2018 (2) TMI 1559 - AT - Central Excise

Perforation of Steel Sheets: Tribunal Rules on Manufacturing Activity

The Tribunal held that the activity of perforation of flat rolled steel sheets amounts to manufacture under Section 2(f) of the Central Excise Act, 1944, ... Manufacture - business and trading of perforated sheets and wire netting - Department came to the conclusion that the activity of perforation of flat rolled steel sheets procured from the open market would amount to manufacture in terms of Section 2(f) of the CEA 1944 - Held that: - the Hon’ble Allahabad High Court in the case of Agra Metal Perforators vs. Commissioner, Sales Tax [1980 (7) TMI 242 - ALLAHABAD HIGH COURT] has expressed the clear opinion that after perforation, the iron sheet emerges as a different commercial commodity - the activity of perforation of flat rolled steel sheets does amount to manufacture. Extended period of limitation - Held that: - there can be no justification for invoking the extended period of limitation under Section 4A for demand of such duty - demand restricted to normal period. Appeal allowed in part. Issues:1. Whether the activity of perforation of flat rolled steel sheets amounts to manufacture under Section 2(f) of the Central Excise Act, 1944.2. Whether the extended period of limitation can be invoked for demanding Central Excise duty.3. Interpretation of Chapter Note 1(k) to Chapter 72 regarding flat rolled products with perforation.4. Applicability of a specific clarification issued by the Central Excise Division, Agra.5. Impact of the decision of the Hon'ble Allahabad High Court in Agra Metal Perforators vs. Commissioner, Sales Tax -1981 (48) STC 378 (All.).Issue 1 - Activity of Perforation as Manufacture:The appellant, engaged in manufacturing Wire Mesh and Perforated Sheets, was also involved in perforating flat rolled steel sheets. The Department contended that this activity constituted manufacture under Section 2(f) of the Central Excise Act, 1944, leading to a demand for Central Excise duty. The appellant challenged this, arguing that perforation does not amount to manufacture, citing Chapter Note 1(k) to Chapter 72. However, the Tribunal, following the decision of the Hon'ble Allahabad High Court, held that after perforation, the iron sheet becomes a different commercial commodity, not interchangeable with plain iron sheets. Consequently, the Tribunal concluded that the activity of perforation of flat rolled steel sheets does amount to manufacture, making the appellant liable for Central Excise duty.Issue 2 - Extended Period of Limitation:The appellant contested the invocation of the extended period of limitation for demanding Central Excise duty, emphasizing a clarification from the Central Excise Division, Agra, stating that sheets, whether perforated or not, fall under the same heading. The Tribunal agreed that the extended period of limitation was not justified in this case, especially considering the specific clarification issued by the Department. As a result, the Tribunal restricted the demand to the normal time of limitation, upholding only a portion of the demand along with consequential interest and penalties.Issue 3 - Interpretation of Chapter Note 1(k) to Chapter 72:The Tribunal analyzed Chapter Note 1(k) to Chapter 72 of the Central Excise Act, which includes flat rolled products with and without perforation. Despite the appellant's argument based on this note, the Tribunal relied on the Allahabad High Court's opinion that perforated iron sheets constitute a distinct commercial commodity, leading to a conclusion that the activity of perforation amounts to manufacture.Issue 4 - Specific Clarification by Central Excise Division, Agra:The Tribunal considered a specific clarification issued by the Central Excise Division, Agra, regarding identical products. This clarification influenced the Tribunal's decision to disallow the invocation of the extended period of limitation for demanding Central Excise duty, reinforcing the view that the demand should adhere to the normal time limit.Issue 5 - Impact of Hon'ble Allahabad High Court Decision:The Tribunal referenced a decision of the Hon'ble Allahabad High Court in Agra Metal Perforators vs. Commissioner, Sales Tax, highlighting the court's opinion that after perforation, an iron sheet becomes a different commercial commodity. This judicial precedent played a crucial role in the Tribunal's determination that the activity of perforation of flat rolled steel sheets constitutes manufacture, aligning with the Allahabad High Court's interpretation.This comprehensive analysis of the legal judgment emphasizes the Tribunal's deliberations on various issues raised in the appeal, ultimately resulting in a partial allowance of the appellant's appeal while upholding certain aspects of the demand for Central Excise duty.