Manufacture through conversion of polythene rolls into marketable bags attracts excise duty and can trigger extended limitation.

Converting polythene rolls through printing, shaping, cutting, sealing and packing into marketable polythene bags constitutes manufacture under the distinct name, character and use test. Customer-supplied inputs, customer logos on finished bags, and return of waste or scrap do not alter the manufacturing character of the process; the bags are therefore liable to central excise duty upon clearance. Filing ST-3 returns and paying service tax on conversion charges does not disclose or discharge the separate excise liability. Where duty was not paid on bags cleared to manufacturers of exempt final products, the omission was treated as suppression, supporting invocation of the extended limitation period.

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Issues: (i) Whether conversion of polythene rolls into printed, cut, sealed and shaped polythene bags amounted to manufacture or merely job work; (ii) Whether the extended period of limitation was validly invoked.

Issue (i): Whether conversion of polythene rolls into printed, cut, sealed and shaped polythene bags amounted to manufacture or merely job work.

Analysis: Section 2(f) of the Central Excise Act, 1944 covers processes incidental or ancillary to completion of a manufactured product. The applicable test is whether the process results in a commercially distinct and marketable article having a different name, character or use. The rolls underwent printing, shaping, cutting, sealing and packing, resulting in polythene bags that were distinct from the input rolls and marketable as such. The presence of the customers' logos, supply of inputs by them, and return of waste and scrap did not alter the character of the activity.

Conclusion: The conversion activity amounted to manufacture, not job work, and the polythene bags were liable to central excise duty upon clearance. This issue was decided against the assessee.

Issue (ii): Whether the extended period of limitation was validly invoked.

Analysis: Filing ST-3 returns and paying service tax on conversion charges did not disclose or discharge the separate central excise liability arising from manufacture; ST-3 returns were distinct from excise returns. As the goods were cleared to manufacturers of exempt final products, the appellant was liable for excise duty on clearance of the bags. The failure to pay that duty was treated as suppression warranting invocation of the extended period.

Conclusion: Invocation of the extended period of limitation was valid. This issue was decided against the assessee.

Final Conclusion: The conversion process attracted central excise duty and the demand founded on the extended limitation period was sustained.

Ratio Decidendi: A process that transforms polythene rolls into marketable bags with a distinct name, character and use constitutes manufacture, notwithstanding that inputs are supplied by another person and the finished bags bear that person's logo.

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