notification No. 53/88-C.E - Whether the product manufactured by the Appellants falls under Item 35 or Item 32.3 one would have to look at the Circular - HELD THAT:- For the product to fall under Item No. 35, the product must be a “film” which has been produced out of the goods falling under Heading 39.01 to 39.15. The Appellants purchase “film” on which duty has been paid and thereafter laminate or metallise that film. Thus, presuming that a process of manufacture is undertaken, the product which the Appellants produce is not produced out of any goods falling under Item No. 39.01 to 39.15. Therefore, in our view, the Assistant Collector and the Tribunal were right in concluding that the Appellants’ product could not fall under Item No. 35. Undoubtedly, the Appellants had filed the Classification List. But merely because a party mistakenly files a Classification List does not mean that he has to pay duty, if in law, he is not bound to pay duty. If there is no manufacture then the mere fact that a Classification List has been filed would not make them liable to pay duty. Once this contention was taken, it had to be dealt with by the Assistant Collector. It is settled law that if the Revenue claims that there is manufacture, then the burden of proving the fact is entirely on the Revenue. In this case even though the point was specifically taken, the Assistant Collector skirts the issue and does not decide the same. Thus, there is no evidence on record that manufacture has taken place. No distinction between ordinary film and film which is lacquered or metallised or laminated of course the sub-headings 3920.31 to 3920.38 classify as “Rigid plain, Flexible plain, Rigid lacquered, Flexible lacquered etc.” Note 12 only sets out what is “Flexible”. But we are not concerned with any dispute as to whether the Appellants’ product is Rigid or Flexible. It is an accepted position that the Appellants’ products are “Flexible lacquered film” and/or “Flexible metallised film”. Thus, we set aside the order of the Tribunal and hold that no process of manufacture has taken place and therefore the Appellants are not liable to pay any duty on the product. Accordingly, the Appeals are allowed. Issues Involved1. Classification of goods under the correct Tariff Item.2. Determination of whether the process of metallising/lacquering/laminating films constitutes 'manufacture' under excise law.3. Entitlement to exemption under Notification No. 53/88-C.E.4. Burden of proof regarding the occurrence of manufacture.Detailed Analysis1. Classification of GoodsThe Appellants filed a Classification List showing the item as falling under Tariff items 3920.36 and 3920.38, claiming the benefit of Notification No. 53/88-C.E. The Show Cause Notices issued contended that the goods did not fall under Item 35 but under Item 32.3 of the Notification. The Assistant Collector and the Tribunal concluded that the product fell under Item 32.3, not Item 35, as the product was not produced from goods falling under Heading 39.01 to 39.15. The Tribunal's decision was based on the interpretation of the Circular and the classification of the product as distinct items under different sub-headings.2. Process of Metallising/Lacquering/Laminating as 'Manufacture'The Appellants argued that merely metallising/lacquering/laminating films did not constitute manufacture. The Assistant Collector avoided addressing this contention, while the Tribunal held that the process did amount to manufacture, citing that the tariff recognized the items as distinct and classifiable under different sub-headings. However, the Supreme Court found this conclusion unsustainable, relying on previous judgments such as Garware Plastics & Polyester Ltd. v. Union of India and Rexor India Ltd. v. Collector of C. Ex., which held that such processes do not amount to manufacture as no new distinct commercial commodity emerges.3. Entitlement to Exemption under Notification No. 53/88-C.E.For the product to fall under Item No. 35 and thus be eligible for exemption, it must be a 'film' produced from goods falling under Heading 39.01 to 39.15. The Appellants' product, being a film that undergoes metallisation or lamination, did not meet this criterion. Therefore, the Appellants were not entitled to the exemption under Item No. 35 but were correctly classified under Item 32.3.4. Burden of Proof Regarding ManufactureThe Supreme Court reiterated that the burden of proving manufacture lies with the Revenue. In this case, the Assistant Collector failed to address the Appellants' contention that no manufacture occurred. The Supreme Court emphasized that merely filing a Classification List does not obligate payment of duty if no manufacture has taken place. The Tribunal erred in placing the burden on the Appellants to prove the absence of manufacture. The Supreme Court held that the process undertaken by the Appellants did not result in a new distinct product, thus no manufacture occurred.ConclusionThe Supreme Court set aside the Tribunal's order, holding that no process of manufacture had taken place and the Appellants were not liable to pay any duty on the product. The appeals were allowed without any order as to costs. However, the Court clarified that the Appellants, having initially proceeded on the mistaken footing that there was manufacture, would not be entitled to claim any refund based on this judgment.