1987 (12) TMI 186 - AT - Central Excise

Soap cutting with power not new manufacturing process per Notification No. 28/64. Appeal successful, duty demand overturned.

The Tribunal held that cutting soap blocks into chips with the aid of power did not constitute a new manufacturing process, allowing the appellants to ... Household and laundry soap Issues Involved:1. Eligibility for exemption under Notification No. 28/64.2. Definition and scope of 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944.3. Application of Rules 10, 10-A, and 9 of the Central Excise Rules.4. Departmental circulars and trade notices regarding the use of power in soap manufacturing.5. Previous case laws cited in support of the arguments.Detailed Analysis:1. Eligibility for exemption under Notification No. 28/64:The appellants manufactured laundry soap, including soap chips, and claimed exemption under Notification No. 28/64, dated 1.3.1964, as they did not use power in the manufacturing process. However, the Revenue raised a duty demand for soap chips manufactured with the aid of power. The appellants argued that the soap chips were made from scraps of soap blocks manufactured without power and that converting these scraps into chips did not create a new variety of soap. The lower authorities held that the process of cutting soap slabs into chips with the aid of power was incidental or ancillary to the completion of the manufacture of soap chips, thus disqualifying the exemption.2. Definition and scope of 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944:The appellants contended that the chips were still household laundry soap and that the cutting process did not bring a new commodity into existence. They cited a departmental circular (Trade Notice No. 107/76, dated 24.8.1976) which stated that cutting soap into chips with power in another factory did not constitute 'manufacture' under Section 2(f). The Tribunal examined whether the process of cutting soap into chips could be considered incidental or ancillary to the manufacture of soap. It was concluded that the manufacture of soap was complete when the soap blocks were formed, and the subsequent cutting into chips did not constitute a new manufacturing process.3. Application of Rules 10, 10-A, and 9 of the Central Excise Rules:The appellants argued that a demand could only be raised under Rule 10, read with 173J, and not beyond six months. They also contended that Rule 10-A could not be invoked in their case and that Rule 9 was inapplicable due to their prior declaration of soap manufacturing. The Tribunal did not find sufficient grounds to invoke these rules against the appellants, given the established practice and prior departmental clarifications.4. Departmental circulars and trade notices regarding the use of power in soap manufacturing:The appellants referred to several departmental communications and trade notices which clarified that the use of power for cutting soap into chips did not constitute 'manufacture' if the soap was initially produced without power. These notices indicated that soap chips made in a separate factory from the soap blocks did not require a Central Excise license or render the products dutiable. The Tribunal found these departmental positions consistent with the appellants' arguments.5. Previous case laws cited in support of the arguments:The appellants cited multiple case laws to support their position, including:- Guardian Plasticote Ltd. v. Collector of Central Excise, Calcutta (1986)- Adreena Industries v. Collector of Central Excise, Chandigarh (1987)- Standard Fireworks Industries Sivakasi v. Collector of Central Excise, Madras (1987)- Fram & Co. v. Collector of Central Excise, Bombay (1987)- Swastik Packaging, Bombay v. Collector of Central Excise, Bombay (1986)The Tribunal applied the rationale from these cases, particularly the Adreena Industries case, which defined 'incidental or ancillary process' and held that the manufacture of a product is complete before any additional processes like drying or cutting. The Tribunal concluded that the cutting of soap blocks into chips did not constitute a new manufacturing process.Conclusion:The Tribunal held that the process of cutting soap blocks into chips with the aid of power did not constitute a new manufacturing process and thus did not disqualify the appellants from the exemption under Notification No. 28/64. The appeal was allowed, and the lower authority's order was set aside, granting the appellants consequential relief.