1. Aggrieved by the rejection of their appeal by the Collector of Central Excise, Chandigarh, in his order dated 1-11-83, the appellants have preferred this appeal before us.
2. The appellants have a small scale unit and are engaged inter alia in the manufacture of nuts and bolts falling under T.I. 52 of the Central Excise Tariff. The Inspector, Central Excise, Pathankot visited the factory on 19-11-81 and asked the appellants to furnish figures of sale from the factory during 1980-81. The appellants submitted the figures which included the following items :-Bright bars and Bright Rs. 3,18,194.96bar scrap.Rivets Rs. 2,26,183.70CI Castings Rs. 2,42,016.25Washers Rs. 8,927.38Scrap Rs. 65,239.40Nuts and Bolts Rs. 14,63,686.87 -------------------- 3. On 15-12-81 a show cause notice was issued on the ground that the appellants have cleared goods for the period 19-6-81 to 15-7-81 without payment of Central Excise duty amounting to Rs. 1,05,055.32 and that they had claimed the exemption under Notification No. 80/80, dated 19-6-80 even though they were not entitled to avail the benefit of this notification. It was also alleged that the appellants had mis-declared the aggregate value of the clearances. The appellants sent a reply contending that Bright Bars were drawn by them from duty paid round bars and that the process did not involve any manufacture. Further, they stated that there was no suppression of the facts.
4. The Collector of Central Excise, Chandigarh, did not agree with the submissions of the appellants and passed orders confirming the demand.
A personal penalty of Rs. 1 lakh was also levied. On appeal to the Central Board of Excise, the matter was remanded for de novo adjudication. The appellants made fresh submissions. The Collector under the impugned order directed the revision of demand of duty after allowing deduction of the excise duty payable from the sale price. The penalty was also reduced to Rs. 50,000/-. The present appeal has been preferred against the said order.
5. Shri C.L. Beri, the learned counsel for the appellants urged that there was no manufacture and hence the demand for duty was not justified. He argued that the duty paid round bars were simply passed through a slight narrow diameter on a drawing machine, with the result that the bar became a little bright. The bright bar still remained a bar and continued to fall under the same sub-item (ia) of tariff item 26AA of the Central Excise Tariff. The total value of the bright bar scrap and other scrap worked out to Rs. 3,83,433.96. The learned counsel stated that if this clearance is deducted, then the value of clearances of the goods excisable would come to Rs. 19,40,814.60 well within the limits prescribed in the Notification No. 80/80, dated 19-6-80 and that the appellants would be entitled to the benefit of exemption during the relevant year (1981-82). The appellants also relied on the rulings reported as 1977 E.L.T. J 199 (Union of India and Ors. v. Delhi Cloth and General Mills Co. Ltd.) andE.L.T.-1582 (State of Tamil Nadu v. Pyare Lal Malhotra).
6. Shri A.K. Jain, the learned SDR, on the other hand argued that bright bar was known in the market as a distinct commodity and hence the appellants are 'manufacturers' within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
7. We have initially to find out whether the drawing of bright bars out of duty paid round bars would amount to manufacture. It is well settled decision of the Supreme Court in the Delhi Cloth and General Mills Co.
Ltd. (supra) that manufacture implies a change though every change would not amount to a manufacture. There must be transformation, and a new and different article must emerge having a distinct name, character and use. Basically we have to find out whether the goods in question are commercially different article or commodity. It is true that mere process arising in the course of manufacture will not amount to manufacture. From the particulars furnished by the appellants, it is manifest that the appellants had purchased round bars from the open market. These bars were drawn through a slight narrow diameter and the bright bars emerge from the narrow die. [ The tariff entry 26AA (ii) refers to bars]. It is thus clear that after this conversion, the round bars no longer continue to be in that form or shape. There is a transformation and the 'round bars' are transformed into 'bright bars'.
The article that emerges has a distinct name, character and use. We do not agree that the drawing of bright bar from the round bar is a mere process. The bringing into existence of a new product known commercially as 'bright bar' conclusively determines that it is not merely a process but a manufacture. The Collector has rightly held that bright bars are commercially and technically different from round bars and the conversion of round bars into bright bars would amount to manufacture.
8. The learned counsel for the appellants also stated that the ends of the bright bars are cut to make the pieces symmetrical and the scrap so obtained was not excisable. We do not accept this contention. Scrap is a distinct excisable item under First Schedule. So the scrap that arises during the conversion of bright bars, from round bars, would be excisable. The value of the bright bars and bright bar scraps cannot therefore be excluded from the aggregate value of the clearances.
9. The learned counsel for the appellants then contended that under Notification No. 80/80 dated 19-6-80, the value of clearances of all excisable goods should be taken into account and the value of exempted goods should be excluded from the total clearances.
10. Notification No. 80/80 exempts specified goods cleared for home consumption on or after the first day of April of any financial year upto a value of Rs. 20 lakhs. But nothing contained in the notification shall apply to a manufacturer who manufactures excisable goods falling under more than one item in the First Schedule where the aggregate value of the clearances of all excisable goods by him or on behalf of whom consumption from one or more factories during the preceding financial year had exceeded Rs. 20 lakhs. The learned counsel also stated that to be excisable goods, they should be specified in the First Schedule and should also be subject to excise duty. According to him, goods would not become excisable goods within the meaning of Section 2(d) if they are exempted from excise duty. He placed reliance on the decision in 1978 E.L.T. J 39 (Nagrath Paints v. Union of India).
11. We have to consider whether goods cleared and which are exempted, will become non-excisable. The identical question was considered by the Tribunal in Appeal No. ED (SB) 108/83-C (Shree Shankar Industries, Bombay v. Collector of Central Excise, Bombay) 1984 (17) E.L.T. 402.
The Tribunal considered the earlier decision of a Division Bench of the Tamil Nadu High Court (Madras State) Handloom Weavers Co-operative Society Ltd. v. Assistant Collector of Central Excise, Erode (1978 E.L.T. J 57) and the decision of the Delhi High Court in Vishal Andhra Industries v. Union of India (1983 E.L.T. 2265) overruling the earlier decision in Sulekh Ram and Sons v. Union of India others (1978 E.L.T. J 525). The Tribunal rejected the contention that the term 'excisable goods' will not cover exempted goods. We agree with the reasonings in that decision. In the light of the above decision, we are of the view that the plea of the appellants to exclude the value of exempted goods, in order to determine the aggregate clearance, is not tenable.
12. The learned counsel for the appellants then argued that under Explanation IV of the Notification No. 80/80 for purposes of computing the aggregate value of clearances under that notification, clearances of any specified goods which are exempted from the whole of the duty of excise leviable thereon by any other notification shall not be taken into account. But this explanation will not assist the appellants, because the clearances referred to are of the specified goods and the term "specified goods" has been defined under the notification as such of those excisable goods specified in column 3 of the Table annexed to the notification.
13. An argument was advanced that the term 'cleared' would connote only goods cleared on payment of duty and not exempted goods. This contention is also not acceptable. The word 'cleared' or 'clearances' are synonymous with removal. Throughout the Central Excise Rules the word 'cleared' or 'clearances' have been used as synonymous with removal. Rules 24 refers to goods cleared on payment of duty; rule 52 to clearances on payment of duty. But, in the body of the rules reference has been made to removal of goods on payment of duty. Hence, it follows that the words 'clearances' under the Central Excise Rules refer to removal of goods whether on payment of duty or without payment of duty. We do not accept the contention of the learned counsel for the appellants that the term 'cleared' would mean only clearances on payment of duty. It was rightly pointed out by Shri A.K. Jain that the Explanation to Notification No. 80/80 would be redundant if the the term 'clearance' should apply only to clearances on payment of duty.
14. The appellants claim reduction of amounts paid by them towards insurance and freight. The Collector has rejected the claims on the ground that the appellants have not produced the necessary documents.
In respect of freight, even now no documents have been filed. But with regard to insurance, the appellants have produced the insurance policy issued by the United India Fire and General Insurance Company. A sum of Rs. 1,085/- has been paid towards insurance premium. The appellants are, therefore, entitled to reduction of this amount from the aggregate value of the clearances in order to determine their eligibility to the exemption under the notification referred to above. However, as the value of the clearances exceeded the limits prescribed under the notification the reduction of the insurance amount above mentioned will not be of any material significance to the appellants.
15. Shri Beri then pointed out that a sum of Rs. 2,708.84 has to be deducted from the aggregate value being the difference in price in respect of sales on contract. But in the absence of any proof regarding this ground, we are of the view that the appellants have not made out this ground.
16. A penalty of Rs. 50,000/- has been imposed on the appellants. Shri Beri, the learned counsel for appellants argued that the classification lists were filed before the concerned officers disclosing all the material facts and that there was no suppression of facts. Shri A.K.Jain, on, the other hand stated that the appellants had suppressed the exact figures of the clearances during the preceding year and hence the penalty was justified.
17. We do not accept the contention of the learned SDR in this regard.
The appellants have filed the classification lists periodically and they have claimed the exemption under Notification No. 80/80 under a bone fide belief that they were entitled to the exemption. It is significant to note that no objection was taken by the department to the claim of the appellants and the show cause notice was issued long after on 15-12-81 with a vague allegation that 'appellants were claiming benefits under the garb of the notification'. The clearances of all excisable goods effected during the relevant period were made known to the department. We note that the registers were periodically checked by the authorities. It is manifest that there was no deliberate concealment of any fact by the appellants. Considering all the circumstances of the case, we are of the view that there are no grounds for the imposition of the penalty and it is set aside.
18. In the result, we partly accept this appeal in the following terms : (i) We set aside the penalty amount of Rs. 50,000/- levied on the appellants; (ii) The insurance amount of Rs. 1,085 be excluded from the value of clearances; and (iii) We confirm the remaining part of the impugned order of the Collector.