2007 (9) TMI 123 - AT - Central Excise

Tribunal rules coating process on MS pipes not 'manufacture' under Central Excise Act

The Tribunal ruled in favor of the appellants, determining that the coating process on MS pipes did not amount to 'manufacture' under the Central Excise ... Definition of 'manufacture' as change in name, character and use - deeming of a process as 'manufacture' by Chapter Note 5 - non-retrospective effect of tariff amendmentDefinition of 'manufacture' as change in name, character and use - deeming of a process as 'manufacture' by Chapter Note 5 - non-retrospective effect of tariff amendment - Whether coal tar enamel or polyethylene coating of MS pipes amounted to 'manufacture' for the period Aug'04 to March'05 - HELD THAT: - The Tribunal applied the settled test that a process amounts to 'manufacture' only if the resultant commodity is different in name, character and use from the original, unless a statutory deeming provision applies. The coatings undertaken (shot blasting, heating, primer/adhesive application, spraying epoxy/ polyethylene coating or coal tar enamel) did not change the commercial name, character or use of the MS pipes, which continued to be used for transportation of petroleum products and were known in trade as MS pipes whether bare or coated. Chapter Note 5, which deems coating with cement or polyethylene or other plastic materials to be 'manufacture', was amended to include Heading 73.06 only w.e.f. 18-4-2006; that amendment is not retrospective. Therefore, prior to 18-4-2006 the coating processes were not statutorily deemed to be 'manufacture'. The reliance by the Revenue on other Chapter Notes (e.g., Note 4 relating to galvanization) was inapposite. Distinguishing cases where the lined/treated article was held different in name, character and use, the Tribunal found no such change here. The appellants had also paid service tax on job charges for coating, and there was no dispute on classification of the bare pipes by their manufacturer under Heading 73.06. Applying the foregoing legal principles, the activities in question fell outside the definition of 'manufacture' for the material period. [Paras 5, 6, 7, 8, 9]The coating of MS pipes with coal tar enamel or polyethylene did not amount to 'manufacture' during Aug'04 to March'05; the excise demand and related penalties are set aside.Final Conclusion: Appeal allowed; the impugned order demanding excise duty and penalties was set aside on the ground that the coating processes did not constitute 'manufacture' during the period in dispute (prior to the 18-4-2006 amendment to Chapter Note 5). Issues:Classification of coated pipes under Central Excise Tariff Act, Duty liability on coated pipes, Time-bar for demand, Penalty imposition under Section 11AC, Interpretation of 'manufacture' under Section 2(f) of the Central Excise Act.Classification of Coated Pipes:The appellants undertook coal tar enamel and polyethylene coating on bare MS pipes supplied by M/s. Indian Oil Corporation Ltd. The department contended that this process amounted to 'manufacture' as it created a new product with distinct characteristics. The appellants argued that the process did not amount to 'manufacture' as per Supreme Court rulings and Chapter Notes of the Central Excise Tariff Act. The Commissioner classified the coated pipes under Heading 73.04 and held duty leviable, rejecting the plea of time-bar and imposing penalties.Duty Liability and 'Manufacture' Interpretation:The appellants believed that coating the pipes did not change the name, character, or use of the commodity, thus not constituting 'manufacture' under Section 2(f) of the Central Excise Act. They cited Tribunal decisions and Apex Court judgments to support their stance. The Tribunal examined the coating process, noting that the pipes were still known as MS pipes, and found that the activity did not result in a different product. The Chapter Notes did not consider coated pipes separately, and the process did not meet the criteria for 'manufacture.'Time-bar for Demand and Penalty Imposition:The Commissioner invoked the extended period of limitation, rejecting the plea of time-bar and imposing a penalty under Section 11AC. The appellants argued that the demand was time-barred, and no penalty or interest was applicable due to the reversal of Cenvat credit. The Tribunal considered the relevant case laws and held that the activity of coating did not amount to 'manufacture' during the material period, thus setting aside the duty liability and penalties imposed.Conclusion:The Tribunal ruled in favor of the appellants, stating that the coating process on MS pipes did not constitute 'manufacture' under the Central Excise Act. The activity did not result in a different product, and the Chapter Notes did not distinguish between bare and coated pipes during the relevant period. The order was set aside, and the appeal was allowed, highlighting that the appellants were not liable to pay excise duty on the coated pipes supplied to M/s. IOCL.