By TIOL News Service

NEW DELHI, DEC 16, 2012: THE two main questions before the AAR:

1. Whether the process proposed to be employed by the Applicant amounts to manufacture or job work under the Central Excise Law?

2. If it amounts to ‘manufacture', would it be subject to the levy of Central Excise Duty in terms of the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985?

++ The applicant sates that they are engaged in refining and minting of products of precious metals namely gold, silver and platinum. The products are minted as per the orders placed by their customers and the work is done, in the large majority of cases, on the precious metal in bullion form supplied by their customers. The articles of precious metals that are made and supplied by the applicant to their customers include medallions/coins made according to specifications and designs agreed with the customers and some articles of jewelry like pendants of various shapes and sizes. Suffice it to say that it involves a number of steps involving complex processes such as manufacture of dies and moulds, purification of metal, melting of the gold or silver, cold rolling, blanking, pickling and polishing, stamping with the aid of dies made as per designs agreed with their customers and lacquering and packing. In short, what they take in is precious metals in raw (bullion) form and what they produce is finished articles, such as medallions and articles of jewelry etc, in marketable form.

++ As some of the facts were not entirely clear, a joint inspection by the department and the applicant's representative was undertaken and the inspection report based on observations was submitted to the Authority. According to the inspection report, the Revenue representatives, after studying the process concluded that process did amount to manufacture of a new item, with distinct name, identity and use. The report further mentions that in the majority of cases, processing would be on job work basis wherein the applicant would get the raw material in the form of silver / gold / platinum granules or bars from their clients and would supply the finished articles as per customer requirements back to the customer. Only in very rare cases would applicant be procuring raw material itself for its conversion into final articles such as jewelry and effect sales to their customers. The view expressed by the applicant in their application is also that the process undertaken by them amounts to manufacture and that articles manufactured by them would be liable for Central Excise duty.

The AAR noted:

It is clear that the processes undertaken by the applicant result in the emergence of goods which have their own distinct character, identity and use. The activities of the applicant, therefore, clearly meet the definition of manufacture beyond any shadow of doubt. The department's findings as well as the applicant's views also converge on the same conclusion.

We are constrained to observe, however, that question 1, as formulated by the applicant, is a trifle confusing. It seeks a ruling on whether the processes proposed to be undertaken by them amount to “manufacture” or “job work” - the apparent underlying premise being that if it is one then it cannot be the other. This premise appears to us to be unfounded. It cannot be that where an activity is undertaken on job work basis, it would be precluded from being considered as manufacturing. It is not as though the two are mutually exclusive. If in a given transaction, the raw material is supplied by the customer and the applicant charges only its making charges, it could well be a case of manufacture on job work basis. It is, therefore, our understanding that what the question seeks an answer to is whether the activities amount to ‘manufacture'. It is on that basis we are ruling on the questions.

The Ruling :

(a) Question 1 is answered in the affirmative i.e. the activities referred to in the application amount to manufacture for the purpose of Central Excise Act, 1944.

(b) Consequently, question 2 is also answered in affirmative i.e. the goods in question would be liable to duties of excise at the appropriate rate(s) as specified in the Central Excise Tariff Act, 1985 read with any applicable notifications issued under Central Excise Act, 1944.

(See 2012-TIOL-05-ARA-CX)