2000 (1) TMI 205 - AT - Central Excise

Tribunal finds drilling & welding on steel not manufacturing; subcontractors liable if duty applies

The tribunal allowed the appeal, determining that the processes of drilling, welding, and fastening on fabricated steel structures did not amount to ... Manufacture - Duty Liability Issues Involved:1. Classification and liability of duty on fabricated steel structures.2. Whether the processes of drilling, welding, and fastening amount to manufacture.3. Determination of the manufacturer liable for duty.4. Applicability of various judicial precedents on the matter.Issue-wise Detailed Analysis:1. Classification and Liability of Duty on Fabricated Steel Structures:The appellants, civil engineers and contractors, were directed to pay a duty of Rs. 9,79,498/- on steel structures classified under the proviso to sub-section (1) of Sec. 11A of the Central Excise Act, 1944. The Collector also imposed a penalty of Rs. 50,000/- for contravening Rules 173Q and 9(2) of the Central Excise Rules. The appellants argued that they did not undertake the fabrication of steel structures themselves but subcontracted the work to Indian Commerce and Industries Co. Ltd. (ICI). The raw material was supplied by Goa Shipyard Ltd., and the appellants retained a middleman trader's profit while passing on job work charges to ICI. The adjudicating authority rejected the appellants' contentions and confirmed the duty demand and penalty.2. Whether the Processes of Drilling, Welding, and Fastening Amount to Manufacture:The appellants contended that processes such as drilling, welding, and fastening do not amount to manufacture and cited several judicial precedents to support their claim. They referenced the judgments of Tata Engineering & Locomotives v. CCE, Pratap Steel Rolling Mills v. CCE, and Thungabhadra Steel Products Ltd. v. UOI, which held that such processes do not result in a new product with a distinct name, character, and use. The adjudicating officer, however, found that the activities of converting raw materials into columns, roof girders, cladding runners, and purlins amounted to manufacture as they resulted in new products known in the market, thus attracting duty.3. Determination of the Manufacturer Liable for Duty:The appellants argued that the fabrication was done by the sub-contractors, ICI Ltd., Madras, who should be considered the manufacturers. They cited the Supreme Court judgment in Ujjagar Prints Ltd. case, which held that the job worker (sub-contractor) is the manufacturer. The adjudicating officer, however, demanded duty from the appellants and dropped proceedings against GSL and ICI. The tribunal found that since the fabrication was done by the sub-contractors, the sub-contractors should be liable for the duty, not the appellants.4. Applicability of Various Judicial Precedents on the Matter:The tribunal considered several judicial precedents cited by the appellants. The Bombay High Court in TELCO's case held that processes like cutting, drilling, and fastening do not amount to manufacture as they do not result in a new product with a distinct identity. The Karnataka High Court in Thungabhadra Steel Products Ltd. v. UOI also held that assembling fabricated structures at the customer's site does not amount to manufacture. The tribunal found these judgments applicable to the case and concluded that the fabricated steel structures did not result in a new product and thus were not liable for excise duty.Conclusion:The tribunal allowed the appeal, concluding that the processes undertaken did not amount to manufacture and that the sub-contractors, not the appellants, were liable for any duty if applicable. The tribunal's decision was based on the application of relevant judicial precedents and the facts of the case. The appeal was allowed with consequential relief according to law.