2008 (10) TMI 7 - SC - Central Excise

Cutting & Slitting Not Manufacturing: Supreme Court Decides on Lamination Processes

The Supreme Court upheld the Delhi High Court's decision that cutting and slitting of steel sheets and polyester films for lamination purposes do not ... Manufacture - exigibility - cutting and slitting of flatrolled products - classification under a different subheading of the tariff - withdrawal of a Board CircularManufacture - cutting and slitting of flatrolled products - classification under a different subheading of the tariff - Cutting and slitting of steel sheets and polyester films used for lamination purposes amounts to manufacture for the periods in question - HELD THAT: - The Court examined the question whether cutting/slitting of HR/CR coils or sheets into smaller sheets or strips (and similarly polyester films used for lamination) constitutes manufacture for excise exigibility. The Board's earlier Circular of 792001 had taken the view that such slitting would amount to manufacture only if the resultant product was classifiable under a different subheading of the Central Excise Tariff. That Circular was challenged, and the Delhi High Court held that the processes did not amount to manufacture; the Department's appeal was dismissed by this Court. The Board thereafter withdrew the 792001 Circular by its Circular dated 232005. Having regard to the earlier decisions and the subsequent withdrawal, the Court held that cutting and slitting of the sheets and films in question do not amount to manufacture for the period under consideration and that the Board's later Circular, which is binding on the Department, clarifies the position. [Paras 4, 6]Cutting and slitting of the steel sheets and polyester films used for lamination purposes do not amount to manufacture.Manufacture - exigibility - remand for examination of further processes - Whether the matter should be remitted for fresh consideration on the allegation of diepunching and heat sealing following slitting - HELD THAT: - The Department urged that diepunching of slit sheets and subsequent heat sealing of pieces amounted to manufacture and should be remitted to the Adjudicating Authority for fresh consideration. The Court noted that the appeals related to periods up to 2001 when the earlier Board Circular (792001) governed, and that the show cause notices in these cases proceeded on tariff interpretation rather than on an examination of the entire manufacturing process. There was no allegation in the show cause notices that the diepunching process constituted manufacture. For these reasons the Court declined to remit the matter to the Adjudicating Authority for fresh consideration of the diepunching/heatsealing process. [Paras 5]No remand; the contention to remit for fresh examination of diepunching and heat sealing is rejected.Final Conclusion: The Civil Appeals are dismissed; cutting and slitting of the relevant sheets and films do not amount to manufacture for the periods concerned, and no remand is directed regarding diepunching/heatsealing. Issues:1. Whether cutting and slitting of steel sheets of polyester films used for lamination purposes amounts to manufactureRs.Analysis:The main issue in this bunch of Civil Appeals is whether the cutting and slitting of steel sheets of polyester films used for lamination purposes constitute manufacturing. The central question is not about classification but about exigibility.The Circular dated 7th September, 2001, issued by the Central Board of Excise and Customs, New Delhi, addressed the issue of whether slitting of HR/CR coils of iron and steel sheets into strips would amount to manufacture. The Circular presented two viewpoints: one suggesting that a change in classification resulting in a new product with distinct characteristics would constitute manufacture, while the other viewpoint argued that mere slitting does not create new products with distinct identities.The Delhi High Court initially held that the processes in question did not amount to manufacture, a decision upheld by the Supreme Court. Subsequently, the Central Board of Excise and Customs issued a later Circular on 2nd March, 2005, withdrawing the Circular dated 7th September, 2001, and accepting the judgment of the Delhi High Court. The later Circular clarified that cutting and slitting of steel sheets and polyester films used for lamination purposes do not amount to manufacture.The Department argued that die-punching the sheets after slitting amounted to manufacture, but the Court rejected this argument, emphasizing that the issue pertained to the period up to 2001 when the Circular dated 7th September, 2001 was in effect. The Court noted that the Circular was based on the interpretation of tariff items rather than the entire process undertaken by the assessees. As the subsequent Circular dated 2nd March, 2005 had withdrawn the earlier Circular, the Court found no reason to interfere with the Tribunal's judgment, leading to the dismissal of the Civil Appeals.In conclusion, the judgment clarified that cutting and slitting of steel sheets and polyester films used for lamination purposes do not amount to manufacture, as per the Circular dated 2nd March, 2005, which superseded the earlier Circular and was binding on the Department.