- (1.) The issue involved in these civil appeals under section 35-L (b) of Central Excise Act, 1944 is - whether on the facts and circumstances of the case, the Commissioner was right in holding that the frag- mented activities of M/s. Aldec Corporation, M/s. Vitthaleshwara Painting industries (VPI) and M/s. Srinivasa Rolling and Engineering Works (SREW) taken individually or jointly resulted in "manufacture" of a separate, independent and distinct identifiable product namely, painted aluminium slat (PAS) for Venetian blinds classifiable under chapter sub-heading 7616,90.
(2.) On 8-11-1994, while patrolling, officers of Central Excise, Hyderabad inspected an auto-trolley bearing registration No. AHT-8500. On verification of the goods, being transported by the above trolley and on verification of documents produced by the driver, the officers found that the goods in transit were PAS for Venetian blinds. The officers found that the goods in transit did not suffer excise duty and accordingly, they seized the vehicle on a reasonable belief that the goods in transit were excisable goods under chapter, sub-heading 7616.90. On 9-11-1994, as a follow-up of the seizure, the officers visited the premises of M/s. Aldec Corporation and also premises of m/s. VPI and M/s. SREW under the authority of the search warrant. As a follow-up, the department issued show-cause notice on 27-3-1995 alleging purchase of aluminium sheets from M/s. Hindalco Industries Ltd. and paint from M/s. Goodlass Nerolac Paints Ltd. , which, the department alleged, was being used in the manufacture of PAS for Venetian blinds measuring 50 mm x. 23 mm and 25 mm x. 23 mm, running into mill length (over 100 ft. ). According to the show cause notice, M/s. Aldec Corporation bought aluminium sheets in coil form measuring 472 mm x 2. 03 mm and in turn forwarded the said aluminium sheets to M/s. VPI (job processor) which in turn forwarded the aluminium sheets to SREW (job processor) for slitting and re-rolling the above sheets into slats of 50 mm x. 23 mm and 25 mm x. 23 mm running into more than 100 ft. M/s. SREW thereafter returned back the slats to VPI who after painting the slats returned them back to M/s. Aldec corporation which then sold the said PAS as trader in the market. These pas were used in the manufacture of Venetian blinds. According to the show-cause notice, M/s. Aldec Corporation paid excise duty on the aluminium sheets bought from M/s. Hindalco under tariff item 76. 06. According to the show-cause notice, the department had examined the documents seized including balance-sheets and on that basis, it was alleged that M/s. Aldec Corporation had paid excise duty under tariff item 76. 06 on behalf of so-called job processors, M/s. VPI and M/s. SREW. According to the show-cause notice, M/s. Aldec Corporation had paid excise duty which was passed on to the customers in the past and on obtaining refund from the department in the name of M/s. VPI and M/s. SREW, M/s. Aldec Corporation refunded the amounts received from the department to its customers. According to the show-cause notice, M/s. Aldec Corporation had two partners by the name, vinay Asar and Harish Asar, whose father Vallabdas Purushottamdas Asar was a partner of a firm M/s. Sunder Das and Co. According to the show-cause notice, M/s. Sunder Das and Co. had let out the premises to M/s. Aldec Corporation. On behalf of M/s. Sunder Das and Co. , lease was signed by Vallabdas asar as lessor whereas the lease-deed was signed by Vinay Asar as partner of M/s. Aldec Corporation (lessee). There was also an agreement between m/s. Sunder Das and Co. and M/s. VPI. There was also an agreement between sunder Das and Co. and M/s. SREW. Both these agreements were for supply of power, lighting and water to M/s. VPI and M/s. SREW. According to the show-cause notice, the work assigned to M/s. VPI and M/s. SREW was to convert aluminium sheets measuring 472 mm x 2. 03 mm into 50 mm x. 23 mm thickness and 25 mm x. 23 mm thickness. It was further alleged that m/s. SREW collected job work charges not from M/s. Aldec Corporation but from M/s. VPI for the work of re-rolling and slitting. In the light of the aforesaid circumstances, the department alleged that the entire control of all the aforestated activities vested in M/s. Aldec Corporation and with the intention to evade excise duty, M/s. Aldec Corporation called itself a "trader" and called M/s. SREW and M/s. VPI as job processors. According to the show-cause notice, M/s. Aldec Corporation was not a trader, that it was in fact a processor and that M/s. Aldec Corporation had resorted to the aforestated modus operandi with the intention to evade excise duty by fragmenting the aforestated different and distinct activities which if taken together resulted in the manufacture of an independent identifiable product, namely, painted aluminium slat (PAS) , classifiable as a separate article under chapter sub-heading 7616.90. From the show-cause notice, one finds that in the year 1986, M/s. VPI was asked by the Superintendent to apply for central Excise Licence and to follow central excise procedures. Being aggrieved, M/s. VPI had filed a writ petition in the High Court of Andhra pradesh. That writ petition was disposed of on 10-6-1987 directing M/s. VPI to approach the Collector. Similar immunity was also claimed by M/s. SREW. The Collector upheld the contentions of M/s. VPI and M/s. SREW holding that painting of aluminium sheets did not amount to "manufacture". The Additional Collector also came to the conclusion that the slitting of aluminium sheets did not amount to "manufacture". Consequently, the additional collector took the view that the aluminium sheets remained under tariff item 27 (6) and there was no new article produced or manufactured from such aluminium sheets as a result of slitting and painting so as to fall under tariff item 68 (as it then stood). However, under the impugned show-cause notice, the department contended that in the earlier proceedings, notices were given only to M/s. VPI and to M/s. SREW; that no notice was given to M/s. Aldec Corporation; that the earlier proceedings focused on individual activity of slitting and the individual activity of painting; that the various different stages through which the original sheets had undergone different processes at the behest of M/s. Aldec Corporation was not examined by the department; and that the department had proceeded on the basis that M/s. VPI and M/s. SREW were independent job processors. According to the department, in the present case, on examination of the documents and from subsequent recovery, the department found that M/s. Aldec corporation was the processor and that M/s. VPI and M/s. SREW were only its workmen/labourers and, therefore, the impugned show-cause notice had called upon M/s. Aldec Corporation to show-cause why the above activity/process taken together should not be treated as "manufacture", both on first principles as well as under section 2 (f) of the said Act, 1944. The impugned show-cause notice, therefore, did not accept M/s. Aldec Corporation as a trader but as a job processor/manufacturer. In the circumstances, the show- cause notice, in the present case, has alleged violation of rule 174 of Central excise Rules, 1944 read with section 6 of the said Act, 1944. By the said show-cause notice, the department has called upon M/s. Aldec Corporation to pay duty amounting to Rs. 1.51 crores (approximately) for the period april 1990 to October 1994. A similar show-cause notice was also issued by the department on 5-7-1995 for recovery of an amount of Rs. 9.57 lacs (approximately) for the period December 1994 to April 1995. According to the show-cause notice, the aluminium sheets bought by M/s. Aldec Corporation from M/s. Hindalco was ten times thicker than the slats. The value of the slat was Rs. 230/- per kg. and that these slats were sold to different buyers whose names find place in the order of the Commissioner.
(3.) In reply to the show-cause notice, M/s. Aldec Corporation submitted that the basis of the show-cause notice was erroneous because it ignored the previous binding orders of the Additional Collector and the Commissioner (Appeals) stating that the activities carried by M/s. VPI and M/s. SREW did not amount to "manufacture". It was contended that M/s. Aldec Corporation was a trader in aluminium strips in the coil form and that the department was always aware of its activities as a trader. According to M/s. Aldec Corporation, there was no difference between tariff item 27 (6) and tariff item 68 (which existed prior to 28-2-1986) on one hand and tariff item 76. 06 as well as chapter sub-heading 7616.90 under the Central Excise Tariff Act, 1985 on the other hand and, therefore, the decision taken by the department in 1986 was irreversible. In the reply, M/s. Aldec Corporation contended that m/s. VPI and M/s. SREW were job processors, which position was accepted by the department in its earlier decisions in 1986/1987 and, therefore, it was not open to the department in the year 1995 to contend that the slats were now classifiable under sub-heading 7616.90. According to M/s. Aldec corporation, the business of the Corporation was trading and, therefore, it was not required to obtain licence or registration under the Central Excise Act, 1944. According to M/s. Aldec Corporation, the department had accepted that the activities of M/s. VPI and M/s. SREW were non-manufacturing activities and in fact refunds were sanctioned in favour of these units and, therefore, it was not open to the department now to allege evasion of excise duty by M/s. Aldec Corporation, as indicated in the show-cause notice, w. e. f. April 1990. M/s. Aldec Corporation, therefore, submitted that they were traders of aluminium strips in the form of coils and, therefore, there was no question of payment of excise duty on such trading activity. However, in reply to the impugned show-cause notice, vide para 14 (h) , M/s. Aldec Corporation submitted that they were not concerned with the show-cause notices given to M/s. VPI and M/s. SREW. The tenor of the reply of M/s. Aldec corporation indicates that M/s. Aldec Corporation was a trader whereas M/s. VPI and M/s. SREW were job processors whereas according to the department, in view of the complete control of all the activities by M/s. Aldec corporation, the real processor was M/s. Aldec Corporation and not M/s. VPI or M/s. SREW. In reply, M/s. Aldec Corporation submitted that the excise duty was on the activity of 'manufacture'; the duty of excise was to be imposed on manufacture of goods; that in the case of M/s. Ujagar Prints etc. v. Union of India and others reported in 7988 (38) ELT 535, it has been held by this Court that in the case of processing-houses, duty was leviable on the processors not because they were owners of the goods but because they caused the manufacture of the goods. M/s. Aldec Corporation submitted that they did not cause the manufacture of the goods in the present case and, therefore, they were not liable. According to the reply, the ownership of the goods or owners of the plants or machinery was not relevant. According to M/s. Aldec Corporation (respondent herein) , what was relevant was the nature of the activity and not the nature of the ownership. M/s. Aldec Corporation denied the charge of fragmentation of the activities. In any event, it was submitted that the facts relating to the alleged fragmentation were known to the department at all material times including in the earlier adjudication and, therefore, it was not open to the department to claim duty amount retrospectively.;