1. A common point at issue is involved in both these appeals. They relate to the same appellants and were argued before us together. We are disposing of both the appeals by this order.
2. The appellants produce soap stone powder, by grinding soap stone lumps in an electric grinder and thereafter undertaking some further processes. The soap stone powder so obtained is used as a filler in the manufacture of paper, soap, rubber etc. Finely ground soap stone powder is also used as the base for manufacturing talcum powder which is a cosmetic. The appellants were reportedly supplying their soap stone powder to paper mills and soap manufacturers. The common point of dispute in these two appeals is whether soap stone powder is exigible to duty under Item 68 of the Central Excise Tariff. If the answer to this question is in the affirmative, the other two connected issues to be considered are whether the appellants were entitled to exemption as a small scale unit under Notifications Nos. 89/79-C.E. dated 1-3-79 and 105/80-C.E. dated 19-6-80 and whether any portion of the demands confirmed against them by the Collector for the financial years 1979-80 and 1980-81 were tirne-barred.
3. During the hearing before us, the appellants pressed for the following arguments : (1) The process of grinding undertaken by the appellants made only a physical change in the product. Nothing was added or taken out of the lumps or the powder and the chemical ingredients in the lumps and the powder remained unchanged. The simple process of grinding, therefore, did not amount to manufacture of a new and distinct product and hence there could be no question of duty liability under the Central Excise Tariff.
(2) The demands were largely time-barred. At the relevant time the time-limit for issue of the show cause notice was six months.
However, the notice for 1979-80 was issued on 13-4-81 while for the year 1980-81 it was issued on 24-8-81. The Bench observed that this plea of time-bar had not been taken before the lower authorities.
The appellants admitted this fact and prayed that they may be allowed to raise this new plea. Since it was a legal plea, the Bench allowed it to be taken. The appellants thereafter elaborated the plea saying that the extended period under Rule 9(2) could not be invoked in their case.
(3) Assuming that their production activity of converting soap stone lumps into soap stone powder amounted to manufacture, the appellants would be entitled to count towards their turnover ceiling only the job charges realised by them, and not the full value of the soap stone powder, wherever they did the grinding on job work basis. By doing so the total value of their clearances would remain within the ceiling limits of" Rs. 30 lakhs per annum and they would become eligible to avail of the total exemption from duty under Notifications Nos. 89/79-C.E. dated 1-3-79 and 105/80-C.E. dated 19-6-80.
(4) Further, for counting the value of their total annual clearances, the elements of freight, sales tax, octroi and packing charges should be deducted from the value. They had claimed such deductions before the Collector in their reply to the show cause notice but the Collector dealt with the point relating to packing charges only and did not deal with the other three deductions asked for.
4. The learned Representative of the Department stated that soap stone powder was a new and distinct product. She relied on the recent Supreme Court judgment in the case of M/s. Empire Industries Ltd. [1985 (20) E.L.T. 179 S.C.] and elaborated saying that physical appearances of the lumps and the powder were different, their names were different, their uses were different and their characteristics were also different. The degree of transformation brought about by the grinding process was not material, as laid down in the aforesaid Supreme Court judgment. The soap stone powder satisfied the well-known test laid down by the Supreme Court in the case of M/s Delhi Cloth & General Mills Co. Ltd. (1977 E.L.T. J 199) inasmuch as the powder had a different name, character and use. The appellants were not entitled to the benefit of job charges because they did not return the same Article to their customers. In any case, so far as exemption notifications Nos.
89/79-C.E. and 105/80-C.E. were concerned, the full value of the goods cleared had to be taken into account for arriving at the annual value of clearances. As regards time-bar, she stated that the extended period of 5 years had been correctly invoked for the demands because the appellants had suppressed facts. They should have consulted the Department whether duty was payable on their soap stone powder or not.
This they had not done at any time.
5. At the stage of rejoinder, the appellants came out with a new complaint that the figures on which the demands for duty were based had not been disclosed to the appellants. The Bench observed from paragraph 7.2 of the first Order-in-Original and paragraph 3.2.5 of the second Order-in-Original that the Collector had made available to the appellants whatever facts and figures they had wanted to know and that thereafter the appellants did not make any further complaint to the Collector in this behalf. Still, in the interest of justice, the Bench was willing to adjourn the hearing so as to give time to the learned Representative of the Department to go into the new point and the document connected therewith which the appellants wanted to tender.
However, at this stage the appellants themselves withdrew the new point.
6. We have carefully considered the matter. Taking the first argument of the appellants, though both sides cited authorities relating to cases where the process of crushing or grinding did not amount to manufacture (those relating to re-claimed rubber and barytes) and where it did (those relating to pyrites and asbestos fibre) and though the appellants also mentioned the cases of retreading of worn out tyres and processing of pineapples into canned slices which processes were held to be not amounting to manufacture, we observe that nothing really turns on these rival authorities. The same process may result in a new and different product in the case of one commodity but not so in the case of another commodity. The case of each commodity, therefore, stands on its own individual circumstances. "Whatever may be the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes such a process which will be part of 'manufacture'. Any process or processes creating something else having a distinctive name, character and use would be manufacture" [1985 (20) E.L.T. 179 S.C. in the case Of M/s. Empire Industries Ltd. supra].
7. Applying the well-known test laid down by the Supreme Court as reiterated above, we observe that soap stone powder was different in appearance as compared to soap stone lumps. The Collector, who examined the samples of both, has observed that while the lumps were having a yellowish colour, the powder was white. However, we do not place much importance on this colour factor alone; the more important thing is the use of the material. None of the industries for which soap stone powder is intended, can use the soap stone lumps. The lumps are totally useless for them. They become useable as raw material by the user industry only after they have been powdered to the required fineness.
It is only in powder form that the material becomes marketable to the user industry. There was a direct authority in the form of an order of this Tribunal on soap stone powder itself [1984 (18) E.L.T. 657 (Tribunal)- Oriental Talc Products Pvt. Ltd, Udaipur v. Collector of Central Excise, Jaipur]. It had been held in this order that grinding of soap stone into soap stone powder of required mesh amounted to manufacturing process. We put this authority to the appellants. They sought to distinguish it saying that the material under consideration before the Bench in that case was intended for talcum powder industry and was ground to a fine mesh size. However, we observe that this is not so. The soap stone powder covered by the earlier Bench order was used as a filler in various industries, such as paper, textiles, paints, ceramics, plastics etc. Whatever may be nature of the user industry, the point made by us still remains valid that the material becomes usable only after powdering. It is evident, therefore, that the name, character and use of soap stone lumps and soap stone powder are not the same; they are two distinct products by that test. It may be that no extraneous matter is added to the powder. But nothing turns on that factor.
8. So far as the time-bar plea is concerned, we find that the show cause notices bring it out that the appellants were conducting their operations without the knowledge of the Department. They did not pay any central excise duty. They never applied for a central excise licence nor ever submitted any declaration before the authorities at any time. The appellants had two factories, one at Udaipur falling in Jaipur Central Excise Collectorate and the other at Ratlam falling in Indore Central Excise Collectorate. The authorities in charge of their Udaipur unit had issued them a show cause notice on 18-6-79. The appellants sought to say that at least from this date onwards the Department knew of their existence and their operations. We do not find any substance in their argument. As already stated by us, the two factories fell in the jurisdiction of two different sets of officers.
Just because the appellants received a show cause notice in respect of their Udaipur unit from the officers of Jaipur Collectorate, it would not mean that the officers of Indore Collectorate became aware of the existence and operations of their Ratlam unit. The fact that even after receipt of the show cause notice dated 18-6-79 in respect of their Udaipur unit, the appellants did not voluntarily come forward to declare the existence and activity of their Ratlam unit to the jurisdictional central excise officers shows wilful suppression on their part. We find, therefore, that the lower authority has correctly invoked the extended time-limit of 5 years under Rule 9(2) and the demands were consequently not time-barred.
9. The point regarding job charges and calculation of the annual value of clearances for the purpose of the ceiling limit under exemption notifications has already been dealt with in the Tribunal's earlier order relating to soap stone powder [supra]. The authorities cited by the appellants in support of their plea relate to a different issue-whether the activity in the case of a particular commodity amounted to job work so as to attract the duty concession under Notification No. 119/75-C.E. dated 30-4-75, and not to the question as to whether the total value of goods the job charges or the full intrinsic value of the goods. We agree with the earlier Tribunal order aforesaid that the relevant exemption notifications did not have any provision to the effect that only job charges were to be taken into account for determining the total value of clearances. The Notifications (89/79-C.E. and 105/80-C.E.) required the full intrinsic value of the goods, including the value of the raw materials, to be taken into account for calculating the turnover ceiling limit. By doing so, the appellants exceeded the stipulated ceiling limit and became ineligible for these exemptions.
10. Regarding the packing charges, the appellants stated that gunny bags were durable. We find that while new gunny bags, or even those of comparatively good quality, may be capable of re-use, the same cannot be said of not so good gunny bags. There is no evidence as to what quality of gunny bags the appellants used for packing their soap stone powder. At any rate, there is no evidence of any agreement between the appellants and their customers which made the gunny bags returnable to the appellants. There is absolutely no evidence whether any gunny bags were actually returned to the appellants and the cost thereof refunded to the customers. In the circumstances, the Collector was correct in not deducting the packing charges from the value of the soap stone powder cleared. As regards freight, sales tax and octroi, we notice from the appellants' reply dated 18-5-81 to the show cause notice that all these three elements, taken together, amounted to about Rs. 10,000/-. Even if this amount were to be deducted from the total value of clearances as arrived at by the lower authorities, such total value still remains above the ceiling limit of Rs. 30 lakhs.
11. In the result, we find no merit in any of the arguments of the appellants and reject both the appeals.