2023 (12) TMI 245 - AT - Central Excise

Cutting, boring, beveling, threading operations on seamless pipes constitute manufacturing under Section 2(f), making products liable to excise duty.

CESTAT Ahmedabad held that cutting, boring, beveling, and threading operations on seamless pipes/tubes to manufacture drill pipes/rods constituted ... Process amounting to manufavture or not - cutting, boring, beveling, threading operations undertaken by the appellant company on other materials, namely seamless pipes/tubes. Whether the appellant have undertaken processes amounting to manufacture, in respect of ‘Drill Pipes/ Drill Rods as per Section 2(f) of the Central Excise Act, 1944 and leviable to central excise duty? - HELD THAT:- The process of manufacturing of drill rods/ drill pipes from raw material stage to final product stage is that the Round Bars and Semaless pipe are their main raw materials. The Round Bar are used to manufacture connectors (Male and Female). The Round bar is cut into required size on the bandsaw machine before subjecting it to machining operations (on the lathe machine) that is, drilling to make solid round bars into hollow state, turning to make the outer diameter of appropriate size, threading and slotting. The product namely, Connector, is thus manufactured. In Drill Pipe Section, Seamless pipes of different diameters which are another major raw material for Drill Rods were stored. In the said section, on Lathe Machines the seamless pipes are cut into required size and then boring and beveling operations to make the pipe suitable for further welding with connectors are carried out at both the ends of the said pipes so that the connectors (Male and Female) can be fitted at both ends of the seamless pipes and thereafter are welded together. The welding of the connector with the seamless is carried out manually. The seamless pipe so fitted and welded with the male and female connectors at the end is final product called the ‘Drill Rods’. Then the painting was carried out by the workers on the said ‘Drill Rods’. The process undertaken by the appellant satisfies the test ‘manufacture’ as above and consequently it is concluded that the resultant products of the appellant are liable to payment of Excise duty. Demand confirmed by the Ld. Commissioner for Spindle Subs/Bits Subs/Connectors - HELD THAT:- Appellant argued that goods for which this demand of duty is confirmed were duly accounted for in statutory records of the appellant company and appropriate duty was paid on these goods while their clearance from the factory, and such clearances were also recorded in ER-1 returns. Since the said facts cannot be verified at this stage, it is opined that for verification of these facts viz. whether appellant has paid the appropriate duty or not on impugned goods, the case needs to be remanded back to the Adjudicating authority and the Ld. Adjudicating authority will examine the evidences which may be submitted by the appellant relating to payment of duty on disputed goods and thereafter will pass a fresh decision relating to the demand of duty of Rs. 9,89,159/-. Confiscation of goods - HELD THAT:- When the goods have already been removed and are not available for confiscation, the goods cannot be confiscated - on perusal of the statements recorded by the investigating officers we find that the appellant was having full knowledge as to what is to meant by ‘manufacture’ but still they mis-stated that the processes under taken by them do not amount to manufacture. Further intention to evade payment of duty on disputed goods is further established by the revenue that Appellant not maintaining any ‘Daily Stock Accounts as prescribed under Rule 10 of the Central Excise Rules 2002. The appellants have also pleaded that they had a bona fide belief that their goods are not chargeable to duty - It is difficult to understand this plea. Evidences on record clearly indicate that they were aware that the goods are chargeable to duty and their process is amount to manufacture. Statement recorded during the investigation indicates that they were fully aware about their duty liability and manufacture of the disputed goods. Penalty imposed under Rule 26 of CER, 2002 on Shri Sanjay Jayantilal Gandhi, Director (Commercial) - HELD THAT:- Revenue disputed that earlier adjudication order passed vide OIO dated 31.01.2013, the authority had imposed a personal penalty of Rs. 50 Lacs. However in the present OIO the penalty stands reduced to Rs. 5 Lacs. Appellant also disputed that penalty of Rs. 5 Lacs not imposable - It is found that penalty imposed by the Learned Commissioner in impugned order is proper. Penalties are very much on the lower side and are not incommensurate with the acts and omissions of person concerned. The finding given by the Learned Commissioner clearly held that Shri Sanjay Jayantilal Gandhi knows and had reason to believe that goods were liable to confiscation therefore he was liable for penalty under Rule 26. Appeal disposed off. Issues Involved:1. Whether the processes undertaken by the appellant amounted to 'manufacture' under Section 2(f) of the Central Excise Act, 1944.2. Classification of the product under the correct tariff heading.3. Legality of the demand of Rs. 9,89,159/- for Spindle Subs/Bits Subs/Connectors.4. Validity of the confiscation of goods.5. Applicability of the extended period of limitation under Section 11A of the Central Excise Act.6. Imposition of penalty on the appellant company and its director under Rule 26 of the Central Excise Rules, 2002.Summary:1. Manufacture Under Section 2(f):The Tribunal examined the processes undertaken by the appellant, which included cutting, boring, beveling, threading, and welding of seamless pipes and connectors to produce drill rods. It was concluded that these processes amounted to 'manufacture' as defined under Section 2(f) of the Central Excise Act, 1944, since the resultant goods had distinct characteristics and marketability.2. Classification of Product:The appellant argued that the classification of the product under CETH 73042390 was incorrect. However, the Tribunal found that the classification was appropriate as the processes resulted in a distinct product known as drill rods, which were classifiable under the specified tariff heading.3. Demand of Rs. 9,89,159/-:The Tribunal remanded the issue of the demand of Rs. 9,89,159/- for Spindle Subs/Bits Subs/Connectors to the adjudicating authority for verification of whether the appellant had paid appropriate duty on these goods, as the facts could not be verified at this stage.4. Confiscation of Goods:The Tribunal agreed with the adjudicating authority that goods already removed and not available for confiscation cannot be confiscated. Therefore, the confiscation order was set aside.5. Extended Period of Limitation:The Tribunal found that the appellant had mis-declared facts and suppressed information, justifying the invocation of the extended period of limitation under Section 11A of the Central Excise Act. The demand for the extended period was upheld.6. Imposition of Penalty:The Tribunal upheld the penalty of Rs. 5 Lacs imposed on Shri Sanjay Jayantilal Gandhi, Director (Commercial), under Rule 26 of the Central Excise Rules, 2002, finding that he was aware of the excisable nature of the goods and their clearance without payment of duty.Conclusion:The appeals were disposed of with the Tribunal upholding the findings of manufacture, appropriate classification, and penalties, while remanding the issue of the demand of Rs. 9,89,159/- for verification. The confiscation order was set aside due to the unavailability of goods.