2015 (12) TMI 743 - SC - Central Excise

Supreme Court affirms cold-rolling as 'manufacture' under Central Excise Act, upholds extended limitation period. Appeals dismissed.

M/s. Gujarat Industries & Others Versus Commissioner of Central Excise-I, Ahmedabad

The Supreme Court affirmed the Tribunal's decision that the process of cold-rolling constitutes 'manufacture' under Section 2(f) of the Central Excise ... Manufacture - marketability - process of cold-rolling of stainless steel patta/pattis - whether cold-rolled pattas are distinct marketable commodities - Invocation of extended period of limitation - Held that:- A categorical finding was given by the Adjudicating Authority that goods are of different use and have a distinct identity of their own in the market which was sufficient to hold that the new commodity has come into existence as for a product to be marketable it is not necessary that the products should be actually marketed but they should be capable of marketing since cold reducing is being independently by multiple number of units either on job work basis or for use in their other factories it is certainly capable of being marketed. - Held as manufacturing activity. Extended period of limitation - Officers in the panchnama observed that the two housing of cold-rolling mills fitted with debapti and gearbox were found installed and other parts were not found in the said rolling mills. - it is difficult to accept that the assessee was under bona fide belief that excise duty was not payable and that it was not permissible for the Department to avail the larger period of limitation by invoking proviso to Section 11A of the Act. - impugned notice is not time barred - Decided against Assessee. Issues Involved:1. Whether the process of cold-rolling amounts to 'manufacture' within the meaning of Section 2(f)(i) of the Central Excise Act, 1944.2. Whether the CESTAT was correct in holding that the process of cold-rolling amounts to manufacture in view of Chapter Note 4 of Chapter 72 of the Central Excise Tariff Act, 1985, when the said Chapter Note was not referred to in the show cause notice.3. Whether the extended period of limitation under proviso to Section 11A of the Act was invokable for demanding duty and imposing penalty on the assessee.Detailed Analysis:1. Whether the process of cold-rolling amounts to 'manufacture' within the meaning of Section 2(f)(i) of the Central Excise Act, 1944:The central issue was whether the gauge reduction of hot-rolled stainless steel patta/pattis by cold-rolling constitutes the manufacture of a new product, attracting central excise duty. The Department classified the product under Chapter Heading 7220.20, which pertains to flat-rolled products of stainless steel, not further worked than cold-rolled (cold-reduced).The Adjudicating Authority relied on the Harmonised Commodity Description and Coding System (HSN) to determine that cold-rolled and hot-rolled strips are distinct products with different physical properties and uses, concluding that cold-rolling results in a new, marketable product. The Tribunal upheld this view, with the Technical Member affirming that cold-rolling imparts hardening qualities, changing the characteristics of the product.The Third Member of the Tribunal, after detailed discussion, concurred with the Technical Member, emphasizing that cold-rolling changes the mechanical properties of the strips, making them harder and more tensile. The process was deemed to be 'manufacture' within the meaning of Section 2(f) of the Act, as it results in a product with distinct identity, name, character, and use.2. Whether the CESTAT was correct in holding that the process of cold-rolling amounts to manufacture in view of Chapter Note 4 of Chapter 72 of the Central Excise Tariff Act, 1985, when the said Chapter Note was not referred to in the show cause notice:The Tribunal's decision was based on Chapter Note 4 of Chapter 72, which includes processes like hardening or tempering as manufacturing activities. The Tribunal found that cold-rolling, which hardens the product, falls under this definition. The Third Member's detailed analysis supported this view, noting that cold-rolling imparts significant changes to the product, making it a distinct marketable commodity.3. Whether the extended period of limitation under proviso to Section 11A of the Act was invokable for demanding duty and imposing penalty on the assessee:The assessee argued that there was no willful mis-declaration or suppression, claiming a bona fide belief that the process did not amount to manufacture. However, the Department's investigation, initiated based on intelligence reports, revealed that the assessee had been evading excise duty. The Commissioner and the Tribunal both held that the extended period of limitation was applicable due to the assessee's deliberate actions to evade duty.The Tribunal noted that the assessee was aware of the excise duty requirements, as similar manufacturing units were paying duty for identical processes. The Tribunal upheld the Commissioner's decision to invoke the extended period of limitation and impose penalties, rejecting the assessee's plea of bona fide belief.Conclusion:The Supreme Court agreed with the Tribunal's findings, concluding that the process of cold-rolling amounts to manufacture under Section 2(f) of the Central Excise Act. The Court also upheld the applicability of the extended period of limitation for demanding duty and imposing penalties. The appeals were dismissed, affirming the Tribunal's decision.