Manufacture, valuation notice mismatch and clandestine clearance evidence shaped the pre-deposit ruling in the excise dispute.

Retrospective validation under the Finance Act, 2009 was applied to reject the challenge to the Additional Director General's jurisdiction, and Development Commissioner concurrence was held unnecessary for alleged clandestine removals and undervaluation. Cutting and polishing marble and granite blocks into polished slabs and tiles was treated as manufacture, following the later Supreme Court view that a new commodity emerges. The valuation demand was found prima facie vulnerable because the adjudicating authority adopted a basis different from that proposed in the notice, raising natural justice concerns. However, recovered records, calculations, signatures and statements were treated as prima facie evidence of clandestine clearances, supporting a substantial pre-deposit and only partial interim relief.

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Issues: (i) Whether the show cause notice issued by the Additional Director General, Central Excise Intelligence was without jurisdiction and whether prior concurrence of the Development Commissioner was necessary; (ii) whether cutting and polishing of marble and granite into slabs and tiles amounted to manufacture; (iii) whether the valuation adopted in the impugned order could be sustained when the notice proposed a different valuation basis; and (iv) whether the material recovered disclosed a prima facie case of clandestine clearances and undervaluation warranting pre-deposit.

Issue (i): Whether the show cause notice issued by the Additional Director General, Central Excise Intelligence was without jurisdiction and whether prior concurrence of the Development Commissioner was necessary.

Analysis: The jurisdiction objection was negatived by reference to the validating notification and the retrospective validation under the Finance Act, 2009. The requirement of concurrence from the Development Commissioner was held to apply to matters relating to EOU compliance with export obligations and similar statutory monitoring, not to clandestine removals or undervaluation of finished goods cleared to DTA. The proceedings were treated as customs/excise adjudication of duty evasion and not as a case requiring prior clearance from the Development Commissioner.

Conclusion: The objection to jurisdiction and the plea based on absence of Development Commissioner concurrence were rejected.

Issue (ii): Whether cutting and polishing of marble and granite into slabs and tiles amounted to manufacture.

Analysis: The earlier view in Aman Marble Industries was distinguished because that case dealt with cutting marble blocks into slabs alone. The later Supreme Court ruling in Arihant Tiles and Marbles was applied to hold that converting blocks into polished slabs and tiles brings into existence a new commodity exigible to duty.

Conclusion: The activity was held to amount to manufacture, and the assessee's challenge failed.

Issue (iii): Whether the valuation adopted in the impugned order could be sustained when the notice proposed a different valuation basis.

Analysis: The notice proceeded on one valuation route, but the adjudicating authority adopted a different method by relying on domestic sale price through a related entity and Rule 8 of the valuation rules. The method ultimately used was held to be materially different from what was put to notice. The demand on that footing was found to have been raised without adequate notice, amounting to violation of natural justice.

Conclusion: The valuation-based demand was held, prima facie, not sustainable in law.

Issue (iv): Whether the material recovered disclosed a prima facie case of clandestine clearances and undervaluation warranting pre-deposit.

Analysis: The recovered records, contemporaneous calculations, signatures of the General Manager, and unwithdrawn statements were treated as reliable prima facie evidence of unaccounted removals. The absence of raw material or power-consumption evidence was not treated as fatal in the facts of the case. On that basis, the demand relating to clandestine clearances was considered prima facie sustainable, while the dispute on valuation remained open for final hearing.

Conclusion: A prima facie case was found for partial demand, justifying a substantial pre-deposit.

Final Conclusion: The appeal was not finally decided on merits at this stage, but interim relief was granted only in part by directing a reduced pre-deposit and waiving the balance pending final disposal.

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