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1 Basic Concepts Central ExciseThis Chapter Includes: Constitution of India, Direct & Indirect Taxes, Central

Excise Law: History, Body, Exemption Notifications, Departmental Circulars,

Definitions; Levy & Collection of duty, Goods & Exciseable goods, Manufacture,

Intermediate products/Captive Consumption, Site related activities/captive

consumption, assembly, waste & scrap, Packing, Labeling, branding, Change in

tariff heading/ sub-heading, Taxable event.

Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions

CA Final Gr. II

SHORT NOTES

1999 - Nov [5] Write short notes on the following:

(a) Dutiability of Waste and Scrap. (5 marks)

Q&A-8.2 OOOO Solved ScannerSolved ScannerSolved ScannerSolved Scanner CA Final Gr. II Paper - 8

Answer:

The dutiability of waste & scrap was a disputive matter, but now it is well settled. Waste

& scrap is dutiable if all of these following conditions are satisfied:-

(i) It must be manufacture product

(ii) It must be movable

(iii) It is Commercially marketable, and

(iv) It is listed into tariff Entry

The Apex Court in case of KHANDEL WAL METAL & ENGINEERING WORKS-

1985-SC, held that “Notwithstanding the fact that wastes or scraps arose as

intermediate or by-products of final products, if these wastes/scraps are marketable, will

be charged to excise-duty, due to specific incorporation of specific Sub-headings in the

various chapters of the tariff” The Apex Court, recognised that a prudent businessman

will not produce waste or scrap intentionally but it is equally true that these are by-

products of the final-product.

So, presently the waste/scrap is also dutiable Subject to fulfilment of above four-

points and supported by decision of Apex-Court.

Tutorial Note Waste of exempted goods is also exempt from excise-duty

2000 - Nov [5] (b) Write short notes on the following with reference to the provisions of

the Central Excise Act, 1944 and the Rules:

(i) Wholesale Dealer. (3 marks)

Answer:

Section 2(k) of the Central Excise Act-1944 defines “Wholesale Dealer”. Accordingly,

wholesale dealer

- means a person who buys or sells excisable goods wholesale for the purpose of

trade or manufacture, and

- includes a broker or commission agent who, in addition to making contracts for sale

or purchase of excisable goods for others, stocks such goods belonging to others

as an agent for the purpose of sale.

2001 - Nov [4] (a) Write short notes on the following:

(iii) Emergency power of the Central Government to increase the duty of Excise.

(3 marks)

Answer:

Section 3 of Central Excise Tariff Act-1985, empowers the Central Government to

increase the rate of excise duty in case of emergency, by issue of notification in official

Gazette.

The hike or increment in rates may be done in following manner:-

(a) When the existing rate is nil: Maximum hike is upto 50% ad-valerom

(b) In any other case i.e. present rate is not nil: Maximum hike is upto twice the

existing rate is.

[Chapter #### 1] Basic Concepts Central Excise OOOO Q&A-8.3

Every such notification shall be placed before each House of Parliament as early as

possible, if Houses are in session. If any House or both Houses are not in session, the

notification must be placed within 7 days of its reassembly. Parliamentary approval is

to be obtained within 15 days, after placement. Any amendment made by Parliament

will have prospective effect only i.e. validity of things done prior to the date of

modification or cessation is directed by the Parliament shall remains unaffected.

2001 - Nov [5] (b) (ii) Write short notes on the following:

(a) Wholesale dealer (2 marks)

(b) Excisable goods (2 marks)

Answer:

(a) Please refer 2000 - Nov [5] (b) (i) on page no. 20

(b) Please refer 2009 - Nov [3] (a) on page no. 41

DESCRIPTIVE QUESTIONS

1999 - May [2] (a) Discuss the statement:

"Excisable goods should be goods which are 'movables' and 'marketable' to attract levy

of Central Excise Duty under the Central Excise Act, 1944". (8 marks)

Answer:

The statement i.e. “Excisable goods should be goods which are ‘movables’ and

marketable” to attract levy of excise-duty under Central Excise” is correct.

The statement highlights the twin tests for the goods i.e.

(a) MOVABILITY

(b) MARKETABILITY.

These points are discussed as:

(a) Movability: It is basic criteria of goods and it means an article must be something,

which can ordinarily come to the market to be bought & sold. So an immovable

property or anything attached to the earth which can’t be removed as such or

removal requires disassembly of parts, will not be good.

In case of SIRPUR PAPER MILLS LTD-1998, the issue came before the Apex

Court about moveability of machine, when it was attached to the earth for

preventing wobbling and for increase in operational efficiency.

The Supreme Court held that “The machine in instant case remains moveable,

because it can be removed as such from the base and brought to the market as an

ordinarily known article. So it will be treated as goods because immobility comes

only if it is attached to earth like a building or a tree ”.


In the another case named “VIRDI BROTHERS-2007-SC” it was held that

refrigeration plant, cold storage plant, central air-conditioning plant & caustic soda

plant fabricated at site out of duty paid bought out goods are basically systems

comprising various components-system is not movable and hence not goods.

(b) Marketability: It is litimus test or final test. For excise purpose goods must not only

be movable but also marketable, i.e. goods are being capable of being bought &

sold in the market. Simply, actual sale is not necessary because marketability is

capacity of the goods.

Following points are noteworthy in respect of marketability, which are based upon

judicial decisions:-

1. The goods must be marketable in the condition in which Department wants to

levy duty of excise and the burden to prove that an article is on the

Department.

The above point is with reference to decision given by Supreme-Court in the

case of “BHOR INDUSTRIES-1989-SC.”

2. In case of “AP STATE ELECTRICITY BOARD” it was held that “Even a single

buyer is sufficient to constitute marketability”. The Supreme Court held that

marketability of articles does depend upon the number of purchasers. Even

if there is only a single purchaser of a particular article, it must still be said that

there is market for the article.

1999 - May [3] (a) Explain the concept ambit and scope of 'manufacture' under the

Central Excise Act, 1944. (7 marks)

Answer:

The concept of manufacture is very significant under Central Excise, because it is

taxable event. This term is defined into inclusive manner under section 2(f) of Central

Excise Act-1944. Accordingly manufacture” includes any process:-

(i) incidental or ancillary to the completion of a manufactured product or

(ii) which is specified in Section Notes or Chapter Notes of Central Excise Tariff

Act-1985 or

(iii) which involves packing or repacking of such goods in a unit container or labelling

or re-labelling of containers including the declaration or alteration of retail-sale

price etc. in relation to goods specified in 3rd schedule of Central Excise Act-

1944.

The above definition’s first part i.e. 2(f) (i) is based upon transformation test. But 2nd &

3rd part as defined under Sec. 2(f) (ii) & 2(f) (iii), is based on deemed manufacturing”

where there is no need for “transformation test”.


Ambit & scope of manufacture was decided in Landmark case of “DELHI CLOTH &

GENERAL MILLS Co. LTD-1977-SC”. According to Supreme Court” manufacture is

bringing into existence a new substance having distinct name, character or use and it

doesn’t mean mere change in substance”.

The above decision was based upon an American Judgement read as “Manufacture

implies a change, but every change is not manufacture and yet every change of an

article is the result of treatment, labour & manipulation. But something more is

necessary and there must be transformation, a new and different article must emerge

having a distinct name, character or use.

1999 - Nov [4] (a) (i) Discuss broad criteria for deciding excisability of Plant and

Machinery assembled at site. (4 marks)

Answer:

Plant and Machinery assembled at site will attract duty liability, subject to satisfaction

of following criteria or conditions:

1. The final product should have distinct name, character and use, apart from

components that have gone into its production.

2. Such product is specified in schedule to Central Excise Tariff Act-1985;

3. Such product should be moveable and

4. Such product shall be marketable.

Case-Laws:

(i) QUALITY STEEL TUBES (P) LTD (SC). It was held that when piece by piece

erection of various parts whether own manufacture or purchased from market is

carried out at site, it would not amount to manufacture of “goods”, because the

new emerged product was not movable, hence not excisable.

(ii) SIRPUR PAPER MILLS LTD (SC).It was held that Machine assembled and

boloted to earth merely for operational efficiency and safety well as to prevent

wobbling, remains movable. Hence assembled machine is excisable.

(iii) NARNE TULAMAN MANUFACTURER’S (P) LTD (SC). It was held that

assembling of three components resulted in complete weight bridge having

distinct name, character and use . It would amount to manufacture and would be

liable to excise-duty.

2000 - May [2] (b) (ii) Explain the validity of "Deemed Manufacture" with examples.

(3 marks)

Answer:

Deemed manufacture is covered under Section 2(f) (ii) & 2(f) (iii) of Central Excise Act-

1944.These clauses creates artificial definition of manufacture, without testing for

“Transformation-Test”. So, there is no need of transformation of input into output, giving

birth of totally new final product.


Constitutional validity of the “deemed manufacture” provision has been tested and

upheld in courts of Law. In EMPIRE INDUSTRIES-1986-SC, it was held by Supreme

Court that, even if the levy is not covered under Entry 84 to. list I, it will get covered

under residual Entry No. 97 to list I and hence would fall within the power of legislature.

EXAMPLES OF DEEMED-MANUFACTURE

1. Printing, decorating or ornamenting glass & glasswares; [(2) (f) (ii)]

2. Process of cutting or sawing or sizing or polishing of blocks or any process of

converting stone blocks into slabs or titles. [Sec.2 (f) (ii)]

3. Packing or repacking of 3rd schedule goods into unit container (Sec.2(f) (iii)]

4. Labelling or re-labelling of containers including declaration or alteration of retail

sale price on it.[Sec.2(f) (iii)]

2000 - May [4] Discuss the following issues:

(c) Emergency Power of the Government to increase Excise Duty. (5 marks)

Answer:

Please refer 2001 - Nov [4](a) (iii) on page no.20

2000 - Nov [3] (a) Write a note with reference to decided case law on the statement

that:

“The goods enumerated in the Schedules to the Central Excise Tariff Act, 1985 will not

attract duty unless they are marketable or capable of being marketed.” (7 marks)

Answer:

The litimus test of goods, is its marketability. As per the decision of Supreme Court in

the case “Delhi Cloth & General Mills Co. Ltd-1977-SC”, an article can be called “goods”

if it can ordinarily come to market for being bought & sold and is known to market as

such”. So the goods must not only moveable but also marketable.

For excisable goods, the goods must be listed in Central Excise -Tariff Act-1985. But

merely listing into CETA, doesn’t automatically, makes the goods liable to duty. It should

also be marketable i.e. ordinarily come to market for being bought & sold and known to

the market as such. However marketability must be proved by the Department. It was

held in BHOR INDUSTRIES-1989-SC that “Merely because an article is specified in the

Tariff schedule, it will not be liable to duty of excise unless it is marketable in the

condition in which Department intends to levy excise-duty”.

2001 - Nov [1] {C} (b) “Manufacture” and “Marketability” are the essential ingredients

for the levy of Central Excise Duty. Write a brief note in relation to the above statement

with the help of decided cases. (7 marks)

Answer:

(a) Manufacture: The taxable event for levy of excise-duty is manufacturing of goods.

The term “Manufacture” was defined in the case of “DELHI CLOTH & GENERAL

MILLS-1977-SC” as manufacture means bringing into existence a new substance


having new and different product having distinct name, character or use. This

decision was based upon “Transformation-Test” i.e. input looses its existence and

a new product comes into existence.

However, manufacture, now includes deemed manufacture as defined under

Section 2(f). Accordingly, manufacture includes any process

(i) Incidental or ancillary to the completion of a manufactured product;(ii) Which is specified in relation to any goods in, the Section or chapter notes of

the first schedule to the Central Excise Tariff Act 1985, as amountingmanufacture (Deemed Manufacture); or

(iii) Which, in relation to goods specified in the Third schedule, involves packingor repacking of such goods in a unit container or labelling or re-labelling ofcontainers including the declaration or alteration of retail sale price on it oradoption of any other treatment on the goods to render the product marketableto the consumer (Deemed Manufacture)

(b) Marketability: It is litimus test or final test. For excise-purpose goods must not onlybe movable but also marketable, i.e. goods are being capable of being bought &sold in the market. Simply, actual sale is not necessary because marketability iscapacity of the goods.Following points are noteworthy in respect of marketability, which are based uponjudicial decisions:-1. The goods must be marketable in the condition in which Department wants to

levy duty of excise and the burden to prove that an article is on theDepartment.The above point is with reference to decision given by Supreme-Court in thecase of “BHOR INDUSTRIES-1989-SC.”

2. In case of “AP STATE ELECTRICITY BOARD” it was held that “Even a singlebuyer is sufficient to constitute marketability”. The Supreme Court held thatmarketability of articles does depend upon the number of purchasers. Evenif there is only a single purchaser of a particular article, it must still be said thatthere is market for the article.

2002 - Nov [1] {C} (b) (i) "Manufacture" implies a change, but every change is notmanufacture. Elucidate this statement supported by at least one decided case.

(4 marks)Answer:“Manufacture” implies a change but every change is not manufacture” is a correctstatement. Basically, the given statement was quoted in an American Judgement as“Manufacture implies a change, but every change is not manufacture and yet everychange of an article is the result of treatment, labour and manipulation,.But somethingmore is necessary and there must be transformation; a new and different article mustemerge having a distinct name, character or use”.


Later, in India, the Supreme Court held in the case of “DELHI CLOTH & GENERAL

MILLS Co. LTD-1977-Sc” that the word “manufacture” is generally understood to mean

as “bringing into existence a new substance” and not only mean” to bring some change

in the substance”.

2003 - May [1] {C} (a) (i) What type of duties are levied under Section 3 of the Central

Excise Act, 1944? (2 marks)

(ii) What are the basic conditions for levy of duty under Section 3 of the Central Excise

Act, 1944? (3 marks)

Answer:

(i) Section 3 of Central Excise Act -1944, provides for two types of duties as:

(i) BASIC EXCISE DUTY: It is levied as per first schedule to the Central

Excise Tariff Act-1985. Presently it is renamed as CENVAT and charged @

12% of assessable-value of excisable goods.[Sec.3(i) (a)]

(ii) SPECIAL EXCISE DUTY: It is in addition to CENVAT and levied as per

“second schedule” of Central Excise Tariff Act-1985. However, w.e.f 1-3-

2006, all goods are exempt from this duty.

(ii) Basic Conditions for Levy of Duty: Section 3 of Central Excise Act-1944 is

charging Section, under which excise-duty is levied. On analysis of Section 3,

following are the basic-conditions for levy of duty of excise:-

1. There must be GOODS i.e. movable & marketable.

2. It must be EXCISABLE i.e. listed into schedules of Central Excise Tariff Act-

1985

3. It must have been PRODUCED or MANUFACTURED.

4. Such production or manufacture must be carried out in INDIA.

2003 - Nov [1] {C} (a) Explain the following terms with reference to the Central Excise

Act, 1944/Central Excise Tariff Act, 1985:

(ii) Factory (2 marks)

(iii) Manufacture under Central Excise Tariff Act, 1985. (2 marks)

(b) Briefly describe whether "Assembly" would tantamount to "Manufacture" under the

Central Excise Act, 1944. (5 marks)

Answer:

(a) (ii) As per Sec.2(e) of Central Excise Act-1944, factory

- means any premises

- including the precincts there of,

- wherein or in any part of which excisable goods other than salt are

manufactured or wherein or in any part of which any manufacturing

process connected with the production of these goods is being carried on

or is ordinarily carried on.


(iii) The term manufacture is defined under Section 2(f) of Central Excise Act-1944,

into inclusive-Manner.

As per Section 2(f)(ii), manufacture includes any process specified in relation to

any goods in the section or chapter notes of the first schedule to the Central

Excise Tariff Act-1985 as amounting to manufacture.

Basically, the above definition of manufacture is based upon the concept of

“Deemed Manufacture,” where there is no need for “Transformation-Test”. Here,

certain processes are deemed as manufacturing like:

(i) Filtration, Purification or any process applied on water including natural

or artificial mineral water;

(ii) Printing, decorating or ornamenting of glass & glasswares;

(b) The literal meaning of assembly means “putting together a number of items or

part to make a complete product”. It may or may not amount to manufacture,

depending upon fact & circumstances of assembly. If assembly of the

components or parts result into such finished product, which has a distinct

character and use, then such assembly will amount to manufacture, otherwise

not. Simply if no new article emerges from assembly, the activity would not

amount to manufacture.

CASE-EXAMPLES:

(i) B.P.L. INDIA LTD-2002-SC. It was held that the assembly of imported kits

into VTRS & Colour monitors by using the fasteners constituted the process

of manufacture. Here transformation has taken place in the hands of

technical experts, resulting into a final product with different name,

character & use.

(ii) NARNE TULAMAN MER.(P) LTD-1989-SC. When assessee procured

required components from different sources and assembled into a weigh

bridge, then such assembly was held as manufacture. The components as

such can’t function as weigh bridge, but only after assembly.

2004 - May [1] {C} (a) Briefly explain the following with reference to the provisions of

the Central Excise Act, 1944/Central Excise Tariff Act, 1985.

(i) Dutiability of site related activities and immovable property. (3 marks)

(ii) Emergency power of the Central Government to increase duty of Excise.

(3 marks)

Answer:

(i) Please refer 1999 - Nov [4] (a) (i) on page no. 23

(ii) Please refer 2001 - Nov [4] (a) (ii) of chapter - 4 on page no. 101

2005 - May [2] (a) Explain briefly with reference to the provisions of the Central Excise

Act the term "Deemed Manufacture". (3 marks)


Answer:

As per the case of “DELHI CLOTH & GENERAL MILLS-1977” for manufacturing the

input must loose its existence, giving rise of new marketable commodity with a

distinctive name, character or use. Simply, there must be transformation of input into

output.

But by the time, revenue in its favour, get the definition of manufacture, suitably

amended, covering those process, which just do value-addition, as deemed

manufacture. So, in case of deemed manufacture, the general concept of manufacture,

that is based upon manufacture, need not to be applied.

Presently deemed manufacture is covered under 2 categories as:

1. Deemed Manufacture as per Sec.2(f)(ii): It covers up process, specifies under

section or chapter notes of the First schedule of the Central Excise Tariff Act-1985,

in relation to any goods.

2. Deemed Manufacture as per Sec.2(f)(iii): It covers up process, in relation to the

goods specified in the 3rd schedule (MRP based valuation) invoking packing or

repacking of such goods in a unit container or labelling or re-labelling of containers

including the declaration or alteration of retail sale price or adoption of any other

treatment to render the goods marketable.

2005 - May [5] (c) "Mere selling of a commodity does not mean it is marketable"?

Elucidate. (5 marks)

Answer:

The given statement that “Everything that is sold is not necessarily a marketable

Commodity chargeable to excise duty” is not correct, as per current Law. Presently the

concept of deemed marketability is in effect. Finance Act 2008 has inserted an

explanation to the definition of “Excisable Goods”. Accordingly to explanation, Goods

includes any article, material or substance which is capable of being bought & sold for

a consideration and such goods Shall be deemed to be Marketable. So, presently any

article, material or substance which is capable of being bought & sold for a

consideration is treated as Marketable.

Earlier in the case of TISCO-2004-SC, the Apex Court held that “Merely Selling

of a commodity doesn’t mean it is a marketable commodity. Even rubbish can be sold

but it will not make it marketable commodity. Marketability means selling of a commodity

known to commerce and which may by worthwhile to trade in”.

But FA-2008 has nullified, the above decision and presently even rubbish,

bagasse, aluminium or zinc dross etc. are capable of being sold for consideration, so

treated as marketable, and will attract excise-duty.


Tutorial Note Presently there is no difference between saleability & marketability.

So, the statement given in question is wrong.

2005 - Nov [1] {C} (a) (i) Discuss in brief the concept of 'Deemed Manufacture'.

(4 marks)

Answer:

Please refer 2005 - May [2] (a) on page no. 27

2006 - May [1] {C} (a) Briefly explain any two of the following with reference to the

provisions of Central Excise Act, 1944:

(i) Wholesale dealer

(ii) Factory

(iii) Dutiability of Waste and Scrap. (2 × 2 = 4 marks)

Answer:

(i) Please refer 2000 - Nov [5] (b) (i) on page no. 20

(ii) Please refer 2003 - Nov [1] {C} (a) (ii) on page no. 26

(iii) Please refer 1999 - Nov [5] (a) on page no. 19

2006 - Nov [1] {C} (d) “Everything that is sold is not necessarily a marketable

commodity chargeable to excise duty under the provisions of the Central Excise Act,

1944.” (5 marks)

Answer:

Please refer 2005 - May [2] (a) on page no. 27

2007 - May [1] {C} (a) Briefly explain the following with reference to the provisions of

Central Excise Act, 1944:

(i) Adjudicating Authority. (2 marks)

(ii) Central Excise Officer. (2 marks)

Answer:

(i) As per Section 2(a) of Central Excise Act-1944, “Adjudicating Authority” means

any authority competent to pass any order or decision under this Act, but doesn’t

include

- the C.B.E.C.

- Commissioner of Central Excise (Appeals) Or

- Appellate Tribunal.

(ii) As per Section 2(b) of Central Excise Act-1944, “Central Excise Officer” means

the Chief CCE, CCE, CCE(Appeals), Joint Commissioner, Additional

Commissioner, Assistant Commissioner, Deputy Commissioner or any other

officer of the Central Excise Department or any other person authorised by

C.B.E.C.


2007 - May [4] (a) Explain whether a person who is neither a producer nor a curer nor

a manufacturer of excisable goods, but he only stores such goods in a warehouse, can

be called upon to pay the duties of excise on such goods? (3 marks)

Answer:

Yes, a storer, who stores the goods in a warehouse is liable to pay excise-duty, on such

stored goods.

As per Rule 4(1) of Central Excise Rules 2002, duty is payable by storer of the

excisable goods in the manner provided under Rule 8. Again Rule 20(3) of Central

Excise Rules 2002, also provides that “when goods removed from factory to warehouse

or from warehouse to warehouse, responsibility for payment of duty falls on the

consignee waerehouse or warehouse keeper”.

2007 - Nov [1] {C} (a) Briefly explain any two of the following with reference to the

provisions of the Central Excise Act, 1944:

(i) Manufacture and processing

(ii) Dutiability of site related activities

(iii) Labelling and branding activities. (2×2=4 marks)

Answer:

(i) Manufacturing: It means one or more processes, through which, the original

(input) commodity loses its existence and a new commodity comes into

existence, having separate name, character or use. For Example, it was held in

the case of A.P. Products V State of Andhra Pradesh, that when spices &

condiments are processed giving outp ut, known as “Masala Powder ”, then the

process of grinding & mixing held as manufacture.

Processing:- It means one or more activity, necessary for manufacturing, but

it doesn’t mean that every processing is manufacturing. For Eg. Painting of

goods is just processing and not manufacturing.

(ii) Dutiability of site related activities: Dutiability of site related activity is

conditional. If following conditions are satisfied, then site related activities will

attract levy of duty;

1. The assembled product should have distinct name, character an use, a part

from components that have gone into its production.

2. Such assembled product is specified in schedule to Central Excise Tariff Act-

1985.

3. Such product should be movable and

4. Such product shall be marketable.

So, if assembly results into immovable property, which can’t be removed as such

i.e. without being dismantled into its components & parts, then it will not attract

excise-duty.


(iii) Labelling & branding activities:

Presently labelling & branding is covered under the concept of deemed

manufacture”. As per Section 2(f) (iii) of Central Excise Act-1944, manufacturing

includes the process of labelling or relabelling as well as branding of any goods

specified under 3rd schedule i.e. MRP based valuation.

For Example, putting brand on unbranded goods. Covered under 3rd schedule

of Central Excise Act-1944 will amount to manufacture.

2008 - May [1] {C} (d) State briefly whether the following circumstances would

constitute “manufacture” for purposes of Section 2(f) of the Central Excise Act, 1944:

(i) Both inputs and the final product fall under the same tariff heading under the first

schedule to the Central Excise Tariff Act, 1985 (Tariff Act).

(ii) Inputs and final product fall under different tariff headings of the Tariff Act.

(3×2 = 6 marks)

Answer:

(i) MANUFACTURE: Manufacture means bringing into existence a new product

having distinct, name and use. Even if the input and transformed final product

fall under the same tariff heading under Central Excise Tariff Act-1985.

IN KAPRI INTERNATIONAL-2002-Sc, the issue was properly settled by the

Apex court. It was held that even running Cotton fabrics and bed sheets, table

cloths etc fall under the same tariff entry but the final product will attract duty,

due to change in use.

(ii) NOT MANUFACTURE: For deciding manufacturing, change in tariff heading is

irrelevant. For manufacturing “transformation” is necessary i.e. input results into

different output having distinct name, character or use.

It was also held by Supreme-Court in the case of S R TISSUES-2005-SC, that

“change in tariff-heading will not amount to manufacture.”

PRACTICAL QUESTIONS

2000 - May [5] Your advice as a consultant is sought by taxpayers in the following

cases. Kindly indicate, with reasons, your decision. [Facts do not relate to the same

taxpayer]:

(a) One of the plants of the taxpayer produces ferrous sulphate, chromium sulphate

and sulphur-di-oxide during the preparation of a Khaki dye. These are intermediate

goods/semi-finished goods and are not marketable. Central Excise Authorities

demand excise duty on the ground that the taxpayer was manufacturing these

goods and was clearing them for internal consumption. (5 marks)


(b) One of the manufacturing units on the taxpayer manufactured products on which

no special excise duty was payable till February, 1999. The products manufactured

upto the end of February, 1999 were cleared on 5th March, 1999. On 28th

February, the Government through its budget proposals introduced a special

excise duty on these products. Central Excise Authorities demand that the special

excise duty introduced effective 1st March, 1999 would be payable on the goods

cleared on 5th March, though their manufacture was completed before 1st March,

1999. (5 marks)

Answer:

(a) As per the facts of the case ferrous sulphate, chromium sulphate and sulphur-

dioxide are intermediate products, which are used for manufacture of final product

i.e. Khaki dye. These intermediate goods are not Marketable. Authorities has

demanded duty on intermediate goods i.e. ferrous sulphate etc.

The issue for consideration is validity of demand of duty on intermediate

products used captively for manufacture of final product.

There may be manufacturing at intermediate stage but it will attract duty only if

(i) Such intermediate products are marketable in the condition the department

wants to levy the duty of excise and

(ii) Such intermediate product is listed into C.E.T.A

As the question clearly specifies that intermediate products i.e. ferrous

sulphate etc. was not marketable, so no question of levy of duty, even though

such goods are captively consumed. Captive consumption can’t be test of

marketability of goods. So, the demand of duty on intermediate product is not

proper. Similar view was expressed by the Supreme Court in the case of

AMBALAL SARABHAI ENTERPRISES-1989.

(b) The facts of the case are similar to VAZIR SULTAN TOBACCO-1996 SC. In this

case when goods were manufactured, only “Basic Excise Duty”, was leviable. But

at the time of removal a new duty i.e.” Special Excise Duty” was levied through

budget.

The issue involved was collection of “Special Excise Duty” on removal of goods

after budget.

The Apex Court held that “In respect of a completely new levy, the pre-budget

stock will not attract the new levy as there was no duty liability, when the goods

were manufactured, irrespective of date of removal”. The court also held that

special excise duty is an independent excise duty from Basic Excise Duty and pre-

budget stock will not be subject to new-levy (here S.E.D).


2000 - Nov [1] {C} (a) M/s KLM gets their grey cloth processed from M/s ABC. M/s ABC

carried out the processes of bleaching, dyeing, sizing, finishing etc. on the grey cloth

and return the same to M/s KLM. The cloth is supplied by M/s KLM and the ownership

of the goods vests with M/s KLM all the time. M/s KLM sells the processed cloth at the

rate of ` 100 per metre. The cost of the grey cloth in the hands of M/s ABC is ` 50 per

metre and M/s ABC charge ` 20 per metre as job charges (which includes M/s ABC’s

profits) and the job charges are recovered from M/s KLM.

Upon the above facts, discuss briefly with reference to the relevant provisions of

the Central Excise Act, 1944 and the Rules made thereunder the following questions

that arise:

(i) Does the process of bleaching, dyeing, sizing, finishing etc. in the above context

amount to manufacture within the meaning of Section 2(f) of the Central Excise

Act, 1944? (3 marks)

(ii) In the facts and circumstances of the above case, who will be regarded as the

‘manufacturer’ for the purposes of the Central Excise Act, 1944—M/s KLM or M/s

ABC or both? (2 marks)

Answer:

In the given question, there are two issues for consideration:-

(i) Bleaching, dyeing, sizing, finishing etc. are manufacture or not: In the case

of UJAGAR PRINTS-1989-SC, it was held that “the process of bleaching,

dyeing, sizing finishing etc. will be treated as manufacture because bleached

fabric is a commercially different commodity with its own distinct price structure

& other commercial incidents like regular-market.

For the purpose of excise “Manufacture means any activity resulting in

emergence of a new marketable commodity with a distinctive name, character

or use. So, in this case, when grey cloth (input) is processed and bleached cloth

(output) got a different name as well use, it will be called manufacture.

(ii) Deciding manufacturer: It was held in the case of MM KHAMBATWALA-1996-

SC, that “Supplier of raw material is not manufacturer. The Job-worker, who

actually manufactured the product or did the Job, will be treated as

manufacture”.

Applying the above ratio of decision, it is clear that supplier of Raw-material

i.e. m/s KLM is not manufacturer, but the Job-worker who does manufacturing

is manufacturer.

2002 - May [1] {C} (a) M/s T.E.L. are in the business of supplying 'Turbo-alternators' to

various customers. They manufacture steam turbines in the factory which are removed

to the customer's site on payment of Central Excise duty. They purchase duty paid

alternators from the market which are delivered at the customer's site. M/s T.E.L.

assemble both the items and fix them permanently on a platform at the site. Department


demands Central Excise Duty payable on 'Turbo-alternator, when it comes into

existence after being assembled on the platform embedded to the earth. Is the view

taken by the department correct ? Please discuss with the help of case laws, if any.

(5 marks)

Answer:

The fact & circumstances of the given question, are identical to the issues raised in the

case of “TRIVENI- ENGINEERING & INDUSTRIES LTD-2000-SC”.

Facts: The assessee (i.e. T.E.L) were manufacturing steam turbine in its factory, where

excise duty is paid on them as per this Act. They also purchased duty paid complete

alternators, and combined these, by fixing on a platform and aligned properly. By this

process/assembly a new product “TURBO ALTERNATOR” emerged. The Department

issued a show cause notice asking excise-duty on turbo-alternators.

Decision: The Apex Court held that “TURBO-ALTERNATOR” is a distinct product

having new name and use from its components. So the assembly activity will be

manufacture”.

It also held that “Though above activity is manufacture, yet it doesn’t fulfil the test

of mobility, so not excisable. Turbo-alternator comes into existence only when a turbine

& alternator, with all the accessories are fixed at the site. It can’t be brought to market

without disassembly of parts or as a whole. So it will be immovable property and not

excisable goods.

Conclusion: The demand of Department is unjustified.

2002 - Nov [1] {C} (b) (ii) M/s XYZ Distillery purchased yeast from the market and

mixed the same with molasses. The mixture called wash is used for production of

alcohol. M/s XYZ contends that "Wash" is not excisable as it has no shelf life of more

than 8 hours.

Please offer your considered views. (4 marks)

(c) A public sector undertaking has given a turnkey contract to M/s. B.S. Ltd. for

erection, installation and commissioning of a Central Airconditioning plant.

The Central Excise Officer raises a demand for Central Excise duty on M/s. B.S.

Ltd. in respect of the installed plant.

Please examine with the help of decided case laws as to whether the Duty of

Excise is payable on the plant. (4 marks)

Answer:

(b)(ii) As per fact of the case, M/S xyz purchased yeast from the market & mixed the

same with molasses. The mixture called ‘wash’ is used for production of alcohol.

The issue for cosideration is dutiability of “Wash”, which has no shelf life of more

than 8 hours.


Under Excise, to be treated as goods, articles must be capable of being broughtto market to be bought & sold. In present case if ‘Wash’ is capable of beingmarketed during its shelf life of 8 hours then it is dutiable product provided it isalso mentioned in CETA.On the identical issue the Apex Court in the case of JAGATJIT INDUSTRIES-2002-SC held that” Mixing of yeast with molasses amounts to manufacture of‘Wash’ and the product so manufactured finds mention in the Excise Tariff. Butthe liquid ‘Wash’ in mixture form is not marketable, so not liable for duty”.For all the aforesaid reasons, “Wash” is not dutiable and any demand byDepartment is not correct.

(c) An excisable goods must have attributes like movable, marketable & listing intoCETA. As per DCM case, for marketability the goods must be capable of beingbrought to market for bought & sold, in the ordinary course of business.

As given in the question Central air-conditioning plant is a turnkey project orcomposite contract. Basically, it is a system comprising of compressors, ducting,pipings, insulators & sometime calling towers etc, which comes into existenceonly by assembly and connection of various components & parts. Here assemblyof components is manufacture, even though air-conditioning plant is not dutiable,because it can’t be brought into market for sale as it is or without-dismantling.Simply, air-conditioning plant results into Immovable-property, so it is notdutiable.Similar view was held in the case of VIRDI BROTHERS- 2007-SC.

2003 - May [1] {C} (b) "The manufacture and production of goods is the event attractingthe levy of excise duty." Briefly examine whether a change in Tariff Heading/Sub-heading under the Central Excise Tariff Act, 1985 is also required between the inputmaterial and the resultant finished product so as to render such finished products liableto duty. (5 marks)Answer:As per Sec.3 of Central Excise Act-1944, the taxable event for levy of excise duty ismanufacture & production of goods. Manufacture means bringing into existence a newsubstance having distinct name, character or use.

So, Excise- LAW doesn’t require that input & resulting output must fall underdifferent tariff heading/sub-heading for treating manufacture.

The issue for consideration is “Whether Change in Tariff Heading of input isrequired for manufacture ?”

The issue was settled by the Hon’ble Supreme Court in the case of LaminatedPackings (P) LTD-1990-SC. The Court held that “there can be manufacture even if bothinputs & final product fall under same tariff heading, if a different identifiablecommercially known product comes into existence”.

So, for excise levy there must be manufacturing and change into Tariff Heading isnot required at all.


2004 - Nov [1] {C} (d) (i) Discuss briefly with reference to the provisions of the Central

Excise Act, 1944 whether the following process would amount to 'manufacture':

XYZ Corporation is engaged in the process of mixing aluminium paste, metal

lacquer and thinner resulting in the production of aluminium paint having a shelf life of

8-10 hours.

(ii) Explain briefly whether duty liability under the Central Excise Act, 1944 will be

attracted in the following case:

MN & Co. engaged in the manufacture of Vanaspati oil used activated clay

for deodoring, bleaching and decolouring of oil. As a result of this processing the

activated clay was transformed into "spent earth" which was nothing but the

residue of activated clay. The activated clay residue had lost its absorbent

character during the course of refining and bleaching of oil. Excise Department

was sought to classify the "spent earth" under Central Excise tariff chapter

Heading No. 1507, which reads as:

"residues resulting from treatment of fatty substances or animal or vegetable

waxes". (3×2=6 marks)

Answer:

(i) As per DCM-case for manufacture under Central Excise, a new substance must

emerge after carrying on process or activity, having distinct name, character or

use.

The issue for consideration in the given case is “Whether mixing aluminum

paste, metal lacquer and thinner results in manufacturing of aluminum paint or

not?”

The Apex Court has judicially held in the case of T.N STATE TRANSPORT

CORP. LTD-2004-SC that “when the aluminum paste, metal lacquer and thinner

are mixed in exact proportions, a separate & distinct product with a distinct

identity comes into existence.” It is a commercialy known product available in

market, despite having a short life of 8 to 10 hours. So aluminum paint was liable

to duty of excise.

(ii) On identical fact, the Hon’ble Supreme Court in the case of MARKFED

VANASPATI & ALLIED INDUSTRIES-2003-SC, decided that merely because

an item falls in a tariff entry, it doesn’t becomes liable to excise duty unless it is

marketable”.

Now, applying the ratio of the given case it is clearly understandable that “Spent

earth” remains “earth” even after transformation, so there is no manufacturing of

a separate-commodity. For manufacture a new substance must emerge after

processing with distinct name, character or use. The test of distinctiveness is not

fulfilled in the given-case, so no manufacture and no excise-duty.


2005 - May [3] (d) M/s. SYL purchase film from the manufacturer thereof on paymentof appropriate Central Excise Duty. They undertake the processes of Lamination/metallisation of the said film. The department directs them to pay Central Excise Dutyas the processes undertaken by them amounts to manufacturer.Please offer your comments with the help of decided case law. (6 marks)Answer:In the given case, we have to decide whether the process of lamination / metallisationof film is manufacturing or not.

On the similar issue, in the case of METLEX (I) PVT.LTD.-2004-SC, the Apex Courtheld that the process of lamination/metallization of duty paid films doesn’t amount tomanufacture because film remains film even after metallization and no new & distinctproduct has come into existence.Present situation:Presently the above decision of Apex Court has been nullified due to Section 2(f) (ii) ofCentral Excise Act-1944 i.e. Deemed manufacture. Right now, the process ofmetallisation or lamination or lacquering shall amount to deemed manufacture inrespect to plastic plates, sheets, films & foil.

As per above discussion, M/s SYL is liable to pay excise-duty, because the processundertaken by them amounts to manufacture or covered under deemed-manufacture.2005 - Nov [1] {C} (a) (ii) TCL purchases duty paid metal rods and draws them into wireof a thinner gauge. Both the items fall under different tariff headings. The assesseeclaims that the process undertaken by him does not amount to manufacture. You arerequired to advise with reference to the present position of law in this regard.

(4 marks)Answer:Here the issue for consideration is “whether drawing of thinner gauge wire out of dutypaid metal rods”, manufacturing or not ?

Earlier in the case of TECHNOWLED INDUSTRIES-2003-SC, the Apex Court heldthat “when the gauge of the rod was made thinner or wire was drawn, there was nomanufacture of a new product, because rod remains rod and not fulfil the test of distinctcharacter or use”.Present-Position:Presently, the meaning of “manufacture” is not limited to its normal meaning basedupon. “Transformation”. As per Sec. 2(f) (ii) & Sec. 2(f) (iii) of Central Excise Act-1944,certain process specified in Section/Chapter Notes of CETA will be treated as “Deemedmanufacture” even without complete transformation of input into output.Presently the process of “drawing or redrawing a rod, wire or any other similar articleinto wire amount to deemed manufacture in relation to products of iron & steel”. [SectionXY of CETA, FA-2004]

So, the case of TECHNOWELD INDUSTRIES will not have applicability and TCLis liable to pay excise-duty.


2006 - May [1] {C} (d) ABC Company imported medicines in pallets with one big boxcontaining assorted medicines in smaller units which were, then, repacked inthermocole boxes of different sizes which again were put into cardboard boxes. Thecardboard boxes were in turn labelled containing, interalia, the name of the medicine,the name of the manufacturer, the quantity, batch no., manufacturing date, expiry dateand name of the marketing agency. The department relying upon note 5 to chapter 30,claimed that the activities as aforesaid amounts to manufacture i.e. bulk pack to retailpack.

Decide whether the above activities tantamount to manufacture. (4 marks)Answer:On identical fact in the case of JOHNSON & JOHNSON LTD-2005-SC, it was held thatmere packing for being marketed is not ‘manufacture” for purpose of chapter Note i.e.Note 5 to chapter 30. Repacking has to be from bulk packs to retail packs, so as torender product marketable directly to consumer. It was also held that if product isimported as ready to market retail packs, mere affixing the sticker containing informationlike names & addresses of importer, MRP etc. will not be “deemed manufacture”.

In the present case, imported medicines were repacked in thermocole boxes & thencardboard boxes, not for making the medicines marketable but for case of transporation& carrying as well as display of basic-information. It can’t be called that repacking frombulk pack to retail pack, so M/s ABC will not be liable to pay any excise-duty.

TUTORIAL NOTE Note 5 to chapter 30 of CETA read as “In relation to

pharmaceutical products of Heading 3003 or 3004, conversion of powder into tablets

or capsules, labelling or relabelling of containers intended for consumers or

repacking from bulk packs to retail packs or adoption of any other treatment to

render the product marketable to the consumer, shall amount to “manufacture”

2006 - Nov [1] {C} (b) Briefly examine the correctness or otherwise the following

statements with reference to the Central Excise Act, 1944 giving reasons to support

your answers:

(i) Parts used for repair or replacement during warranty period are excisable.

(2 marks)

Answer:

The statement given in the question i.e. “Parts used for repair or replacement during

warranty period are excisable is CORRECT. Excise-duty is a duty on manufacture or

production of excisable goods, which is capable of being sold.” So even if the

manufactured excisable goods are not sold but replaced during free warranty period,

the manufacturer will be liable to pay excise-duty.

Similar view was given by the Apex: Court in the case of ECE INDUSTRIES LTD-

2004-SC.


2006 - Nov [1] {C} (c) M/s. Super Pipes Ltd., is engaged in the manufacture of m.s.

galvanized pipes. The excise department has required the assessee to include the cost

of galvanization in the assessable value of the m.s. galvanized pipes for the purposes

of determination of excise duty. The assessee claims that as the process of

galvanization does not amount to manufacture, the cost of galvanization is not includible

in the assessable value of the said pipes made from H. R. coils.

Briefly discuss whether the stand taken by the assessee is correct with reference

to the provisions of the Central Excise Act, 1944. (5 marks)

Answer:

The issue, in the given question is determination about inclusion of cost of galvanization

into assessable value of pipes.

The assessee claims that since galvanisation doesn’t result into manufacture,

because it is done in respect of already manufactured pipe whether the contention of

assesee is tenable in Law?

On identical fact, the Apex court in the case of SIDHARTHA TUBES LTD-2006-SC,

held that “Even if a process doesn’t amount to manufacture, the cost of that process is

includible in assessable value of the product, if it adds to the intrinsic value of such

product”. The process of manufacture & valuation is different. As per general definition

of manufacture, the process of galvanization was not manufacture but incidental to

manufacture of M.s galvanised pipes. This incidental process will increase the intrinsic

value of the product and excise duty has to be paid on Value of goods being cleared

for marketing i.e. including the cost of galvanisation.

TUTORIAL-NOTE Presently, even the process of galvanization amounts to

deemed manufacture as per Note 4 to chapter 73 OF CETA. So, the contention of

assessee that galvanization doesn’t amount to manufacture is also wrong.

2007 - May [3] (c) M/s P Ltd. used to label its products with a foreign brand and claimed

exemption under a notification. The classification list was approved by the department

after carrying out verifications and all returns were regularly filed. The invoice containing

description of goods were also regularly approved by the department. The department

denied the benefit of exemption to the assessee by invoking extended period of

limitation under Section 11A on the ground that it failed to declare the particulars

regarding affixing of labels. Is the department justified ? (5 marks)

Answer:

As it is already settled by the Judicial-decisions that ‘extended period of limitaion’ can

be invoked by the Department for issue of Show-Cause Notice (SCN) only in the case

of fraud/collusion/wilful misstatement of facts or wilful suppresion of facts with an

intention to evade payment of duty by assessee or his agent.


Here, it clear from the given facts that M/SSP Ltd has filed classification list with the

department which has been approved by it after carrying out verifications. The assessee

has also filed the return regularly claiming the exemption.

Latter, the Department issued SCN, invoking “extended period of limitation”. The issue

is, validity about SCN?

It was held in the case of PAHWA CHEMICALS (P) LTD-2005-SC, that “mere failure to

declare doesn’t amount to misdeclaration or wilful suppression”.

So, it can be concluded that the invokation of extended period of limitation is not

valid/teneable in Law.

CA Final Gr. II (New Course)

SHORT NOTES

2011 - May [5] (a) (i) Write a short note with reference to the Central Excise Act, 1944

and Cenvat Credit Rules 2004 on "goods" and "exempted goods". (3 marks)

Answer:

Section 2(d) of the Central Excise Act, 1944 carries an explanation which states that the

expression “goods”, for purpose of the said clause, includes any article, material or

substance which is capable of being bought and sold for a consideration and such

goods shall be deemed to be marketable.

Rule 2(d) of the CENVAT Credit Rules, 2004 defines exempted goods as excisable

goods which are exempt from the whole of the duty of excise leviable thereon and

includes goods which are chargeable to nil rate of duty.

DISTINGUISH BETWEEN

2010 - May [3] (a) Differentiate between “non-excisable goods” and “non-dutiable

goods”. (3 marks)

Answer:

Section 2(d) of the Central Excise Act, 1994 defines ‘excisable goods’ as goods

specified in the First Schedule and the Second Schedule to the Central Excise Tariff

Act, 1985 as being subject to a duty of excise and includes salt.

Goods which are not listed in Tariff or goods which are mentioned in Tariff, but the

column of rate of duty is blank are non-excisable goods, e.g. water (there is no entry in

Tariff). Excise law is not applicable on non excisable goods.


Non dutiable goods are excisable goods listed in Excise Tariff. Excise law is applicable

to them, but these are not liable to excise duty. Non dutiable goods may be of two

types-

(i) Nil duty goods, i.e. Tariff rate is nil, and

(ii) Exempted goods, i.e. 100% exemption under Section 5A.

DESCRIPTIVE QUESTIONS

2008 - Nov [3] (a) Discuss briefly whether Excise duty is attracted on the excisable

goods manufactured in the following cases:

(i) in the State of Jammu and Kashmir;

(ii) by or on behalf of the Government. (2 marks)

Answer:

(i) As per Section 1 of Central Excise Act-1944, the Act shall be applicable to whole

of India, including the state of Jammu & Kashmir. Again charging Section 3(1),

Excise Duty is levied on all excisable goods which are produced or

manufactured in India.

So, excise duty is attracted on the excisable goods manufactured in the State of

J&K.

(ii) As per Section 3(1A) of the Central Excise Act-1944, excise duty shall be levied

and collected on all excisable goods, manufactured/produced in India

- by the Government or

- on behalf of the Government;

So, there is no discrimination between Government manufacturer & other

manufacturer under Central Excise. So, Government is also liable to pay

excise-duty.

2009 - Nov [3] (a) Explain briefly the concept of “excisable goods” as amended by the

Finance Act, 2008. (2 marks)

Answer:

Excisable goods are defined under Section 2(d)of the Central Excise Act-1944.

Accordingly “Excisable goods” means goods specified in the first schedule and the

second schedule of Central Excise Tariff Act-1985 as being subject to duty of excise

and includes salt.

However, by Finance Act-2008,an explanation is inserted to define “goods” and deemed

marketability. According to explanation, “goods” include any article, material or

substance which is capable of being sold and such goods shall necessarily be deemed

to be marketable. So, presently dross/skimming, ashes and residues etc. shall be

deemed as marketable, making there excisable goods, liable for excise-duty.


2011 - May [3] (a) PQR & Co. is engaged in the business of fabrication and erection of

structures of various types on contract basis. They entered into a contract with M/s.

X,YZ Co. for fabrication, assembly and erection on turn key basis of a waste water

treatment plant. This activity involved procurement, supply, fabrication, transportation

of various duty paid components and finally putting up a civil construction and erection

of the waste water treatment plant and commissioning the same. The entire fabrication

is done at site. The pressure testing was carried out as such until it was wholly built.

The excise department has issued a show cause notice that the fabrication at site

amounted to manufacture of excisable goods since the plant came into existence in an

unassembled form as per drawings and designs approved by the client, M/s. XYZ Co.

before the fabrication activity was undertaken. Therefore according to the department

excise duty was payable on the value of the plant excluding the value of the civil work.

Briefly discuss with reference to case law whether the show cause notice is sustainable

in law. (5 marks)

Answer:

No, the show cause notice is not sustainable in law. The facts of the case are similar

to the case of Larsen & Toubro Ltd. v. UOI 2009 (243) E.L.T. 662 (Bom.). The High

Court opined that mere bringing of the duty paid parts in an unassembled form at one

place, i.e. at the site, does not amount to manufacture of a plant. Simply collecting

together at site the various parts would not amount to manufacture unless an excisable

movable product (say a plant) comes into existence by assembly of such parts.

In the present case, as the petitioner had stated that the waste water treatment plant did

not come into existence unless all the parts were put together and embedded in the civil

work. Waste water treatment plant did not become a plant until the process which

included the civil work, was completed. Thus, the Court held that no commercial

movable property came into existence until the assembling was completed by

embedding different parts in the civil works. Accordingly, since waste water treatment

plant was not a separate movable marketable good and came into existence only on

assembly of parts in the civil work, there was no question of levying excise duty on it.

2011 - Nov [4] (a) The assessee M/s. T & Co. Ltd. were engaged in the manufacture

of ‘tarpaulin made ups’. This was nothing but tarpaulin cloth prepared by making a

solution of wax, aluminium stearate and pigments that were mixed. The solution was

heated in a vessel and was transferred to a tank. Grey cotton canvas fabric was then

dipped into the solution and passed through two rollers, whereafter the canvas was

dried by exposure to sun. The tarpaulin made ups were prepared by cutting the cloth

into various sizes and stitched and eyelets were fitted. The central excise department

has issued a show cause notice to M/s. T & Co. Ltd. that the tarpaulin made ups


prepared by means of cutting, stitching and fixing eyelets amounts to manufacture

under the Central Excise Act, 1944. Write a brief note with reference to decided case

law if any whether the department’s view in the matter is legally sustainable.

(6 marks)

Answer:

The facts of the given case are similar to the one decided by the Apex Court in the case

of CCE v. Tarpaulin International. 2010 (256) E.L.T. 481 (S.C.) in this case, the Apex

Court has observed that stitching of tarpaulin sheets and making eyelets does not

change the basic characteristic of the raw material as the process does not bring into

existence a new and distinct product different from the original commodity. The original

material used i.e., the tarpaulin, is still called tarpaulin made ups even after undergoing

the said process. Hence, the Supreme Court has held that process of making tarpaulin

made ups by cutting, stitching the tarpaulin fabric and fixing eyelets therein cannot be

said to be a manufacturing process liable to excise duty.

Therefore, in view of the above – mentioned judgement, the Department’s view in

the matter is not legally sustainable.

2012 - May [5] (a) (i) Explain briefly whether “assembly” would tantamount to

‘manufacture’ under the Central Excise Act, 1944. (3 marks)

Answer:

Assembly is a process of putting together a number of items or their parts to make a

product. All cases of assembly may not amount to manufacture as an already

manufactured item may also be assembled to put it in a readily usable form.

However, assembly of various parts and components may tantamount to

manufacture if a new product which is and marketable emerges out of such assembly.

Therefore, if an “immovable property” emerges after such assembly, it will not be

consideration as manufacture.

The Apex Court in the case of Name Tulaman Manufactures Pvt. V CCE 1988 (38)

E.L.T. 566 (S.C) held that if the assembly results in new commercial commodity with a

district name, character and use, then it would amount to manufacture.

PRACTICAL QUESTIONS

2009 - May [2] (b) A Port Trust used cement concrete armour units in the harbour for

keeping water calm. Each unit weighed about 50 tons and is like a tripod and keeps

water calm and tranquil. These units are essentially in prismoid form and were made

to order. They are harbour or location specific. The Central Excise Department

contended that the armour units are excisable goods and chargeable to duty. Examine

the validity of the Department's contention in the light of decided c ase law. (5 marks)


Answer:

As given in the question, Port Trust has manufactured cement armour units as per

order. These cement armour units are location specific. The Department charges excise

duty in respect of manufacture of units of cement armour.

The issue involved in the given question is determination about validity of Demand by

the Department.

As per landmark decision of “Delhi-cloth Mills-1977-SC” for being goods the article must

satisfy twin test i.e. movability an marketability. If any of these two conditions, is not

satisfied there will be no question of excise-duty.

Similar matter was brought before Apex Court in case named “BOARD OF TRUSTEES-

2007-SC” in which it was held that the process of preparation of cement concrete

armour block was manufacture, but these are not marketable because

- the units of cement armour were location specific, so can’t be used in any other

harbour and

- the units were not capable of being bought & sold in the market as commodity.

So, the marketability test was not fulfilled, so units of cement armour will not qualify as

goods for the purpose of excise.

Finally, on the basis of above cases, it can be concluded that “Department” contention

is not tenable in law, because cement armours are not even goods.

2013 - Nov [3] (a) M/s. Amar Ltd. is manufacturer of cement. It carried out repair and

maintenance of its worn out cement manufacturing plant by use of welding electrodes,

mild steel, cutting tools, angles etc. In this process of repair/maintenance, some metal

scrap and waste were generated, which were cleared by the assessee without paying

any excise duty.

The Department issued a notice demanding excise duty on such metal scrap and waste

contending that these were ‘excisable goods’ as these were marketable and movable

and since it arose during a process incidental/ancillary to manufacture viz. repair of

plant, the process of generation of scrap and waste amounted to manufacture in terms

of section 2 (f) of the Central Excise Act, 1944.

You are required to answer the following questions:

(i) What is ‘manufacture’ in Central Excise as per section 2(f)(i) and (ii) of the Act?

(ii) What are the major conditions for levy of duty on waste & scrap?

(iii) Whether waste & scrap resulting from repair/maintenance of plant is excisable

and liable to duty? (2 marks each)

Answer briefly citing case law, if any.


Similarly Asked Questions

No. Category Question Marks Frequency

1 Short

Notes/

Descriptive

Short notes on the following:

(a) Wholesale dealer

00 - Nov [5] (b) (i), 01 - Nov [5] (b) (ii) (a), 06 -

May [1] {C} (a) (i) 3, 2, 2 3 Times

2 Descriptive Define `Factory' as given in Central Excise Act.

03 - Nov [1] {C} (a) (ii) and 06 - May [1] {C} (a)

(ii)

2, 2 2 Times

3 Short

Notes/

Descriptive

Explain the emergency power of Central

Government to increase Duty of Excise

00 - May [4] (c), 01 - Nov [4] (a) (iii), 04 - May [1]

{C} (a) (ii) 5, 3, 3 3 Times

4 Descriptive Explain briefly whether “assembly” would

tantamount to ‘manufacture’ under the Central

Excise Act, 1944.

03 - Nov [1] (b), 12 - May [5] (a) (i) 5, 3 2 Times

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Star Rating Nil jj On the basis of Compulsory questions ... Chapter/Solved Scan… · Q&A-8.2 OOOO Solved Scanner CA Final Gr. II Paper - 8 Answer: The dutiability of waste & scrap