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File No.APPL-COMMOCEX/391/2019-GST- APL-CHD 131

NATION TAX MARKET

OFFICE OF THE COMMISSIONER (APPEALS).

<bla[CRI3IRJW (3Idtcr), CENTRAL GOODS & SERVICES TAX

COMMISSIONERATE. CHANDIGARH.

(J{Ictq~)qI<b~, 31I'Q Cfdi <'I ~ I dJl(}I(i) - a . C. R. BUILDING. PLOT NO. 19. SECTOR 17- C.

CHANDIGARH.

~I\jf~-qmror, LclIa:j 19, Rcra 17-nt, dJl(}I<P PH. 0172-2720240.lcftlb)0i-Ol72-2720240

CNo.137/A/CE/APPL/CHD/2017-18 Dated: Appeal No.137 / A/CE/ APPL/CHD/2017~ J.-\.\.lA.?r

ORDER-IN-fp~;AL

Order- In- Appeal No: CHD-EXCUS-OO l-APP- '" ~19-20

.e&:2B19

'~161 f, Dated:

M/ s Borkar Packaging Pvt. Ltd, Nalagarh, Distt. Name of the Appellant Solan, (HP).

Order-in-Original No. 03/CE~~)/CHD-I/2017-18 dated & date 02.06.2017

Adjudicating Additional Commissioner, Central Excise & Service Authority Tax Commissionerate, Chandigarh

Amount of duty Rs. 52,64,132/- Involved

Amount of Penalty Rs. 52,64,132/- involved

M/ s Borkar Packaging Pvt. Ltd, Nalagarh, Distt. Solan, HP (for brevity 'the Appellants'), have filed the subject appeal against the Order-in-Original No. 03jCEjADC(HBN)jCHD-Ij2017-18 dated 02.06.2017 (for brevity 'the impugned order') passed by the Additional Commissioner, Central Excise & Service Tax Commissionerate, Chandigarh (for brevity 'the adjudicating authority') which is being taken up for decision under this order.

2. Briefly stated, the Appellant (registered with the department under Service Tax) were engaged in the manufacture of printed cartons falling under Chapter Heading 48.19 of the First Schedule to the Central E cise Tariff Act, 198~ (say the 'CETA') and were clearin~ the sa~er;.:,~ith6~tvp'at nt of Central Excise duty under Area Based Exemption Notifi . rion No 50 X, 3-CE dated 10.06.2003 as amended. I~~r" IT ~, 1 I

o,J. ....,"

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File NO.APPL-COMMOCEX/391/2019-GST - APL-CHD

. 1/21687/203~ During the course of Audit of records of the appellant, it was observed that the appellant were manufacturing different types of cartons including laminated, varnished, plain & Polyliners as per demand of customers. During the process of manufacture of Polyester Aluminum Foil Laminated cartons, an intermediate product i.e. Polyester Aluminum Foil laminated paper and Paper Board was manufactured which were further used in the manufacture of laminated printed cartons after die punching, gumming and folding.

132

4. An amendment in Notification No 50/2003-CE dated 10.06.2003 was made vide Notification No 13/2006-CE dated 01.03.2006 consequent of which it appeared that the appellant was liable to pay central excise duty on paper/paper board laminated with Aluminium foil at the intermediate stage .

. Accordingly, vide letter dated 08.11. 2012 the appellant was requested to clarify as to why excise duty was not paid by them on the said Aluminum Foil laminated paper/paperboard which was manufactured during the course of manufacture of laminated cartons.

5. The appellant vide their letter dated 27.11.2012 submitted that the laminated paper/paper board manufactured by them was not a distinct product, it was not marketable as it was not useful to anyone i.e. the laminated sheet was neither sold in the market nor it was marketable.

6. Notwithstanding the denial of the appellant it appeared that unprinted paperboard Laminated with aluminium foil was liable to be charged to duty. Moreover, in the periodic returns filed with the department the appellant did not divulge the details of manufacturing of aluminum coated unprinted

. laminated paper board at the intermediate stage and that it was a distinct good which was capable of being freely bought and sold in the market. Since they were claiming the benefit of area based exemption notifications, they could not have been unaware of the fact that the said goods manufactured at the inter­ mediate stage were inter alia specifically placed in the negative list for which the benefit of area based exemption notification was not available to them. The captive use of the said impugned goods was also not eligible to exemption under Notification No. 67/95 -CE dated 01.03.1995 as the said exemption was not available if the final products manufactured were exempt from whole of duty or were chargeable to NIL rate of duty. Further, as per CBEC Circular No. 692/08/2003-CX dated 13.02.2003 the cost of manufacture of intermediate goods should be ascertained in accordance with CAS-4.

7. As per the CAS-4 of the appellant, it was observed that during the period .0 l. 04.2008 to 28.02.2013, they had manufactured and captively consumed 1179. 14 MTs of Polyester Aluminum Foil laminated paper and paper board valued at Rs. 5,00,54,556/- on which they were required to pay Central Excise duty amounting to Rs. 52,64,132/-. Accordingly, Show Gi-se Notice dated 06.06.2013 was issued to the appellant for recoyery of £~ ame alongwith interest & penalty which was adjudicated by the id-dltionW ~"/ missioner (the adjudicating authority) vide the impugned order '~d confi' m~the demand of

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File NO.APPL·COMMOCEX/391/2019·GST· APL·CHD 133 . 1/21687/20~.52,64, 132/ - along with interest and imposed equal amount of penalty on

the appellant.

8. Being aggrieved, the appellants had filed the present appeal against the impugned order on the grounds which interalia are summarized as under:

• That the exclusion from exemption in the notification 50/2003 was meant for manufacturers of paper or paper board and not for the manufacturers of articles of paper or paper board falling under tariff 4819. The Notification has been interpreted wrongly. The appellan t manufactured printed cartons and corrugated boxes out of paper & paper board. Printed paper board cartons and labels falling under chapter head 4819 and 4821 and cleared without payment of duty under area based exemption under Notification No. 50/2003- CE dated 10.06.2003 which was amended vide notification no. 13/2006-CE dated 01.03.2006. They relied upon the decisions in the case of Union of India Vs Pillaiyar Soda Factory - 1992(57) ELT 261 (Mad.) and the case of Union of India Vs Dharamendra Textiles Processors 2008 (231) ELT 3 (SC) etc.

• That the appellant was manufacturing goods, printed cartons, falling under Tariff Heading No 4819 & 4821 of the CETA out of paper or paper board and Polyster film. Whereas the contention of the department was that laminated paper or paper board being manufactured by the appellant during manufacture of final product was dutiable as the same was exempted from the exemption notification. The appellant submitted that in the process of manufacture of paper board, the laminated sheets arise and did not come in to existence as distinct goods and hence the process of lamination do not amount to manufacture in terms of section 2(f) of the Central Excise Act, 1944 read with the Hon 'ble Supreme Court in the case of M/s DCM Vs Union of India, 1997 ELT 99-SC. The appellant further relied upon the judgment of Bhor Industries Ltd Vs UOI, Mumbay 1989 AIR-1153-1989; CCE V / s Apurva Containers Pvt Ltd 1998(102) ELT-86-TRI-DEL & Janson Decor Pvt. Ltd Vs Asst. Commissioner, Ahmadabad.

• The allegation of the department that the appellant was manufacturing laminated paper/paperboard, laminated with aluminum foil at the intermediate stage was false and wrong, as the appellant use polyester /metalizes film for lamination of paper during the integral process of manufacture of boxes.

• That the demand was time barred under section 11 A of the Act, the appellant had not suppressed the material facts from the department. As such extended period of demand was not invokable. The lamination of unprinted or printed paper board with polyester film was not independent and separate activity. The said process ;~ntegrated one d '- ;,,\>,'al»c~ ~ and also not marketable. They did not suppreas' th<rt.. lith malafide intention. They relied upon the decision in t~~ case;':, Apex Electricals

I ( ') Pvt. Ltd. Vs Union ofIndia (1992-61-ELT-413 ?uj.}.~URrct

• C'hindiaar" •• ~

3

File No.APPL-COMMOCEX/391/2019-GST- APL-CHD

:1121687/2019 • That the penalty under section llAC was also not invokable in the absence of mensrea and liable to be set aside.

• That if duty was demanded on intermediate goods assuming it as dutiable, Cenvat credit of duty paid on input used in the said goods should be available to them.

134

9. Personal hearing in the case was held on 29.11.2018. Sh. Sadashiv Pandit, Assistant General Manager in the company & Sh. Rajeev Manocha, CA in the company, appeared on behalf of the Appellants and reiterated the submissions as briefed in their grounds of appeals and requested to decide the case in the light of these.

10. I have carefully gone through the facts of the case, impugned order, appeal filed by the Appellants as well as submissions made by them. The issue before me to be decided in this case is whether or not the benefit of Exemption Notification No 49-50/2003-CE is available to the intermediate goods manufactured (Aluminium foil laminated paper & paperboard) during the course of manufacturing of final product and is liable to Central Excise duty?

11. I find that the appellant were engaged in the manufacture of Printed cartons falling under Chapter 48 of the CETA. They were availing the benefit of Area Based Exemption under Notification No 49-50/2003-CE dated 10.06.2003 and clearing their finished goods without payment of Central Excise duty. During the course of audit it was observed that the appellant had been manufacturing Polyester Aluminium Foil laminated paper and paperboard as intermediate goods which were further used in the manufacture of laminated printed cartons. Vide Notification No 13/2006-CE dated 01.03.2006 an amendment was made in the Notification No 50/2003-CE dated 10.06.2003 whereby the goods manufactured by the appellant as intermediate goods (falling at S. No. 19 of the annexure) were excluded from the ambit of the said exemption notification no 50/2003-CE meaning thereby the leviability of Central Excise duty on such goods. Department further observed that various Courts and Appellate authorities have ruled that the Laminated paperboard was distinct, separate and different goods from paperboard which is saleable in the market. Accordingly, demand of Rs 52,64,132/- was confirmed against the appellant by the adjudicating authority. However, the appellant vide the subject appeal has contested that the process of lamination of paper/paperboard with metalized film and to form cartons from them was a continuous process and the intermediate product manufactured during the process, was not a distinct product and not marketable.

12. In this regard I find that the definition of manufacture . provided under Section 2(f) of the Act is an inclusive one. It includes any process, incidental or ancillary to completion of a manufactured product and also tiv}tl! • pecified in relation to any goods in the Section or C ., ti;r TN" l., f the First Schedule to CETA as amounting to manuf \(ctu~e .. '·" I~'irr the

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File No.APPL-COMMOCEX/391/2019-GST - APL-CHD

.1/21687~O~&ndmark case of UOf Vs Delhi Cloth and General Mills Co. Ltd ,. {1977 (1) ELT (J 119) (SC)} while determining the excisability of an intermediate product, the Apex Court held manufacture as 'bringing into existence of a new substance known to the market' and that merely applying a process to a substance would not amount to manufacture if there was nothing new and marketable created. The definition was further refined to clarify that the excisable goods are required to be capable of being bought and sold and actual sale in the market is not necessary. Further, even if there is a tariff entry provided under CETA, it would first need to pass test of manufacture. The second test on marketability became the indivisible criterion to attract excise duty liability. Moreover, any activity specified in the section or chapter notes of the 181. schedule to the CETA will be deemed to be manufacture. For example, Galvanization, Metallization, Painting or Decorating on glasses, cutting of marble blocks into slabs are manufacture because they are named in the 1 "schedule to the CETA. This analogy has also been established by the Apex court in the case of UOI Vs JG Glass [1998 (97) ELT 5 (SC)j and case of Servo Med Industries Pvt. Ltd. Vs CCE Mumbai [2015 (3Z9) ELT 578 (SC}j.

13. I find that the process undertaken by the appellant (as has also been discussed at length by the adjudicating authority in the impugned order) for the manufacture of printed cartons is not integrated and the product in question i .e , Aluminium Laminated Paper/paper board comes into existence at a intermediate stage as an independent product having a distinct name and character, which is different from its constituents in terms of characteristics classifiable under CETA. So far as the marketability of the subject goods are concerned I find that the same has already been discussed in detail in the show cause notice itself supported by various judgments, which clearly draws that the intermediate product manufactured by the appellant is available for purchase/ sale in the market as a separate and distinct commodity, as per the requirement of the respective buyers. Thus, it is very much clear that the product in question manufactured during the intermediate stage passes both the tests of being manufacture a new and distinct marketable product which is liable to central excise duty, thereby negating the contention of the appellant that it is an integrated process and no distinct product is manufactured. The adjudicating authority has rightly observed the same and confirmed the duty. I do not find infirmity in the impugned order.

'14. The appellant has further contended that the demand was time barred under section IIA of the Act and they had not suppressed the material facts from the department. In this regard I find that the appellant started availing the benefit of exemption notification no 49-50j2003-CE dated 10.06.2003

5

135

File No.APPL·COMMOCEX/391/2019·GST· APL·CHD ,1/21~87/20a~claring their manufacturing process as an integrated process and never

• . disclosed the fact of manufacturing intermediate product which falls in the negative list of Notification No 50j2003-CE. Nor did the appellant have put forth any evidence in support of their claim to confirm that the things were in the knowledge of the department and they had not suppressed the facts. It was only during the course of the audit of the appellant's unit that the said fact carne to fore, which otherwise could have remained undetected, causing loss to the revenue. I find that the provisions of Section llA of the Act invoking extended period alongwith provisions of invocation of penal provisions have correctly been invoked by the department and further confirmed by the adjudicating authority. I uphold the same finding that the appellant has suppressed the material facts from the knowledge of the department.

15. As such, in view of the above I find that the intermediate goods manufactured during the course of manufacturing of finished goods are liable

. to Central Excise duty in as much as the subject goods are distinct & marketable, as has also been rightly held by the adjudicating authority and I uphold the same.

16. In view of the above, the appeal filed by the appellant is rejected and the impugned orders of the adjudicating authority are upheld.

REGD.A.D M/ s Borkar Packaging Pvt ltd, Near Chikani River Bridge, Nalagarh, Solan, (HP)

Copy to:-

1. The Chief Commissioner (CZ), Central Excise, Chandigarh. 2. The Commissioner, Central Excise Commissionerate Shimla, Shimla. 3. The Deputy Commissioner, Central Excise & Service Tax D~' 'sion, Shimla 4. Guard file. ~. superinte~:~; ,

j Q. '\;

136

6