TaxTMI 
TaxTMI 
1985 (3) TMI 62
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....se duty on the ground that the process of cutting out circles and punching of holes cannot be considered as incidental or ancillary to the completion of the manufacture of plywood. The audit objection pointed out that the levy of excise duty must be on the total area of blocks or panels of plywood that came out of the press and not on the area of the circles made out of the blocks or panels. It was further indicated that by plywood it was meant only plywood which had a general market and not plywood circles specially manufactured for a particular purpose or a particular customer. In consequence of the audit objection, the Range Officer, Central Excise, Irinjalakuda, the appellant No. 2 herein, issued a notice on 22-2-1967 to M/s. Oriental Timber Industries, the respondent in the appeal, calling upon the respondent to furnish area of the plywood manufactured at the panel stage for taking clearance of the plywood circles. By this notice the Range Officer also mentioned that the assessment of the plywood circles would be made at the panel stage and not on the finished circles and directed M/s. Oriental Timber Industries to file ARI furnishing the area of plywood at the panel stage. In....
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....otices. 7. The correctness of the judgment of the Division Bench has been questioned in this appeal by special leave granted by this Court. The Division Bench noted that the real dispute was as to at what stage the excise duty becomes leviable on the goods. The contention of the Excise Authorities was that plywood became dutiable or excisable at the panel stage, that is at the stage it came out of the press, whereas the contention of the firm was that excise duty would only be attracted when the plywood left the factory premises in the shape of circles, cut, trimmed and sanded. The Division Bench referred to Section 3 of the Act, which is the charging section and also Item 16B in the First Schedule. The Division Bench also considered Rule 49(1) of the Central Excise Rules framed under the Act. 8. The Division Bench proceeded to hold :- "Item 16B itself, in our opinion throws considerable light on this question. Plywood and other articles mentioned in the body of the item may be in sheets, blocks, boards or the like, which means that the plywood or other article may be in the shape of circles as well. Moreover, the articles are classed into two. Sub-item (1) makes plywood for tea....
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....tended that Item 16B on which the High Court has relied has not been properly construed. The contention is that Item 16B provides that plywood and other articles mentioned in the main body of the rule may be in sheets, blocks, boards or the like and are excisable to duty as plywood at the rate of 15% ad valorem under sub-ite m(2) of the said Rule; and sub-item (1) of the said rule makes an exception in case of plywood for tea-chests when cut to size in panels or shooks and packed in sets and provides duty at the rate of 10% ad valorem. The argument is that plywood as and when it comes out of the press in blocks or panels is a manufactured product known in the market as plywood and is exigible to duty; and the blocks or panels so manufactured do not cease to be plywood under Item 16B merely because they are not trimmed and their edges are not sanded. It has been submitted that the cutting of the blocks does not form a part of the manufacture of the plywood; and the circles which are made by the cutting of the blocks and punching holes into blocks and panels, do not result in the manufacture of any different product for the purpose of assessment to duty and the circles so made form p....
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....oard, laminboard, batten board, hard or soft wall boards or insulating board, and veneered panels, whether or not containing any material other than wood; cellular wood panels; building boards of wood pulp or of vegetable fibre, whether or not bonded with natural or artificial resins or with similar binders : and artificial or reconstituted wood being wood shavings, woodchips, saw dust, wood flour or other lineous waste agglomerated with natural or artificial resins or other (organic binding substances, in sheets, blocks, boards or the like :" (i) Plywood for tea-chests when cut in panels or shooks and packed in sets; Ten per cent ad valorem. (ii) all others ..... Fifteen per cent ad valorem" 15. Rule 49 of the Central Excise Rules (hereinafter referred to as the Rules) referred to in the course of the arguments and also in the judgment of the High Court does not in the facts and circumstances of this case have a material bearing on the question in dispute. Rule 9, however, may be noticed and the relevant provision of Rule 9 read as follows :- "No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises a....
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....he same. Whether cutting of plywood blocks or panels into circles constitutes a manufacturing process and whether circles made out of the plywood blocks or panels constitute a different product from the plywood may be debatable. There can, however, be no doubt that plywood is manufactured as soon as the product comes out of the press and plywood in sheets, blocks, boards or the like come within Item 16B, even if they are not trimmed and their edges are not sanded, as the Item does not speak of trimmed or sanded plywood. Even if plywood blocks or panels manufactured by the firm can be said to constitute the raw material of the firm for producing plywood circles and not as the finished product of the firm, the position, in view of the definition of `manufacture' as given in Section 2(f) of the Act, the provisions of Rule 9 and the provisions contained in Item 16B in the First Schedule, remains unaltered and unaffected; and plywood manufactured for producing circles becomes liable to duty at the blocks stage or panel stage. No question of double taxation arises as duty is leviable only once on the plywood as it comes out of the press in the panel or block stage and no further duty is ....
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....med the decree. The Union of India representing the Excise Authorities preferred an appeal to the Supreme Court. Allowing the appeal filed by the Union of India, this Court held :- "It appears to us that, on a plain reading of the provisions of the Act and Item 26A of the First Schedule, the contention raised on behalf of the appellant must be accepted. Under Section 3, all excisable goods set forth in the First Schedule, which are produced or manufactured in India, are made liable to excise duty at the rates mentioned in the Schedule. Item 26A(2) clearly mentions the manufactures, amongst others, of circles in any form or size. There can be no dispute that what the rolling mills prepared by rolling the billets are circles in some form or the other and in different sizes. The contention that the uncut circles cannot be held to be circles mentioned in this item has, on the face of it, no force at all. Brij Mohan, the Karta of the respondent Hindu undivided family business, in his statement himself admitted that the billets are sent to the rolling mills and the same are converted into P 6 and P 7, i.e. circles or Penas. P 6 and P 7, according to him, are a kansi circle and brass cir....
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....cess is ordinarily carried on with the aid of power', and so is liable to excise duty under Item 12 of the First Schedule. The Court examined the process of manufacture of Vanaspati and found that vegetable non-essential oils as obtained by crushing containing the impurities were first produced as raw vegetable as non-essential oils. They had then to undergo the process of refining which consisted of adding an aqueous solution of an alkali which will combine with the free fatty acids to form a soap and settle down with it a large amount of suspended and mucilaginous matter; after settling the clear supernatant layer is drawn off and treated with an appropriate quantity of bleaching earth and carbon is then filtered. In this process, the colouring matter is removed and the moisture that was originally present in the neutralised oil will also be removed. At this stage, the oil is a refined oil and is suitable for hydrogenation into vegetable product. What was sought to be taxed was the refined oil at this stage; but that contention was rejected, because the Court held that the oil produced at that stage is not known as refined oil to the consumers in the commercial community and can ....
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....e High Court, are valid and lawful. 22. Though this appeal has to be allowed, there is one aspect which caused us some anxiety. The facts and circumstances go to indicate that the respondent firm is a small-scale industry and carries on business on small scale. Prior to the impugned notification, the assessment of the excise duty was made on the plywood circles after the same had been produced and not on plywood as and when the same came out of the press. This was the mode of assessment adopted by the Excise Authorities and there was no default on the part of the firm. It was only in the year 1967 the Excise Authorities sought to change the mode of assessment because of audit objection. The Respondent assessee succeeded in the High Court. The present appeal was instituted in 1971 and this is being disposed of in the year 1985. If the respondent firm be saddled with all the accumulated liability on account of excess amount of excise duty payable by the respondent firm for all these years, the respondent firm will be very seriously prejudiced and it may indeed be difficult for the respondent firm to meet this liability. On the other hand, these years have all rolled by and so far as....