CX - Merely because there is value addition for end product TMT bars or rods and, therefore, process applied upon TMT coil should tantamount to manufacture is not acceptable: High Court
By TIOL News Service
RANCHI, OCT 03, 2016: THE issue involved is regards the activities of decoiling, straightening and cutting, bending and bundling of Bars and Rods undertaken by the respondent assessee in terms of the Work Contract placed upon them by Ms. TISCO. The CCE, Jamshedpur held that the said activity amounts to manufacture as it has resulted in emergence of a new product classifiable under heading 7214.90 and chargeable to duty.
In appeal, the CESTAT held -
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• De-coiling before cutting is only a pre-process, which is necessary, and bundling and cutting of Bars & Rods are post-processes. Essentially, the process involved is only cutting and slitting.
• The issue is no more res integra and stands settled by the Hon'ble Delhi High Court's decision in the case of Faridabad Iron & Steel Traders Association vs. Union of India - 2003-TIOL-79-HC-DEL-CX laying down that the process of cutting or slitting of steel sheet in coil form to specific sizes does not amount to manufacture, since no new, different and distinct article having distinct name, character and use can be said to have emerged from the said process. The said decision of the Hon'ble Delhi High Court stands confirmed by the Hon'ble Supreme Court, when the appeal filed by the Revenue was dismissed.
• The activity undertaken by the appellant is identical to the activity involved in the case of Faridabad Iron & Steel Traders Association ( supra).
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We reported this order as - 2006-TIOL-1232-CESTAT-KOL.
Revenue is not happy with this decision and has taken the matter to the High Court.
After considering the elaborate submissions made by both sides, the High Court observed that it does not see any reason to entertain these Tax Appeals for the following facts, reasons and judicial pronouncements -
Concept of Manufacture :
++ If the characteristics of the raw material and final product remain as it is, there is no manufacture at all, even though, there is process of unwinding, cutting/slitting and packing.
++ Case laws relied upon -
2003-TIOL-79-HC-DEL-CX
2005-TIOL-101-SC-CX
2008-TIOL-200-SC-CX
2010-TIOL-44 -SC- CX
2010-TIOL-58-SC-CX
2015-TIOL-103-SC-CX
2015-TIOL-66-SC-CX
2003-TIOL-37-SC-CX
2005-TIOL-158-SC-CX
Whether de-coiling, straightening and cutting of TMT coils into TMT bars and rods amount to manufacturing:
++ TMT coils are supplied by Tata Steel to the respondent for cutting the same and, in fact, there is no other processes involved at all in the facts of the present case. The major process is cutting the TMT coils into bars and rods and, for cutting, the process of de-coiling and straightening is must.
++ There is no change in the main characteristic of the raw material and final product. Thus, by the activity of de-coiling, straightening and cutting into sizes of TMT coils into TMT bars and rods do not amount to manufacture as the ultimate final product is same.
++ Case laws relied upon -
2003-TIOL-18-SC-CX
2006-TIOL-171-SC-CX
2006-TIOL-29-SC-CX
2008-TIOL-200-SC-CX
2010-TIOL-44-SC-CX
2005-TIOL-101-SC-CX
Value addition:
++ Even if the TMT Bars/Rods fetch more price in market than TMT coil, that does not mean that there is manufacturing because, essentially article is the same. Fetching of higher price may be due to several factors like:
(a) Labour put in for converting TMT coil into TMT Bars/Rods.
(b) Mind set or satisfaction of customers for TMT Bars/Rods.
(c) Demand in the market of TMT Bars/Rods in comparison with demand of TMT coils.
++ Unless the end product is different, distinct and separately marketable from raw material, there is no manufacture at all, even though the end product fetches higher price.
++ Thus, the contention raised by counsel for the appellant (Revenue) that as there is value addition for the end product TMT bars/ rods and, therefore, the process applied upon TMT coil amounts to manufacture, is not accepted by this court.
++ Case laws relied upon -
2015-TIOL-66-SC-CX
2003-TIOL-37-SC-CX
2005-TIOL-101-SC-CX
Different tariff entries:
++ Appellant submitted that Entry no.72.13 and 72.14 are different as per schedule attached to the Central Excise Tariff Act, 1985. One is for TMT coils and another is for TMT bars/rods and, therefore, the process undertaken is manufacture.
++ Merely because TMT coil is classified under Entry no. 72.13 and TMT bars/rods are classified under Entry no. 72.14 it does not mean that process applied upon TMT coil i.e. de-coiling, straightening and cutting into desirable sizes, tantamount to manufacturing of TMT bars and rods.
++ Thus, even if the end product is falling in a different tariff entry, it does not mean that there is manufacturing. If no commercially another item which is marketable is emerging out of the said process and just because raw-material and final product comes under two different heading it cannot be presumed that the process of obtaining the final product from such raw-material, automatically constitutes manufacturing.
++ In the facts of the present case, TMT coils are cut into TMT bars and rods which requires firstly de-coiling then straightening and thereafter cutting. Thus, the process involved is cutting the TMT coils, but, no new product is emerging out, after such process. In fact, the burden of proof is upon the department-appellant that the process undergone, is a manufacture, but, no material has been adduced by the counsel for the appellant to show that the process of de-coiling, straightening and cutting has transformed TMT coils into a new marketable product.
++ Thus, merely because there are two separate entries for the raw material and the end product that does not mean that the end product becomes excisable. The end product becomes excisable only if there is manufacture.
++ Even if there is change in the tariff entry for the end product, may be falling within residuary entry, it does not mean that process of manufacture has taken place. There is neither section note nor chapter note. Thus, in the facts of the present case, neither in the section note nor in the chapter note and also not in the tariff item, there is any indication that de-coiling, straightening and cutting into desirable sizes of TMT coil tantamount to manufacture.
Case laws relied upon -
2005-TIOL-101-SC-CX
2003-TIOL-37-SC-CX
2006-TIOL-29-SC-CX
2004-TIOL-93-SC-CX-LB
Conclusion: No error has been committed by the Customs, Excise and Service Tax Appellate Tribunal.The appeals filed by CCE, Jamshedpur are dismissed.
(See 2016-TIOL-2327-HC-JHARKHAND-CX)
