[Order per : V.K. Agrawal, Member (T)]. - The present appeal has been filed by M/s. National Steel Industries Ltd., being aggrieved with the Order No. 245/97, dated 11-11-1997 under which the Commissioner, Central Excise, Indore, has ordered that C.R. Coils weighing 892.716 M.T. are liable for confiscation and has further ordered to enforce the Bond for Rs. 9 lakhs and imposed a penalty of Rs. 5 lakhs.
2. Shri C.S. Lodha, learned Advocate submitted that the Appellants carry out the activity of cold rolling on hot rolled coils; that the mere activity of reducing the thickness of a coil by the process of cold rolling does not amount to an activity of manufacture, as there is no emergence of a new product having a different name, character or use; that as per Supreme Court’s decision in C.C.E., Chandigarh v. Steel Strips Ltd. - (S.C.), the activity undertaken by them does not amount to an activity of manufacture within the meaning of Section 2(f) of the Central Excise Act; that in Jyoti Engg. Corpn. v. C.C.E. - , Tribunal held that the process of drawing wire of lesser gauge from wire of higher gauge did not amount to manufacture; that this decision was confirmed by the Apex Court as reported in (S.C.). He further submitted that in the case of Resistance Alloys (I) Ltd. v. C.C.E., Allahabad - (T) it was mentioned that “this order relates to the period when Tariff Item 26AA (la) was in existence, but the basic principles and the ratio remains the same and is applicable to the present case.” The Appellate Tribunal, in the said case, held that pickling and annealing, etc., are processes preparatory to cold drawing proper, and a part of the cold drawing process as a whole; that a new commodity does not emerge after application of these processes, is apparent as even after cold drawing the item remains a stainless steel electrical resistance wire although of a thinner dimension. The learned Advocate also relied upon the following decisions :-
(i) C.C.E., New Delhi v. Mithan Wires - 1999 (34) RLT 252 (CEGAT)
(ii) Kanthal Bimetals (I) Ltd. v. CCE, Allahabad - (T)
3. The learned Counsel also mentioned that the liability to record the production in RGI register arises only when the finished products are fully manufactured; that final quality Control is done just prior to clearance of the goods; that because of this reason, there was always nil closing balance/opening balance in their R.G.-I. register. He further mentioned that the Appellants, besides using their own H.R. Coils, were also receiving H.R. Coils under Rule 57F(2) of the Central Excise Rules for job work and there was no requirement to mention RG-I register in respect of goods processed on job work basis; that the Coils, seized by the officers on the day of visit, were not in complete condition as the final quality controls checks were about to be done; that they had submitted a Chartered Accountant’s Certificate that right from inception i.e. from 30-3-1994 up to 24-2-1996 every single gram of raw material received, produced and cleared was accounted for and as such there was no question of any unrecorded material lying in their factory. He finally submitted that as per impugned Order, the C.R. Coils on job work’s account was only 156.972 M.T. whereas as per Panchnama dated 24-2-1996, the balance was 719.428 M.T. He submitted that neither the seized goods were liable for confiscation nor any penalty was imposable on the Appellants.
4. Countering the arguments, Shri M.P. Singh, learned DR, submitted that all the decisions relied upon by the learned Advocate, except Steel Strips decision, relate to the drawing of wire from thicker gauge to thinner gauge which is quite different from the process of cold rolling of flat H.R. Coils and as such are not applicable to the facts of the present matter. He further submitted that in drawing wire, only diameter of the wire is reduced and there is no change in function, name use of the redrawn wire whereas by applying the process of cold rolling number of products can be manufactured. He also mentioned that in Steel Strips Ltd. the Apex Court dismissed the appeal filed by the Revenue as the Department did not produce any evidence to prove “that hot rolled strips undergo a process of manufacture before they become cold rolled strips”. He also added that there was only one tariff item for both hot rolled and cold rolled products whereas in the present Schedule to the Central Excise Tariff Act, flat rolled products of iron or non-alloy steel, of a width of 600 mm or more, hot rolled, fall under Heading 72.08 and Flat-Rolled products of a width of 600 mm more, Cold rolled (cold reduced), fall under Heading No. 72.09; that if process of Cold Rolled is regarded as not amounting to manufacture, Heading 72.09 of the Tariff will become redundant; that as such manufacture is implied in the Tariff as two different Headings have been provided for hot rolled products and cold-rolled products. He also relied upon the decision in the case of Gramophone Co. of India Ltd. v. C.C., Calcutta - (S.C.) wherein process of recording audio cassettes was held to be amounting to manufacture as blank audio cassette is distinct and different from pre-recorded audio cassette and two have different use and name. He contended that the cold rolled products are distinctly known in the market. Regarding liability of seized goods for confiscation, the learned D.R. submitted that admittedly the seized goods were not accounted for in statutory daily production record i.e. R.G. 1 Register; that the Appellants had also not recorded correctly the quantity manufactured by them on job work basis; that the goods were in complete finished form as they were bearing serial Nos. etc.
5. In reply the learned Counsel emphasised that entirely a new commodity has not emerged by the process of cold rolling; that present matter also is the case of emergence of thinner product; that in the case of Resistance Alloys, supra, the process involved was of cold drawing. Finally he submitted that in Moti Laminates Pvt. Ltd. v. CCE, Ahmedabad - (S.C.), the Supreme Court held that “where the goods are specified in the schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied”.
6. We have considered the submissions of both the sides. We find that the show cause notice dated 2-7-1996 was issued to the Appellants for the purpose of confiscating the C.R. Coils found unaccounted in the factory premises and for imposing the penalty. No doubt the Appellants did raise the plea of process of cold-rolling not amounting to manufacture in their reply to show cause notice. The Commissioner, however, in the impugned Order has not dealt with the issue as he has merely given his findings that the decision in Steel Strips “cannot be made applicable to the instant case in view of the fact that noticee himself treated the process of conversion of H.R. Coils into C.R. Coils as ‘manufacture’ and accordingly took Modvat credit on inputs namely H.R. Coils”. In absence of any findings given on merit by the Commissioner on the aspect of ‘manufacture’ in the impugned Order, we are of the view that in the interest of justice, this issue be left open for both Revenue and Appellants. The Commissioner has considered the seized goods as fully manufactured as these are known in the market and stickers showing weight, width and size were pasted on each coil. The Appellants have contended that the goods became fully manufactured only after the quality control inspection and only then the goods were required to be entered in RG 1 register and that they were entering the impugned goods in RG 1 only after conducting the final quality control. In support of their contention, they had produced the copies of RG 1 Register. Further they have also submitted a Chartered Accountant’s Certificate reconciling the figures of receipt of raw materials right from the inception of factory with the quantity of C.R. Coils processed and cleared by them. The Commissioner has not considered the said certificate while coming to the findings about unaccountal of C.R. Coils. The learned Advocate had contended that as per Annexure to Panchnama, the quantity of C.R. Coils was 719.428 and not 156-972 M.T. and as such it cannot be said that the Appellants had not supplied details as to how this figure was arrived at. We also take note of the fact that all the seized goods were found lying in the factory premises and there has been no allegation that the goods were intended to be removed without entering into statutory records. On appreciation of all the facts, we are of the view that the Department has not successfully substantiated their charge that the impugned goods were in fully manufactured conditions and as such confiscation of the impugned goods is not sustainable. Accordingly penalty is also not imposable on the Appellants. In view of this, the order is set aside and appeal is allowed.