In the case of M/s. Maruti Suzuki India Ltd. vs. Commissioner of Central Excise, it was held by SC that a process that is only adding some value to the inputs does not necessarily amounts to manufacture. After processing of the inputs, a new and different article emerges having a distinct name, character or use and such process can be treated as manufacture.
The appellant is the manufacturer of motor vehicles and purchased inputs (e.g. Bumpers, grills etc.), availed MODVAT Credit of duty paid thereon, subject them to the process of Electro Deposition Coating (EDC – nature of anti-rust so that the shelf life can be increased ) and remove the same on payment of duty equivalent to the amount of MODVAT Credit availed by them initially at the time of receipt of the inputs. The Department alleged that the appellant had cleared inputs/ spares after processing, but duty was only paid equivalent to the MODVAT credit taken on these inputs before processing, and hence a substantial increase in the value of these inputs has escaped payment of duty on account of value addition in such inputs after processing. The adjudicating authority passed the order against the appellant. The appeal filed before Customs, Excise & Gold (Control) Appellate Tribunal (hereinafter referred to as ‘CEGAT’) was unsuccessful.
Contentions of the Appellant
The Appellant contented that there was no manufacture as understood in law, but only the process of ED coating which did not, in any manner, bring into being a new marketable commodity as such. The bumpers, grills, etc., continued to be bumpers, grills, etc., even after the process of ED Coating.
Contentions of the Department
The Department contented that the process of ED coating which led to value addition, would, in fact, amount to “manufacture” and that therefore, the “input” would not be the same input and hence mere reversal of MODVAT duty is not sufficient and the duty on the value addition would also therefore have to be paid.
Held By Hon’ble Supreme Court of India
The Hon’ble Supreme Court stated that on true construction of Rule 57F(1), it would be clear that the “input” that is removed from the factory for home consumption is bumpers, grills, etc., being spare parts of motor vehicles procured by the appellant. ED coating which would increase the shelf life of the spare parts and provide anti-rust treatment to the same would not convert these bumpers, etc., into a new commodity known to the market as such merely on account of value addition.
The Hon’ble Court referred the judgment on the Central Excises and Salt Act, 1944, namely Union of India v. Delhi Cloth and General Mills Co. Ltd. [1977 (1) E.L.T. 199] wherein an important distinction was made between manufacture and processing. It was held that processing and manufacture are distinct concepts in law and only such processing as results in a transformation, namely, that a new and different article emerges having a distinct name, character or use, that excise duty, which is only on manufacture, can be levied.
In the present case, it is clear that bumpers and grills are most certainly of commercial use in themselves whether the process of ED coating is applied or not. The Hon’ble Court further states that in the past this Court laid down that value addition without any change in name, character or end use of goods cannot possibly constitute criteria to decide as to what is manufacture.
The Hon’ble court pointed out that for the purposes of the proviso to Rule 57F (ii), the inputs that were not ultimately used in the final product but were removed from the factory for home consumption remain the same despite ED coating and consequent value addition. The Hon’ble court relied on the decision in the case of Commissioner of Central Excise, New Delhi v. S.R. Tissues Pvt. Ltd. [2005 (186) E.L.T. 385] and state that on account of mere value addition, it would be hazardous to say that manufacture has taken place, when in fact, it has not. It is clear, therefore, that the inputs procured by the appellants in the present case, continue to be the same inputs even after ED coating and that Rule 57F(ii) proviso would therefore apply when such inputs are removed from the factory for home consumption, the duty of excise payable being the amount of credit that has been availed in respect of such inputs under Rule 57A.
The Hon’ble court pointed out that the relevant provisions should be interpreted in such a manner so that inputs should not suffer duty on account of value additions made to inputs if there is no manufacture.
In view of the above, the Hon’ble Supreme Court has allowed the appeal.