1988 (5) TMI 47 - HC - Central Excise

Manufacturing cigarettes from customer-supplied raw material triggers excise duty liability

The court held that the petitioners, a limited company manufacturing cigarettes from raw material supplied by customers, are liable to pay excise duty on ... Manufacture on Job work basis also liable to duty - Valuation - Cigarettes - Job charges Issues:1. Whether the petitioners, who manufacture cigarettes from raw material supplied by customers, are liable to pay excise duty on the assessable value of the cigarettes.2. The method of valuation for the assessment of excise duty on manufactured goods.Analysis:1. The primary issue in this case is whether the petitioners, a limited company manufacturing cigarettes from raw material provided by customers, are liable to pay excise duty on the assessable value of the cigarettes. The court examined the definition of 'manufacture' under the Central Excises and Salt Act, 1944, which includes any process incidental to the completion of a manufactured product. It was established that the process of transforming raw material into cigarettes constitutes 'manufacture' as per the Act and Supreme Court precedents. The court emphasized that the effect of the operation on the commodity, not just the operation itself, determines if it qualifies as manufacturing. Consequently, the petitioners were found to be engaged in the manufacture of cigarettes and thus liable to pay excise duty.2. The next issue pertains to the method of valuation for the assessment of excise duty on the manufactured goods. Section 3 of the 1944 Act provides for the levy and charge of excise duty on all excisable goods produced or manufactured. The valuation for excise duty purposes is determined under Section 4 of the Act. In this case, the method of levy falls under Section 4(l)(a) proviso (i), which mandates assessment based on the assessable value of the goods. The court clarified that excise duty is attracted upon manufacture or production of goods, irrespective of whether the goods are sold. The obligation to pay excise duty lies with the manufacturer, not the purchaser or consumer. Therefore, the petitioners were held liable to be assessed on the actual assessable value of the cigarettes manufactured by them, rejecting the argument that assessment should be based only on the quantum of job services.In conclusion, the writ petition was dismissed, allowing the respondents to assess and recover excise duty from the petitioners based on the actual assessable value of the cigarettes. The court directed the petitioners to comply with the interim and subsequent court orders related to excise duty payment.