HINDUSTAN PENCILS (P) LTD. AND ORS. Vs. CCE
LAWS(CE)-2015-5-50
CUSTOMS EXCISE AND GOLD(CONTROL) APPELLATE TRIBUNAL
Decided on May 27,2015

Hindustan Pencils (P) Ltd. And Ors. Appellant
VERSUS
CCE Respondents




JUDGEMENT

RAKESH KUMAR,MEMBER (T) - (1.)Since the point of dispute in these seven appeals is common, the same were heard together and are being disposed of by a common order. The details of these appeals are as under: - - JUDGEMENT_50_LAWS(CE)5_2015.htm
The penalties in these cases have been imposed under Rule 25 of the Central Excise Rules, 2002.

1.1 The facts leading to filing of appeals by M/s. Hindustan Pencils (P) Ltd. (hereinafter referred to as HPPL) are, in brief, as under.

1.1.1 HPPL in their factory at SIDCO Industrial Complex, Samirpur Road, Bari Brahamna, Jammu, manufacture pencil slats which are specifically covered by Tariff heading 44219040 of the Central Excise Tariff. This unit had commenced commercial production on 20th June, 2012 as per the certificate of permanent registration issued by GM District Industry Centre, Jammu. Exemption Notification No. dated 14/11/02, as amended from time to time, exempted the goods specified in Annexure I annexed to this notification and cleared from the factories in the industrial areas specified in Annexure II of the notification, from so much of the duty of excise leviable under 1st Schedule and 2nd Schedule to the Central Excise Tariff Act, 1985 and Additional Duty of Excise leviable under the Additional Duties of Excise leviable under the Additional Duties of Excise, (Goods of Special Importance) Act, 1957 [AED (GSI)] and Additional Duty of Excise (Textile and Textile Article) Act, 1978 [AED (T&TA)], which is other than the duty paid in respect of clearances made during a month by the utilisation of Cenvat credit available at the end of the month to the extent possible. According to the scheme of this exemption notification, a manufacturer eligible for this exemption and who had opted for the same, was required to pay duty payable in respect of the goods cleared during a month by utilising the Cenvat credit available at the end of the month to the extent possible and only the balance amount of duty, if any still payable, was required to be paid through PLA and it is this duty paid through the PLA in this manner, which was refundable in terms of this notification and its refund could be taken as self -credit in the Assessee's PLA to be verified by the Jurisdictional Assistant Commissioner subsequently or by making application to the Assistant Commissioner and taking the credit in PLA after sanction of the refund by the Assistant Commissioner. This exemption notification was applicable, among other units, to the new industrial units which have commenced their commercial production on or after 14th day of June, 2002. It appears that HPPL had opted for this exemption and had filed refund claims to the Jurisdictional Assistant Commissioner in terms of this exemption notification for refund of the duty paid through the PLA during certain months. However, the Assistant Commissioner vide order -in -original dated 13/11/06 rejected the refund claim for the month of March 2006, April 2006, May 2006, June 2006, July 2006 and August 2006 on the ground that the process undertaken by the appellant does not amount to manufacture and, hence, no duty is payable and accordingly the question of exemption under Notification No. would not arise. The Assistant Commissioner in para 7 of the order described the process of making wooden pencil slats starting from the timber logs and thereafter relying upon two judgments of Hon'ble Kerala High Court in the cases of Deputy Commissioner v/s. B. Thampan reported in, (1995) 96 STC 631 (Ker D.B.) and Deputy Commissioner v/s. N. Janardanan reported in, (1995) 96 STC 632 (Ker D.B.) held that the process being undertaken by HPPL does not amount to manufacture. The appellants filed appeal before the Commissioner (Appeals) against the order -in -original dated 13/11/06 of the Assistant Commissioner and the Commissioner (Appeals) vide order -in -appeal dated 29/06/07 upheld the Assistant Commissioner's order. No appeal was filed either by the HPPL or by the Department against the aforesaid order.

1.1.2 Sometime in 2009 the Jurisdictional Central Excise Authorities reopened this matter they after studying the process being undertaken by HPPL, but this time the Department took the view that the process being undertaken by the appellant amounts to manufacture in as much as it results emerges of a new commercial product having a different name, character and uses distinct from its raw material and the same being covered by heading 44219040 would attract Central Excise Duty. Accordingly, a show cause notice dated 09/12/10 was issued to HPPL for demand of Central Excise duty of Rs. 7,24,736/ - from HPPL alongwith interest. This show cause notice was adjudicated by the Commissioner vide order -in -original No. J&K/CEX/000/007/2012 dated 28/5/12 by which the Commissioner relying upon the earlier order of the Tribunal on this very issue in the cases of Lion Pencils Pvt. Ltd. v/s. CCE, Bombay reported in : 1996 (87) E.L.T. 314 (Tri.) held that the process being undertaken by HPPL amounts to manufacture and on this basis, he confirmed the duty demand of Rs. 7,24,336/ - on the appellant alongwith interest on it under Sec. 11AB. The appeal No. 1854/2012 has been filed against this order of the Commissioner.

1.1.3 Subsequently, show cause notices dated 29/7/10 for the period from July 2009 to October 2009, dated 03/10/11 for the period from September 2010 to July, 2011 and dated 28/8/12 for the period from August 2011 to May 2012 issued to HPPL for demand of duty amounting to Rs. 27,61,143/ -, Rs. 99,55,980/ - and Rs. 1,45,12,731/ - respectively alongwith interest and also for imposition of penalty. These show cause notices were adjudicated by three separate orders passed by the Commissioner, the details of which are mentioned above. The appeal No. 1855/2012, 1856/2012 and 60625/2013 have been filed against these orders of the Commissioner.

1.2 The second appellant M/s. Sanghvi Wood P. Ltd. (hereinafter referred to as SWPL), Industrial Complex, Bari Brahamna, Jammu also manufacture pencil slats. From the facts narrated by SWPL in their memorandum of appeal, it appears that earlier being under bona fide belief that their product is excisable, they had paid duty on the clearances of pencil slats upto 31st July 2006. However, according to them, in August 2006 they were informed by the office of Assistant Commissioner, Central Excise, Jammu that pencil slats were not dutiable. SWPL under their letter dated 21/08/06 addressed to the Assistant Commissioner referring to the Department's advice that their product is not dutiable, informed that they are stopping the payment of duty on clearances of pencil slats w.e.f. 22/08/06. According to the appellant they intended to avail the exemption of the Notification No. by the way of substantial expansion by more than 25% increase in their installed capacity and for this purpose, after undertaking the capacity expansion they had also approached the District Industry Centre for issue of the necessary certificate, but in view of the Department's advice that their product pencil slats is not excisable, they neither perused with the District Industry Centre for necessary certificate nor did they avail of this exemption. In the case of this appellant also, the Department issued a show cause notice dated 03/10/10 for demand of duty amounting to Rs. 1,11,92,925/ - for the period from October 2009 to August 2010 alongwith interest on it under Sec. 11AB and also for imposition of penalty. Subsequently another show cause notice dated 03/10/11 was issued for demand of duty amounting to Rs. 2,05,36,239/ - for the period from September 2010 to July 2011 alongwith interest on it under Sec. 11AB and also for imposition of penalty. Thereafter a third show cause notice dated 28/08/12 was issued to them for demand of duty amounting to Rs. 1,59,59,623/ - for the period from August 2011 to May 2012 alongwith interest under Sec. 11AB and also for imposition of penalty. These three show cause notices were adjudicated by the Commissioner of Central Excise, Jammu by three separate orders the details of which are mentioned above and by these orders the duty demands as made in the show cause notices, were confirmed alongwith interest and beside this, penalties were also imposed. Against these three orders of the Commissioner, the appeal No. E/1891/2012 and E/1892/2012 and No. E/52106/2014 have been filed.

(2.)Heard both the sides.
(3.)Shri D.B. Shroff, Senior Advocate and Shri Sushil Singh, Advocate, the learned Counsels for the appellant, pleaded that in both the cases initially the appellant were paying duty, that while HPPL were paying duty and availing duty exemption under Notification No. of the duty paid through PLA, the other appellant SWPL were also paying duty, though they were not availing of the exemption under Notification No. , that in both the cases it is on the instructions of the Department that the appellants stopped the payment of duty, as the Jurisdictional Assistant Commissioner, in the case of HPPL vide his order dated 13/11/06 rejected the refund claims under Notification No. by taking the view that the process undertaken by the appellant does not amount to manufacture and in this regard he had relied upon two judgments of Hon'ble Kerala High Court in the cases of Deputy Commissioner v/s. B. Thampan reported in, (1995) 96 STC 631 (Ker D.B.) and Deputy Commissioner v/s. N. Janardanan reported in, (1995) 96 STC 632 (Ker D.B.) wherein Hon'ble Kerala High Court held that converting soft wood into pencil slats no new commodity emerges and does not amount to manufacture, that this decision had been taken by the Assistant Commissioner after studying the process being undertaken by the appellant, as in his order dated 13/11/06 in the case of HPPL, the Assistant Commissioner mentions the process being undertaken by the appellant and also the fact that manufacturing process of the product, in question, had been studied by the Headquarters Preventive branch of the Central Excise Commissionerate, Jammu & Kashmir, that once the Department has taken a decision after studying the process that the same does not amount to manufacture, the Department just on the basis of decision of the Tribunal in the case of Lion Pencil Pvt. Ltd. v/s. CCE, Bombay reported in : 1996 (87) E.L.T. 314 (Tri.) cannot reverse its stand, that in this judgment, the Tribunal had not considered the judgments of the Hon'ble Kerala High Court in the cases of Deputy Commissioner v/s. B. Thampan reported in, (1995) 96 STC 631 (Ker DB) and Deputy Commissioner v/s. N. Janardanan reported in, (1995) 96 STC 632 (Ker DB) and hence this judgment of the Tribunal is per -incuriam, that once the Department in the case of HPPL vide Assistant Commissioner's order dated 13/11/06 had taken stand that pencil slats being made by them are not excisable as the process undertaken does not amount to manufacture and similarly once the Department had advised the other appellant SWPL that the pencil slats being manufactured by them are not excisable, the Department is barred from changing its stand by the principle of res -judicata, that in this regard he relies upon the judgment of the Tribunal in the case of CCE, Bangalore v/s. AVRA & Co. Bangalore reported in : 1987 (31) E.L.T. 238 (Tri.) and also of the Apex court in the case of CCE, Nagpur v/s. Shree Baidhanath Ayurved Bhawan Ltd. reported in : 2009 (237) E.L.T. 225 (S.C.), that making of wooden slats involves cutting of the timber logs into blocks which are further cut into smaller blocks, that the smaller blocks are then boiled in order to soften the wood so that the same can be sliced easily into thin slats, that slats are than naturally dried and are called unstained slats, that the naturally tried slats are fed into the pressure vessel where they are subjected to high pressure at high temperature and this is done so that certain anti -termite chemicals and colouring materials are absorbed by the wooden slats, that these slats are called stained slats, that from the entire process it is clear that no new commodity with distinct name, character and uses emerges, that just because pencil slats are covered by sub -heading 44219040, it does not mean that the same would be excisable, as for this purpose, the Department has to produce the evidence to show that the same are the result of manufacture and are marketable, that in this regard he relies upon the Apex court's judgment in the case of CCE, Hyderabad II v/s. Aldec Corporation reported in : 2005 (188) E.L.T. 241 (S.C.), that no evidence has been led by the Department to prove that the pencil slats which come into existence in the factory of the appellant are marketable, that the Tribunal in the case of Paharpur Cooling Towers P. Ltd. v/s. CCE reported in : 1988 (36) E.L.T. 364 (Tri.), has held that chemical treatment of chir scantlings and plywood scantling does not convert them into a new and commercial product so as to be excisable, that in the present case the pencil slats which had been obtained by cutting the wooden blocks obtained by sawing of timber logs remain timber and their boiling to soften the same and heat and pressure treatment is only to enable the absorption of colouring material and anti termite chemicals for preserving the wood and as such basic character and uses do not change and no new product having distinct, commercial identity and uses emerges, that the process undertaken by the appellant in this case does not pass the test of manufacture as laid down by the Apex court in the case of Union of India v/s. Delhi Cloth & General Mills reported in : 1977 (1) E.L.T. J (199) (S.C.), that in any case, there is absolutely no justification for invoking extended limitation period under proviso to Sec. 11A(1) and imposing the penalty on the appellant under Rule 25 (1) of the Central Excise Rules, when the entire process being undertaken by the appellant was known to the Department from the very beginning and it is the Departmental officers who after studying the manufacturing process of the appellants had informed them that the process being manufactured by them does not amount to manufacture, that this fact is absolutely clear from para 9 of the order -in -original dated 13/11/06 passed by the Assistant Commissioner in the case of HPPL, wherein the Assistant Commissioner has observed that the manufacturing process of the product, in question, has been studied by the Headquarters Preventive Central Excise Commissionerate, Jammu & Kashmir and on this basis, the Assistant Commissioner (Preventive) has intimated that the activity has been carried out by the assessee cannot be treated as manufacture in terms of Central Excise Law, that in view of this, the Department subsequently cannot allege that the appellant have suppressed any material facts from the Department and invoke extended limitation period under proviso to Sec. 11A(1), that since there was absolutely no suppression of any facts on the part of the appellants and the appellants had stopped the payment of duty in respect of the pencils slats only on the instructions of the Department and it is subsequently the Department which had changed its stand, there is absolutely no justification for imposition of penalty on the appellants. Shri Shroff, therefore, pleaded that in view of the above submissions, the impugned orders are not correct.
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