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2026 (8) TMI 919 - Supreme Court Central Excise

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Issues: (i) Whether the appeal concerning invocation of extended limitation, where valuation of body-built vehicles is involved, was maintainable under Section 35L; (ii) Whether the assessable value of the body-built vehicle had to include the 10% addition forming part of the chassis value under Rule 8; (iii) Whether the extended limitation under the proviso to Section 11A could be invoked for the demand.

Issue (i): Whether the appeal concerning invocation of extended limitation, where valuation of body-built vehicles is involved, was maintainable under Section 35L.

Analysis: The limitation dispute arose from the alleged non-inclusion of a component of the chassis value in determining the assessable value of the completed vehicle. Since valuation for assessment was the core subject of the show-cause notice, the controversy had an inextricable connection with valuation of goods. Relegating the matter after prolonged pendency was unwarranted.

Conclusion: The appeal was maintainable under Section 35L of the Central Excise Act, 1944.

Issue (ii): Whether the assessable value of the body-built vehicle had to include the 10% addition forming part of the chassis value under Rule 8.

Analysis: The chassis had been cleared to the job worker on a statutorily determined value of 110% of its manufacturing cost under Rule 8. On clearance of the completed vehicle, the value of the intermediate chassis, including that 10% addition, formed part of the cost on which duty had been paid and credit utilised. The exclusion recognised for a manufacturer's anticipated post-manufacture sale profit and post-clearance expenses did not permit exclusion of the 10% embedded in the chassis value.

Conclusion: The 10% addition included in the chassis valuation under Rule 8 had to be included in the assessable value of the body-built vehicle; this issue was against the assessee.

Issue (iii): Whether the extended limitation under the proviso to Section 11A could be invoked for the demand.

Analysis: Invocation of the extended period requires fraud, collusion, wilful misstatement, wilful suppression, or contravention with intent to evade duty. The Department knew that the manufacturer had valued the chassis at 110% of manufacturing cost. Where relevant facts are known to both sides, an omission by the assessee does not amount to wilful suppression. The demand period preceded the show-cause notice beyond the normal one-year limitation.

Conclusion: The proviso to Section 11A could not be invoked; the demand was time-barred. This issue was in favour of the assessee.

Final Conclusion: Although the valuation component was legally includible, recovery for the relevant period was barred by limitation, and the orders sustaining the demand were set aside.

Ratio Decidendi: Extended limitation for excise duty can be invoked only upon a wilful act intended to evade duty; omission does not constitute suppression where the material facts were already known to the Department.

Extended limitation requires wilful intent to evade duty; departmental knowledge of valuation facts bars time-barred excise recovery.
Excise valuation of body-built vehicles includes the 10% addition embedded in the chassis value determined under Rule 8, because that amount forms part of the intermediate chassis cost used in the completed vehicle. The exclusion for anticipated post-manufacture sale profit and post-clearance expenses does not permit exclusion of this embedded addition. Extended limitation for duty recovery requires fraud, collusion, wilful misstatement, wilful suppression, or contravention with intent to evade duty. Where the Department already knows the material valuation facts, an assessee's omission does not constitute wilful suppression; recovery beyond the normal limitation period is therefore barred.

Assessable value of body-built motor vehicles manufactured on job work - Extended limitation for wilful suppression under Central Excise law - Supreme Court appellate jurisdiction in valuation disputes Supreme Court appellate jurisdiction in valuation disputes - Maintainability of the appeals before the Supreme Court where invocation of the extended limitation period arose from alleged undervaluation of body-built motor vehicles - HELD THAT: - Though the dispute concerned limitation, it was inextricably linked with the value of goods for assessment, since the alleged suppression related to valuation of the body-built vehicle. The valuation issue formed the core of the show cause notice; hence, the appeals were entertained under Section 35L rather than relegated to the jurisdictional High Court. [Paras 4] The preliminary objection to the maintainability of the appeals was rejected. Assessable value of body-built motor vehicles manufactured on job work - Inclusion of Rule 8 valuation margin in job-work assessable value - Assessable value of a body-built motor vehicle cleared by a job worker where the chassis supplied by the manufacturer had been valued at 110% of its manufacturing cost under Rule 8 of the Valuation Rules - HELD THAT: - The value of the chassis for which duty had been paid by the manufacturer included the additional 10% prescribed under Rule 8. On clearance of the completed vehicle by the job worker on a deemed sale basis, that component necessarily formed part of the cost of the vehicle, together with the job worker's material cost, expenses and profit. The manufacturer's anticipated profit on subsequent sale of the completed vehicle and post-receipt expenses remained excluded. The governing principle in M/s Ujagar Prints and Others (III) [1989 (1) TMI 124 - SUPREME COURT] applied directly; the issue was not unsettled. [Paras 11, 12] The assessee was liable to include the additional 10% comprised in the chassis valuation while determining the assessable value of the body-built motor vehicle. Extended limitation for wilful suppression under Central Excise law - Departmental knowledge of material facts - Invocation of the extended limitation period for non-inclusion of the additional 10% in the assessable value of body-built motor vehicles - HELD THAT: - Fraud, collusion, wilful misstatement, wilful suppression or contravention with intent to evade duty is necessary for invoking the proviso to Section 11A. Where the manufacturer had cleared the chassis at 110% of manufacturing cost and that fact was known to the Department, non-inclusion of the additional component by the job worker could not constitute wilful suppression. The Department ought to have proceeded within the ordinary limitation period. [Paras 14, 15, 16, 17] The extended period was unavailable; the show cause notice having been issued beyond the one-year period was time-barred, and the orders sustaining the demand and penalty were set aside. Final Conclusion: While affirming the assessee's substantive valuation liability, the Court held the demand barred by limitation because the Department knew the material valuation facts and could not invoke the extended period. The appeals were allowed and the orders sustaining the demand and penalty were set aside.

2026 (8) TMI 328 - Supreme Court Central Excise

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Manufacture requires a new marketable article; customer-specific grouping and plugging of imported photocopier modules does not qualify.
Manufacture requires transformation into a new and distinct marketable article with a different name, character or use; labour, skill, value addition or processing alone is insufficient where the commodity remains commercially unchanged. Note 6 to Section XVI applies only when an incomplete or unfinished article with the essential character of a finished article is converted into the complete article. Where imported photocopier modules were already assessed as complete machines and warehouse operations were limited to unpacking, grouping, pinning and plugging modules for customer-specific dispatch, those operations did not amount to manufacture. Rule 2(a), being a classification rule, does not determine whether a later process constitutes manufacture.

Manufacture-transformation into distinct marketable commodity - Deemed manufacture-conversion of incomplete article into complete articleManufacture-kitting of photocopier modules - Distinct name, character or use test - Kitting imported photocopier modules by unpacking, plugging and pinning them into customer-specific sets did not amount to manufacture under the Central Excise Act. - HELD THAT: - Manufacture requires transformation resulting in a new article having a distinct name, character and use, ordinarily recognised and marketable as a separate commodity; labour, skill, expense or value addition alone is insufficient. The Tribunal's factual findings that the components were cleared in their original packing, that no physical assembly occurred at the warehouse, and that the relevant fittings had been made abroad were supported by the record and were not perverse. The Revenue failed to establish that the kitting activity brought a new photocopier into existence. [Paras 14, 15, 17, 20]The activity did not attract excise duty as manufacture.Note 6 to Section XVI-conversion of incomplete article - Classification of unassembled goods - Note 6 to Section XVI of the Central Excise Tariff Act was inapplicable to imported photocopier modules classified and assessed as complete machines. - HELD THAT: - The deeming provision requires proof both that the article presented was incomplete or unfinished and that it was converted by the person charged into the complete article. Neither condition was established: the goods were imported and assessed as complete machines and were cleared from the warehouse without any process performed on them. Rule 2(a) of the General Rules for Interpretation is only a classification rule and does not determine whether a subsequent process amounts to manufacture. [Paras 18]The Revenue could not invoke Note 6 to sustain the demand.Final Conclusion: The Revenue's appeals were dismissed. The Tribunal's finding that no manufacture occurred at the assessee's warehouse was upheld, and the excise-duty demand could not be sustained.

2026 (5) TMI 1663 - Supreme Court Central Excise

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Issues: (i) whether the High Court had jurisdiction under Section 35G of the Central Excise Act, 1944 to decide the excisability of the aluminium composite panels; and (ii) whether cutting, grooving and routing of the aluminium composite panels amounted to manufacture under Section 2(f) of the Central Excise Act, 1944.

Issue (i): whether the High Court had jurisdiction under Section 35G of the Central Excise Act, 1944 to decide the excisability of the aluminium composite panels.

Analysis: An appeal under Section 35G is excluded where the order of the Tribunal concerns a question having a relation to the rate of duty or the value of goods for assessment. The determination whether goods are excisable is a necessary precursor to assessment and is directly and proximately connected with the rate of duty. Section 35L, read with its clarificatory sub-section (2), channels such disputes to the Supreme Court and confirms that excisability falls within the excluded class of questions.

Conclusion: The High Court lacked jurisdiction to decide the question of excisability; the proper forum was the Supreme Court.

Issue (ii): whether cutting, grooving and routing of the aluminium composite panels amounted to manufacture under Section 2(f) of the Central Excise Act, 1944.

Analysis: Manufacture requires emergence of a new and distinct commercial product with a different name, character or use, and marketability of the resultant goods must also be shown. The process undertaken only cut the panels to size, grooved them and adapted them for installation. It did not alter the essential identity or commercial character of the goods, and the Revenue did not establish that the processed panels emerged as distinct marketable goods.

Conclusion: The process did not amount to manufacture and the resultant goods were not shown to be dutiable excisable goods.

Final Conclusion: The appeal was allowed, the High Court's judgment was set aside, and the assessee succeeded on both jurisdiction and merits.

Ratio Decidendi: A dispute on excisability is a question having a direct and proximate relation to assessment and therefore lies within the Supreme Court's exclusive appellate domain under Section 35L, and superficial processing that does not create a distinct marketable commercial product is not manufacture.

Excisability and manufacture under central excise law: High Court lacked jurisdiction, and panel processing was not manufacture.
A dispute on excisability has a direct and proximate relation to assessment and therefore falls within the Supreme Court's exclusive appellate domain under Section 35L; the High Court lacked jurisdiction under Section 35G to decide that issue. Cutting, grooving and routing aluminium composite panels merely adapted them for installation and did not bring into existence a new, distinct and marketable commercial product with a different name, character or use; the process was therefore not manufacture under Section 2(f). The assessee succeeded on both jurisdiction and merits, and the High Court's judgment was set aside.

Jurisdiction of the High Court under Section 35G of the Central Excise Act, 1944 to decide the appeal - Excisability as a question relating to rate of duty - Clarificatory and retrospective amendment - cutting, grooving, routing and fixing of aluminium composite panels - Meaning, scope and application of “manufacture” under Section 2(f) - Marketability of transformed goods. Excisability and appellate forum - Relation to rate of duty for assessment - Clarificatory amendment to appellate jurisdiction - HELD THAT: - The Court held that the exclusion in Section 35G covers questions having a direct and proximate relation to the rate of duty or value of goods for purposes of assessment, and that excisability is intrinsically part of that exercise. It is trite law that an amendment could be characterized as clarificatory of existing law when the provision it seeks to amend was subject to more than one interpretation. In other words, the provision prior to the amendment was not being interpreted in harmony with the statutory intent without the amendment being read into it. A determination whether goods are excisable is a necessary precursor to assessment and therefore falls within the expression relating to rate of duty. Reading Sections 35G and 35L together, the statutory scheme is complete and mutually exclusive: what is excluded from the High Court's jurisdiction is channelled to the Supreme Court. The later insertion of Section 35L(2) was held to be merely clarificatory, as it did not create a new right or forum but only made explicit that taxability or excisability was always included within questions relating to rate of duty; consequently, it operates retrospectively. [Paras 43, 45, 46, 47, 53] The Revenue's remedy against the Tribunal's order lay before the Supreme Court under Section 35L and not before the High Court. Manufacture of aluminium composite panels - Transformation test - Marketability as distinct goods - Burden to prove marketability - HELD THAT: - The test laid down in J.G. Glass [1997 (12) TMI 110 - SUPREME COURT] was laid down to decipher “manufacture” of goods. In furtherance of the ‘fundamental change’ test and ‘but for the process’ test, this Court in Servo-Med [2015 (5) TMI 292 - SUPREME COURT] tied the application of the tests to marketability of the manufactured goods. This is done so because it is marketability which reflects whether the goods are excisable goods as defined under the Act, 1944. The dispute between the parties before us primarily lies with respect to the transformation test. It is the case of the appellant that no transformation has occurred and there is no change in the name, character, identity or use as, first, the function and end use of both the ACPs before and after cutting and grooving remains the same. Secondly, cutting and grooving of the ACPs is only for functional purposes. It is undisputed that the cutting and grooving are undertaken at the premise of the appellant. However, the location at which a such a process is carried out is not much of significance to the question of whether it is manufacturing. The fact that these steps are carried at the appellant’s premises does not elevate them to the level of manufacture. We would also emphasize that merely because an assessee gave the specifications he could not be considered engaged in manufacturing. There is no doubt that by cutting the ACPs into various sizes and routing them, the ACPs are undergoing a process which brings a change. However, it is only when a change or series of changes result in new and distinct goods that manufacturing is said to take place. At the same time, even if undergoing processing, if goods retain their substantial identity, they would be processed and not manufactured in terms of Section 2(f) of the Act, 1944. The Court applied the settled two-fold requirement for excisability: emergence of distinct goods with a new identity, character or use, and marketability of the transformed goods as such. On the facts, what entered the process was an aluminium composite panel and what emerged remained the same panel, only cut, grooved and bent for site-specific fixing. These operations merely adapted the goods for installation and did not alter their fundamental identity, character or end-use as cladding or facade material. The subsequent fixing on frames with clamps and sealant was also treated as installation activity, not creation of new goods. The Court further reiterated that marketability is an independent requirement and must be affirmatively proved by the Revenue through objective material showing that the goods are recognized and dealt with in the market as a distinct product. Since no transformation into distinct goods was shown, the question of marketability lost significance in the present case. [Paras 84, 85, 86, 95, 96] The process undertaken by the assessee did not yield a distinct excisable product, and excise duty was therefore not attracted. Final Conclusion: The Supreme Court allowed the appeal, held that the High Court had no jurisdiction to decide the Revenue's appeal on excisability, and further held on merits that cutting and grooving aluminium composite panels for site-specific installation did not amount to manufacture. The impugned judgment was accordingly set aside.

2026 (3) TMI 1632 - Supreme Court Central Excise

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Issues: (i) Whether naphtha procured under exemption notifications for use in the manufacture of fertilizer or ammonia remained eligible for exemption when it was used as a supplementary fuel in a common steam-generation system feeding multiple plant units. (ii) Whether the extended period of limitation and consequential penalty could be invoked on the basis of alleged suppression or misdeclaration in the CT-2 procurement process.

Issue (i): Whether naphtha procured under exemption notifications for use in the manufacture of fertilizer or ammonia remained eligible for exemption when it was used as a supplementary fuel in a common steam-generation system feeding multiple plant units.

Analysis: The exemption notifications turned on the expression "for use" and the requirement that the goods be cleared for the intended use. The governing principle is that, where the notification is framed around intended use, the relevant inquiry is whether the goods were procured and used with that intended purpose, not whether every molecule can be traced to the final product or whether the goods were exclusively consumed in one unit. The Court applied the settled distinction between eligibility to exemption and the stage of construing the scope of the notification, and held that the notification could not be read as requiring exclusive or direct use only. On the facts, naphtha was procured on the strength of CT-2 certificates for use in fertilizer and ammonia manufacture, and its use in the steam-generation system, including for electricity largely deployed in the fertilizer operations, did not defeat the intended-use condition.

Conclusion: The exemption was available and the demand based on denial of exemption was unsustainable, in favour of the assessee.

Issue (ii): Whether the extended period of limitation and consequential penalty could be invoked on the basis of alleged suppression or misdeclaration in the CT-2 procurement process.

Analysis: The proviso to the limitation provision applies only where non-payment is attributable to fraud, collusion, wilful misstatement, suppression of facts, or a contravention committed with intent to evade duty. Mere non-acceptance of the assessee's interpretation of the exemption, or inability to segregate the exact quantum of fuel consumed in different units, does not by itself establish deliberate suppression. The Court also treated the case as revenue neutral, since any duty burden would ultimately have been offset in the regulated subsidy structure. In that setting, the essential element of intent to evade was absent, and the foundations for extended limitation and penalty fell away.

Conclusion: The extended period of limitation was not available and the penalty could not survive, in favour of the assessee.

Final Conclusion: The excise demand, interest and penalties were set aside, and the challenge to the rectification-related proceedings was rendered academic in view of the substantive relief granted.

Ratio Decidendi: Where an exemption notification is conditioned on intended use, the exemption is not defeated merely because the procured goods are employed through an integrated utility system and cannot be directly traced to each end-product unit, and the extended limitation for excise recovery cannot be invoked absent deliberate suppression or intent to evade duty, particularly in a revenue-neutral situation.

Intended-use exemption and extended limitation under excise law turn on actual purpose, not exclusive traceability or mere dispute over classification.
An exemption notification tied to intended use was construed to require procurement and use for the stated manufacture, not exclusive or directly traceable consumption in each end-product unit. Naphtha obtained on CT-2 certificates for fertilizer and ammonia production did not lose exemption merely because it was used as supplementary fuel in an integrated steam-generation system serving multiple plant units, where the electricity generated was largely deployed in fertilizer operations. The extended limitation period and penalty depended on fraud, suppression or intent to evade duty; mere disagreement on exemption eligibility or difficulty in segregating fuel use was insufficient, especially in a revenue-neutral setting. On that basis, the demand, interest and penalties were set aside.

Exemption based on intended use - procuring Naphtha at nil rate of duty - claiming benefit of exemption under notification Nos. 75/84-CE and 4/97-CE dated 01.03.1997, as amended, for ‘intended use’ in the manufacture of fertilizer - Extended period of limitation - Suppression of Facts - Intent to Evade Duty - duty demand - interest and penalty. Intended use in exemption notification - Concessional duty on Naphtha - HELD THAT: - Section 5A of the Central Excise Act deals with the power to grant exemption from duty of excise. As per sub-section (1), if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the official gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon. The exemption notification No. 75/1984-CE dated 01.03.1984. This notification was issued by the Central Government in exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 exempting the goods described in column (3) of the table appended thereto and included in the first Schedule to the Central Excise Act, 1944 from so much of the duty of excise leviable thereon subject to the intended use or the conditions laid down in the corresponding entry in the table appended. At serial No. 6.02 is mentioned raw Naphtha at the concessional rate of duty as mentioned in column (4). In column (5) of the table, it is mentioned that such concessional rate of duty would be available if the raw Naphtha was procured for the intended use in the manufacture of fertilizers and ammonia. As per the proviso, where the intended use was in the manufacture of ammonia, such ammonia was used elsewhere in the manufacture of fertilizers and the procedure set out in Chapter X of the Central Excise Rules, 1944 was followed. The next notification is notification No. 4/1997-CE dated 01.03.1997. In exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944, the Central Government being satisfied that it is necessary in the public interest so to do, exempted the excisable goods specified in column (3) of the appended table and included in the Schedule to the Central Excise Tariff Act, 1985 as specified in the corresponding entry to column (2) of the table from so much of the duty of excise leviable thereon as specified in the corresponding entry in column (4), subject to any of the conditions specified in the annexures to the said notification, which were mentioned in the corresponding entry in column (5) of the appended table. At serial No. 8 is mentioned the excisable goods Naphtha and natural gasoline liquid for use in the manufacture of fertilizer or ammonia. The rate of duty is nil and it is subject to condition Nos. 3 and 4 as per the annexure. Condition Nos. 3 and 4 are the same as the conditions mentioned in the proviso to the notification No. 75/84-CE. The first show cause notice is dated 29.08.2001. This show cause notice covers the period from 27.11.1996 to 31.03.2001. Within the aforesaid period, the last period in respect of which the aforesaid show cause notice was issued was from 16.02.2001 to 31.03.2001. The subsequent 25 show cause notices are from dated 05.10.2004 to dated 03.08.2005. The show cause notice dated 05.10.2004 covered the period from September, 2003 to June, 2004. As regards the show cause notice dated 03.08.2005 is concerned, the same covered the period from July, 2004 to February, 2005. The Court held that the governing expression in the notifications was use or intended use in the manufacture of fertilizer or ammonia. Relying on Dalmia Dadri Cement Ltd.[1987 (11) TMI 94 - SUPREME COURT] and Steel Authority of India Ltd [1996 (7) TMI 147 - SUPREME COURT] it held that the notification did not require proof of actual exclusive end-use in every downstream segment, but proof that the goods were procured and used for the purpose and with the intention of manufacturing fertilizer or ammonia. It is quite evident that Naphtha which was procured from HPCL was intended for use by the appellant in the manufacture of fertilizer and ammonia. It is immaterial that a fraction of such procured Naphtha had to be used for generation of electricity which was also mostly used in the manufacture of fertilizer and ammonia but a portion of which had to be used in the chemical plant beside being supplied to the Maharashtra State Electricity Board. If that be the position, appellant would be entitled to avail the benefit of concessional rate of duty in terms of the exemption notifications alluded too hereinabove. The appellant was entitled to the benefit of the exemption notifications and the duty demand on the footing of non-eligible use was unsustainable. Extended period of limitation - Suppression of facts - Revenue neutrality - HELD THAT: - As noted, prior to 08.04.2011, the limitation period under Section 11A of the Central Excise Act was one year. It is thus evident that all the show cause notices issued to the appellant pertained to periods which were beyond one year. In such circumstances, respondent invoked the extended period of limitation under the proviso to sub-section (1) of Section 11A of the Central Excise Act. We have also noted that the extended limitation period of five years would be available to the respondent in a case where any duty of excise has not been levied or not paid or has been short levied or short paid or erroneously refunded by reason of fraud or collusion or on account of any willful mis-statement or suppression of facts or contravention of any of the provisions of the Central Excise Act or of the Rules made thereunder with the intent to evade payment of duty. Thus, fraud, collusion, willful mis-statement or suppression of facts stand in one category and contravention of any of the provisions of the Central Excise Act or the rules made thereunder is another category. In the first category, the act is deliberate and is so egregious that such omission or infraction would by itself be sufficient to attract the extended period of limitation. However, in the later category, the contravention of the statute would have to be accompanied by an intent to evade payment of duty to attract the extended period of limitation. The Court held that invocation of the extended period required fraud, collusion, wilful misstatement or deliberate suppression, or contravention with intent to evade duty. Referring to Pushpam Pharmaceuticals Company [1995 (3) TMI 100 - SUPREME COURT] it reiterated that suppression in this context must be deliberate. The appellant had furnished particulars on the basis of which CT-2 certificates were issued, and the dispute itself turned on interpretation of the expression intended use in the exemption notifications. In that setting, intent to evade duty could not be attributed. The Court further held that the case was revenue neutral, since any duty impact would ultimately stand neutralised, and following Nirlon Limited [2015 (5) TMI 101 - SUPREME COURT] such revenue neutrality ruled out invocation of the extended period. [Paras 49, 50, 56, 57, 58] The demand was barred by limitation to the extent it depended on the extended period, and the penalty sustained on that basis was liable to fail. Final Conclusion: The Court allowed the two civil appeals on both merits and limitation, holding that the appellant was entitled to the exemption on Naphtha and that the extended period could not be invoked. The orders-in-original and the CESTAT order were set aside, and the appeal arising from the rectification proceedings was disposed of as academic.

2025 (12) TMI 320 - Supreme Court Central Excise

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the processes applied to grey cotton fabrics at two separate units - bleaching and mercerizing at one unit, and squeezing and stentering at another - collectively constitute "manufacture" with the aid of power, thereby disentitling the processed fabrics from exemption under Entry 106 of Notification No. 5/98-CE.

1.2 Whether, for determining "manufacture" and eligibility to exemption, the processes undertaken at the two distinct partnership units could be clubbed as one continuous and integrated manufacturing process, notwithstanding their separate legal identities and the dropping of demand against one of them.

1.3 Whether the CESTAT was justified in isolating the activities of each unit, treating them as independent and non-clubbable, and thereby extending the benefit of the exemption notification to the unit from which the final goods were cleared.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Manufacture with aid of power and applicability of Entry 106 of Notification No. 5/98-CE

Legal framework

2.1 The Court referred to Section 2(f) of the Central Excise Act, 1944 (pre-2017 amendment), defining "manufacture" to include any process: (i) incidental or ancillary to completion of a manufactured product; (ii) specified in the Tariff as amounting to manufacture; and (iii) in relation to certain goods, involving packing, repacking, labelling or other treatment to render goods marketable.

2.2 Entry 106 of Notification No. 5/98-CE was reproduced, granting exemption to "cotton fabrics processed without the aid of power or steam," with an Explanation deeming colour fixation by passing steam over fabrics to be without the aid of steam.

2.3 The Court relied on prior decisions interpreting "manufacture" and "process" in exemption notifications: (i) Standard Fireworks Industries, holding exemption inapplicable where any process in relation to manufacture is carried on with aid of power, even if outside the factory; and (ii) Collector of Central Excise v. Rajasthan State Chemical Works, explaining that manufacture involves a series of processes, each step integrally connected with the final product, and that any essential or subordinate activity in relation to manufacture is also a "process."

Interpretation and reasoning

2.4 Applying the above principles, the Court reiterated that manufacture is the cumulative effect of various integrally connected processes to which raw material is subjected, and each essential step in that chain is a "process in relation to the manufacture."

2.5 Factually, the show cause notice and the Order-in-Original recorded that:

(a) Unit No. 1 received grey fabrics and carried out bleaching and mercerizing;

(b) the bleached/mercerized fabrics in wet condition were moved to Unit No. 2 for squeezing and stentering, the latter being carried out with the aid of power; and

(c) the dry fabrics were then returned to Unit No. 1 for bailing/folding and packing, after which they were cleared as cotton fabrics.

2.6 The Court considered all these activities-bleaching, mercerizing, squeezing, stentering, and bailing/packing-as forming one continuous chain of processes in the conversion of grey fabrics into finished cotton fabrics. Each operation was integrally connected; without any one of them, the manufacture or processing of the final product would be impossible or commercially inexpedient.

2.7 In particular, stentering with the aid of power at Unit No. 2 was found to be an integral part of that chain of manufacture. Following the ratio of Standard Fireworks and Rajasthan State Chemical Works, the use of power at any essential stage in relation to manufacture rendered the overall manufacture as being "with the aid of power" for the purpose of applying the exemption notification.

2.8 The Court held that the CESTAT erred in concluding that the processed fabrics at Unit No. 1 were manufactures "without the aid of power" merely because, viewed in isolation, certain processes at Unit No. 1 might not have used power. The correct enquiry was whether, in relation to the manufacture of the final cotton fabrics, any process in the chain used power.

Conclusions

2.9 The conversion of grey fabrics into cotton fabrics involved an integrated series of processes, including stentering with the aid of power at Unit No. 2. Consequently, the manufacture of cotton fabrics was with the aid of power.

2.10 Since a process in relation to the manufacture of the final goods was admittedly carried out with the aid of power, the goods did not satisfy the condition "processed without the aid of power or steam" in Entry 106 of Notification No. 5/98-CE.

2.11 Unit No. 1 was, therefore, not entitled to the benefit of exemption under the said Entry.

Issue 2: Clubbing of processes across two separate units for determining manufacture and exemption

Interpretation and reasoning

2.12 The CESTAT, in allowing the appeals, had laid emphasis on:

(a) separate partnership concerns for each unit;

(b) absence of common partners;

(d) separate job work bills and payments,

and on that basis refused to club the activities of both units for determining excisability and eligibility to exemption.

2.13 The Court held that this approach misdirected itself by focusing on the distinct legal identities of the units instead of the nature of the processes and their role in the chain of manufacture. The critical test was whether the processes undertaken at both units formed part of a continuous and integrated chain culminating in the final product, not whether the entities were separately constituted.

2.14 On the facts found in the Order-in-Original, the two units operated in a common premises, and the grey fabrics moved physically from one unit to the other and back, undergoing sequential processes (bleaching/mercerizing ? squeezing/stentering ? bailing/packing) before clearance as cotton fabrics. This sequence was a single continuous manufacturing activity in relation to the same goods.

2.15 The Court therefore treated the processes at both units as one composite manufacturing process for the purposes of Section 2(f) and the exemption notification. The exclusivity or independence of the partnership concerns, and distinct billing patterns, were held immaterial to this characterization of the manufacturing chain.

Conclusions

2.16 For determining whether the goods were "processed without the aid of power," the processes at both units had to be clubbed and considered as one continuous and integrated manufacturing process.

2.17 The CESTAT's refusal to club these activities, on the ground of distinct legal identities and separate job work arrangements, was legally erroneous.

Issue 3: Effect of dropping demand against one unit and correctness of CESTAT's interference with the Order-in-Original

Interpretation and reasoning

2.18 The CESTAT held that, since the demand was not confirmed against Unit No. 2, the use of power at Unit No. 2 during stentering could not affect the eligibility of Unit No. 1 to the exemption; it thus treated the power-based process at Unit No. 2 as irrelevant for Unit No. 1's liability.

2.19 The Court rejected this reasoning, stating that the non-confirmation of demand against Unit No. 2 did not alter the character of the overall manufacturing process. For the purposes of Section 2(f) and the exemption notification, the focus had to be on the entirety of the processes that the goods actually underwent before clearance, irrespective of on whom the demand was ultimately fastened.

2.20 Once it was established that the fabrics cleared from Unit No. 1 had undergone stentering with the aid of power at Unit No. 2 as part of the same manufacturing chain, the fact that demand was dropped against Unit No. 2 could not be invoked to treat the goods as "processed without the aid of power."

2.21 The Court found that the Commissioner's Order-in-Original had correctly appreciated the evidence and applied the law on integrated processes and use of power, and that the CESTAT had interfered by artificially bifurcating a continuous manufacturing process and misapplying the settled legal principles.

Conclusions

2.22 The non-confirmation or dropping of demand against Unit No. 2 was irrelevant to the characterization of the overall process as manufacture with aid of power and to the liability of Unit No. 1.

2.23 The CESTAT erred in setting aside the Order-in-Original by treating the processes of each unit as independent and ignoring the integrated nature of manufacture; its view was contrary to settled legal principles on "process" and "manufacture."

2.24 The Order-in-Original, fastening duty and penalty liability on Unit No. 1 on the basis that the cotton fabrics were manufactured with the aid of power and hence not exempt, was correctly restored by the Court.

Power-Aided Stentering Disqualifies Cotton Fabric Units from Exemption under Entry 106 of Notification 5/98-CE due to Integrated Manufacturing Process
SC held that manufacture of processed cotton fabrics involved an integrated, continuous series of operations across two units, including stentering with the aid of power, and that all such integrally connected processes must be considered cumulatively. Since power was used in an essential stage of manufacture, the assessee was not entitled to exemption under Entry 106 of Notification 5/98-CE, which applies only where no process of manufacture is carried on with the aid of power. SC ruled that CESTAT erred in artificially bifurcating the manufacturing process and in ignoring the role of Unit 2. The CESTAT order was quashed and the Commissioner's Order-in-Original was restored.

Process amounting to manufacture or not - conversion of grey fabrics to cotton fabrics include an integral process of stentering undertaken with the aid of power or not - eligibility for benefit from exemption under Entry 106 of N/N. 5/98-CE - HELD THAT:- In Standard Fireworks Industries, Sivakasi and another [1987 (2) TMI 65 - SUPREME COURT], the manufacturers of fireworks sought to claim refund of duty on the ground that they were exempted from its payment as the manufacturing process was carried out without the aid of power. It was found that during the course of manufacture of fireworks, no power was used. Power was however used for the shredding of paper and cutting of steel wires. The steel wires as well as the paper were part of the manufacturing process and used while preparing the fireworks. In that context, this Court held that the Exemption Notification was applicable only when in relation to the manufacture of the goods, no process was ordinarily carried on with the aid of power. The cutting of the steel wires and the treatment of paper were processes adopted during the manufacture of the fireworks. These processes were carried on with the aid of power, though outside the factory. On that basis the appellants therein were held not entitled to the exemption from payment of duty. A Bench of three learned Judges in Collector of Central Excise Jaipur [1991 (9) TMI 73 - SUPREME COURT] considered a similar Exemption Notification that granted exemption when no process of manufacture was carried on with the aid of power. Therein, the issue pertained to the process of manufacture of common salt from brine in the salt pans. During the course of manufacture, brine was pumped into the salt pans using diesel pumps. From the decisions, it can be seen that manufacture has been held to involve a series of distinct processes. It is the cumulative effect of the various processes to which the raw material is subjected after which the manufactured product emerges. The requirement is that the individual process should be integrally connected with each other leading to the ultimate final product. But for each individual process, the manufacture or processing of the goods would be impossible. A particular activity may be subordinate but related to the further process of manufacture. Manufacture thus is the end result of one or more processes through which the original commodity passes and then becomes the final product. The CESTAT while considering the aspect of use of power by the two Units has observed that the process of stentering at Unit No. 2 with the use of power would not make any difference as the demand had not been confirmed against it. This approach ignores the fact that the entire process of manufacture has to be taken into consideration with the end product falling into the hands of Unit No. 1 after it was subjected to an integrated process at Unit No. 2. The demand against Unit No. 2 not being confirmed would not be relevant in these facts when it is clear that the process of manufacture was cumulatively undertaken at Unit Nos.1 and 2 and that the final product was being cleared from Unit No. 1 - even on this count, the order passed by the Commissioner did not call for any interference as it had taken a correct view on the basis of the material on record. The CESTAT thus committed an error in bifurcating the continuous process of manufacture to come to the conclusion that each Unit though undertaking a distinct process of manufacture, the activities of one Unit could not be clubbed with the other. The order passed by the CESTAT dated 05.10.2011 is quashed and set aside and the Order-in-Original passed by the Commissioner, Central Excise dated 27.09.2006 stands restored - Appeal allowed.

2025 (11) TMI 505 - Supreme Court Central Excise

AI TextQuick Glance (AI)Headnote

ISSUES PRESENTED AND CONSIDERED

1. Whether the value of duty-paid bought-out items delivered directly at the buyer's site must be included in the assessable value of a boiler cleared in completely knocked down (CKD) condition for central excise duty assessment.

2. Whether the product resulting from assembly/erection at the buyer's site qualifies as "excisable goods" (i.e., movable "goods") under the Central Excise Act, 1944, or becomes immovable on erection so as to be non-excisable.

3. Whether the valuation/transaction value provisions (Section 4 as amended w.e.f. 01.07.2000) may be invoked to determine excisability or to include bought-out items in assessable value prior to establishing the taxable event under the charging section (Section 3).

4. Whether reliance on tariff classification alone determines exigibility of excise duty.

5. Whether the extended limitation period (proviso to Section 11A(1)) applies because of alleged wilful suppression/misstatement by the assessee to evade duty.

6. Whether collection or recovery of amounts from the buyer (including alleged reimbursement of duty) establishes excisability or substitutes for statutory remedies under Section 11D.

ISSUE-WISE DETAILED ANALYSIS

Issue 1-3 (Interrelated): Inclusion of bought-out items in assessable value; role of Section 3 (charging) vis-à-vis Section 4 (valuation/transaction value)

Legal framework: Section 3 is the charging provision: duty of excise levied on excisable goods "produced or manufactured in India." Section 4 prescribes valuation (transaction value) where duty is chargeable with reference to value. The 2000 amendment to Section 4 introduced transaction value rules; Section 2(d) defines "excisable goods" by reference to Schedules.

Precedent treatment: The Court reiterated the distinction repeatedly recognized in precedent that Section 3 defines the subject-matter (nature of tax) and Section 4 provides the measure. Bombay Tyre and other decisions emphasize that the measure cannot determine the subject of the levy; valuation follows, and cannot create, exigibility. Quality Steel, Mittal Engineering and Sirpur Paper establish the movability/marketability test for excisability and hold that erection/installation of plant that becomes immovable is not excisable.

Interpretation and reasoning: The Court held that the sequence is: (i) determine whether a taxable event (manufacture of excisable goods) occurs under Section 3; (ii) if yes, compute duty under valuation provisions (Section 4). The amended Section 4's transaction value becomes relevant only after excisability is established. Revenue's reliance on contract price/transaction value to contend bought-out items are includible conflates valuation with charging. Thus Section 4 cannot be used to establish that the assembled product is an excisable movable good.

Ratio vs. Obiter: Ratio - valuation provisions cannot determine excisability; charging under Section 3 must be established first. Obiter - commentary on the correct sequence and cautionary note on administrative conflation between Sections 3 and 4.

Conclusion: The value of bought-out items cannot be included in assessable value by relying on transaction value (contract price) unless and until the resultant product is held to be an excisable movable good under Section 3.

Issue 2 (expanded): Whether the assembled boiler/steam generating plant is an "excisable good" (movability/marketability test)

Legal framework: "Excisable goods" are goods specified in the Tariff Schedules. The Act does not define "goods"; judicial application relies on movability and marketability tests (Sale of Goods Act interpretations, General Clauses Act, Transfer of Property Act). Tests include whether item is attached to earth, can be dismantled and sold without substantial damage, or becomes immovable by being imbedded or permanently fastened.

Precedent treatment: Quality Steel and Mittal Engineering hold that plants erected and embedded to earth cease to be goods and are not excisable; Sirpur Paper qualifies that attachment for operational efficiency does not automatically make machinery immovable if it can be dismantled and sold; CBEC circular clarifies that items that cannot be dismantled without substantial damage are non-movable and not excisable.

Interpretation and reasoning: The Court examined contract clauses (scope, definitions, payment milestones, civil works obligations) and found the contract contemplated a composite steam generating plant assembled/erected at site using CKD parts and bought-out items, involving civil works (bricks, cement, refractory, ducting). Given the magnitude/specifications (50 TPH, high pressure) and the civil integration, the resultant plant becomes permanently affixed and cannot be dismantled and reassembled without substantial damage. The object of the contract is erection/installation of an immovable plant; therefore, the final product is not a movable "good" for excise purposes.

Ratio vs. Obiter: Ratio - where assembly/erection at site produces a plant permanently affixed to earth and not reasonably dismantlable without substantial damage, the product is immovable and not excisable. Obiter - factual observations distinguishing cases where attachment is merely for operational efficiency and where dismantling remains feasible.

Conclusion: The assembled steam generating plant is immovable upon erection and thus not an excisable good; consequently bought-out parts delivered at site cannot be included in the assessable value of an excisable boiler.

Issue 4: Tariff classification and "utility"/part v. accessory debate

Legal framework: Presence of an item in the Tariff Schedule creates susceptibility to excise only if the item satisfies charging provisions (i.e., is a good and produced/manufactured). Distinction between "part" and "accessory" is relevant only after excisability is established.

Precedent treatment: Moti Laminates cautions that tariff classification alone does not alter the basic character of leviability; Quippo (referred) sets functional test for part v. accessory but does not override charging requirement.

Interpretation and reasoning: The Court found revenue/tribunal misplaced focus on whether bought-out items were "essential parts" (utility test). That question is subordinate and irrelevant where the resultant product is not excisable. Even if bought-out items are functionally essential, inclusion in assessable value depends on the underlying product being excisable.

Ratio vs. Obiter: Ratio - tariff presence and utility/part analysis cannot substitute for the initial excisability inquiry. Obiter - elaboration that the part/accessory debate is consequential only upon an affirmative finding of excisability.

Conclusion: Tariff classification and part/accessory analysis do not establish exigibility; they are inapplicable where the assembled product is immovable and non-excisable.

Issue 6: Recovery/collection from buyer and applicability of Section 11D

Legal framework: Section 11D provides statutory mechanism to recover amounts collected from buyers as representing excise duty in excess of payable duty; recovery under Section 11A is separate and depends on non-levy/short-levy etc.

Precedent treatment: Court emphasized statutory remedy (Section 11D) for recovery of amounts collected from buyers rather than treating collection as proof of excisability.

Interpretation and reasoning: The Court held that even if sums were recovered from the buyer as "reimbursement of duty," such recovery does not by itself confer excisability on the final product. If revenue thought excess amounts were collected, it should have proceeded under Section 11D. Collection by assessees cannot be used to bootstrap excisability where charging section is not satisfied.

Ratio vs. Obiter: Ratio - collection/recovery from buyer is not determinative of excisability; Section 11D is the proper statutory channel for such recovery. Obiter - critique of revenue's procedural choice.

Conclusion: Alleged recovery from buyer does not justify including bought-out items in assessable value; revenue should have invoked Section 11D where appropriate.

Issue 5: Validity of show cause notice under extended limitation proviso to Section 11A(1)

Legal framework: Section 11A(1) normally permits notice within one year; proviso extends to five years where non-levy/short-levy/erroneous refund is by reason of fraud, collusion, wilful misstatement or suppression of facts or contravention of provisions with intent to evade duty. Jurisprudence requires strict construction and proof of deliberate conduct/positive act amounting to wilful suppression.

Precedent treatment: Pahwa Chemicals and Continental Foundation: mere omission or failure to declare is not sufficient; revenue must prove deliberate suppression/misstatement with intent to evade; burden lies on revenue to establish mental element.

Interpretation and reasoning: The Court examined record and found the immovability contention was raised in the assessee's reply to the show cause notice and accepted by the Assistant Commissioner earlier; RT-12 returns had been filed; no material establishes deliberate concealment or positive act intended to evade. Revenue had access to particulars and did not demonstrate wilful suppression. Invocation of extended limitation was therefore unsustainable.

Ratio vs. Obiter: Ratio - extended limitation cannot be invoked absent proof of wilful misstatement/suppression or intent to evade; mere failure or difference of view does not suffice. Obiter - admonition that proviso is to be construed strictly and burden rests on revenue.

Conclusion: Extended limitation under proviso to Section 11A(1) was improperly invoked; show cause notice issued on that basis is invalid and proceedings based thereon are quashed.

Boiler assembled from CKD parts is immovable not excisable; bought-out items excluded from assessable value; Section 11A(1) proviso struck down
The SC allowed the appeal, holding that the boiler assembled and erected at the buyer's site from CKD parts and bought-out items results in an immovable product and therefore is not an "excisable good" under the Central Excise Act. Consequently the value of bought-out items delivered directly to the buyer cannot be included in the assessable value of the boiler for excise duty. The Court also held the show-cause notice issued under the proviso to Section 11A(1) to be invalid, finding no wilful suppression or intent to evade duty and disallowing the extended limitation period.

Exigibility of central excise duty - Inclusion of value of the duty paid bought out items delivered directly at the buyer’s site, in the value of the boiler cleared by the assessee from its factory in completely knocked down (CKD) condition - Validity of SCN under the extended limitation period as provided under the proviso to Section 11A(1) of the Central Excise Act, 1944 - HELD THAT:- It is pertinent to note that central excise duty is a duty on manufacture of goods. A Three-judge Bench of this Court in Union of India and Others v. Bombay Tyre International Ltd. and Others [1983 (10) TMI 51 - SUPREME COURT], while discussing the concept of a duty of excise highlighted upon the nature of the tax and observed that 'The observations show that while the nature of an excise is indicated by the fact that it is imposed in respect of the manufacture or production of an article, the point at which it is collected is not determined by the point of time when its manufacture is completed but will rest on considerations of administrative convenience, and that generally it is collected when the article leaves the factory for the first time. In other words, the circumstance that the article becomes the object of assessment when it is sold by the manufacturer does not detract from its true nature, that it is a levy on fact of manufacture.' Another aspect discussed by this Court in Bombay Tyre which is of utmost relevance to the matter before us is understanding the nature of Section 3 and Section 4 of the Act, 1944 respectively. Hence, before delving into the explanation regarding the nature of the two provisions as highlighted by this Court in Bombay Tyre, it is pertinent to reproduce the provisions as it existed at the time of the taxable event in contention, i.e. assembling of the boiler parts in CKD condition with the bought out items at the site of erection - This Court in Bombay Tyre (supra) observed that while Section 3 provides for the levy of the duty of excise, Section 4 provides the measure by reference to which the charge is to be levied. It was categorically emphasised upon, that the duty of excise is chargeable with reference to the value of the excisable goods, but the measure employed for assessing a tax must not be confused with the nature of the tax itself. Thus, it is necessary to first examine whether the resultant product that emerges at the buyer’s site by assembling the parts brought in CKD condition along with the bought out items, qualifies as an “excisable good” under the Act, 1944. Only if such product which emerges as a result of the contract qualifies as excisable goods can the next step of evaluation be undertaken, i.e. to see whether or not the contract price can be treated as the ‘transaction value’ under Section 4, for computing the quantum of payable excise duty. Consequently, if upon such examination it is found that the contract price could validly be taken as the ‘transaction value’ under Section 4, a show cause notice may be issued seeking why the value of the bought out items should not be added to the value of the boiler. Whether the resultant final product of the contract would fall within the ambit of Excisable Goods? - HELD THAT:- Through a catena of judgments of this Court, it is now a settled position of law that excise duty is leviable only on ‘goods’ and that the test of movability is the decisive factor in ascertaining whether an article qualifies as “goods” for the purpose of central excise duty. A Coordinate Bench of this Court in a judgment in M/s Bharti Airtel Ltd. v. The Commissioner of Central Excise, Pune [2024 (11) TMI 1042 - SUPREME COURT], undertook an extensive examination of the expression “goods” under the Act, 1944. After a close examination of the meaning of “goods” under Section 2(7) of the Sale of Goods Act, 1930, Section 2(52) of the Central Goods and Services Tax Act, 2017, Section 2(d) of the Central Sales Tax Act, 1956, Section 2(22) of the Customs Act, 1962, Section 2(i) of the Competition Act, 2002, Section 2(13) of the Motor Vehicles Act, 1988, Section 2(f) of the Micro, Small and Medium Enterprises Development Act, 2006, Section 2(14) of the Bureau of Indian Standards Act, 2016 and Section 2(21) of the Consumer Protection Act, 2019, respectively, this Court concluded that the definition of “goods” under the Sale of Goods Act, 1930 seems to be the basis of the term “goods” in other Statutes. Therefore, this Court observed that for the meaning of the term “goods”, the definition given in the Sale of Goods Act, 1930 would be primarily relied upon. This Court in Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P. [1994 (12) TMI 75 - SUPREME COURT] dealt with the question whether the tube mill and welding head erected and installed by the assessee for manufacture of tubes and pipes out of duty-paid raw materials amounted to “excisable good” assessable to duty under the Act, 1944. This Court observed that, the basic test of levying duty under the Act, 1944 is two fold: One, that any article must be a good and second, that the same should be marketable or capable of being brought to market. Goods which are attached to the earth and thus become immovable do not satisfy the test of being goods within the meaning of the Act, nor can it be said to be capable of being brought to the market for being bought and sold. It was held that the subject tube mill or welding head having been erected and installed in the premises and embedded to earth, ceased to be goods within the meaning of Section 3 of the Act,1944. This Court categorically observed that erection and installation of a plant cannot be held to be excisable goods. There are merit in the arguments raised by the assessee that the mere size and weight of the boiler make it impossible to assemble the boiler before erection, and that the process of erection itself involves civil and mechanical engineering with the use of concrete, steel reinforcements, and grouting in such a manner that the coming into existence of the boiler in a functioning condition is in an immovable form. The assembly and erection of the boiler is essentially intertwined in such a manner that we also find merit in the assessee’s argument that such an installed boiler cannot be readily dismantled by merely removing nuts and bolts and reassembled at another site without causing extensive damage to the boiler to an extent so as to reduce its value to mere scrap. The finding that the final product that emerges as a result of performing the obligations under the contract, does not constitute excisable goods under the Act, 1944. Consequently, the base value of the boiler on which excise duty is to be levied, cannot be equated with the total contract price. Therefore, the price of the bought out parts cannot be included in the value of the boiler for the purpose of computing central excise duty under the Act, 1944. Erroneous reliance on Tariff Classification - HELD THAT:- A significant observation made by a Three-judge Bench of this Court in Moti Laminates (P) Ltd. v. CCE [1995 (2) TMI 67 - SUPREME COURT] where it was held that 'The Tariff Schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold.' Inapplicability of the “Utility Test” and the ‘part’ v. ‘accessory’ debate - HELD THAT:- The determination of the question, whether or not the bought out items were ‘parts’ or ‘accessories’, in terms of this Court’s observation in Quippo [2025 (9) TMI 1157 - SUPREME COURT], would have been of some relevance in the present matter only if the resultant product of the contract would fall within excisable goods. In other words, the question of utility would have been relevant to the determination of payable excise duty, if a movable boiler had resulted from integrating the CKD parts with the bought out items. In the present case, the final product, i.e. the steam generating plant, emerges in the form of an immovable product in the course of integrating the CKD parts with the bought out items. Therefore, the resultant product of the contract not being excisable goods, it is wholly inconsequential whether or not the bought out items are parts or accessories of it. Excess collection of excise duty from buyer is no proof of excisability - HELD THAT:- Upon a bare reading of Section 11D of the Act, 1944 it is clear that the failure of the revenue to resort to the statutory recourse available under Section 11D, and instead to seek to justify inclusion of the value of the bought out items in the assessable value of the boiler, reflects an error in application of the law. The invocation of Section 11D would be justified in a case where an assessee has collected any sum purporting to be the excise duty without the authority of law. Consequently, even assuming in arguendo that any excess amount was collected from the buyer under the garb of excise duty, such collection cannot confer excisability on the final product which emerges as an immovable property. The liability of the assessee to pay duty must be determined strictly in accordance with the charging provisions under the law and not on the basis of any purported recovery from the buyer. Was there any wilful suppression of facts with an intention to evade payment of duty by the appellant/assessee? - HELD THAT:- A bare reading of Section 11A(1) along with its proviso would indicate that ordinarily, notice has to be issued within one year, however the proviso stipulates that the notice can be issued within five years from the relevant date if, the non-levy, short-levy, or erroneous refund has occurred on account of either of the following – fraud, collusion, wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act, 1944 or rules thereunder, with an intent to evade payment of duty. The proviso employs selective choice of words which contemplate a state of mind, whereby the noticee has knowingly and deliberately done something or omitted to do something which has resulted in non-levy, short-levy or erroneous refund of duty. In contrast, for the normal period of one year, there is no requirement of any state of mind, and the fact of non-levy, short-levy or erroneous refund of duty by itself would be sufficient to invoke the provisions of Section 11A(1) of the Act, 1944. In the context of invoking the extended period of limitation under Section 11A of the Act, 1944, this Court in Pahwa Chemicals Private Limited v. Commissioner of Central Excise, Delhi [2005 (9) TMI 92 - SUPREME COURT], observed that mere failure does not amount to wilful misdeclaration or wilful suppression and that there must be some positive act on the part of an assessee to bring the case within the mischief of wilful misdeclaration or wilful suppression, as the case may be. A perusal of the show cause notice would show that the revenue itself admits that the assessee had filed the RT-12 returns with the revenue, which means that the revenue had the material particulars on record which it could have acted upon within the normal one year period. There is nothing on record to indicate that any material information had been suppressed by the assessee with any intention to evade payment of central excise duty - in the absence of any deliberate act on the part of the assessee with an intention to evade being established by the revenue, the essential precondition of wilful suppression with intent to evade duty is not satisfied. Consequently, the invocation of the extended period of limitation under the proviso to Section 11A(1) is held to be not tenable in law. The value of the duty paid bought out items which were delivered directly at the buyer’s site is not liable to be included in the value of the boiler cleared by the assessee from its factory in CKD condition, for the purpose of assessment of excise duty - the show cause notice issued under the proviso to Section 11A(1) of the Act, 1944 is not legal and hence invalid. Appeal allowed.

2025 (9) TMI 1157 - Supreme Court Central Excise

AI TextQuick Glance (AI)Headnote

ISSUES PRESENTED AND CONSIDERED

1. Whether the process of placing a generating set within a steel container and fitting it with components such as radiator, ventilation fan, air filter unit, oil tank, pipes, pumps, valves and silencer amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944.

2. If such process amounts to "manufacture", whether the resulting product is classifiable as a distinct excisable good and thereby liable to Central Excise duty under the relevant tariff heading.

3. Whether extended period of limitation, confiscation and penalties are invocable in the factual matrix where the assessee sought departmental clarification and acted bona fide.

ISSUE-WISE DETAILED ANALYSIS - I. What amounts to "manufacture" under the Act, 1944?

Legal framework: Section 2(f) defines "manufacture" to include any process incidental or ancillary to completion of a manufactured product, processes specified in Section/Chapter Notes, and certain packaging/processing for marketability; Section 3 levies excise on goods produced or manufactured in India.

Precedent treatment: The Court relied on the established jurisprudence distinguishing mere "processing" from "manufacture" requiring transformation into a new article "known to the market" with distinctive name, character or use (principles drawn from Delhi Cloth & General Mills and subsequent cases). J.G. Glass articulated a two-fold test (transformation and "but for" or marketability), and Servo-Med clarified that both limbs must be read conjunctively and categorized case-law into four categories identifying when manufacture arises.

Interpretation and reasoning: The Court reaffirmed the two-pronged inquiry: (i) whether a different commercial commodity emerges (identity/character/use altered); and (ii) whether the resultant commodity is marketable or the original commodity would be of no commercial use but for the process. The Court cautioned against rigid or mechanical application of the second limb (marketability) such that ordinary downstream manufacture would escape tax merely because inputs were marketable pre-process (illustrative wheat/flour example). The Court adopted Servo-Med's four-category schema to situate different factual patterns and emphasized the factual, case-specific nature of "character" and "identity".

Ratio vs. Obiter: Ratio - the two-fold test (transformation and marketability) as the correct legal yardstick; clarification that marketability test cannot be mechanistically applied to negate transformation. Obiter - illustrative examples (wheat/flour) and expanded commentary on the interplay between the two limbs.

Conclusion: Manufacture for excise purposes requires factual satisfaction of transformation into a distinct commodity combined with marketability; mere enhancement of convenience, removal of foreign matter, or form-change without change of essential character will not suffice.

ISSUE-WISE DETAILED ANALYSIS - II. Whether the activity undertaken amounts to "manufacture"?

Legal framework: Application of Section 2(f)(i) and Note 6 of Section XVI of the tariff schedule concerning conversion of incomplete/unfinished articles into finished goods.

Precedent treatment: The Court applied principles from Servo-Med, J.G. Glass, S.R. Tissues, Satnam Overseas, Maruti Suzuki and other authorities analyzing transformation, retention of essential character, and marketability; distinguished cases where form-change or cleaning did not change essential character.

Interpretation and reasoning: The Court undertook a fact-specific inquiry and concluded that:

a. The assembly of the imported generating set into a steel container with multiple additional components reengineers the imported article to impart portability and containerized functionality that did not exist at import; this is not mere cosmetic or convenience change but a structural and functional transformation.

b. The components fitted (radiator, ventilation fan, air filter, oil tank, pumps, valves, silencer, cable trays, control panels, hydraulic testing, mounting pads, etc.) are properly characterized as "parts" rather than mere "accessories" because they are integral to the Power Pack's ability to generate electricity within the containerized configuration; without them the Power Pack would not function in that form.

c. The final product (Power Pack/Containerized Genset) possesses distinct constituent elements, structure and functional utility (notably portability and containerized deployment) differing from the imported generating set, and is known and marketed as such (marketability satisfied).

d. The Court rejected the contention that common end-use (generation of electricity) precludes transformation: identical end-use does not preclude manufacture where the nature, identity, constituent elements and utility (e.g., portability) materially differ.

Ratio vs. Obiter: Ratio - on the facts, the process satisfies both transformation and marketability tests and thus amounts to "manufacture" under Section 2(f); characterization of added components as parts supporting transformation is integral to the ratio. Obiter - general observations on part vs accessory and examples distinguishing prior cases.

Conclusion: The process of containerization and fitting of integral components transforms the imported generating set into a new, marketable commodity (Power Pack), and constitutes "manufacture" under Section 2(f)(i) read with tariff Notes (including Note 6 of Section XVI).

ISSUE-WISE DETAILED ANALYSIS - III. Classification and fiscal consequences

Legal framework: Classification under the Customs/Central Excise Tariff as electric generating sets (heading 85.02 and sub-heading 8502.2090) where goods of generator and prime mover mounted together as one unit are classifiable as generating sets.

Precedent treatment: CESTAT's reasoning applying tariff notes and prior Supreme Court rulings on identity/marketability was endorsed by the Court on the facts.

Interpretation and reasoning: Given that the Power Pack is a distinct, containerized generating set mounted as a unit with prime mover and additional integral parts, it falls within the relevant tariff description for generating sets and is thus dutiable as manufactured goods under the specified sub-heading.

Ratio vs. Obiter: Ratio - classification as generating sets under the relevant heading follows from the factual finding of manufacture; ancillary observations on tariff notes are supportive but factual.

Conclusion: The resulting product is classifiable under the relevant tariff entry for generating sets and liable to excise duty accordingly; CENVAT credit is to be extended subject to verification during quantification.

ISSUE-WISE DETAILED ANALYSIS - IV. Extended limitation, confiscation and penalties

Legal framework: Provisons permitting extended period of limitation where suppression of facts with intent to evade duty; confiscation and penalties depend on mens rea and factual concealment.

Precedent treatment: Reliance on jurisprudence holding that where assessee acts bona fide and seeks departmental clarification, extended limitation and penalties are inappropriate (Anand Nishikawa and related authorities).

Interpretation and reasoning: The Court found that the assessee had informed authorities, sought clarification, cooperated with departmental inquiries and there was no evidence of intentional suppression or evasion. The conduct was bona fide and issues were matters of law/interpretation rather than concealment.

Ratio vs. Obiter: Ratio - extended period of limitation, confiscation and penalties cannot be invoked in this factual matrix; extension of benefit of doubt on limitation and penalties is part of the operative decision. Obiter - general comments on revenue neutrality and CENVAT credit relevance to limitation issues.

Conclusion: Demand of duty for the normal period is upheld; demand for extended period, confiscation, redemption fines and penalties are set aside; adjudicating authority to allow CENVAT credit subject to verification.

OVERALL CONCLUSION

The Court holds that the containerization and fitting of integral components amounts to "manufacture" under Section 2(f) read with tariff Notes; the resulting Power Pack is a distinct, marketable commodity classifiable under the generating-sets tariff entry and liable to excise duty for the normal period. Extended limitation, confiscation and penalties are not sustainable on the facts where the assessee acted bona fide and sought clarification; CENVAT credit to be extended subject to verification.

Imported genset transformed by containerization and added components is 'manufacture' under Section 2(f)(i), liable for excise
SC held the process of placing the imported genset into a steel container and fitting it with additional integral components constituted "manufacture" under Section 2(f)(i) of the Act. The Court found the operation produced a new, distinct and marketable commodity with a different character and functional utility (notably portability), rejecting the appellant's argument that added parts were mere accessories or that prior commercial utility precluded transformation. Both the transformation and marketability tests were satisfied; the appellant was held liable for excise duty and the appeal was dismissed.

Process amounting to manufacture or not - process of placing the Genset within a steel container and fitting the steel container with components such as radiator, ventilation fan, air filter unit, oil tank, pipes, pumps, valve and silencer - Marketability - HELD THAT:- As per this Court’s decision in Delhi Cloth & General Mills [1962 (10) TMI 1 - SUPREME COURT] for an activity to amount to “manufacture” and not be considered as merely ‘processing’ it has to produce a ‘transformation’ of the subject article i.e, a new and different article must emerge having a distinctive name, character or use. In Union of India & Ors v. J.G Glass Industries Ltd & Ors [1997 (12) TMI 110 - SUPREME COURT], this Court was dealing with the question whether printing on glass bottles amounts to “manufacture” within the meaning of Section 2(f) of the Act, 1944. The Court accepted the contention of the respondents that the activity of printing names or logos on the bottles did not change the basic character of the commodity and that the plain bottles in themselves were commercial commodities and could be sold and used as such. Thus, the Court held that printing on glass bottles did not amount to “manufacture” under Section 2(f) of the Act, 1944. Even in the facts of the present case, it is the contention of the appellant that the imported Genset had commercial utility even without the activity being undertaken. This argument, when pedantically read with this Court’s clarification in Servo-Med [2015 (5) TMI 292 - SUPREME COURT] that both prongs of the test have to be satisfied, would mean that just because the subject article had commercial utility prior to it being subjected to the process, the process undertaken would not lead to “manufacture” even if it was transformative in nature. Such an interpretation would be patently erroneous. In order to avoid such absurdity, it is important that the applicability of the second wing of the J.G. Glass test must be judged on the facts and circumstances of each individual case, and the same cannot be brandished as a universal rule. In the facts of the present case, it is convinced that the steel container and the other additional components do transform the imported Genset and bring into existence a distinct product which has its own character and identity. On a preliminary analysis itself, it is amply evident that the constituent components of the imported Genset are very different from the constituent components of the Power Pack. The appellant argued that mere addition of extra components would not transform the imported Genset as all the additional components are in the nature of mere accessories being attached for the sake of convenience and utility. Consequently, the addition of these components would not transform the imported Genset into a different and distinct product. The contention of the appellant that the end-use of both products is merely the ‘generation of electricity’ is an oversimplification that conflates the core function of a product with its functional utility. The Genset at the time of the import was in a form that was suitable/intended for permanent installation. The process undertaken by the appellant imparts the core functional utility of portability to the Genset, a utility that was non-existent in the product at the time of its import. This is not a minor, value-added feature, it is the defining attribute from which the final product derives its entire identity and character - The imported Genset and the Power Pack are two different commodities with distinct constituent elements, structure and functional utility. Marketability - HELD THAT:- No evidence has been adduced by the appellant to suggest that the Power Packs are not marketable. On the contrary, it is an admitted position, clear from the record, that it is these very Power Packs that are the subject of the lease agreements and are delivered to the ultimate customer. Thus, no serious question regarding the marketability of the final product remains, it is an established and undisputed fact. In the facts of the present case, both the transformation test and the marketability test stand fulfilled. The process of placing the Genset within the steel container and fitting that container with additional, integral components brings into existence a new, distinct, and marketable commodity. This process would thus amount to “manufacture” under Section 2(f)(i) of the Act, 1944. Consequently, the appellant is liable to pay excise duty on the goods manufactured. Appeal dismissed.

2025 (11) TMI 254 - Supreme Court Central Excise

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Textured yarn processing is not manufacture of filament yarn for concessional excise duty under the notification.
Processing filament yarn or organic polymers into textured yarn did not amount to manufacture of filament yarn under Notification No. 29/2004-CE. The exemption applied to filament yarn procured from outside and subjected to processing by a manufacturer lacking facilities to manufacture filament yarns of Chapter 54, but the appellant's activity was limited to converting purchased material into textured yarn. On those facts, the concessional excise duty benefit was unavailable and the challenge to the tribunal orders failed.

2025 (8) TMI 167 - Supreme Court Central Excise

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Parallel criminal prosecution under Central Excise law can continue where investigation material independently supports summons despite an earlier adjudication order being set aside.
A criminal complaint under the Central Excise Act was not liable to be quashed merely because an earlier departmental adjudication order had been set aside on procedural grounds. The complaint was independently supported by search, investigation, and inquiry material showing prima facie allegations, so the factual basis for prosecution remained intact. Adjudication proceedings and criminal prosecution could proceed in parallel, and the material before the trial court was sufficient to justify summons. The plea that the complaint was groundless and that discharge should have been granted was rejected, and the refusal to discharge the appellants was upheld.

Clandestine manufacture and illicit removal of excisable goods - Initiation of criminal proceedings u/s 9 and 9AA of the Central Excise Act, 1944 - sanction based on the Commissioner’s findings dated 31.03.2011, which the Appellants allege was relied upon through suppression of the CESTAT’s remand order by the very same Commissioner - HELD THAT:- Considering the contentions of the Appellant on the aspect of reliance on a non-existent Order dated 31.03.2011, on it having been set aside, even assuming the said contention to be so, it is clear from the materials on record that investigation and the Complaint are still in sustenance against the Appellants. The contents of the Complaint reveal that there is no reliance placed on the now-set aside Order dated 31.03.2011 rather it was only referred as an addendum to complete the sequence of facts of the case of the Respondent-Department. The irregularities which came to light on search and the contents of the investigation report, are sufficient to observe and opine prima facie on the existence of allegations as mentioned in the complaint against the Appellants, at the time of the consideration made by the Trial Court justifying the passing of the summoning order. A reference to Radheyshyam Kejriwal [2011 (2) TMI 154 - SUPREME COURT] reveals that, as in the present case, there is no bar on parallel proceedings, with one being by the Respondent-Department and the other being criminal in nature, under the CEA 1944. Further, the attempt of the Appellants to distinguish the said decision, is primarily reliant on the observation that the Complaint was solely based on the Order dated 31.03.2011, which, at the time had been set-aside. However, a direction for de novo proceedings on technical or procedural grounds cannot be assumed to be in equivalence to having been set-aside on merits, when it was specifically mentioned that the merits have not been considered. Hence, we are inclined to accept and adopt the decision in Pramod Kumar Dhamija [2016 (2) TMI 479 - SUPREME COURT] as referred by the learned ASG. Ergo, having perused the alleged conduct and the orders passed by the concerned authorities and the Courts below, the authorities relied upon by the Appellants are unable to substantiate their claim in the present facts and circumstances. It is not inclined to interfere with the Impugned Judgment - appeal dismissed.

2025 (4) TMI 1597 - Supreme Court Central Excise

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Issues: (i) whether the demand of differential duty based on re-classification of Benzene and Toluene from Chapter 29 to Chapter 27 could be sustained when the test reports relied upon for such re-classification were not supplied to the assessee, and only their gist was communicated; (ii) whether the assessments for January and February 1993 could be treated as provisional in the absence of a provisional assessment order under Rule 9B and execution of a bond.

Issue (i): whether the demand of differential duty based on re-classification of Benzene and Toluene from Chapter 29 to Chapter 27 could be sustained when the test reports relied upon for such re-classification were not supplied to the assessee, and only their gist was communicated.

Analysis: The re-classification was founded entirely on the chemical test reports dated 29.01.1991, which were used to alter the approved classification list and to support a higher duty demand. Rule 56 of the Central Excise Rules, 1944 required communication of the result of the test to the manufacturer, and the statutory right to seek re-test within ninety days could be meaningfully exercised only if the test report itself was furnished. Communication of only the gist of the test result did not satisfy the rule or the demands of natural justice, particularly where the documents formed the basis of adverse civil consequences. The belated sampling and the non-furnishing of the relied-upon reports vitiated the re-classification.

Conclusion: The re-classification and the consequential duty demand were unsustainable and the issue was answered in favour of the assessee.

Issue (ii): whether the assessments for January and February 1993 could be treated as provisional in the absence of a provisional assessment order under Rule 9B and execution of a bond.

Analysis: Rule 9B of the Central Excise Rules, 1944 contemplated provisional assessment only where the assessee sought it or the proper officer directed it after inquiry, followed by execution of the prescribed bond. The record did not show a valid provisional assessment order for the disputed months, nor execution of a bond or comparable compliance with the statutory procedure. Mere endorsements on RT-12 returns could not retrospectively convert regular assessments into provisional assessments. On the settled requirements for provisional assessment, the finding that January and February 1993 were provisional could not stand.

Conclusion: The finding that the assessments for January and February 1993 were provisional was set aside and the issue was answered in favour of the assessee.

Final Conclusion: The appeals succeeded, the impugned duty demands and the finding of provisional assessment did not survive, and the assessee obtained complete relief in the matter.

Ratio Decidendi: Where re-classification and differential duty are founded on test reports, the relied-upon reports must be furnished to the assessee so that the statutory right to challenge and seek re-test is preserved; and provisional assessment under Rule 9B can arise only on compliance with the prescribed statutory procedure, including a proper order and bond.

Test reports and provisional assessment procedure determined the fate of differential duty and re-classification.
Re-classification of Benzene and Toluene from Chapter 29 to Chapter 27 could not sustain a differential duty demand because the chemical test reports relied upon were not furnished to the assessee; communication of only their gist did not satisfy Rule 56 or natural justice, and the re-classification was set aside. Assessments for January and February 1993 also could not be treated as provisional because Rule 9B required a valid provisional assessment order and execution of a bond, neither of which was shown; mere RT-12 endorsements were insufficient. The duty demand and the finding of provisional assessment were therefore unsustainable.

Validity of duty demand based on re-classification of the products Benzene and Toluene from chapter 29 to chapter 27 - re-classification is based on test reports dated 29.01.1991 on samples drawn in October, 1990 of which only a gist was provided to the appellant by the respondent vide letter dated 29.01.1991 - test reports can legally form the basis for re-classification of the above products manufactured and cleared during 1991 and 1992 - treating the assessments provisional for the two products Benzene and Toluene for the months of January and February, 1993 in the absence of any order passed under Rule 9B of the Central Excise Rules, 1944 and without executing any B-13 bond. Whether a duty demand based on re-classification of the products Benzene and Toluene from chapter 29 to chapter 27 is sustainable when such re-classification is based on test reports dated 29.01.1991 on samples drawn in October, 1990 of which only a gist was provided to the appellant by the respondent vide letter dated 29.01.1991? - HELD THAT:- Sub-rule (1) of Rule 56 says that the manufacturer is under an obligation to permit any officer to take samples of any product manufactured in his factory. Sub-rule (2) says that such an officer shall conduct a test from the samples so taken and communicate the result of such test to the manufacturer. Sub-rule (3) is not relevant for the present discourse. However, sub-rule (4) is relevant. According to sub-rule (4) where the manufacturer is aggrieved by the result of the test, he may within 90 days of the date on which the result of the test is received by him, request the Assistant Commissioner that the samples be re-tested. If at all the department wanted to inquire into the correctness of the classification submitted by the appellant, it could have taken samples of the two products prior to the approval at the stage of Rule 173B itself. Approval of classification list under Rule 173B is not an empty formality. The proper officer has to apply his mind and if he considers it necessary, he may conduct further inquiry to ascertain the correctness of classification. Therefore, such belated sampling and still further belated test reports cast a shadow of doubt about the entire procedure adopted by the respondent. This is further compounded by non-furnishing of the test reports to the appellant - the orders re-classifying the products Benzene and Toluene under chapter sub-heading 2707.10 and 2707.20 respectively and levying consequential differential duty demand cannot be sustained in law. Impugned order of CESTAT justifying such re-classification cannot also be sustained. Whether such test reports can legally form the basis for re-classification of the above products manufactured and cleared during 1991 and 1992? - HELD THAT:- Rule 9B is the relevant provision dealing with provisional assessment. As per sub-rule (1), where the assessee is unable to determine the value of excisable goods or the correct classification of the goods, he may request the proper officer in writing giving reasons for provisional assessment to duty. The proper officer may direct after making such inquiry as may be considered necessary that the duty leviable on such goods shall be assessed provisionally at such rate or value as may be indicated by him. Such provisional assessment is subject to the assessee executing a bond in proper form binding the assessee for payment of the differential amount of duty as provisionally assessed and as may be finally assessed - If the proper officer is satisfied that the self-assessment made by the assessee is not in order, he may direct the assessee to resort to provisional assessment. In any event, for an assessment to be provisional in terms of Rule 9B, an order is required to be passed. This Court in Coastal Gases and Chemicals Pvt. Ltd. [1977 (4) TMI 41 - SUPREME COURT] and in Hindustan National Glass & Industries Ltd. [2005 (3) TMI 123 - SUPREME COURT] held that in order to establish that the clearances were of provisional basis, an order under Rule 9B and payment of duty on provisional basis are essential. There is no order of the proper officer under Rule 9B directing that assessments for the months of January and February, 1993 for the two products Benzene and Toluene were provisional. Neither any bond in proper format was directed nor executed by the appellant. Mere endorsement by the concerned Superintendent on two RT-12 returns cannot make an assessment provisional. On the contrary, the department had issued a number of show cause notices covering the period from September, 1990 to December, 1992. Appellant had contested the show cause notices. All the show cause notices were adjudicated upon by the Assistant Commissioner. It is implausible that assessments which were regular till December, 1992 could become provisional from January, 1993. CESTAT has rightly held that assessments for the period from September, 1990 to December, 1992 were regular but inexplicably held that assessments for the months of January and February, 1993 qua the products Benzene and Toluene were provisional. Such findings of CESTAT cannot be sustained. Conclusion - The re-classification of Benzene and Toluene based on undisclosed test reports was invalid and the consequent duty demand was unsustainable. The assessments for January and February 1993 were not provisional due to non-compliance with Rule 9B requirements, thereby invalidating the department's extended duty demand for that period. Appeal allowed.

2025 (1) TMI 989 - Supreme Court Central Excise

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1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following core legal questions:

(i) Whether the price was the sole consideration for the sale of petroleum products among Oil Marketing Companies (OMCs) under the Memorandum of Understanding (MOU)Rs.

(ii) Whether the revenue was entitled to invoke an extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944Rs.

(iii) Whether the revenue was entitled to levy a penalty under Section 11AC of the Central Excise Act, 1944Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Whether the price was the sole consideration for the saleRs.

- Relevant legal framework and precedents: Section 4(1)(a) of the Central Excise Act, 1944, stipulates that the transaction value is applicable if the price is the sole consideration for the sale, and the buyer and seller are not related.

- Court's interpretation and reasoning: The court examined the MOU and concluded that the arrangement was not purely commercial but aimed at ensuring an uninterrupted supply of petroleum products across India. The MOU facilitated product sharing among OMCs to avoid supply disruptions, indicating that the price was not the sole consideration.

- Key evidence and findings: The court analyzed the MOU's clauses and the intent behind its execution, which was to ensure smooth distribution rather than commercial sale. The MOU was executed at the behest of the Ministry of Petroleum and Natural Gas, emphasizing mutual assistance over commercial transactions.

- Application of law to facts: The court applied Section 4(1)(a) and determined that since the price was not the sole consideration, the transaction value could not be applied as per the said section.

- Treatment of competing arguments: The court rejected the argument that the price was the sole consideration, as the MOU's primary objective was to ensure supply continuity, not commercial profit.

- Conclusions: The court concluded that the price was not the sole consideration for the sales under the MOU, thereby negating the applicability of Section 4(1)(a) for determining transaction value.

Issue (ii): Whether the revenue was entitled to invoke an extended period of limitationRs.

- Relevant legal framework and precedents: Section 11A(1) of the Central Excise Act allows an extended period of limitation for recovery of duties in cases of fraud, collusion, or suppression of facts.

- Court's interpretation and reasoning: The court found no evidence of suppression or misrepresentation by BPCL regarding the MOU. The department was aware of the MOU, and there was no deliberate concealment by BPCL.

- Key evidence and findings: The court noted that the MOU was known to the department, and there was no specific allegation of misrepresentation by BPCL.

- Application of law to facts: The court held that the conditions for invoking the extended period of limitation were not met, as there was no suppression or misrepresentation by BPCL.

- Treatment of competing arguments: The court dismissed the revenue's argument that BPCL had suppressed the MOU, noting that the department was already aware of its existence.

- Conclusions: The court concluded that the extended period of limitation could not be invoked, and the demand was unsustainable on this ground.

Issue (iii): Whether the revenue was entitled to levy a penalty under Section 11ACRs.

- Relevant legal framework and precedents: Section 11AC imposes penalties for non-levy or short-levy of duty due to fraud, collusion, or suppression of facts.

- Court's interpretation and reasoning: The court found no basis for imposing a penalty under Section 11AC, as the conditions for invoking the extended period of limitation were not satisfied.

- Key evidence and findings: The absence of fraud, collusion, or suppression of facts negated the applicability of Section 11AC.

- Application of law to facts: The court determined that there was no justification for imposing a penalty, as the prerequisites under Section 11AC were not met.

- Treatment of competing arguments: The court rejected the revenue's contention for imposing a penalty, given the lack of evidence for fraud or suppression.

- Conclusions: The court concluded that the penalty under Section 11AC was not applicable, and the imposition was unjustified.

3. SIGNIFICANT HOLDINGS

- Preserve verbatim quotes of crucial legal reasoning: "By no stretch of the imagination, it can be said that the price fixed under the MOU was the sole consideration for the sale by one OMC to the other."

- Core principles established: The court emphasized that for transaction value to apply under Section 4(1)(a), the price must be the sole consideration. Additionally, the extended period of limitation and penalties under Sections 11A and 11AC require evidence of fraud, collusion, or suppression.

- Final determinations on each issue: The court determined that the price was not the sole consideration, the extended period of limitation was not applicable, and the penalty under Section 11AC was unjustified. Consequently, the demand against BPCL was set aside, and other related appeals were remanded for fresh adjudication.

Oil marketing companies' MOU arrangement for uninterrupted petroleum supply doesn't constitute sole consideration for Central Excise valuation purposes
The SC allowed the appeal in a Central Excise duty valuation case. The Court held that under the MOU between oil marketing companies, the price was not the sole consideration for sale, as the arrangement was primarily to ensure uninterrupted supply of petroleum products across India. The Revenue failed to invoke the extended limitation period under Section 11A(1) proviso of CEA 1944, as no detailed reasons were recorded and no fraud or willful misstatement was established. Consequently, the penalty under Section 11AC could not be imposed. The demand was unsustainable.

Valuation of Central Excise duty - price, the sole consideration of sale - invocation of extended period of limitation under the proviso to Section 11A(1) of CEA 1944 - levy of penalty u/s 11AC. Whether the price was the sole consideration of sale? - HELD THAT:- Taking into consideration the aforementioned parts of the MOU, it is crystal clear that the arrangement reflected from the MOU is essentially for ensuring that every OMC gets smooth and uninterrupted supply all over India, irrespective of whether an OMC has a refinery or otherwise in a particular part of India. Thus, from a plain reading of the MOU, we find that the real consideration for the MOU was to ensure an uninterrupted supply to all the OMCs at various places in India. The MOU incorporates mutual arrangements made by MNCs for an uninterrupted supply of petroleum products so that MNCs can further sell the products to their dealers. By no stretch of the imagination, it can be said that the price fixed under the MOU was the sole consideration for the sale by one OMC to the other. Hence, the conclusion in the impugned judgment concurred with, that the price was not the sole consideration for sale. Turning to the decision of the Tribunal in Hindustan Petroleum Corporation Ltd. [2005 (2) TMI 357 - CESTAT, BANGALORE], an appeal against which has been summarily dismissed by this Court. Apart from mentioning that the MOU was executed according to the direction of the Government of India, the Tribunal has not looked into the contents of the MOU. There is a vague reference to HPCL's agreement with other oil companies. There is no specific finding recorded therein, after considering the terms and conditions of the MOU, that the price was the sole consideration for the sale. Therefore, the decision of the Tribunal ignores a crucial ingredient of Section 4(1)(a) of whether the price was the sole consideration for the sale. Whether the revenue was entitled to invoke an extended period of limitation under the proviso to Section 11A(1) of the 1944 Act? - HELD THAT:- Under the proviso to sub-section (1) of Section 11-A, an extended period of limitation can be invoked when there is a nonlevy or non-payment or short levy or short payment of the excise duty by a reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of 1944 Act or the rules made thereunder with the intent to evade payment of duty. The show cause notice referred to the statements recorded of BPCL officers and other OMCs. No detailed reasons have been recorded in support of invoking the extended period of limitation by the Commissioner in his order. A careful perusal of the show cause notice shows that it is not alleged that any such misrepresentation was made by BPCL that the pricing as provided in the MOU was adopted by the BPCL as per the directions of the Central Government. The reply to the show cause notice submitted by the BPCL contains no such representation. In the show cause notice, statements recorded of officers of BPCL and other OMCs have been referred to and relied upon. However, it is not alleged that any of the officers stated that the price of the goods sold under the MOU was fixed as per the directives of the Central Government - both the grounds in support of invoking an extended period of limitation cannot be sustained, and only on that ground, the demand cannot be sustained. Whether the revenue was entitled to levy a penalty under Section 11AC of the 1944 Act? - HELD THAT:- In this case, there is no allegation made by the Revenue of fraud, collusion or any wilful mis-statement on the part of the appellant. The stand taken is that the MOU was suppressed, and therefore, Section 11AC will apply. In view of the findings recorded above on the issue of the invocation of the extended period of limitation, the penalty could not have been imposed. Conclusion - i) The price was not the sole consideration for sale. ii) No detailed reasons have been recorded in support of invoking the extended period of limitation by the Commissioner in his order. iii) The stand taken is that the MOU was suppressed, and therefore, Section 11AC will apply. The penalty could not have been imposed. Appeal allowed.

2024 (12) TMI 1022 - Supreme Court (LB) Central Excise

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Tariff classification of coconut oil turns on express heading language and Chapter 33 packaging requirements, not mere small pack size.
Pure coconut oil sold in small packings remains classifiable under Heading 1513 where the tariff expressly covers coconut oil and the packaging does not satisfy Chapter Note 3 of Chapter 33 for cosmetic or toilet preparations. The common parlance test cannot override clear tariff language, and Heading 3305 applies only if the goods are shown by retail presentation, labels, literature, or other indicia to be specially intended for hair-oil use. Mere small pack size, branding, or possible dual use is insufficient. The burden to establish classification under Heading 3305 lies on the Revenue, and on the facts it failed to discharge that burden.

Classification of goods by tariff headings - Harmonized System of Nomenclature (HSN) as interpretative guide - Chapter/Section Notes and General/Explanatory Notes - Packings of a kind sold by retail with labels or other indications - Common parlance test - Burden of proof on the Revenue for classification - Specific heading vs residuary/other heading principle Classification of goods by tariff headings - Packings of a kind sold by retail with labels or other indications - Chapter/Section Notes and General/Explanatory Notes - Whether pure coconut oil packaged and sold in small quantities is classifiable under Heading 1513 (coconut oil) or under Heading 3305 (preparations for use on the hair). - HELD THAT: - The Court held that pure coconut oil marketed and sold as edible oil is classifiable under Heading 1513 in Chapter 15 of the First Schedule to the Central Excise Tariff Act, 1985, unless the packaging satisfies all requirements of Chapter Note 3 in Chapter 33 (Section VI) read with the General/Explanatory Notes to the corresponding HSN Chapter Note. Merely being suitable for use on hair or being sold in small packagings is not sufficient to attract Heading 3305. To fall under Heading 3305, the product must not only be suitable for use as a hair preparation but must also be put up in packings of a kind sold to the consumer with labels, literature or other indications that it is intended for use as a cosmetic/toilet preparation, or be put up in a form clearly specialised to such use. Where those cumulative conditions are not satisfied, coconut oil remains within the specific description of Heading 1513 and must be classified thereunder. [Paras 31, 40, 41, 45, 48] Pure coconut oil sold in the relevant periods as edible oil is classifiable under Heading 1513 unless the packaging and indications satisfy the Chapter 33/HSN requirements, in which event classification under Heading 3305 would apply. Harmonized System of Nomenclature (HSN) as interpretative guide - Chapter/Section Notes and General/Explanatory Notes - Whether the HSN and its Explanatory/General Notes are to be used as the primary guide for tariff classification under the First Schedule to the Central Excise Tariff Act, 1985. - HELD THAT: - The Court reaffirmed that the First Schedule to the Act of 1985 is based on the HSN and that, where the entries in the First Schedule correspond with the HSN, the HSN and its Explanatory/General Notes are binding guidance for interpreting tariff headings. Reliance on the HSN is appropriate unless the Act itself shows a clear and unambiguous legislative intention to depart from the HSN. Where alignment exists between the First Schedule and the HSN, the General/Explanatory Notes in the HSN must be given effect in classification disputes. [Paras 18, 19, 20, 21, 27] HSN and its Explanatory/General Notes apply as authoritative interpretative guidance for classification where the First Schedule entries correspond with the HSN. Common parlance test - Classification of goods by tariff headings - Whether the common parlance test displaces the clear headings and HSN-based interpretation in this case. - HELD THAT: - The Court held that the common parlance test is a recognised tool of interpretation but is applicable only when the headings and Chapter/Section Notes do not clearly determine classification. Where the First Schedule and corresponding HSN entries are clear and aligned, resort to common parlance is unnecessary and inappropriate. Thus, the Revenue's reliance on popular usage of coconut oil as hair oil could not override the clear tariff entries and HSN Explanatory Notes. [Paras 35, 36, 37, 39] Common parlance test does not apply where the First Schedule and corresponding HSN entries are clear and determinative. Burden of proof on the Revenue for classification - Specific heading vs residuary/other heading principle - Whether the Revenue discharged the burden of proof necessary to classify edible coconut oil as hair oil under Heading 3305. - HELD THAT: - The Court observed that classification is a matter of chargeability and the burden lies on the Revenue to establish that goods fall under a heading different from that claimed by the assessee. The Revenue failed to discharge that burden in the appeals before the Court. Absent legislative action or clear evidence satisfying the Chapter/Section and General/Explanatory Notes requirements, it would be contrary to sound fiscal policy to deny a product the specific heading created for it and relegate it to a different heading. [Paras 46, 47] The Revenue did not discharge its burden of proof; classification as hair oil was not established and the specific heading for coconut oil must be preferred. Final Conclusion: The appeals are dismissed. Pure coconut oil sold in the stated periods as edible oil is classifiable under Heading 1513 of the First Schedule to the Central Excise Tariff Act, 1985, unless the packaging and accompanying indications fulfil all requirements of Chapter Note 3 of Chapter 33 read with the HSN Explanatory/General Notes, in which case Heading 3305 would apply; the HSN is binding where aligned with the First Schedule and the Revenue failed to discharge its burden to prove reclassification to Heading 3305.

2024 (11) TMI 1042 - Supreme Court Central Excise

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Issues: (i) Whether mobile towers and prefabricated buildings/shelters are immovable property or goods for the purpose of CENVAT credit; (ii) Whether such towers and shelters qualify as capital goods, including as components or accessories of BTS/antenna, under the CENVAT Credit Rules, 2004; (iii) Whether CENVAT credit is admissible on towers and shelters as inputs used for providing output telecom service, including on receipt at the premises of the service provider.

Issue (i): Whether mobile towers and prefabricated buildings/shelters are immovable property or goods for the purpose of CENVAT credit

Analysis: Property attached to the earth is not automatically immovable. The decisive considerations are the nature and object of annexation, the intention behind fixing, the ability to dismantle and relocate without material damage, functional necessity, and marketability. Towers and PFBs are assembled from CKD/SKD condition, fixed only to secure stability and wobble-free operation, and can be dismantled and reassembled without loss of identity. Their attachment is not for permanent beneficial enjoyment of the land or building, but to facilitate effective telecom operation.

Conclusion: Mobile towers and prefabricated buildings/shelters are movable goods and not immovable property.

Issue (ii): Whether such towers and shelters qualify as capital goods, including as components or accessories of BTS/antenna, under the CENVAT Credit Rules, 2004

Analysis: Under Rule 2(a)(A), only specified goods, and their components, spares and accessories, are capital goods. Towers and shelters do not fall eo nomine in the specified tariff chapters, but they function as essential supports to BTS and antenna, enabling the antenna to be placed at the required height and operate effectively. An accessory is not confined to an item consumed in composition of the main article; it may also be an item that adds convenience, effectiveness, or completeness to the principal equipment. On that basis, the towers and shelters are accessories/components of BTS/antenna.

Conclusion: Towers and prefabricated buildings/shelters are covered as capital goods under Rule 2(a)(A)(iii) read with Rule 2(a)(A)(i) of the CENVAT Credit Rules, 2004.

Issue (iii): Whether CENVAT credit is admissible on towers and shelters as inputs used for providing output telecom service, including on receipt at the premises of the service provider

Analysis: Rule 2(k) uses a wide formulation, covering all goods used for providing any output service except those specifically excluded. Since towers and shelters are goods and are indispensably used for providing telecommunication services, they answer the definition of inputs. Rule 4(1) permits credit on receipt of inputs in the premises of the provider of output service, and later fixation to the earth does not defeat eligibility once the goods received are otherwise covered by the rules.

Conclusion: CENVAT credit is admissible on towers and shelters as inputs used for providing output service and may be taken on receipt in the service provider's premises.

Final Conclusion: The appeals challenging denial of credit fail, while the appeals supporting eligibility succeed, and mobile service providers are entitled to CENVAT credit on excise duty paid for towers, parts thereof and prefabricated buildings/shelters used in providing telecom services.

Ratio Decidendi: An item fixed to the earth for operational stability, without permanent assimilation with the land and capable of dismantling, relocation, and marketable use, remains movable goods; if such goods function as essential accessories or components used for providing output service, they fall within the CENVAT credit scheme.

CENVAT credit on telecom towers and shelters turns on movable goods status and use as accessories or inputs for output service.
Mobile towers and prefabricated buildings/shelters fixed for operational stability were treated as movable goods because they can be dismantled, relocated and reassembled without loss of identity, and their attachment is not for permanent enjoyment of the land. On that basis, they were held to qualify as capital goods as components or accessories of BTS/antenna, since they enable effective telecom operation by supporting the antenna at the required height. CENVAT credit was also held admissible as inputs used for providing output telecom service, including on receipt in the service provider's premises, because the goods are used in the service and later fixation to earth does not defeat eligibility.

CENVAT credit - Rule 2(a)(A) definition of capital goods - Rule 2(k) definition of input - Rule 3(1) entitlement to CENVAT credit for capital goods or inputs received in the premises of the provider of output service - Rule 4(1) immediate credit on receipt of inputs in premises - accessory as component, spare or adjunct of capital goods - movable versus immovable property - functionality, permanency and marketability testsMovable versus immovable property - functionality, permanency and marketability tests - goods - Mobile towers and prefabricated buildings (PFBs) are movable properties and thus 'goods', not immovable property. - HELD THAT: - Applying the tests of annexation, object of annexation, intendment, functionality, permanency and marketability (as expounded in Solid and Correct Engineering and other precedents), the Court found towers and PFBs are manufactured and supplied in CKD/SKD form, fastened to foundations only for operational stability, capable of being dismantled and reassembled without change of character, and marketable. The fixation is not for permanent beneficial enjoyment of the land/building but to make the antenna/BTS function effectively. Accordingly, the items possess the character of movable property and qualify as 'goods'. [Paras 11]Towers and PFBs are movable 'goods' and not immovable property.Rule 2(a)(A) definition of capital goods - accessory as component, spare or adjunct of capital goods - Towers and PFBs qualify as 'capital goods' under Rule 2(a)(A)(iii) by being accessories/components of BTS/antenna which fall under the specified chapters. - HELD THAT: - Rule 2(a)(A)(iii) treats components, spares and accessories of goods specified in sub-clauses (i)/(ii) as 'capital goods' when used for providing output service. The Court held that towers and PFBs materially enhance the functioning and efficiency of the BTS/antenna (which fall within Chapter 85), by providing required height, stability and housing for ancillary equipment. An accessory need not form part of the manufactured composition; it may be an adjunct that renders the principal good more effective. On that basis towers and PFBs are accessories to BTS/antenna and hence fall within the deeming provision of capital goods under Rule 2(a)(A)(iii). [Paras 11]Towers and PFBs are capital goods as accessories/components of BTS/antenna under Rule 2(a)(A)(iii).Rule 2(k) definition of input - Rule 3(1) entitlement to CENVAT credit for capital goods or inputs received in the premises of the provider of output service - Towers and PFBs qualify as 'inputs' used for providing output telecom services under Rule 2(k), and thus excise duty paid on them is eligible for CENVAT credit under Rule 3(1). - HELD THAT: - Rule 2(k)(ii) defines 'input' to include all goods used for providing any output service (subject to specified exclusions). Having held towers and PFBs to be 'goods' and accessories to BTS/antenna, the Court applied the functional/proximity test: these items are proximate and indispensable to provision of mobile service (they enable antenna/BTS to operate effectively). The definition for inputs relating to services need not be narrowly restricted; goods that are used (not remotely but proximate) for the output service fall within Rule 2(k). Consequently, duties paid on such goods may be availed as CENVAT credit under Rule 3(1). [Paras 11]Towers and PFBs are inputs for providing output telecom services and eligible for CENVAT credit under Rule 3(1).Rule 4(1) immediate credit on receipt of inputs in premises - CENVAT credit - Credit can be availed on receipt of towers and PFBs in the premises under Rule 4(1) even if subsequently fastened/erected, since entitlement is determined at receipt. - HELD THAT: - The Court endorsed the rule that entitlement to CENVAT credit is to be tested at the time of receipt in the provider's premises. Subsequent treatment (erection/fastening) that may later create an immovable structure does not defeat the right to credit where the goods, on receipt, qualify as inputs or capital goods. The identity of CKD/SKD supplied parts remains and there is no manufacturing transformation breaking the credit chain; hence Rule 4(1) permits immediate availment of credit on receipt. [Paras 10, 11]CENVAT credit is allowable on receipt under Rule 4(1) despite later erection/fastening.Final Conclusion: The Supreme Court upheld the Delhi High Court's view and allowed CENVAT credit to mobile service providers on excise duty paid on mobile towers, parts and prefabricated buildings: these items are movable 'goods', are accessories/components of BTS/antenna and qualify as 'capital goods' under Rule 2(a)(A)(iii) and as 'inputs' under Rule 2(k); credit is admissible on receipt in premises under Rule 4(1). The Bombay High Court decision to the contrary is set aside and the connected appeals are disposed accordingly.

2024 (8) TMI 1735 - Supreme Court Central Excise

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Low tax effect threshold disposed the civil appeals, while questions of law were kept open.
Benefit under the 22.08.2019 notification on low tax effect applied to the civil appeals, which were disposed of because the monetary threshold for filing appeals was not met. The Court recorded that the stated threshold notifications governed maintainability in such matters, while keeping all questions of law open.

2024 (7) TMI 476 - Supreme Court Central Excise

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Retail sale price declaration turns on whether the package is a statutory retail package, not on MRP printing alone.
Section 4A of the Central Excise Act applies only where the packaged commodity rules require retail sale price declaration on the relevant package. A group package must be intended for retail sale, while a wholesale package is meant for sale to an intermediary rather than direct sale to a single consumer. On the stated facts, HDPE bags containing 100 poly packs were cleared to distributors and dealers, and the outer bags were treated as wholesale packages that did not require retail price declaration. Mere printing of MRP on such a package does not by itself attract Section 4A.

Valuation of excisable goods with reference to retail sale price - requirement to declare retail sale price on the package under the Standards of Weights & Measures (Packaged Commodities) Rules, 1977 - group package intended for retail sale - wholesale package sold to an intermediary - exemption under Rule 34(b) of the Standards of Weights & Measures (Packaged Commodities) Rules, 1977Valuation of excisable goods with reference to retail sale price - group package intended for retail sale - wholesale package sold to an intermediary - requirement to declare retail sale price on the package under the Standards of Weights & Measures (Packaged Commodities) Rules, 1977 - exemption under Rule 34(b) of the Standards of Weights & Measures (Packaged Commodities) Rules, 1977 - Whether Section 4A(1) of the Central Excise Act, 1944, applies to the goods sold by the respondent-assessee - HELD THAT: - The critical question was whether the respondent's packages fell within the class of packages that the Packaged Commodities Rules require to bear the retail sale price so as to attract valuation under Section 4A(1). The Court accepted the factual position (not rejected by the Commissioner) that the respondent packed 100 larger poly packs into one HDPE bag and sold those HDPE bags to distributors. A package intended for sale to an intermediary and not for direct sale to a consumer falls within the definition of a wholesale package (Rule 2(x)), including clause (iii) covering packages containing ten or more retail packages. The Rules do not mandate the display of retail sale price on such wholesale packages, and therefore the mere presence of MRP on the poly packs does not, by itself, bring the HDPE bag within the scope of Chapter II obligations to declare retail price. Because the HDPE bags as sold are wholesale packages, they are not group packages intended for retail sale under Rule 2(g), and the statutory trigger for Section 4A(1) is absent. Consequently, the goods in issue do not attract valuation under Section 4A(1); any question whether the individual poly packs were intended for retail sale need not be finally determined for the purposes of these appeals. [Paras 15, 16, 17, 18]Section 4A(1) of the Excise Act does not apply to the goods the respondent sold; the HDPE bags containing 100 poly packs are wholesale packages and do not require declaration of retail sale price under the Rules.Final Conclusion: The appeals are dismissed. The Tribunal's conclusion that Section 4A(1) did not apply is upheld on the basis that the HDPE bags containing 100 poly packs are wholesale packages which are not required to bear the retail sale price under the Packaged Commodities Rules.

2024 (5) TMI 67 - Supreme Court Central Excise

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Relabelling containers constitutes manufacture under Note 3 Chapter 18 Central Excise Tariff Act after 2008 amendment
The SC held that relabelling of containers constitutes manufacture under Note 3 to Chapter 18 of the Central Excise Tariff Act. The appellant's Taloja unit relabelled goods from its Jammu unit on both sides of packs before market introduction or export. The court clarified that the 2008 amendment replaced "and" with "or" between labelling/relabelling and repacking, making either activity sufficient for manufacture. Since relabelling alone now qualifies as manufacture under Section 2(f)(ii) of the Central Excise Act, the appellant's activity fell within the statutory definition. The appeal was dismissed.

Labelling or re-labelling of containers - repacking from bulk packs to retail packs - deeming provision - manufacture - cenvat credit - rebate on export duty - suppression or misrepresentation - extended period of limitationLabelling or re-labelling of containers - deeming provision - manufacture - Activity of affixing labels at the Taloja unit falls within Note 3 to Chapter 18 and amounts to manufacture. - HELD THAT: - Note 3 to Chapter 18, as amended with effect from 01.03.2008, substitutes 'or' for the earlier 'and', thereby converting what was earlier a composite process into three independent processes. Consequently, labelling or re-labelling of containers is an independent process which the legislature has expressly declared to be a process amounting to 'manufacture' (a deeming provision). Section 2(f)(ii) of the Central Excise Act incorporates processes specified in Chapter notes as amounting to manufacture; therefore labelling/re-labelling under Note 3 falls within the statutory definition of 'manufacture'. There is no factual dispute that the respondent affixed labels at its Taloja unit on goods received from Jammu and on imported goods; accordingly that activity is covered by Note 3 and amounts to manufacture. [Paras 11, 13, 14, 15]Labelling undertaken by the respondent at Taloja amounts to manufacture under Note 3 to Chapter 18.Cenvat credit - rebate on export duty - manufacture - Entitlement of the Taloja unit to cenvat credit of duty paid at the Jammu unit and entitlement to rebate on export duty were upheld. - HELD THAT: - Having held that the labelling activity at Taloja amounts to manufacture under Note 3, the Taloja unit qualified as a manufacturer for the purposes of claiming cenvat credit of duty paid at the Jammu unit and to utilise such credit in relation to exports. The Third Member and the majority of CESTAT accepted that the Taloja unit was distinct from the Jammu unit and that credit and rebate claimed were thereby correctly availed and sanctioned. Consequently, demands for recovery of the credit and rebate were not sustainable. [Paras 5, 16]The respondent was entitled to the cenvat credit and to the rebate; the credit and rebate claims were rightly availed and sanctioned.Suppression or misrepresentation - extended period of limitation - penalty - There was no suppression or misrepresentation by the respondent; extended period of limitation and penalty could not be invoked. - HELD THAT: - The question whether labelling amounted to manufacture was a matter of statutory interpretation of Note 3. The CESTAT majority found no suppression or misrepresentation of material fact by the respondent since the entitlement turned on the interpretative scope of Note 3. On facts, evidence did not establish deliberate concealment; therefore revenue could not invoke the extended period of limitation nor sustain the penalty imposed for suppression. The appellate tribunal's finding to this effect was affirmed. [Paras 5, 16]No suppression or misrepresentation proven; extended limitation and penalty not available to the revenue.Final Conclusion: Majority decision of CESTAT affirmed: labelling at the Taloja unit amounts to manufacture under Note 3 to Chapter 18; the respondent was entitled to the cenvat credit and export rebate; there was no suppression warranting extended limitation or penalty. Revenue's appeal dismissed; no order as to costs.

2024 (4) TMI 1062 - Supreme Court Central Excise

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High Court remand of tax adjudication where tribunal directions merged yet fresh orders issued, remand affirmed without prejudice
Validity of High Court remand for re-consideration is examined where subordinate authorities failed to follow tribunal directions; the tribunal direction had merged with a subsequent order but also required fresh adjudication, and authorities issued fresh orders accordingly, so automatic allowance did not follow. A withheld letter allegedly not furnished was not relied upon in adjudication and its non-supply did not cause demonstrable prejudice to the appellant, so remand to the tribunal for fresh consideration is affirmed while preserving the appellant's liberty to urge prejudice and other contentions before the tribunal.

Principles of natural justice - duty to furnish documents relied upon in show cause notice - prejudice requirement for non-supply of documents - finality and modification of tribunal orders - remand to tribunal for fresh adjudicationPrinciples of natural justice - duty to furnish documents relied upon in show cause notice - prejudice requirement for non-supply of documents - Non-furnishing of the letter dated 20.01.2001 (with enclosures) pursuant to CESTAT's direction did not vitiate the adjudication by violating principles of natural justice. - HELD THAT: - The tribunal had earlier directed supply of the letter dated 20.01.2001 and enclosures and afforded opportunity for fresh hearing. On de novo adjudication the adjudicating authority did not rely on the said letter as an adverse document. The High Court found, and this Court affirms, that the letter emanated from the assessee itself and constituted an explanation of the alleged shortfall/excess; mere reference to a document in the show cause notice does not ipso facto mean the authority relied on it adversely. Liability to demonstrate actual prejudice caused by non-supply rests on the assessee; where the document is self-originated and not used adversely, non-supply cannot be held to have caused prejudice. The factual findings that copies were supplied earlier and that the assessee had itself sought copies (and thus had opportunity to obtain or retain them) buttress the conclusion that no violation of natural justice occurred. [Paras 11, 12, 13, 15]No violation of principles of natural justice is established by non-furnishing of the letter dated 20.01.2001; the assessee has not shown prejudice.Finality and modification of tribunal orders - The modification/review of the CESTAT order dated 05.05.2009 (by order dated 08.03.2010) lacks sanctity in law. - HELD THAT: - Counsel for the appellant challenged the tribunal's subsequent modification of its earlier direction to furnish the letter. This Court accepts the High Court's finding (paras 25-29 of the impugned order) that the order of review/modification passed on 08.03.2010 is without sanctity of law. The Court records its agreement with that conclusion while noting the wider procedural posture of the litigation, which affects consequential relief. [Paras 14]The tribunal's order of modification dated 08.03.2010 is without sanctity; the Court affirms the High Court's finding to that effect.Remand to tribunal for fresh adjudication - The High Court's remand of the matter to the tribunal for adjudication on merits is affirmed, with liberty to the assessee to raise all contentions including prejudice from non-furnishing of documents. - HELD THAT: - Although this Court agrees that the tribunal's modification was improper, the High Court has remanded the matter to the tribunal for fresh disposal of the appeals. Given that the respondent had in any event adjudicated the show cause notices afresh and the High Court found no established prejudice to the assessee, this Court declines to set aside the impugned order and affirms the remand. The appellant is left free to press all contentions before the tribunal, including demonstrating any prejudice arising from non-supply of the letter dated 20.01.2001 (with enclosures). [Paras 14, 15]Remand to the tribunal for fresh adjudication is affirmed; parties may urge all contentions afresh before the tribunal.Final Conclusion: The appeals are disposed of by affirming the High Court's remand of the matter to the tribunal for fresh adjudication; the Court holds that non-supply of the letter dated 20.01.2001 did not, on the material before it, amount to a breach of natural justice nor did it cause demonstrated prejudice, and also agrees that the tribunal's subsequent modification order lacked sanctity, while leaving the parties free to advance their contentions before the tribunal.

2024 (3) TMI 1570 - Supreme Court (LB) Central Excise

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Authorised representation in corporate appeals determines maintainability, while home buyers retain independent remedies despite dismissed challenges.
Maintainability of corporate appeals was questioned because the supporting affidavit was affirmed by a person who was neither a director nor part of management, prompting a request for proof of authority. Those appeals were withdrawn and dismissed accordingly. Separate challenges to an NCLAT order were dismissed after counsel stated that the appellants had no grievance against it, while preserving any other legal rights and remedies available to protect the home buyers' interests.

2023 (12) TMI 1303 - Supreme Court Central Excise

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Modvat and Cenvat credit extends to welding electrodes and maintenance materials used for plant and machinery upkeep.
Welding electrodes and similar materials used within a factory for repair, maintenance, upkeep or fabrication of plant and machinery are treated as eligible inputs for Modvat and Cenvat credit. The expression "used in or in relation to manufacture" is given a wide meaning, covering goods with a direct or indirect nexus to manufacture because the proper functioning of capital goods is integral to the manufacturing process. Amendments to the Modvat and Cenvat regimes do not justify a narrow reading where the goods are used for manufacturing-related purposes. Credit is therefore admissible on such items, including jointing sheets and SS plates.

Used in or in relation to the manufacture - input (definition under Modvat/Cenvat) - eligible inputs for Modvat/Cenvat credit - credit on items used for maintenance, repair, upkeep or fabrication of plant and machinery - inclusive meaning of 'includes' in statutory definitionUsed in or in relation to the manufacture - eligible inputs for Modvat/Cenvat credit - credit on items used for maintenance, repair, upkeep or fabrication of plant and machinery - input (definition under Modvat/Cenvat) - inclusive meaning of 'includes' in statutory definition - Whether welding electrodes, paints, varnish, MS plates, jointing sheets and similar items used within the factory for repair, maintenance, fabrication and upkeep of capital goods are eligible inputs for availing Modvat/Cenvat credit. - HELD THAT: - The Court held that the phrase "used in or in relation to the manufacture" must be given an expansive interpretation and not a narrow one. Tracing the evolution of the Modvat/Cenvat schemes and the statutory definitions of "input" across successive rules, the Court noted the consistent inclusion of language extending coverage to goods used "whether directly or indirectly and whether contained in the final product or not" and the use of the word "includes" to enlarge the definition. Reliance was placed on the settled line of authorities of this Court which treats activities and goods integrally connected with the manufacturing process as falling within the scope of "in the manufacture of" or "in relation to" manufacture (illustrative examples recited by the Court include items used for lining furnaces, explosives for captive mines, ammonia for effluent treatment, railway track material for handling within factory, spare parts, tools and lubricants). Applying these principles, the Court concluded that items employed for maintenance, repair, upkeep or fabrication of plant and machinery are integrally connected with the manufacturing activity and therefore qualify as "inputs" eligible for credit under the Modvat/Cenvat rules. The Court rejected a narrow construction that would exclude items used indirectly or for maintenance from input eligibility and observed that denial of credit on that ground is contrary to the statutory scheme and precedent.Credit on welding electrodes and other items such as jointing sheets, SS plates and similar goods used for maintenance, repair, upkeep or fabrication of plant and machinery is admissible under the Modvat/Cenvat Rules; the appeals are allowed.Final Conclusion: The appeals are allowed: items used for repair, maintenance, fabrication and upkeep of capital goods within the factory qualify as eligible inputs under the Modvat/Cenvat credit regime and Cenvat/Modvat credit on such items is admissible.

2023 (12) TMI 1473 - Supreme Court Central Excise

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Inclusive definition of "input" under Cenvat rules covered welding electrodes and factory paints used for maintenance.
An inclusive definition of "input" under the Cenvat Credit Rules was interpreted broadly, because the word "includes" enlarges rather than restricts the scope of the defined term. On that construction, welding electrodes used as accessories for filling machine cavities and for repair and maintenance of plant, and paints used in the factory, were treated as inputs eligible for Cenvat credit. The decision follows the earlier three-judge Bench view on the same definition and applies that settled interpretation to goods used in relation to manufacture within the factory.

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