By TIOL News Service

MUMBAI, JULY 28, 2016: THE appellant is a manufacturer of Pneumatic Cylinders & valves and discharged appropriate Central Excise duty.

In EA 2000 audit, it was observed that during the period June 1999 to March 2004, appellant had cleared 'Seal kits' for Pneumatic Cylinders & valves without Central Excise duty.

The appellant contended that the said 'Seal kits' were combination of 'O' Ring & 'U' Cap seals etc. which were bought out items and not manufactured and these were given in the form they had received as replacement in the Pneumatic Cylinders & valves supplied by them to the customers. And, therefore, no excise duty is liable to be paid as there is no manufacture.

The adjudicating authority upheld the allegations in the SCN and confirmed the duty demand.

While rejecting their appeal, the Commissioner(A) held that the items cleared by the appellant were termed as 'Seal kits' which was a manufacturing activity inasmuch as the appellant had put in a plastic cover various types of 'O' Ring & 'U' Cap seals which can be used for Pneumatic Cylinders & valves and the said 'Seal kits' consists of fixed number of particular seals.

Coming to such a conclusion, he rejected the appeal filed by the appellant.

Before the CESTAT the appellant reiterated their stand taken by the lower authorities and also relied upon the decisions in XL Telecom Ltd. (Andhra Pradesh High Court); Electronics Corporation of India Ltd. - 2004-TIOL-307-CESTAT-BANG, Goetze (India) Ltd. - 2004-TIOL-366-CESTAT-DEL, GeetaEngg. Works Ltd. - 2011-TIOL-386-CESTAT-MUM, Kapoor Lamp Shade Co. - 2015-TIOL-825-CESTAT-DEL & Neycer India Ltd. - 2015-TIOL-115-SC-CX.

After considering the submissions made by both sides, the Bench observed –

"6.2. The finding of both lower authorities that the packeting of various 'O' Ring & 'U' Cap seals and selling them into the market as 'Seal kits' would amount to manufacture is misconceived by the department. A pictorial representation is reproduced as to the dispute in question.

It can be seen from the picture that 'O' Ring & 'U' Cap seals are only packeted in plastic bags, this packeting remains undisputed.

6.3. On perusal of various documents like delivery challan and invoice raised by the appellant for the sale of this 'Seal kits' we find that the said invoice, as raised by the supplier, clearly indicates that the 'O' Ring & 'U' Cap seals are manufactured and cleared while the invoice raised by the appellant indicate the same as 'Seal kits' which indicate that there are miscellaneous bought out spare items and were constituted items for particular valve. The question of considering this packeting as manufacture does not arise as the 'O' Ring & 'U' Cap seals were already marketable when the supplier/manufacturer had manufactured the same and cleared to appellant. Subsequent packeting of pre-determined quantity of these in a plastic bag has not made the products further marketable. In the absence of any note to the chapter that packeting of pre-determined quantity would amount to manufacture, this activity in our view cannot be considered as a manufacturing activity…."

Holding, that by any stretch of imagination, packeting of 'O' Ring & 'U' Cap seals purchased by the appellant from various manufacturers, as spares, would not amount to manufacture, the order was set aside and the appeal was allowed.

(See 2016-TIOL-1882-CESTAT-MUM)