Arijit Pasayat, J.— These appeals are interlinked. In Civil Appeal No. 4322 of 1999 M/s Kores India Ltd., Chennai (hereinafter referred to as “the assessee”) calls in question legality of the judgment rendered by the Customs, Excise and (Gold) Control Appellate Tribunal, South Zonal Bench, Chennai (in short “the Tribunal”) holding that demand for duty raised in respect of typewriter/telex ribbons is in order. In the connected appeals the Commissioner of Central Excise, Indore calls in question legality of the New Delhi Bench of CEGAT taking a divergent view in holding that duty was not payable.
2. Background facts in a nutshell are as follows:
So far as Civil Appeal No. 4322 of 1999 is concerned, show-cause notice was issued by the Collector of Central Excise, Chennai (in short “the Commissioner”) on 22-3-1993, inter alia, proposing levy of duty on the typewriter ribbons cleared by the assessee during the period 1-3-1988 to 30-9-1992 by invoking extended period of limitation under proviso to Section 11-A of the Central Excises and Salt Act, 1944 (in short “the Act”). In the reply to the show-cause notice, the assessee took the stand that no process of manufacturing is involved in the transaction concerned. The assessee receives excise duty-paid typewriter/telex ribbons in jumbo rolls of 210 m or more length from two small-scale units in Madras. In the assessee's factory typewriter rolls are fed into cutting and spooling machines wherein the ribbons of standard length of 10 m and 5 m are cut and spooled into metal spoons. The ribbons in spools are packed and sold by the assessee. With reference to Heading 96.12 of the Schedule to the Central Excise Tariff Act, 1985 (in short “the Tariff Act”) it was submitted that since appropriate Central excise duty had been levied on the rolls there is no question of paying any further duty. Apart from cutting of ribbons into standard predetermined lengths, the assessee does not undertake any activity on the ribbons received. It is to be noted that by Order-in-Original No. 40 of 1993 dated 19-8-1993 passed by the Collector of Central Excise, duty of Rs 2,89,76,000 was levied on clearance of carbon papers and typewriter ribbons from the assessee's factory at Madras. Duty was affirmed under Rule 9(2) of the Central Excise Rules, 1944 (in short “the Rules”) read with proviso to sub-section (1) of Section 11-A of the Act. Further demand of Rs 2,14,066 was confirmed on seized carbon papers and ribbons. Seized goods of both varieties valued at Rs 5,36,276.36 were held to be liable for confiscation and were released by enforcing the bank guarantee furnished to the extent of Rs 50,000. The Collector also levied penalty of Rs 30 lakhs under Rule 173-Q of the Rules.
3. Show-cause notice related to the two products i.e carbon papers for the period 1-3-1988 to September 1992 and typewriter/telex ribbons for the period 1-4-1988 to September 1992. The present dispute relates only to typewriter/telex ribbons.
4. CEGAT held that the cutting of ribbons in smaller size and spooling them into on the automatic spooling machines amounts to manufacture and, therefore, duty is payable on these ribbons. The conversion is done as per requirement of consumers in different spools to suit typewriter machines of different brand names. Ribbons received by the Madras unit cannot be supplied to the customers in the form received by merely reducing the length by cutting. It is further held that the product becomes saleable commodity only after it is spooled according to the desired sizes and, therefore, excise duty is payable as a new and distinct identity is acquired. The factual findings recorded by the Collector were affirmed.
5. In the connected appeals the stand of the assessee was accepted and the levy of duty by the Collector of Central Excise, Indore was deleted. While the Chennai Bench observed that manufacturing process was involved the New Delhi Bench held otherwise. It was concluded that manufacturing of ink ribbon is complete without process of cartridges and that Chapter Heading 96.12 does not make any distinction in cartridges and cassettes.
6. In support of Civil Appeal No. 4322 of 1999 Mr V. Lakshmikumaran, learned counsel submitted that CEGAT was not justified in holding that any manufacturing process was involved. According to him cutting the jumbo rolls into a smaller size may amount to processing but by no stretch of imagination it amounts to manufacturing. Reference was made to Prince Khadi Woollen Handloom Production Coop. Industrial Society v. CCE (1997) 4 SCC 138, (1996) 88 ELT 637 and Union of India v. J.G Glass Industries Ltd. (1998) 2 SCC 32, (1998) 97 ELT 5 to buttress the plea. It was submitted that whenever the intention was to include a particular activity within the manufacturing activity it was specifically provided. Reference was made to Chapters 37, 48 and 85 of the Tariff Act, as the position stands in 2002-03. In any event, according to him, the extended period of limitation was not available to be applied because to infer suppression of facts something more than mere bona fide mistake was necessary to be established by the Revenue. As a matter of fact, various authorities have entertained doubt as to whether the activities in question involved manufacturing process. Particular reference was made to the New Delhi Bench judgment of CEGAT which is the subject-matter of appeal in Civil Appeals Nos. 2682-90 of 2000.
7. Burden is on the Revenue to prove manufacture. Strong reliance was placed on Aman Marble Industries (P) Ltd. v. CCE (2005) 1 SCC 279, (2003) 157 ELT 393 which involves cutting of marble blocks into slabs. It was pointed out that if cutting of the blocks of marble into slabs does not amount to manufacturing, as was held by this Court, there is no reason to adopt a different yardstick so far as cutting of typewriter rolls of ribbons into smaller sizes is concerned.
8. At this juncture it is necessary to note that the duty component involved in the present dispute after grant of revenue (sic) by CEGAT in respect of carbon paper is Rs 42,72,308.03. This was in addition to Rs 54,335 which related to seized articles. Penalty was limited to rupees five lakhs. In Civil Appeals Nos. 2682-90 of 2000 the duty involved is Rs 70,22,974.46, which was deleted by the impugned judgment.
9. In response, Mr M. Parasaran, learned ASG, submitted that nature of activity has been analysed in great detail by the Collector and CEGAT. Taking note of the factual position it has been concluded that manufacturing activity is involved. It has been clearly established that different commercial commodity has come into existence and the commodity which was already in existence serves no purpose and no commercial use after the process. A new name and character has come into existence. The original commodity after processing does not possess original identity. It is pointed out that there cannot be bona fide doubt in the mind of the assessee in not obtaining licence and not disclosing the turnovers. With clear knowledge that the process involved manufacture, the activity was undertaken and, therefore, duty was payable. It is the legal duty of the assessee to take out the licence and pay duty. It has been deliberately avoided to be done with mala fide intention and, therefore, there was clear case of suppression of facts attracting extended period of limitation.
10. In Black's Law Dictionary (5th Edn.), the word “manufacture” has been defined as:
“The process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine.”
Thus by process of manufacture something is produced and brought into existence which is different from that out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See CST v. Coco Fibres 1992 Supp (1) SCC 290.)
11. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to (sic that the) manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process/manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See CCE v. Rajasthan State Chemical Works (1991) 4 SCC 473.)
12. “Manufacture” is a transformation of an article, which is commercially different from the one which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that in manufacture something is brought into existence, which is different from that which originally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article. (See Saraswati Sugar Mills v. Haryana State Board (1992) 1 SCC 418.)
13. The prevalent and generally accepted test to ascertain that there is “manufacture” is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between “processing and manufacture” results in an oversimplification of both and tends to blur their interdependence. [See Ujagar Prints (II) v. Union of India (1989) 3 SCC 488.]
14. To put differently, the test to determine whether a particular activity amounts to “manufacture” or not is: do new and different goods emerge having distinctive name, use and character? The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether it be the result of one process or several processes “manufacture” takes place and liability to duty is attracted. Etymologically the word “manufacture” properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India (1985) 3 SCC 314.)
15. Keeping in view the aforesaid principles it has to be examined whether the Collector and CEGAT were justified in holding that manufacturing activities were made out. As appears from the order of the Collector, reference was made to the statements given by two officials of the assessee. Ribbon in rolls of 210 m and above in length are purchased from M/s Solar Packaging (P) Ltd., Madras and M/s Saket Stationery Mfg. Co., Bombay. The said jumbo rolls were fed into cutting and splitting machines in their premises and ribbons of standard lengths of 10 m and 5 m were cut/slit and subsequently wound/spooled on the metal spools and 10 such spools are blister-packed and sealed with aluminium foil. It was categorically observed that the assessee produced ribbons in spools out of jumbo rolls and the resultant product is a distinct, identifiable article having distinct name, function and use. The resultant product is also commercially distinct as understood in commercial parlance and has a separate market. Their function and use are also completely different and both products are not interchangeable. The ribbon in jumbo rolls cannot be used in a typewriter and similarly a person who requires 30 pieces of spool ribbon will not be satisfied if he is offered jumbo rolls of equal length. In fact, the assessee has a separate unit, machinery and workforce to manufacture in spool form. In that view of the matter, it was held that the process involved amounted to manufacturing.
16. At this juncture it is relevant to point out that the assessee had contended before the Collector that the inputs/raw materials used have suffered excise duty and if any duty is payable, they should be allowed MODVAT credit and the proportionate amount on account of such credit should be deducted from the proposed demand. This plea was turned out as required documentary evidence to show that entire quantity of inputs used have suffered tax was not produced. Before CEGAT it was accepted that there was possibility that manufacturers were operating under exemption available to SSI units and the goods would have discharged “nil” duty. It was also accepted that since the goods were received from the depots and not directly received from one factory, therefore, any duty (paying documents) were not available. It is to be noted that once the jumbo rolls are cut into smaller sizes, they completely lose their earlier identity and cannot be used for the same purpose as was done before cutting. In a hypothetical case, even if the smaller-sized ribbons are stitched together or fixed together in any manner, there is no possibility of its use as jumbo rolls. The factual findings recorded that the processing resulted in coming into existence of a commercial product having distinct name, character, and use are on terra firma. No case is made out for interference with the factual findings.
17. Coming to the plea of limitation CEGAT noticed that there was manufacturing and removal under Rule 9(1) at the Madras unit and, therefore, demand of duty under Rule 9(2) read with Section 11-A was applicable. It was concluded that there was clear contravention of Rule 9(1) with the intention to evade. Therefore, the contention that the assessee harboured bona fide and germane belief of the non-excisability of the product was not acceptable. No clarification from the Department was sought for and accordingly extended period of limitation was applicable.
18. In Padmini Products v. CCE (1989) 4 SCC 275 it was observed with reference to earlier judgment in CCE v. Chemphar Drugs and Liniments (1989) 2 SCC 127 that in order to avail limitation beyond a period of six months and up to a period of five years, in view of the proviso to sub-section (1) of Section 11-A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reason of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. It was observed that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information which the manufacturer knew otherwise, is required to be established before it is saddled with any liability beyond the period of six months. Whether, in a particular set of facts and circumstances, there was any fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act, is a question of fact depending upon the facts and circumstances of a particular case.
19. It is to be noted that strong reliance was placed on government order passed in 1982 ELT 4840 A (GOI) dated 16-1-1982 to contend that there was bona fide plea about non-excisability. Reference was also made to the order passed by the New Delhi Bench which is the subject-matter of challenge in the connected appeals and the order dated 12-4-1996 passed by a Collector who dropped the proceedings initiated. Except the Government of India's order, all other orders were passed subsequent to the issuance of the show-cause notice. In this case the assessee could not have anticipated any such adjudication at the relevant point of view. Further, the Government of India's order did not relate to ribbons. In any event, the Collector factually focussed on the conduct of the assessee to conclude lack of bona fides. At no point of time the Department was informed about manufacturing activity undertaken at their unit at Madras as required under law and, there was suppression of facts relating to manufacturing and removal of such goods. In this context, the Collector observed as follows:
“Further perusal of invoices prepared for sale effected from Madras indicate that the price quoted is inclusive of excise duty whereas in reality they did not pay for Central excise duty at all for the goods produced at Madras. This apart, perusal of copies of price lists and certain gatepasses seized from the make-up depot disclosed that KIL were manufacturing identical goods in question in their Thane unit apart from other varieties. The goods in question have been appropriately classified as goods falling under Headings 48.16 and 96.12 respectively and cleared on payment of duty. The copies of price list clearly indicate that KIL have filed price list and sought approval of assessable value for the goods in question. These factors go to show that M/s KIL had clear knowledge that the subject goods are excisable goods and are eligible to duty under Headings 48.16 and 96.12 respectively. Knowing fully well about the classification and the obligation, they have deliberately suppressed the material facts insofar as their Madras unit is concerned and have evaded payment of Central excise duty. In the circumstances, I have no hesitation to hold that the charge of suppression of fact and removal of goods in contravention of Rules with intent to evade payment of duty is fully established and the extended time-limit under Rule 9(2) read with proviso to Section 11-A is invocable for demand duty.”
20. In view of the factual position as noted by the Collector and affirmed by CEGAT there is no substance in the plea that the extended period of limitation was not applicable.
21. It is noted in the Collector's order with reference to the price lists, and some gatepasses seized from the make-up depot, that the assessee was manufacturing identical goods in their Thane unit apart from other varieties. Additionally, with reference to sales invoices it was noted that the price quoted is inclusive of excise duty, though no excise duty was paid in respect of the goods which according to the Revenue was manufactured at Madras.
22. As noted above, looked from any angle order of the Collector as affirmed on the point involved by CEGAT does not warrant any interference being based on factual conclusions which cannot be termed as perverse. The conclusions are based on relevant materials. Civil Appeal No. 4322 of 1999 is dismissed.
23. Coming to the other appeals, in view of the position indicated in detail in Civil Appeal No. 4322 of 1999, these appeals deserve to be allowed and are accordingly allowed. There shall be no order as to costs in these appeals.