1998 (11) TMI 173 - AT - Central Excise

Conversion of Felspar Lumps: Manufacturing & Excisability Ruling

JAYASHREE INSULATORS Versus COLLECTOR OF CENTRAL EXCISE, VADODARA

JAYASHREE INSULATORS Versus COLLECTOR OF CENTRAL EXCISE, VADODARA - 1999 (105) E.L.T. 451 (Tribunal) Issues Involved:1. Excisability and dutiability of felspar powder and its classification under Chapter Heading 2505.00.2. Clubbing of clearances of the appellants.3. Timeliness of the demands.4. Imposability of penalty.Detailed Analysis:1. Excisability and Dutiability of Felspar Powder:The appellants argued that the conversion of felspar lumps into powder does not constitute 'manufacture' under Section 2(f) of the Central Excise Act. They contended that the process was carried out by independent job workers on a principal-to-principal basis, and thus, the resultant powder should not attract excise duty. However, the Tribunal referred to several judgments, including those by the M.P. High Court and the Tribunal itself, which held that the conversion of stones into powder amounts to manufacture. Consequently, the Tribunal concluded that the conversion of felspar lumps into powder is indeed a manufacturing process, making the resultant product excisable and dutiable under Chapter Heading 2505.00.2. Clubbing of Clearances:The appellants contended that the clearances of the independent job workers should not be clubbed with their own. They argued that the job workers were independent entities operating on a principal-to-principal basis and not dummy units. The Tribunal found merit in this argument, noting that the department failed to provide evidence that the job workers were merely hired laborers or dummy units of the appellants. The Tribunal referred to the case of Fusion Polymers Ltd., which established that job workers operating on a principal-to-principal basis are independent manufacturers. Therefore, the Tribunal ruled that the clearances should not be clubbed.3. Timeliness of the Demands:The appellants argued that the demands were time-barred, as there was no deliberate attempt to evade duty. They cited the Division Bench of the M.P. High Court's decision in S.N. Sunderson (Minerals) Ltd., which held that in cases of conflicting views on the excisability of a product, a bona fide belief in non-excisability should be accepted, and the larger period for raising demands should not be invoked. The Tribunal agreed with this view, concluding that the appellants' bona fide belief in the non-excisability of felspar powder was reasonable. As a result, the demands beyond the standard six-month period were set aside.4. Imposability of Penalty:Given the Tribunal's acceptance of the appellants' bona fide belief regarding the non-excisability of felspar powder, it followed that penalties should not be imposed. The Tribunal noted that penalties are not warranted when there is no deliberate contravention of provisions. Consequently, the penalties imposed on the appellants and the job workers were set aside.Separate Judgment by Vice President:The Vice President provided a separate judgment, emphasizing that the conversion of felspar lumps into powder should be considered in the context of Section 2(f) of the Central Excise Act and Chapter Note 2 of Chapter 25. He highlighted that the existence of a new product known to the market is crucial for determining whether a process constitutes manufacture. In this case, the department failed to provide evidence that the conversion resulted in a new marketable product. Therefore, he concluded that the process did not amount to manufacture. He also agreed that the demands were time-barred and that penalties were not imposable, leading to the setting aside of the impugned orders and allowing the appeals.