2009 (3) TMI 170 - AT - Central Excise

Supreme Court ruling: Shikakai powder manufacturing, excisability clarified. SSI exemption, penalties, and re-quantification discussed.

MAYIL MARK NILAYAM Versus COMMISSIONER OF CENTRAL EXCISE, CHENNAI

The Supreme Court held that the production of shikakai powder constitutes manufacture and classified it under CSH 3305.90, while arapputhool was deemed ... Manufacture - manufacture and clearance of shikakai powder and arapputhool – held that - the activity of pulverisation of shikakai constituted manufacture - Shikakai powder is excisable. It is classifiable under CSH 3305.90. Exemption under Notification No. l40/83 as amended shall be extended to clearances of shikakai powder made by MMN and associate units during the material period treating MMN as the manufacturer- arapputhool (grinding mohwa cake into powder ) is not a manufactured item exigible to duty - in the instant case different High Courts and Single Judges and Division Bench of the Madras High Court held different views on the exigibility of the process of conversion of shikakai into shikakai powder - there was scope for the assessee entertaining bona fide belief that the shikakai powder was not a manufactured product. In the circumstances we hold that larger period under Sec. 11A could not be validly invoked in the instant case - the clearances of all the units as of a single manufacturer and clubbed for computing their eligibility to SSI exemption. Issues Involved:1. Whether production of shikakai powder and arapputhool involve the activity of manufacture.2. The classification appropriate for these goods in case they are held to be excisable.3. Whether the demand is barred by limitation.4. Whether the clearances of various units could be clubbed and held to be those of MMN.Detailed Analysis:1. Whether production of shikakai powder and arapputhool involve the activity of manufacture:Shikakai Powder:Shikakai powder is made by mixing mohwa cake, shikakai, usilai leaves, soap nut, and turmeric, then pulverizing them into powder. The Commissioner observed that the process created 'marketable specific application merchandise.' However, the order did not examine if the activity resulted in a product with a new name, properties, and uses. The Supreme Court in Sree Ramakrishna Soapnut Works v. Superintendent of Central Excise (2007) noted that mere conversion of powder might not constitute manufacture. The judgment of the Karnataka High Court, upheld by the Supreme Court, held that the activity of pulverization of shikakai constituted manufacture and classified shikakai powder under CSH 3305.90.Arapputhool:Arapputhool is produced by grinding mohwa cake into powder. The impugned order found that this process did not change the product except its shape and form. The Supreme Court in Commissioner v. Laljee Godhoo & Co. (2007) and Crane Betel Nut Powder Works v. CCE (2007) held that similar processes did not amount to manufacture. Therefore, arapputhool is not a manufactured item exigible to duty.2. Classification of the goods:Shikakai Powder:The classification issue for shikakai powder was settled by the Karnataka High Court, which held it to be classifiable under CSH 3305.90.Arapputhool:Since arapputhool is not considered a manufactured item, the question of its classification does not arise.3. Limitation:The period of dispute is June 1994 to January 1998. Divergent views existed on the exigibility of shikakai powder, with different High Courts holding different views. The Supreme Court in Jaiprakash Industries Ltd. v. CCE (2002) and Mentha & Allied Products v. CCE (2004) held that extended periods could not be invoked without evidence of fraud or suppression. Given the divergent judicial views, it was reasonable for the appellants to believe that shikakai powder was not a manufactured product. Therefore, the larger period under Section 11A could not be invoked.4. Clubbing of Clearances:The Commissioner found that the various units were controlled by Shri M.N. Venkatachalam and functioned as a single entity. The show-cause notice alleged common use of funds, materials, and staff among the units. The impugned order held the clearances of all units should be clubbed for computing their eligibility for SSI exemption. The appellants did not effectively challenge this finding. However, penalties on associate units under Rule 209 of CER were set aside as they were considered dummies of the main manufacturer.Final Decision:1. Shikakai powder is excisable and classifiable under CSH 3305.90. Exemption under Notification No. 140/83 as amended shall be extended to clearances made by MMN and associate units.2. Demand shall be restricted to the normal period.3. Arapputhool is not excisable.4. Penalties imposed on MMN, except that on account of confiscation, associate units, and Shri M.N. Venkatachalam are set aside.5. Duty due shall be re-quantified considering the sale price as cum-duty.6. The applicable amounts of fine shall be decided afresh.The appellants shall be allowed adequate opportunity of hearing before a fresh decision is taken. The appeal filed by MMN is allowed by remand, and other appeals are allowed.