1991 (12) TMI 144 - AT - Central Excise

Tribunal upholds duty demand and penalty for non-exempt 'manufacture' of filter bags

GWALIOR SUGAR CO. LTD. Versus COLLECTOR OF CENTRAL EXCISE

The tribunal rejected the appeal, affirming the duty demand and penalty imposition. It held that the process of making filter bags constituted ... Manufacture Issues Involved:1. Whether the process of cutting and stitching polypropylene cloth into filter bags amounts to 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944.2. Whether the filter bags are exempt from excise duty under Notification No. 281/86-C.E., dated 24-4-1986.3. Whether the demand for duty was time-barred.4. Whether the filter bags qualify for exemption under Notification No. 217/86-C.E., dated 2-4-1986.5. Whether the penalty imposed was justified.Issue-wise Detailed Analysis:1. Manufacture under Section 2(f) of the Central Excises and Salt Act, 1944:The appellants contended that cutting and stitching polypropylene cloth into filter bags does not constitute 'manufacture' as it does not bring into existence a new product. They cited several cases including *Union of India v. Delhi Cloth & General Mills Company Limited* and *Union Carbide India Ltd. v. Union of India* to support their argument that the process must result in a new, marketable product. The respondent argued that the process results in a distinct product, a filter bag, which is different from the raw material and is capable of being sold. The tribunal held that the process of making filter bags amounts to 'manufacture' as the resulting product is distinct and marketable, thus liable to excise duty.2. Exemption under Notification No. 281/86-C.E.:The appellants claimed that the filter bags were exempt under Notification No. 281/86-C.E., which exempts goods intended for use in the repair and maintenance of machinery. The tribunal found that the notification applies only to goods used for repair and maintenance, not for the manufacturing process itself. Since the filter bags were used during the manufacturing process, the exemption was rightly denied.3. Time-barred Demand:The appellants argued that the demand was time-barred as the show cause notice was issued after the expiry of six months from the relevant period. They claimed that all necessary facts were in the knowledge of the Department, as evidenced by their Final Manufacturing Returns. The respondent countered that the appellants failed to inform the Department about the manufacture of filter bags, constituting suppression of facts. The tribunal agreed with the respondent, holding that the extended period of five years was applicable due to the appellants' failure to disclose the manufacturing of filter bags.4. Exemption under Notification No. 217/86-C.E.:The appellants alternatively argued that the filter bags should be exempt under Notification No. 217/86-C.E., which exempts certain inputs used in the manufacture of final products. The respondent argued that the filter bags are 'equipment' and thus excluded from the definition of 'inputs' under the notification. The tribunal agreed with the respondent, stating that the filter bags are considered equipment and are therefore excluded from the exemption.5. Justification of Penalty:The appellants contended that the penalty was not justified, citing cases such as *Hindustan Steel Ltd. v. State of Orissa* and *Bi-Metal Bearings Ltd. v. Collector of Central Excise*, which state that penalties should not be imposed for technical breaches or where there is a bona fide belief of non-liability. The respondent argued that the appellants' failure to disclose the manufacture of filter bags and maintain proper accounts justified the penalty. The tribunal upheld the penalty, noting the appellants' suppression of facts and failure to comply with procedural requirements.Conclusion:The appeal was rejected, affirming the demand for duty and the imposition of the penalty. The tribunal held that the process of making filter bags constituted 'manufacture,' the filter bags were not exempt under the cited notifications, the demand was not time-barred, and the penalty was justified.