Judgment:
1. This is an appeal filed by the appellant against the orders passed by the Collector of Central Excise, Coimbatore dated 26-9-1986. In the impugned order he has held that cutting of the granite stone and polishing the same amounts to manufacture. He also held that the appellants are not entitled for the benefit of the Notification No.77/83. He also demanded duty to the extent of Rs. 5,70,074.05 by invoking the extended period of limitation under the proviso to Section 11A of the Central Excises and Salt Act and a penalty of Rs. 20,000/- was also imposed on the appellants.
2. The learned Consultant Shri C. Chidambaram on the outset stated that the demand could not have been invoked beyond a period of six months inasmuch as there was bona fide belief on the part of the appellant that the process undertaken by the appellant does not amount to manufacture. He also pointed out that the District Industrial Officer had certified that the value of plant and machinery does not exceed Rs. 20 Lakhs which is the limit fixed under the notification. He also pointed out that the declaration was also filed by the appellant which were taken note of in the Show Cause Notice itself. Therefore, he pointed out that there was no wilful suppression of any material fact with an intention to evade payment of duty and the Show Cause Notice issued beyond a period of six months is barred by limitation. He stated that he has no objection for payment of the duty falling within the period of six months reckoned from the date of receipt of the Show Cause Notice.
3. The learned Consultant Shri C. Chidambaram further pointed out that there was a divergence of views in this regard. In the first instance, he relied on the decision of the Collector (Appeals) in Order in Appeal No. 276/87 (CBE), dated 16-11-1987 holding that no new commodity emerges due to cutting and polishing of granite stones. He pointed out that this decision of the Collector (Appeals) was taken up in appeal before the Tribunal by the revenue and the Tribunal by Order No.385/96-D, dated 24-5-1996 held that it amounts to manufacture. However, he pointed out that the Tribunal in that case relied upon an earlier decision reported in 1995 (80) E.L.T. 145 wherein he stated that in Para 24 of the above order, it was clearly mentioned that there was difference of opinion as to whether this process amounts to manufacture or not. He therefore pleaded that there were two views prevailing at the relevant time and therefore the appellants were under bona fide belief that this process does not amount to manufacture.
4. It was also pointed out that the Karnataka High Court also has taken a view in this regard. He pointed out that a Division Bench of the Karnataka High Court in Order No. STNP/35/1991, dated 12-12-1994 has also held that, in the context of the proceedings under the Sales Tax Act that cutting and polishing granite block does not amounts to manufacture. He pointed out that the view of the Hon'ble High Court was that in spite of polishing the same, it continues to be a granite block. It was therefore pointed out that there were bona fides for the appellant to take the view that this does not amount to manufacture.
Hence, he pointed out that there was no wilful suppression of any material fact. It was also pointed out that in order to constitute the suppression, it must be shown that the appellant knowing fully well that he had to disclose a certain fact failed to disclose the same with an intention to evade payment of duty. He pointed out that in this respect, the appellant had filed a declaration to the Department and the views of the different courts goes to show that the appellant had sufficient grounds for entertaining a bona fide belief in this fegard.
He further pointed out that the appellants had maintained the relevant records in this connection. Regarding the installation of the machinery, it was further pointed out that a certificate was given to the appellant by the District Industrial Officer to the effect that the value of the plant and machinery amounted to only Rs. 18,03,455.67. He, in this connection pointed out that the learned Collector had valued the machine taking into reckoning the value of some additional items which were imported. It was pointed out that these were in the nature of surplus as well as spares as shown in the import invoice. It was further pleaded that even if the value of some of these items are includible, still the value will be below Rs. 20 Lakhs. In this connection, we had asked both the sides to work out the same, taking into consideration the use of the items and whether they had to be installed immediately after import along with the main machines. We had indicated tentatively as to whether value of all the items would be includible. Based on this also, the learned Consultant pleaded that the value falls short of Rs. 20 Lakhs. He pointed out that since he is only directing his arguments on plea of limitation he is not pressing all these points in this appeal.
5. The learned JDR, Shri S. Arulswamy on the other hand stated that the Tribunal in appellants own case had already held that the goods are excisable in terms of Order No. 385-1996-D, dated 24-5-1996. He also pointed out that there are other decisions of the High Court as well as Supreme Court to show that such activity amount to manufacture. He pointed out that those parts which are sought to be excluded are essential parts of the machine for keeping them in running condition and operational and therefore the value of the same also requires to added and if that is so, the value will be exceeding to Rs. 20 Lakhs.
He, therefore pleaded that there has been a wilful suppression.
6. We have considered the submissions of both the sides. We find that in order to constitute a wilful suppression, there must be the material to show that the appellant knowing fully well that he was required to furnish a particular fact to the Department, failed to furnish the same with an intention to evade payment of duty. In this case, it is seen that there are divergence of views as to whether this activity carried out by the appellant amounts to manufacture or not. It is also seen that when this decision of the Collector (Appeals) was taken up before the Tribunal, the Tribunal while holding against the assessee took note of an earlier decision of the Tribunal reported in 1995 (80) E.L.T.145. In that decision, one of the member in fact had held that this does not amount to manufacture as could be seen from Para 5 of the abovesaid order. Para 5 of the order reads as follows :- 5. We have considered the submissions made by both sides with reference to the facts and perused the records. We also take note of the submissions made by the appellant's Counsel that the period of dispute relates to prior to 17-3-1985 since the new Tariff Entry 23E was introduced from 17-3-1985. We find that this issue was considered in the case of Fine Marble and Minerals (P) Ltd. (supra) and this view was upheld by the Supreme Court since the appeal filed by the Department was dismissed as it was rightly argued by the appellant's Counsel. It is not confined to slabs but also the marble tiles. Because in Para 7 of the order, it was clearly held that the original identity continues despite the several processes undergone.
In the trade circles, marble slabs or the marble tiles that are manufactured after cutting the edges, trimming, polishing and other processes continue to be known as marble. Unless it is proved that by virtue of the sawing process, a different or distinct commodity comes into existence, the process cannot be equated to manufacture.
Further, in Para 8 of the said order, it was observed that the manufacture of an article known as marble could be said to be complete only after all or most of these processes are undergone to result in a distinctly different commodity. The issue was decided in favour of the assessee mainly on the ground that Department has not established with any material evidence to show that marble slabs could be considered as a different and distinct commercial commodity. It the instant case also the Deptt. has not established with any evidence how it is understood in commercial parlance to show that the items are different and distinct from the original and it is not mere cuttings, edging or trimming but something more than has taken place to consider as the process of manufacture and altogether new item emerged. We are not concerned with the logical analysis or the personal opinion of the authorities below in considering the issue but material evidence. Even after passing the order in the case of Fine Marble & Minerals and same was approved by the Supreme Court, the Department has not taken any steps to substantiate its contention with evidence. In the case of Indian Granite Ltd. referred to by the Departmental Representative, we find in that matter the party pleaded that it does not amount to manufacture and alternatively it was pleaded that if it amounts to manufacture and it should be deemed as handicrafts. The Tribunal in Para 14 of the said judgment had dealt with at length and in the last line in Para 14, the Tribunal has observed that "we may note that the consultant for the appellants also did not put forward any serious arguments in this regard before us." Hence, the facts and ratio are distinguishable as it was rightly considered in the case of Associated Stone Industries.
It is further seen that the Karnataka High Court in the case of Foredg Granite Put. Ltd. v. State of Karnataka also held that this activity does not amount to manufacture. In these circumstances, the appellants certainly had grounds to entertain a bona fide belief that the goods were not excisable. We, therefore hold that for this reason, it cannot be said that there was a wilful suppression on the part of the appellant.
7. In regard to valuation, it is seen that the District Industrial Officer had given a certificate and the appellants were guided by the abovesaid certificate while declaring that the value of the plant and machinery is below Rs. 20 Lakhs. With respect to the imported machinery certain items were shown as surplus and spares. Therefore, they had not taken the same into reckoning on the bona fide belief that the value of the same is not required to be added to the value of the machine in question. As it is, we find on a perusal of the invoice that the value of all those parts could not have been included and only certain items were required to be included. He had also referred us to the decision of the Government of India in order in revision No. 299/1978 dated 6-4-1978 reported in 1979 (4) E.L.T. (J 105) (G.O.I.) wherein the Government of India stated that one of the determining factor for exemption will be the certificate issued by the District Industrial Officer. In this view, we find that the appellants also had not kept back any information from the notice of the Department with respect to the machinery installed as they had maintained all their records. In view of the above facts, we are of the view that it cannot be said that there was any wilful suppression on the part of the appellant and no mala fide can be attributed to the appellants in the facts and circumstances of this case which we have already narrated above.
8. In the premises, we are of the view that since the demand is not contested on merits for a period within six months, we confirm the duty with respect to the period which is within a period of six months from the date of receipt of Show Cause Notice. But the duty beyond the period of six months from the date of receipt of Show Cause Notice is barred by limitation and the demand of the same in terms of the impugned order is hereby set aside. In the facts and circumstances, we have already come to the conclusion that there are no mala fide on the part of the appellant. We set aside the penalty imposed on the appellants. The appeal is allowed partially in the above terms.