SIECHEM Vs. CCE

JUDGEMENT

(1.) THIS appeal arises from Order -in -Original No. 30/97 dated 28.11.1997, passed by Commissioner, Central Excise, Chennai holding that the process of putting of various components into a carton to make the Cable Jointing Kit amounts to manufacture and in that view he has classified the said item under tariff sub -heading 8547.00 of the Schedule of CE (Tariff) Act, 1985, which heading reads as follows:

(2.) THE appellants are traders of components of Cable Jointing Kits. They are recognised Kitters approved by the Department of Telecommunication (DoT), New Delhi. In order to become the Kitter, the appellants stated that they should possess an in house testing facilities. Components received from the various sources are tested at random. A cable jointing kit consist of 17 different components such as heat shiinkage sleeve, aluminium canister, filling compound, sealant tape, emery strip, cleansing kit, cleansing tissue, branche off clip, sheath connector assembly, adhesive aluminium strip, transparent PE Steel, adhesive PVC tape, polyester tape, armour continuity wire, packing box and installation instruction booklet, etc. supplied by the P and T Department. After random testing the components are packed in a corrugated box along with a instruction booklet as published/approved by DoT. The Department has proceeded by show cause notice No. 60/97 dated 9.5.1997 alleging that the different components that go into the Kit are individually tested with the help of different testing equipments as prescribed by DoT's specification. Components which pass the testing are taken into stock and failed components are returned back to the manufacturers from whom the components are purchased. It is stated that these different components together with installation instructions, packed together in specially made unit corrugated boxes, is marketed to DoT as Cable Jointing Kits which are classifiable under sub -heading 8547 of Central Excise Tariff. The Cable Jointing Kit is used for joining the two cables by the Telephone Department. It is stated that the cable Jointing kits become useless if any one jointing of the kit is not put in the cardboard box, the articles put up together carry out a specific activity, i.e. protecting, insulating and joining the telecommunication cables. By putting together these articles into a container a new commercially distinct product viz. Cable Jointing Kit comes into existence, having a different name, use and character. Therefore, it was alleged that the process of putting together the duty paid articles into a container like carton, Kits, etc. so that a new commercially distinct product viz. Cable Jointing Kits comes into existence would amount to manufacture under Section 2(f) of Central Excise Act, 1944 and such cable jointing kits are classifiable under heading 8547.00. It is also alleged that the appellants are satisfied with the infrastructure requirements stipulated by TEC to become a Kitter and performed ail the tests prescribed by the DoT before the finished goods are cleared to the customers, hence it was alleged that the appellants had indulged in the manufacture of Cable Jointing Kits falling under proviso to Section 2(f) of CE Act and are liable to pay duty for all the clearances made by them for the above mentioned period. It was also alleged that they have suppressed the facts of manufacture of cable jointing kits, which is an excisable item from the knowledge of the department and cleared the said goods without payment of duty, without registration and without following the procedures prescribed under the CE law with an intention to evade payment of duty. It was also alleged that the goods manufactured at Madras were sent to their Pondicherry office on stock transfer basis without payment of duty and invoices were issued from Pondicherry as no manufacturing activity had taken place, with an intention of evading payment of duty. Hence, Proviso of Section 11A(1) of CE Act, 1944 was invoked besides invoking various provisions of CE Rules to call upon them to explain why penalty should not be imposed against them.

(3.) IT is the contention of the appellants that the activity of packing in a common carton which is more convenient cannot be construed as manufacture. They also contended that the judgment of the Bombay High Court in the case of Excel Telecom (P) Ltd. v. UOI relied upon by the department in the Board's Circular dated 27.3.1997 was not applicable in their case since the same was dealing with a customs case where concept of manufacture was not relevant. They stated that the demands had been alleged on the basis of the CBEC Circular dated 27.3.1997 and the Commissioner of Central Excise, Chennai vide his communication dated 2.6.1997 had sought for reconsideration of the above said circular and had also sought for keeping the matter pending. It is stated by them that Commissioner while so keeping the matter pending, immediately sought for hearing on 31.10.1997 and despite resistance from the appellants, proceeded to hear and dispose of the matter holding the item to be classifiable and dutiable. It is their contention that they had also challenged the matter in a Writ Petition No. 7365/97 before the High Court of Madras against the Board's Circular dated 27.3.1997 and the consequential Notice No. 35/97 dated 16.4.1997. They stated that the lower authority has erred in adjudicating the matter even before the High Court could decide the matter finally. Various other pleas have also been raised in the appeal memorandum with regard to the non -dutiability of the item and also that the department has been aware of the manufacture and clearance of such items and hence there being no suppression and demands being barred by time. The most relevant point raised by them was that the issue is no longer res Integra in view of the fact that in a similar case of identical manufacturers, the matter was agitated before the Hon'ble Andhra Pradesh High Court in a batch of Writ Petitions. Hon'ble High Court in the case of Excel Telecom Ltd. and Ors. v. Superintendent of Central Excise have struck down the said Board's circular dated 27.3.1997 and has held that such an activity of putting together duty paid articles into a container like carbon kit does not bring into existence a new commercially distinct product namely "Cable Jointing Kits" and such process does not amount to manufacture under Section 2(f) of Central Excise Act, 1944 and has also struck down the issue of proposing to levy duty on cable jointing kits pursuant to the Board's circular dated 27.3.1997 is without authority of law and jurisdiction.