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 under tariff sub headings - process of manufacture - new and distinct product - burden of proof on the Revenue to establish manufacture - excise liability dependent on existence of manufacture - interpretation of tariff entries and applicability of Notification No. 53/88 C.E.Classification under tariff sub headings - interpretation of tariff entries and applicability of Notification No. 53/88 C.E. - Whether the Appellants' laminated/metallised film could be classified under Item No. 35 of Notification No. 53/88 C.E. - HELD THAT: - Item No. 35 applies only where the product is a 'film' produced out of goods falling under Heading Nos. 39.01 to 39.15. The Appellants purchased duty paid film and thereafter laminated or metallised that film; the resultant product was not produced out of goods falling under Heading 39.01 to 39.15. Therefore the product could not be brought within Item No. 35 of the Notification and correctly did not attract the concession available under that item. [Paras 8]The Appellants' product does not fall under Item No. 35 of the Notification.Process of manufacture - new and distinct product - burden of proof on the Revenue to establish manufacture - excise liability dependent on existence of manufacture - Whether the Appellants' operations of laminating/metallising the duty paid film constituted a process of manufacture attracting excise duty. - HELD THAT: - The Court examined whether the operations produced a new and distinct commercial commodity. Precedent and the facts show the product remained a 'film' before and after lamination/metallisation and did not acquire a distinct identity. The Appellants had specifically pleaded that there was no manufacture; once this contention was taken, the Revenue bore the burden to prove manufacture by cogent evidence. The Assistant Collector failed to decide the contention and the Tribunal wrongly shifted the burden to the Appellants. On the material before the Court, and in light of established decisions cited, the processes in question do not result in manufacture. [Paras 12, 13, 15, 17, 19]No process of manufacture has taken place; therefore no excise duty is leviable on the product.Classification under tariff sub headings - interpretation of tariff entries and applicability of Notification No. 53/88 C.E. - Whether the matter should be remitted for fresh consideration of manufacture or process in terms of Note 12 to Chapter 39. - HELD THAT: - The Court considered the submission for remand to examine the manufacturing process against Note 12 and the tariff sub headings. It observed that the legal burden to prove manufacture rests on the Department and that the Appellants had taken a pleaded stand of no manufacture. Given absence of cogent evidence from the Department and settled law, remand was not warranted. [Paras 16, 17, 18, 19]Remand refused; no fresh consideration ordered as the Department failed to discharge its burden to prove manufacture.Excise liability dependent on existence of manufacture - Whether the Appellants are entitled to a refund notwithstanding the Court's finding of no manufacture. - HELD THAT: - Although the Court holds there was no manufacture and hence no duty leviable, it noted that the Appellants had proceeded initially on the admitted (but mistaken) footing that manufacture existed. In view of that admitted stance, the Court declined to permit refund claims arising from this judgment. [Paras 21]The Appellants are not entitled to claim any refund on the basis of this judgment.Final Conclusion: The Tribunal's order is set aside; the Court holds that the Appellants' lamination/metallisation of duty paid film does not amount to manufacture and no excise duty is leviable for the periods under consideration. Appeals are allowed, with no order as to costs, but the Appellants cannot claim refunds because they had proceeded on the mistaken footing of manufacture. 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.