Brief of the Case
The Hon’ble High Court in the present case held that when the assessee claimed and was granted modvat credit under Rule 57H of the Central Excise Rules at the relevant time itself indicates that for purposes of excise, “the assembling of cassettes amounted to manufacture”.
Facts of the case
The brief facts are that the assessee manufactures cassettes. At the relevant time, the assessee had owned five production units. Two were located at Noida; one at Delhi and two at Namoli and Malanpur (UP). The assessee’s production process entails manufacturing of Audio Magnetic Tapes (AMT) in bulk – an activity carried out in the two Noida units. The assessee had claimed the benefit of Section 80HH and 80I in respect of Namoli Unit and Section 80IA in respect of Malanpur Unit which had been granted from the years 1991-92. In the course of assessment for AY 1994-95, based upon the assessee’s returns, the AO formed an opinion that no manufacturing activity was carried out in Namoli and Malanpur. The assembling of the articles produced at the Noida Unit did not amount to manufacture and that there was other material to indicate functional integrality of all the units. The CIT(A), however, remitted the matter with respect to certain adjustment indicated by him in the order.
Contention of the Assessee
The assembly of cassettes would be taken as manufacture as the product was excisable and on the same the Credit have been allowed by the excise department.
Contention of the Revenue
Revenue urges that findings of the CIT (A) and the ITAT in this case with respect to the units being separate and not functionally the same are erroneous and contrary to the record. It was emphasized that mere assembling of tapes would not constitute manufacturing.
Held by the CIT(A)
The AMT produced and marketed by the assessee became excisable and that the application had been made on 5.8.1997 to the Assistant Commissioner of Excise, Noida claiming Modvat under Rule 57H. There was physical verification of the inventory at Namoli and the Excise Department had in fact granted credit to the assessee under the Modvat scheme. Furthermore, other co-lateral material in the form of show cause notice issued by the Excise Department and the correspondence with the Sales Tax Department, bonus registers, and returns of statistics filed with the Government authorities etc. were all taken into consideration. The CIT (A) also extracted charts indicating number of workers engaged by the assessee based upon the records produced by it. The CIT (A) made a detailed comparison of the price of similar goods manufactured by other producers. The AO was directed to allow the deductions under section 80HH and section 80I in respect of profits.
Held by the ITAT
The Hon’ble ITAT held that assembly of cassettes amount to manufacture by observing that blank audio or video cassettes assembled from various components is a distinct and separate marketable commercial commodity and therefore, the assembly of the components amounts to manufacture. Even otherwise, the finding can be supported by the fact that the central excise authorities did consider the production of cassettes as a manufacturing activity as can be seen from the fact that audio cassettes became an excisable product from 28.02.1997.
Held by the Hon’ble High Court
The Hon’ble High Court while dismissing the Appeal of the Revenue and while going into the question of whether the activity carried out i.e. assembly of audio cassettes amounted to manufacturing observed that the assessee claimed and was granted modvat credit under Rule 57H of the Central Excise Rules at the relevant time itself is indicative that for purposes of excise, “the assembling of cassettes amounted to manufacture”. Audio Video Tapes are manufactured in bulk which in turn constitute the raw materials for the ultimate assembly of the marketable products into cassettes in which several intervening stages would be involved. These would be cutting of the tapes into requisite levels, their placement in cassettes shells, packaging of such finished cassettes and labelling etc. The Revenue’s argument that no manufacturing activity was involved in the assembling of cassettes was not considered.