Manufacture under excise law can cover crushing limestone into chips, but penalty failed absent deliberate evasion.

Crushing limestone lumps into limestone chips was held to amount to manufacture because the process produced a distinct commercial commodity with a different name, character and use, so the excise duty demand on the chips was sustained. Penalties for non-payment of duty were quashed because penalty under excise law is quasi-criminal, the assessee acted under a bona fide belief amid conflicting legal views, and the record did not show deliberate evasion or contumacious conduct.

---

---

Issues: (i) Whether crushing limestone lumps into limestone chips amounts to manufacture and attracts excise duty; (ii) Whether the penalties imposed for non-payment of duty were sustainable.

Issue (i): Whether crushing limestone lumps into limestone chips amounts to manufacture and attracts excise duty.

Analysis: Manufacture under the excise law covers only such processes as are specifically treated as manufacture by the statute or the relevant chapter notes, or which bring into existence a new and distinct commercial commodity. Chapter Note 2 of Chapter 25 did not itself treat crushing as manufacture. On the facts, limestone lumps were mechanically crushed to a particular size as per buyer's requirement, and the resulting chips were commercially different from the lumps, having a distinct name, character and use.

Conclusion: The process of crushing limestone into chips amounted to manufacture, and the duty demand on limestone chips was upheld in favour of the Revenue.

Issue (ii): Whether the penalties imposed for non-payment of duty were sustainable.

Analysis: Penalty under the excise rules is quasi-criminal in nature and is not to be imposed as a matter of course. The record showed divergence of legal views on whether crushing limestone amounted to manufacture, and the petitioners acted under a bona fide belief that no duty was payable. The authority had not recorded material showing deliberate evasion or contumacious conduct, and the quantum of penalty was imposed without considering this aspect.

Conclusion: The penalties were unsustainable and were quashed in favour of the Assessee.

Final Conclusion: The demand of excise duty on limestone chips was sustained, but the penalty orders were set aside, resulting in only partial relief to the petitioners.

Ratio Decidendi: A mechanically processed commodity that emerges as a distinct commercial product may constitute manufacture for excise purposes, but penalty cannot be imposed mechanically where the assessee acted under a bona fide belief and the record does not show deliberate evasion.

---