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Prabhat Associates and ors. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)(5)LC2118Tri(Delhi)
AppellantPrabhat Associates and ors.
RespondentCollector of Central Excise
Excerpt:
1. these four appeals are directed against two orders of the additional collector of central excise, bangalore. three of the appeals, relating to the first three appellants, arise out of the additional collector's order no. 39/83, dated 30-11-83. the appeal of m/s. soundtrek arises out of the additional collector's order no. 38/83, dated 24-11-83.since the facts and charges in all the four cases are similar and all four appellants were respresented by the same learned consultant, they were heard together and are being disposed of by this common order.2. the charge basically was that the appellants were engaged in the recording of magnetic cassette tapes or spool magnetic tapes and thereby manufacturing goods falling under item 59 of the central excise tariff schedule without obtaining.....
Judgment:
1. These four appeals are directed against two orders of the Additional Collector of Central Excise, Bangalore. Three of the appeals, relating to the first three appellants, arise out of the Additional Collector's Order No. 39/83, dated 30-11-83. The appeal of M/s. Soundtrek arises out of the Additional Collector's Order No. 38/83, dated 24-11-83.

Since the facts and charges in all the four cases are similar and all four appellants were respresented by the same learned consultant, they were heard together and are being disposed of by this common order.

2. The charge basically was that the appellants were engaged in the recording of magnetic cassette tapes or spool magnetic tapes and thereby manufacturing goods falling under Item 59 of the Central Excise Tariff Schedule without obtaining Central Excise licences and without filing classification lists and price lists or paying duty. They were accordingly called upon to show cause why penalties should not be imposed upon them under Rules 9(2), 52A, 173Q and 226 of the Central Excise Rules; why the cassettes seized from their premises should not be confiscated; and why duty should not be demanded on the recorded cassettes/spools removed without payment of duty. (A show cause notice was also issued to M/s. Rashtrothana Parishat, to whom some recorded cassettes had been disposed of, asking them to show cause why the cassettes found with them should not be confiscated, but ultimetely those cassettes were released without penal action).

3. All the appellants replied to the show cause notices. Basically their defence was that they were not aware that the work carried out by them amounted to manufacture of excisable goods and attracted Central Excise duty. Cadmas Internationals took the stand that they were only advertisement agents, and that they had got radio spots and sponsored programmes recorded by M/s. Prabhat Studios, and since they were not themselves the manufacturers, the question of their paying excise duty did not arise.

4. Apart from their basic defence, the appellants made various submissions on points of detail, relating to the number of cassettes involved, the correct value to be adopted etc.

5. All the appellants submitted that in the light of the explanations given by them there was no question of imposing penalties on them.

6. After granting a personal hearing the Additional Collector adjudicated the cases. He held that all the appellants (except Cadmas Internationals) had manufactured and cleared recorded cassettes/spools falling under Item 59-CET without obtaining a Central Excise licence, and had cleared them without payment of Central Excise duty and without complying with other necessary formalities, thereby contravening the provisions of Rule 9(1) and various other rules in the Central Excise rules. However on the question of penalty, he observed that the defence plea for a lenient view carried some weight considering the fact that the recording of cassettes was brought into the Central Excise net recently and therefore it was possible that the appellants might not have been aware of the position. The Additional Collector also dealt with the various submissions on the details of quantity, value etc.

advanced by the respective appellants. In the end he demanded duty from M/s. Soundtrek, Prabhat Sound Studios and Prabhat Associates on the recorded cassettes/ spools held to have been removed by them without payment of duty; confiscated 52 recorded cassettes seized from Prabhat Associates, with an option to pay a fine of Rs. 150/-in lieu of confiscation; and imposed a penalty of Rs. 5,000 on M/s. Soundtrek, Rs. 8,000 on M/s. Prabhat Sound Studios, Rs. 2,500 on M/s. Prabhat Associates and Rs. 1,000 on M/s. Cadmas Internationals. It is against these orders of the Additional Collector that the present appeals are directed.

7. Appearing before us for all four appellants, Shri Sorani their learned consultant, raised before us a point which had not been raised before the Additional Collector, namely whether the goods were at all liable to duty. He submitted that Item No. 59 was introduced with effect from 28-2-82. (With effect from 1-3-84, sound recorded cassette tapes falling under sub-item (4) of the Item were fully exempted from excise duty, under Notification No. 52/84-C.E., dated 1-3-84.) 8. For convenience we reproduce below relevant extracts from Item No.59 : "59. ARTICLES OF A KIND USED FOR SOUND OR SOUND AND IMAGE RECORDING, WHETHER RECORDED OR NOT, NAMLY : (1) Magnetic tapes of width not exceeding 6.5 millimetres for sound recording, whether in spools or in reels or in any other form or packing, but excluding cassette tapes.

(2) Sound recorded magnetic tapes of width not exceeding 6.5 millimetres, whether in spools or in reels or in any other form or packing but excluding sound recorded cassette tapes.

It will be seen that sub-items (1) and (2) go together, covering unrecorded/ recorded magnetic tapes for sound recording (excluding cassette tapes); while sub-items (3) and (4) go together, covering unrecorded/recorded cassette tapes for sound recording. Shri Sogani did not dispute that recording of magnetic spools or cassette tapes would in principle amount to manufacture, and attract levy of duty under sub-items (2) and (4) respectively. He however contended that the spools or tapes in the present case were not finished goods which could come to the market and thereby satisfy the definition of excisable goods. He submitted that, so far as M/s. Cadmas Internationals were concerned, they could not in any event be held liable, because they had only acted as agents and had not themselves engaged in any recording work. As regards M/s. Soundtrek, Prabhat Sound Studios and Prabhat Associates (referred to for convenience as "the manufacturer-appellants") he submitted that in some cases they had sold recorded cassettes while in some cases they only did recording work on cassettes or spools supplied by the customer. M/s. Prabhat Associates had supplied cassettes to close relatives and friends and also to M/s.

India Book House, Bangalore. M/s. Prabhat Sound Studios had undertaken the recording of radio and T.V. advertisements, audio visual programmes and all kinds of other recordings, including film songs, music for documentary films etc., on the basis of orders placed with them. M/s.

Soundtrek were recording cassettes on job contract basis, on cassettes supplied by their customers. Shri Sogani submitted that where such job work was done, the recorded cassettes did not carry labels etc.

indicating their contents. Recorded cassettes as sold in the market invariably showed details of their contents, which the customer would expect to have for information and easy reference. Accordingly, the cassettes/spols on which recording was done by the manufacturer-appellants on job contract basis could not be considered as excisable goods.

9. Shri Sogani next argued that, even if the goods could be regarded as excisable goods, they were entitled to the exemption under Notification No. 102/82-CE dated 28-2-1982, which reads as follows : "The Central Government hereby exempts recorded articles, falling under Item No. 59 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), from the whole of the duty of excise leviable thereon : Shri Sogani submitted that the recorded spools/cassettes clearly satisfied the first proviso, because they were in each case made from other (unrecorded) articles falling under the same item. When it was put to him that they appeared to be hit by the second proviso, because they were either intended for sale directly or recorded with advertising or sales promotion material, Shri Sogani submitted that this was not so. According to him, when the proviso referred to articles not being intended for the promotion of sale, the intention was to exclude those cassettes which, while carrying music or other attractive material were intended to be given away in order to promote the sale of other goods. According to him this was not so in the present case and therefore the goods would not be hit by the second proviso, and they would therefore be eligible for the exemption under the notification.

10. Shri Sogani also raised a question of limitation. He pointed out that the show cause notices extended to a period of more than six months prior to the date of issue. According to him the extended time limit under Rule 9(2) was not applicable to these cases, because there was no intention on the part of the appellants to suppress their activities. They were genuinely ignorant that they were liable to Central Excise formalities or duty. Shri Sogani submitted that several other firms or organisations had been carrying on similar activities.

In Bangalore itself All India Radio and S.J. Polytechnic were doing such recording work. According to their information no one except the present appellants had been proceeded against in this regard. Even the Department was not clear about the position, since action was initiated only in March, 1983, over a year after the item had been introduced.

Even the Collector had recognised this position by recording in both orders that the recording of cassettes had been brought into the Central Excise not recently; he had thus implicitly recognised that the appellants were genuinely ignorant of the position.

11. Shri Sogani submitted that for the same reasons the imposition of penalties were unjustified and the penalties should be set aside.

12. Shri Sogani also made submissions regarding specific questions of quantity, value etc. These will be referred to later.

13. For the respondent Collector, Shri Tayal submitted that the goods under consideration had been clearly specified in the Tariff, under sub-items (2) and (4) of Item 59. He submitted that once an article was classified and put under a distinct entry, the basis of the classification was not open to question [vide Dunlop India Limited v.Union of India,Union of India v. Ramlal Mansukhrai-AIR 1971 SC 2335; Hyderabad Asbestos Cement Products Ltd. v.Union of India, 1983 ELT 735 Delhi; Khandelwal Metal and Engineering v.Union of India, 1983 ELT 292 Delhi; Kores (India) Ltd. v. Union of India, 1982 ELT 253 Bombay]. He submitted that once a product had been specified and included in an entry its classification under that entry could not be questioned on the ground that it did not involve manufacture.

14. As regards the applicability of Notification No. 102/82-CE, dated 28-2-1982, Shri Tayal submitted that the case was hit by the second proviso to that notification, as the recorded cassettes/spools were clearly intended for sale or for the promotion of sale. He opposed the interpretation of Shri Sogani that "promotion of sale" referred to goods intended to be given away for promoting the sale of other products. He submitted that any article could be given away in such a manner and if the exemption was linked to what was ultimately done with the recorded cassettes, it would not be possible to apply the exemption at the time of clearance of the goods. He therefore submitted that it could not be the intention behind the notification to operate it in the manner suggested by Shri Sogani.

15. As regards Shri Sogani's argument that the demands should be limited to six months prior to the date of show cause notice, Shri Tayal submitted that the cases were covered by Rule 9, which had been invoked in the show cause notices. That rule provided for an extended time limit of five years in cases where the circumstances in the proviso to Section 11A applied, namely where there had been suppression of facts etc. Shri Tayal submitted that in this case the facts regarding manufacture of the excisable goods had been suppressed by the appellants. He invited our attention to the statement of Shri M.C.Jayadeva, General Manager of M/s Rashtrothana Parishat, who had arranged for M/s. Prabhat Sound Studios to supply them with recorded cassettes copied from master spools furnished by Rashtrothana Parishat.

Shri Jayadeva had deposed that, on seeing the newspapers about the excisability of cassettes, he had made a casual enquiry with the persons concerned with M/s. Prabhat Sound Studios, and they had informed him that they were supplying prerecorded cassettes and that M/s. Rashtrothana Parishat should not bother about the excise matter.

Shri Tayal submitted that this clearly showed wilful suppression on the part of M/s. Prabhat Sound Studios.

16. Shri Tayal thereafter submitted that the show cause notices were fully within time. The penalties also were not high, as the Collector had taken a lenient view, and no modification was called for.

17. Shri Tayal therefore referred to the specific points regarding value and quantity of the goods which had been raised by Shri Sogani, and replied to Shri Sogani's points. We shall deal this aspect of the matter later.

18. The Bench enquired from Shri Tayal whether Shri Sogani was correct in this contention that no other party anywhere has been proceeded against for removing recorded cassettes without payment of duty. Shri Tayal replied that he did not have information in this regard.

19. In reply to Shri Tayal, Shri Sogani, while generally reiterating the points he had made, specifically referred to the statement of Shri Jayadeva of Rashtrothana Parishat. He submitted that this statement was exculpatory in nature and had been made by a person to whom a show cause notice had been addressed, and was in the position of a co-accused. He pointed out that no penalty had been imposed on Shri Jayadeva or M/s. Rashtrothana Parishat, and even the cassettes seized from them, although held to be offending goods, had been allowed release without confiscation. He submitted that in these circumstances reliance could not be placed on the statement of Shri Jayadeva.

20. We have carefully considered the submissions made on both sides. As regards the question of excisability of the articles, which has been raised for the first time before us, the only argument of Shri Sogani was that the cassettes were useful only to those persons who had commissioned them and in the absence of labels etc., no one else would be able to use them; and therefore they were not as such could come to the market. We do not find substance in this contention. There is no doubt that the goods as a class viz. sound recorded magnetic tapes and sound recorded cassette tapes, are specifically covered by the tariff entries. There is also no doubt that functionally they answered to the description of the tariff entries. The fact that a particular cassette was useful only to a particular party, does not, in our opinion, affect its excisability. For this purpose marketability . has to be considered with reference to the goods as a whole. We can think of other examples, such as ready-made garments, spoctacles, or orthopaedic aids. A particular specimen of each of the above may be of use only to a few persons or even to a single person. That does not mean that it would not be excisable, because ready-made garments as a class can be marketed. So also spectacles and orthopaedic aids are marketable as a class and each specimen would have commercial value with reference to the purchaser. So also the absence of a label would not affect the liability. It is not as if every excisable article comes with a complete description or with a label or even with a packing. We therefore reject this argument of Shri Sogani and hold that the recorded spools/cassettes were excisable. We have noted that, leaving aside the argument that they were not excisable, their classification under sub-items (2) and (4) respectively has not been disputed.

21. We would like to add that the above argument of Shri Sogani cannot in any case apply to those of the goods which were sold and supplied to M/s. Rashtrothana Parishat for resale to the public in general.

22. We next come to Notification No. 102/82-CE, dated 28-2-82. Shri Sogani had submitted that these cassettes were not intended for sale or for promotion of sale. This argument would not be applicable to those cases where blank cassettes were procured by the appellants and after recording, the recorded cassettes were supplied to M/s. Rashtrothana Parishat against payment. Even in case where the blank cassettes might have been supplied by the customer, the proviso would be attracted if, like India Book House, the customer was not himself a consumer, and the goods were intended for ultimate sale. This leaves only those cases where advertising programmes etc. were recorded by the appellants, on spools/cassettes supplied by the customer. Even in such cases we consider that if the recording on the cassette was in the nature of advertising or sales promotion material, those would also be hit by the proviso. We consider that the words "sale or promotion of the sale" should be given their obvious meaning, rather than the unusual meaning sought to be given to them by the learned consultant which, as pointed out by Shri Tayal, would make the exemption almost impossible to operate.

23. We may mention that before the Additional Collector the appellants did not rely upon Notification No. 102/82-CE, dated 28-2-82. We allowed it to be raised before us as it is very relevant to the case, and in a sense it can be considered a question of law. In the light of this notification, the "customers" of the appellants (using the word in its broad sense) would fall into four categories : (a) Those, like India Book House, to whom supplies in quantities were made, either as direct sales or for ultimate sale to others; (b) Those for whom original recording of individual cassettes or tapes was done, whether or not the unrecorded cassettes/tapes were furnished by the customers (for instance, in para 6.1 of order No. 39/83, it is recorded that Prabhat Sound Studios in reply to the show cause notice had stated that they undertook "the work of radio and T.V. advertisement, audio-visual programmes and all kinds of other recording including film songs, music for documentary films etc."; (c) Individual customers who supplied their own cassettes/tapes one or a few at a time and had them recorded from master cassettes/tapes of selected items, paying only recording charges; and (d) Individual customers as in (c) above, except that the cassettes/tapes were supplied by the manufacturer-appellants.

(Since the cases were not considered on the basis of the above notification, there is no clear allocation of the total number of cassettes/tapes on the above Sines, although some relevant information can be gleaned from the two orders).

24. In the light of our observations in para 22 above, cases where cassettes/tapes were furnished by the customers and recording was done by the manufacturer-appellants on the basis of recording and other incidental charges, would qualify for exemption in terms of Notification No. 102/82, provided (a) the recorded cassettes/tapes were not meant for sale by the customers; and (b) even where they were not meant for sale, the recording was not of sales promotion material.

Other cases, viz. where there was a sale of cassettes by the manufacturer-appellants or by their customers, or where the recording was of sales promotion material, would not qualify for exemption in terms of the notification. The extent or relief which might be due to the appellants in terms of the above criteria is indicated in para 35 of this, order.

25. As regards the question of time-bar, Shri Tayal had pointed out that the show cause notices had been issued under Rule 9(2). It was alleged in the show cause notices that the goods had been removed in contravention of several of the Central Excise rules, in as much as the appellants had-manufactured excisable goods without obtaining a Central Excise licence and cleared them without filing a classification-list or price-list, without accounting, without payment of duty and without gate-passes. It has not been disputed that the appellants did not of their own accord bring to the notice of the excise authorities the fact that they were carrying on the activities of recording and supplying/selling recorded cassettes, and proceedings were started on the basis of intelligence gathered by the excise authotities. In such circumstances it is possible for any manufacturer to claim that he was ignorant of the legal-position and therefore should not be held as having suppressed the fact of manufacture of excisable goods. The appellants were not ignorant persons. They were engaged in work of a technical and artistic nature, including the recording of advertising programme. They could be expected to have a level of intelligence and education which would include at least a basic knowledge of the tax laws relating to them. Shri Tayal had drawn to our attention to the statement of Shri Jayadeva of Rashtrothana Parishat that he had specifically mentioned this aspect to Prabhat Sound Studios and had been told by them not to worry. Even if we were to disregard this statement of Shri Jayadeva, on the ground put forward by Shri Sogani that he would be anxious to exculpate himself, we find that the circumstances of the case, where the appellants operated over a year and totally failed to comply with the excise formalities, would constitute a suppression of facts which would attract the extended time-limit under Rule 9(2). We accordingly reject the argument of Shri Sogani that the show cause notices should be governed by the normal time-limit of six months.

26. We shall now come to the submissions made by Shri Sogani on the individual cases, on the question of the quantity or value of the goods.

28. Taking the question of valuation, it is found that the Collector has taken a value of a blank (C-60) cassette as Rs. 12.50, based on the price paid by them on their purchases of blank cassettes. He also found that they had charged rupee one to rupees two as recording charges for each cassette. Taking the average rate for recording charges as Rs. 1.50 per cassette, the Additional Collector took the value of a recorded C-60 cassette as Rs. 14/-. In regard to the cassettes of other running lengths (called "sizes" for conenience) in the case of the other appellants, the Additional Collector took the value on pro rata basis from the value of Rs. 14/- for a C-60 recorded cassette. Thus, he assessed the value of C-30, C-45,' C-90 and C-120 cassettes as Rs. 7, Rs. 10.50, Rs. 21 and Rs. 28 respectively.

29. Before the Additional Collector it was argued on behalf of the appellants that in accordance with the judgment of the Calcutta High Court in the case of Free India Dry Accumulators v. Union of India, 1980 E.L.T. 168 (Cal.) the value of raw materials supplied by the customers to the manufacturer would not form part of the manufacturing cost (that is, assessable value). The Additional Collector however pointed out that in appeal the Calcutta High Court had reversed the decision. When this was put by the Additional Collector to the consultant for the appellants, the consultant sought to distinguish his case from that covered by the Calcutta judgment. This only meant that he could not derive any assistance from either the original judgment or the appellate judgment. In any case the position that the assessable value would include the cost of all the raw materials is too well established, particularly after the judgment of the Supreme Court in the case of Union of India v. Bombay Tyre International Ltd., 1983 E.L.T. 1896 (S.C.) to need further discussion.

30. Shri Sogani however submitted that the price of Rs. 12.50 for unrecorded cassettes purchased by M/s. Soundtrek, on the basis of which the assessable values for different sizes of cassettes had been worked out, was the retail price. He submitted that the Central Excise authorities were accepting Rs. 6 as the ex-duty assessable value of similar cassettes and therefore this should form the basis of the assessable value. We do not find substance in this argument. No doubt the assessable value of excisable goods is the ex-duty value in terms of Section 4 of the Central Excises and Salt Act. But there is no authority to say that, where this assessable value has to be worked out on a best judgment basis, the ingredients of the value, such as raw material cost, should also be on an ex-duty basis. Such an assumption would not correspond to reality, because many of the raw materials for the manufacture of excisable goods are bought from the open market, at cum-duty wholesale or retail prices. We do not therefore find that the basis adopted by the Additional Collector, or values worked out by him, were in any way unreasonable. We may add that, in reply to a question from the Bench, Shri Sogani drew our attention to the statement of Shri Radha Krishan Rohara, Proprietor of M/s. R.K. Electricals, who bad purchased recorded cassettes from M/s. Soundtrek, and who had stated that he had sold the recorded cassettes at rates ranging from Rs. 13 to Rs. 15. These figures also tally fairly well with the value of Rs. 14 for C-60 cassettes assumed by the Additional Collector and we therefore see no reason to make any modification in the assessable values of various sizes of cassettes.

31. We now come to the number of cassettes involved in each case, which has also been disputed. In the case of M/s Soundtrek, the total number of cassettes alleged to have been manufactured and removed without payment of duty was 8,789. However, on the basis of the explanations given by them in regard to certain cassettes, e.g. that even recorded cassettes rejected by customers had been included in the above number, the Additional Collector accepted their contention in regard to 1698 cassettes and held that the number of cassettes removed without payment of duty was 7091. Shri Sogani wished to reiterate the submissions of M/s. Soundtrek with regard to the number of cassettes. They bad relied on a certificate from M/s. Rashtrothana Parishat that out of 3015 cassettes recorded for them, 1733 were received and sold before March 1982, that is before the imposition of duty. The Additional Collector rejected this certificate as appearing to be an afterthought. Again, M/s. Soundtrek had claimed that out of 1295 cassettes recorded by them and supplied to M/s. R.K. Electricals, the latter had given back 920 cassettes for recording. The Additional Collector did not accept this contention as he found that the records of M/s. Soundtrek did not show any credit given to M/s. R.K. Electricals for having received recorded cassettes for re-recording (in contrast to the case of M/s. Shambulinga who had returned 891 cassettes and for which M/s. Soundtrek had given them due credit). We do not have before us the original records of the case. Shri Sogani wished to file an affidavit from M/s. R.K.Electricals in this regard, but Shri Tayal objected to the introduction at this stage of such evidence which could have been produced before the Additional Collector, and we have upheld the objection. We find that the Additional Collector had given credit to M/s. Soundtrek whenever their explanation was substantiated by the records, and we do not find that his decision rejecting the explanation in other cases was unreasonable. We therefore do not accept the argument of the appellants that the quantity of 7091 recorded cassettes as arrived at by the Additional Collector in the case of M/s. Soundtrek was not correct.

32. As regards Prabhat Sound Studios, they had claimed before the Additional Collector that in some cases duplicate copies of invoices issued by them and invoices raised for the pre-budget period had also been included for determining the value of the goods removed by them without payment of duty. After considering their explanations, the Additional Collector made reductions totalling Rs. 5,158.50 in the value of the goods removed, from the figure of Rs. 1,45,610 given in the show cause notice. Shri Sogani did not place before us any specific material to show that the findings of the Additional Collector in regard to the quantity/value of the cassettes were otherwise wrong and we therefore do not find any justification to modify his finding that the value of goods removed by them without payment of duty was Rs. 1,40,451.50.

33. In the case of Prabhat Associates, the show cause notice had alleged that they had recorded and supplied 4285 cassettes to M/s.

India Book House. In their reply they had stated that only 2000 cassettes were so recorded and supplied and that out of these 2000 cassettes they recorded 1749 cassettes and the remaining 251 cassettes were recorded by Shri Raghu of M/s. Soundtrek, Bangalore, in their premises on their behalf. The Additional Collector accepted that only 2000 cassettes had been supplied to M/s. India Book House but he did not make a further reduction of 251 cassettes as he held that M/s.

Prabhat Associates were liable to pay duty on the cassettes recorded by Shri Raghu of M/s. Soundtrek since the manufacturing process was done at the premises of Prabhat Associates. We find that in this case also the Additional Collector has been quite reasonable and had accepted the number of cassettes as given by Prabhat Associates, although he has not accepted their plea to exclude the number of cassettes admittedly recorded in their premises by Soundtrek. (These 251 cassettes were included in the show cause notice issued to M/s. Soundtrek, and consistently with the view taken by him in the case of Prabhat Associates, the Additional Collector did not demand duty on them from Soundtrek). Shri Sogani did not also dispute the figures. He however argued that the value assumed on a pro rata basis was not correct. We are not going into this aspect further, as we have already dealt with it earlier.

34. As regards Cadmas Internationals no duty was demanded, since the Additional Collector did not hold them guilty of removing any specific number of cassettes. (He however imposed on them a penalty of Rs. 1,000/-for having been involved in manufacturing and selling the excisable goods manufactured by Prabhat Sound Studios.) 35. In para 24 above, we have indicated that the three manufacturer-appellants would qualify for exemption1 in terms of Notification No. 102/82, where the cassettes/tapes were furnished by the customers, provided (a) the recorded cassettes/tapes were not meant for sale by the customer, and (b) even when they were not meant for sale, the recording was not of sales promotion material. We do not have before us material on the basis of which the exact quantum of relief so do can be worked out, although some indications are available. Thus, Soundtrek are said to have recorded and supplied 1436 cassettes to individual customers, and 75 more to Vani School. Prabhat Associates are said to have supplied 450 cassettes to sundry customers. As regards Prabhat Sound Studios there is no indication of supplies to individual or sundry customers. We direct that the Additional Collector shall go into the records again and, in the light of our observations in para 24 above, work out the number and value of cassettes pertaining to each of the three manufacturer-appellants where it can reasonably be assumed that the conditions for eligibility under Notification No. 102/82-C.E., dated 28-2-82 were satisfied. The duty demands against the respective manufacturer-appellants shall thereupon be reduced only to the extent of relief, if any, due to them in terms of our observations.

36. We finally come to the question of penalty. The Additional Collector had imposed a penalty of Rs. 5,000/- on M/s. Soundtrek; Rs. 8,000/-on M/s. Prabhat Sound Studios; Rs. 2,500/- on M/s. Prabhat Associates; and Rs. 1,000/- on M/s. Cadmas Internationals. He had, however, recorded that he took a lenient view on the assessees considering the fact that the recording of cassettes was brought into the Central Excise net recently. Shri Sogani argued that this showed that the Additional Collector had accepted the bona fides of the appellants. When their bona fides had been accepted, the penalty was too high.

37. In para 25 above we have, in connection with the question of applying the extended time-limit under Rula 9(2), examined the conduct of the appellants and held that they were guilty of suppression of facts from the Excise authorities. For the reasons given therein, we hold that the three manufacturer-appellants were guilty of the offences charged. The penalties imposed on them by the Additional Collector were therefore justified. However, bearing in mind the substantial amounts of duty which they will have to pay, and purely as a matter of grace, we reduce the penalties on M/s. Prabhat Sound Studios, M/s. Prabhat Associates and M/s. Soundtrek to Rs. 1,000/-each. So far as M/s. Cadmas Internationals, since they were not a manufacturer, producer or licensee of a warehouse, they could not be penalised under Rule 173Q, and we accordingly set aside the penalty of Rs. 1,000/- imposed on them under that Rule.

38. Subject to the modifications set cut in paras 35 and 37 above, we confirm the two orders of the Additional Collector and reject all the four appeals.

39. I am sorry, I am unable to agree with my learned Brothers on the issue of excis-ability or the Appellants' liability to pay the duty demanded or the fines levied.

40. It would appear to me that, in the facts and circumstances of the case, it is not mere marketability of the articles in question that is solely decisive of excisability but "manufacture" by the Appellants of an article specified in the first Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the Schedule and the Act respectively). In other words, the issues are- (i) Is mere recording of sound on duty paid magnetic or cassette tapes a "manufacture" in terms of the provisions of the Act, the Schedule or otherwise (ii) Have the Appellants manufactured' "excisable goods" [defined in Section 2(d) of the Act to mean goods specified in the Schedule as being subject to a duty of excise] and rendered themselves liable to pay the duty demanded or fines levied These are basic questions of wider amplitude and fundamental importance than mere marketability, which loses relevance, once it has been conceded that recording sound on duty paid blank magnetic or cassette tapes is a manufacturing activity. The questions, in my opinion, are, therefore, worthy of consideration.

41. In dealing with the aforesaid questions, it is never, perhaps, unnecessary even at the risk of repetition, to recall that- (a) in a taxing statute, the object of taxation, the charge to duty, the quantum of levy as well as the factors which condition the levy have all to be specified with precision; and (b) in construing a taxing provision, nothing is to be read in or implied and the provision as it stands has to be interpreted and in a manner favourable to the assessee in case of doubt [Cape Brandy Syndicate v. I.R.C.-(1921) 1KB 64 at 71; Canadian Eagle Oil Co. v. R-{1946) AC 779=(1945) 2 All. E.R. 499 (H.L.); C.A. Abraham v. ITO, Kottayyam-AIR 1961 S.C. 609 at 612; Commissioner of Income-tax v. Karamchand Premchand Ltd.- AIR 1960 S.C. 1175 at 1182=1960 (3) SCR 727 at 742].

(a) the formulation of the question clearly indicates that it is not, for a moment, suggested that there cannot be a manufacture clearance of sound recorded magnetic or cassettee tapes [Item 59(2) and 59(4) of the Schedule]. The question, on the contrary, is, if recording of duty paid magnetic or cassette tapes, is, per se, "manufacture"; (i) any process incidental or ancillary to the completion of a manufactured product, and (ii) certain specified processes in relation originally to about two items in the Schedule but now including, in all, nine items; (c)(i) the "manufacture" of articles described in Item 59-"articles of a kind used for sound... recording"-is complete with the manufacture of the magnetic or cassette tapes. [Item 59(1) and (3)].

Nothing more is required to render them fit for use for sound recording; (ii) in fact, the expression "whether recorded or not" occurring in Item 59, makes it amply clear that the "manufacture" of the articles in question is complete even without recording; (iii) it is not, therefore, as if recording the blank tape or cassette is a process incidental or ancillary to the completion of "manufacture" of the "excisable goods" in Item 59 of the Schedule-"articles of a kind used for sound... recording"; (d) (i) the original definition of "manufacture" had been enlarged, as already stated, from time to time, so as to include within its ambit various specified processes in relation originally to tobacco and salt but ultimately to about nine items, including the latest in the Finance Bill of 1985; (ii) it stands to reason that but for the said amendments manifesting the legislative intent to enlarge the meaning and scope of "manufacture", the processes adverted to therein and brought within the inclusive definition thereof would not have, by themselves, constituted '"manufacture". A legislative enactment cannot be an exercise in supererogation; (iii) thus, it was as a sequel to the decision of the Gujarat High Court in 1979 E.L.T. 181 (Vijay Textiles etc. v. Union of India), holding, inter alia, that processing (like e.g., bleaching, dyeing or printing) of manufactured man-made fabrics (Items 19 and 22 of the Schedule) did not involve or amount to "manufacture" as defined and the levy of duty upon such processes was contrary to law, that, by the enactment of Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980, (originally, promulgated as an Ordinance of 1979), the definition of "manufacture" was enlarged, retrospectively with effect from 1-3-1955, to include within its ambit various processes in relation to the said items; (iv) recording sound on blank magnetic or cassette tapes is not one such process included within the ambit of the definition of "manufacture". In the premises, recording sound on duty paid magnetic or cassette tapes, by itself, is not a "manufacture" by virtue of the inclusive definition thereof; (e) (i) the description of the "excisable goods" in Item 59 as well does not contain any words by which it could be inferred that it was the legislative intent to treat mere recording of sound on duty paid magnetic or cassette tapes, by itself, to be an act of manufacture; (ii) the expression "whether recorded or not" occurring in Item 59 of the Schedule, apart from being merely descriptive of the "excisable goods", signifies that the articles, on manufacture, are dutiable, regardless of whether they are blanks or already recorded.

It may, at best, also serve to categorise the "excisable goods" into two varieties-namely articles and recorded articles of a kind used for sound recording. It cannot, however, be understood to have manifested a legislative intent to treat the process of recording, by itself, to be a separate act of manufacture, unless, like in the case of Items 19 and 22 or Item 4 of the Schedule, the definition of "manufacture" is also amended to include within its campass recording of magnetic or cassette tapes. The expression "whether...

or not" with insignificant variations occurs in as many as Seventeen Items other than Item 59, in the Schedule. [Items 1-D, 4, 11-A, 15-AA, 16-A, 16-B, 22-E, 22-F(3), 33-A, 33-B, 33BB, 33-D, 34(2)(ii), 37-A, 40, 48 and 51]. The expression is purely descriptive in sixteen items out of them. For example, it cannot be contended that assembly is an act of manufacture because of the use of the aforesaid expression in Item 40. It is only on account of the inclusions of some of the processes referred to in Item 4 in the definition of "manufacture" that they assume the character of manufacture and not on account of the use of the expression "whether or not" in Item 4 of the Schedule; (iii) nor does the separate categorisation, without more, of "articles of a kind used for sound... recording" into blank magnetic or cassette tapes Lltem 59(1) and 59(3) of the Schedule] and 2nd recorded magnetic cassette tapes [Item 59(2) and 59(4)] lead, irresistably and unequivocally, to the conclusion that recording sound on duty paid magnetic or cassette tapes is "manufacture". The rationale of the categorisation is not far to seek, if it is noted that each of the categories is brought to duty at the identical rate ad valorem and it is not inconceivable that the manufacturer of tapes may also proceed to record sound on them and clear them as sound recorded magnetic or cassette tapes. In' such a case, the value of the manufactured blank tapes is enhanced corresponding to the value of the matter recorded. The quantum of duty should also necessarily vary with the added value of the magnetic or cassette tapes.

One cannot necessarily, infer from the separate categorisation that recording sound on duty paid tapes is "manufacture"; (iv) separate categorisation cannot also imply separate acts of manufacture in recording sound on duty paid tapes and as many times as it is recorded from the ratio of the decisions in 1983 E.L.T. 1566 (Dunlop v. Union of India), AIR(Union of India v. Ramlal Mansukhrai), 1983 E.L.T. 735 (Hyderabad Asbestos v. Union of India) etc. It is true, in the light of the ratio of the said decisions, that the legislative intent to treat the goods clearly and unambiguously described in the Schedule as manufactures is manifest and accordingly there cannot be a dispute on the issue of "manufacture" as understood in law in regard to them. 7 hat, however, is not the issue in these Appeals. The ratio of the said decisions may apply in so far as manufacture and clearance of "sound recorded" magnetic or cassette tapes are concerned, since that is how Item 59(3) and (4) read. They do not answer the query if mere recording sound on magnetic or cassette tapes, already levied to duty, is a separate act of manufacture so as to be excisable by itself; (f) (i) the legislative intent to treat recording sound, in itself, to be manufacture cannot be derived from the notification of exemption as well. The notification pre-supposes and assumes, erroneously, in my view, a levy upon recording of sound on blank magnetic or cassette tapes as manufacture and proceeds to exempt recording (and not the original recording) from the levy where it is not intended for sale or promotion of sale. As was held by us in 1983 ECR 799 and 1983 ECR 1349 (the two Golden Paper Udyog cases)-a levy, when questioned, cannot be inferred from an exemption from levy and there is no need to look into an exemption notification when the scope of the tariff entry is not in doubt; (ii) likewise, for the same reason, the inclusion of the "excisable goods", namely, "articles of a kind used for sound or sound and image recording, whether recorded or not" in the list of goods notified under R. 56A for being afforded a set-off of the duty previously paid, cannot lead to the inference that recording sound is a manufacture. Nor is it that the second category of such excisable goods, namely, sound recorded magnetic or cassette tapes specifically mentioned so as to be entitled to the benefit thereof, if indeed, they are separately leviable to duty merely on recording sound as a "manufacture" and not to be identified with the blank tapes or cassettes on which duty was already paid; (g) (i) nor can it be said that recording of sound on blank magnetic or cassette tapes is "manufacture", inasmuch as, a new substance-not merely a change in the substance-a transformation resulting in a new and different article having a distinctive name, character and use (all three of them and not merely one of them) had emerged. [AIR 1963 S.C. 791 at 794~Union of India v. Delhi Cloth Mills; AIR 1981 S.C. 1014-Chowgule v. Union of India, (1906) 2 K.B. 352-McNicol v. Pinch and other cases]. The processing is irrelevant if the original commodity continues to possess its original identity [AIR 1980 S.C. 1227-Dy. Commissioner v. Pio Food Products] and where the product, despite going through the process retains its original identity and the use to which the original product could be put would also be the use to which the product after process could, be applied, no "manufacture" is involved in the process. Hydrogenation of 'groundnut oil, for example, is not manufacture, when, admittedly, "there is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used, nor is there any use to which the hydrogenated oil could be put for which the raw oil could not be used. Hydrogenated oil still continues to be groundnut oil notwithstanding the processing [AIR 1961 S.C. 412-Tungabhadra Industries v. C.T.O.]; (ii) it hardly needs to be stated that notwithstanding the sound recording the articles are still "articles of a kind used for sound... recording". The recorded sound can be erased every time sound is re-recorded ad infinitum. How can it be said in such a case that recording of sound has brought a transformation in the duty paid articles, their original identity is lost, and new and different articles having a distinctive name, character and use had emerged every time sound is recorded, erased and recorded again. Or is it that the tapes after recording with sound cannot be put to the same use as "articles of a kind used for sound... recording".

43. For all the aforesaid reasons, I, for one, cannot subscribe to the view that recording of sound on duty paid magnetic or cassette tapes is, per se, "manufacture" and every time such recording takes place, duty is to be levied. A contrary view, in my respectful opinion, will lead to a multiple and cascading levy which was altogether unintended.

Nor can one hardly be heard to say that every time the sound recorded earlier had been erased, a "manufacture" of "articles of a kind used for recording... sound" had occurred. It is equally untenable to hold that recording of sound, per se, is "manufacture".

44. On the second question, one would like to ask oneself what exactly are the "excisable goods" in this case-the object of levy-in terms of Item 59 of the Schedule, for it is only on the manufacture of the "excisable goods" in the Schedule that the levy, in terms of Section 3 of the Act, is attracted. They are "articles of a kind used for sound or sound and image recording" and, amongst them, sound recorded magnetic or cassette tapes. Admittedly- (a) the Appellants were not manufacturing "sound recorded magnetic tapes". [Item 59(2) of Schedule] or "Sound recorded cassette tapes".

[Item 59(4) of the Schedule] as such; (b) in fact, they were not manufacturing any "articles of a kind used for sound or sound and image recording" [Item 59 of the Schedule], that is to say, magnetic tapes or cassette tapes-at all.

All that they were doing was recording sound on duty paid magnetic tapes or cassette tapes either purchased by them from the market or supplied to them by the customers. In either case, there is no evidence that when they recorded sound they were virgin tapes, not used earlier for sound recording. Not that this would make for any difference, except in the cascading effect of a multiple levy each time a single tape is re-recorded, if indeed, recording sound or image and sound on duty paid tapes is a "manufacture" in terms of the relevant provisions of the Act and the intent to levy duty at every such recording was manifest in the Schedule; (c) while it may be that once an article is named or clearly described in the Schedule, it becomes assessable to duty, provided the intent of the legislature in regard to its levy is manifest, regardless of whether, there has been, indeed, a "manufacture" as known to law-in the sense that a new product had come into existence having a distinct name, character and use in the market-AIR 1973 S.C. 2333- Union of India v. H.U.F. business know as Ramlal Mansitkhrai], this is not, a case of manufacture of an article described in the Schedule. The articles named or clearly described in the Schedule are "articles of a kind used for sound. . . .

recording, whether recorded or not"-and, amongst them, ("namely") sound recorded magnetic tapes or cassettes. To repeat, the Appellants had not, at all material times, manufactured articles used for sound recording or, amongst them, sound recorded tapes and cannot, therefore, be liable to the payment of duty in terms of Item 59(2) or 59(4) of the Schedule.

45. In the premises, it has, necessarily, to be held that, in the facts and circumstances of the case, (a) recording sound on duty paid magnetic or cassette tapes is not "manufacture" in terms of the provisions of the Act, the Schedule or otherwise; and (b) in any event, the Appellants are not liable to pay any duty or fine whatsoever-not having manufactured the "excisable goods" in Item 59 of the Schedule,


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