1991 (5) TMI 177 - AT - Central Excise

Tea Chest Re-assembly Not Manufacturing: Tribunal Rules in Favor of Appellant Company

The Tribunal held that the re-assembly of tea chests from dismantled plywood panels did not amount to 'manufacture' under Section 2(f) of the Central ... Manufacture - process of manufacture - transformation / change of identity - repair or reconditioning - job work / hired contractor - principal manufacturerManufacture - process of manufacture - transformation / change of identity - repair or reconditioning - Re-assembly of dismantled plywood tea-chests does not amount to manufacture under Section 2(f) of the Central Excises & Salt Act, 1944. - HELD THAT: - The Court applied the established test that 'manufacture' requires a transformation producing a new and different article having distinctive name, character or use, as articulated in DCM and reiterated in subsequent authorities. The re-assembly of plywood panels retrieved from dismantled tea-chests, even when some worn panels are discarded and sizes altered, does not produce a new article with a distinct identity; the resulting plywood cases/tea-chests remain of the same species and commercial character. Reliance on Century Spinning and Bharat Forge was held to support this view. Consequently the processes undertaken were held to be in the nature of repair/re-assembling rather than manufacture, and the Tribunal's earlier order in favour of the assessee was followed. [Paras 10, 11, 12, 13, 15]No manufacture took place on re-assembly; therefore Section 2(f) is not attracted.Job work / hired contractor - principal manufacturer - Whether the fact that re-assembly was carried out by independent job-workers/contractors for the assessee alters the characterisation of the activity as manufacture. - HELD THAT: - Having concluded that the activity itself does not amount to manufacture, the Court held it immaterial whether the operations were performed within the assessee's premises or by independent contractors. The Gujarat High Court decision on persons employing contractors as manufacturers was deemed irrelevant because the threshold question of manufacture was not satisfied. Thus the identity of the party performing the work did not convert the process into manufacture. [Paras 14, 15]Whether done by the assessee or by job-workers, the re-assembly did not amount to manufacture; the distinction between principal and contractor is therefore immaterial.Penalty - extended period / concealment - Demand and penalty confirmed by the lower authorities in respect of the re-assembled tea-chests were set aside in consequence of the primary finding that no manufacture took place. - HELD THAT: - The Collector had earlier confirmed a demand and imposed penalty for the period 1-8-1977 to 30-6-1982. Since the Court held that re-assembly did not constitute manufacture and therefore no excise liability arose, it was unnecessary to adjudicate separately on mala fides or applicability of the extended period; the orders of the lower authorities were set aside and consequential relief granted. [Paras 9, 15]Confirmation of the demand and the penalty was set aside as consequential to the finding of no manufacture.Final Conclusion: Appeals allowed; the Tribunal's earlier conclusion that re-assembling dismantled plywood tea-chests is not 'manufacture' under Section 2(f) was followed, and the orders of the lower authorities confirming demand and imposing penalty were set aside with consequential relief. Issues Involved:1. Whether the re-assembly of tea chests from dismantled plywood panels constitutes 'manufacture' under Section 2(f) of the Central Excises & Salt Act, 1944.2. Whether the appellant company or the job workers should be considered the 'manufacturer' of the re-assembled tea chests.3. Applicability of the extended time limit for demand under Rule 9(2) read with Section 11A and the imposition of penalty under Rule 173Q.Issue-Wise Detailed Analysis:1. Whether the re-assembly of tea chests from dismantled plywood panels constitutes 'manufacture' under Section 2(f) of the Central Excises & Salt Act, 1944:The core question was whether the re-assembly of tea chests from dismantled plywood panels, often in different sizes, involves a process of manufacture as defined under Section 2(f) of the Act. The Tribunal referred to a previous decision (Order No. E/272/90-D dated 12th April, 1990) where it was held that no new product emerged from the re-assembly process, and thus, it did not constitute 'manufacture.' The Tribunal observed that the process was more akin to repair or reconditioning, and not the creation of a new article with a distinct name, character, or use.The Tribunal also cited the Bombay High Court decision in Century Spinning (1981 (8) E.L.T. 676), where it was held that merely melting worn-out spinnerettes did not result in a new product liable to duty. Similarly, the Supreme Court's judgment in Bharat Forge & Press Industries (1990 (45) E.L.T. 525) supported the view that pipe fittings made from pipes and tubes continued to be classified as pipes and tubes, emphasizing that a mere change in form does not constitute a new product.2. Whether the appellant company or the job workers should be considered the 'manufacturer' of the re-assembled tea chests:The Department argued that since the appellant company supplied raw materials to job workers who then assembled the tea chests, the job workers were essentially contractors, and the appellant was the real manufacturer. The Tribunal, however, found that the job workers operated on a principal-to-principal basis, without any written contracts, and were paid job charges for their work. The Tribunal emphasized that the nature of the relationship did not change the fundamental question of whether the re-assembly process constituted 'manufacture.'The Tribunal concluded that if the re-assembly did not amount to manufacture when done by one party, it could not be considered manufacture when done by multiple parties. Therefore, the question of who the manufacturer was became irrelevant once it was established that no manufacture was involved.3. Applicability of the extended time limit for demand under Rule 9(2) read with Section 11A and the imposition of penalty under Rule 173Q:The Collector had confirmed a demand for Rs. 18,77,365.38 for the period 1-8-1977 to 30-6-1982 and imposed a penalty of Rs. one lakh, alleging mis-statement or suppression of facts by the appellant company. The Tribunal found that the Collector's findings were based on a bald statement without supporting evidence. The Tribunal also noted that the re-assembly of tea chests was not done clandestinely, and hence, the extended time limit of five years could not be invoked.The Tribunal referenced the case of Vasant Sahakari Sakhar Karkhana Ltd. (1989 (43) E.L.T. 98 Trib.), where it was held that the extended period was not applicable when the nature of the product and its by-products were not suppressed from the Department. Consequently, the Tribunal concluded that the conduct of the appellant company did not warrant the imposition of a penalty.Conclusion:The Tribunal concluded that the re-assembly of tea chests from dismantled plywood panels did not constitute 'manufacture' under Section 2(f) of the Act. As a result, there was no liability to duty on the re-assembled tea chests. The Tribunal set aside the orders of the lower authorities and allowed both appeals with consequential relief, if any.