Cold rolling as manufacture under Chapter 72 sustained excise duty, penalties and extended limitation, with confiscation set aside.

Cold rolling of hot rolled stainless steel pattas/pattis by reduction of gauge was treated as manufacture under Chapter Note 4 of Chapter 72 because it caused strain hardening, reduced thickness, changed mechanical properties and produced a distinct excisable product. On that basis, duty and interest were sustained, and penalties also followed where the goods moved without central excise invoices and the sender units were aware of their excisable character; extended limitation was applied. The majority, however, did not uphold confiscation of land, building and machinery, considering that relief excessive. A dissenting view stated that thickness reduction alone, without proof of hardening or tempering at the premises, would not amount to manufacture.

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Issues: (i) Whether the cold rolling of hot rolled stainless steel pattas/pattis by reduction of gauge amounted to manufacture under Chapter Note 4 of Chapter 72 of the Central Excise Tariff Act, 1985. (ii) Whether the demand of duty, interest and penalties, including the penalties on the sender units under Rule 209A of the Central Excise Rules, 1944, were sustainable, and whether the confiscation of land, building and machinery could be upheld.

Issue (i): Whether the cold rolling of hot rolled stainless steel pattas/pattis by reduction of gauge amounted to manufacture under Chapter Note 4 of Chapter 72 of the Central Excise Tariff Act, 1985.

Analysis: Chapter Note 4 provides that, in relation to flat rolled products of Chapter 72, hardening or tempering amounts to manufacture. The majority held that cold rolling of hot rolled pattas/pattis results in strain hardening, reduced thickness, altered mechanical properties, distinct marketability, and a product falling under a separate tariff heading. Relying on the HSN explanatory notes and prior tribunal precedent, it was concluded that cold rolling is not a mere size reduction but a manufacturing process that brings into existence a different excisable product.

Conclusion: Yes. The process amounted to manufacture, and the cold rolled pattas/pattis were excisable.

Issue (ii): Whether the demand of duty, interest and penalties, including the penalties on the sender units under Rule 209A of the Central Excise Rules, 1944, were sustainable, and whether the confiscation of land, building and machinery could be upheld.

Analysis: Since manufacture was held to have occurred, the duty and interest demand followed. The majority further held that the assessee and the sender units were aware of the excisable nature of the process, that the goods moved without central excise invoices, and that the extended period of limitation and penalties were attracted. The penalties on the sender units were sustained because they dealt with goods they knew or had reason to believe were liable to confiscation. However, confiscation of the land, building and machinery was treated as excessive and was not maintained.

Conclusion: Yes, the duty, interest and penalties were sustained, but confiscation of land, building and machinery was not upheld.

Final Conclusion: The majority upheld the excise demand, interest and penalties while granting relief only against confiscation of the immovable and movable assets of the assessee.

Ratio Decidendi: For flat rolled products under Chapter 72, cold rolling that produces work hardening and a distinct excisable product falls within the deeming fiction of manufacture under Chapter Note 4, and where such goods move without duty-paid invoices with knowledge of excisability, extended limitation and penalties may be sustained.

Dissenting Opinion: The Judicial Member held that mere reduction of thickness by cold rolling, without proof of hardening or tempering at the assessee's premises, did not amount to manufacture; the demand and penalties were therefore not sustainable, though this view did not prevail in the final outcome.

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