JUDGMENT

S.H. KAPADIA, J.- THE SHORT QUESTION WHICH ARISES FOR DETERMINATION IN THESE CIVIL APPEALS FILED BY THE ASSESSEE UNDER SECTION 35-L(B) OF THE CENTRAL EXCISE ACT, 1944 (HEREINAFTER REFERRED TO AS "THE ACT") IS WHETHER THERE WAS VALUE ADDITION ON ACCOUNT OF GALVANISATION INCLUDIBLE IN THE ASSESSABLE VALUE OF MS GALVANISED PIPES. IN THESE CIVIL APPEALS, WE ARE CONCERNED WITH THE PERIOD MAY 1994 TO JULY 1996.

2. THE APPELLANT WAS ENGAGED INTER ALIA IN THE MANUFACTURE OF MS 9 GALVANISED PIPES. THESE PIPES WERE MADE FROM HR COILS. THE PIPES EMERGING ON HYDRO-TESTING STAGE WERE PICKLED IN ACID, WASHED IN RUNNING WATER AND GALVANISED BY DIPPING IN MOLTEN ZINC.

3. THE APPELLANT FILED ITS CLASSIFICATION LIST CLAIMING THAT "GALVANISATION" DID NOT AMOUNT TO MANUFACTURE. THE APPELLANT CLAIMED THAT MS GALVANISED PIPES WERE NON-EXCISABLE GOODS, AS THE SAID PIPES HAD BEEN PROCESSED OUT OF H DUTY-PAID MS PIPES MANUFACTURED IN ITS FACTORY. A SHOW-CAUSE NOTICE WAS ISSUED BY THE DEPARTMENT STATING THAT THE APPELLANT HAD CLEARED MS, PIPES WITHOUT ADDING THE COST OF GALVANISATION. ACCORDING THE DEPARTMENT ALLEGED UNDER-INVOICING. ACCORDING TO THE APPELLANT, THERE WERE TWO SECTIONS IN ITS FACTORY, NAMELY, "TUBE MILL SECTION" AND "GALVANISING SECTION. ACCORDING TO THE APPELLANT, 30% OF ITS TOTAL PRODUCTION WAS IN MS PIPES CLEARED FROM TUBE MILL SECTION AND THE BALANCE 70% OF .THE PIPES WERE TRANSFERRED TO ANOTHER SECTION, KNOWN AS GALVANISING SECTION, IN .WHICH THE FULLY FINISHED MS PIPES WERE GALVANISED. ACCORDING TO THE APPELLANT THE PROCESS OF GALVANISATION TOOK PLACE AFTER COMPLETION OF THE MANUFACTURE OF THE MS PIPES, WHICH WERE CLEARED ON PAYMENT OF DUTY AND SINCE THE PROCESS; OF GALVANISATION TOOK PLACE AFTER COMPLETION OF MANUFACTURE OF MS PIPES AND SINCE GALVANISATION DID NOT AMOUNT TO MANUFACTURE, THE DEPARTMENT WAS, NOT ENTITLED TO LOAD THE COST OF GALVANISATION ON THE NORMAL PRICE OF MS PIPE.

4. SHRI JOSEPH VELLAPALLY, LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE PROCESS OF GALVANISATION DID NOT AMOUNT TO MANUFACTURE, BOTH ON GENERAL PRINCIPLES AS WELL AS UNDER SECTION 2(F) OF THE SAID ACT. HE SUBMITTED THAT IN THE MATTER OF LEVY OF EXCISE DUTY, THE TAXABLE EVENT TAKES PLACE AT THE POINT WHERE THE GOODS ARE CLEARED FROM THE LICENSED PREMISES AND, THEREFORE, THE VALUE OF A PRODUCT AT THE TIME OF CLEARANCE, SHOULD BE TAKEN INTO ACCOUNT. IN THIS CONNECTION, HE URGED THAT THE ASSESSEE WAS A REGISTERED COMPANY HAVING ITS FACTORY AT SARANGPUR DISTRICT RAJGARH, MADHYA PRADESH AND WAS INTER ALIAENGAGED IN THE MANUFACTURE OF MS PIPES AND TUBES. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD TWO SECTIONS IN ITS FACTORY, ONE NAMED AS TUBE MILL SECTION, IN WHICH THE ASSESSEE MANUFACTURED MS PIPES AND TUBES. FOR MANUFACTURE OF MS PIPES AND TUBES, STEEL COILS, STRIPS AND SLITS OF REQUIRED THICKNESS WERE PURCHASED FROM THE MARKET BY THE ASSESSEE. THESE ITEMS WERE THEN ROLLED IN, WELDED AND CUT TO REQUIRED LENGTHS AND TO ENSURE SMOOTHNESS, GRINDING WAS CARRIED OUT THROUGHOUT THE LENGTH SQ FT THE PIPES. THE EDGES OF THE PIPES WERE SUBJECTED TO THE PROCESS OF ELIMINATION OF UNEVEN EDGES. THE PIPES WERE THEN SUBJECTED TO HYDRO-TESTING, AND THREADING. LEARNED COUNSEL SUBMITTED THAT AT THIS .STAGE, THE MANUFACTURE OF PIPES GOT COMPLETED AND THEY BECAME MARKETABLE. ACCORDING TO THE ASSESSE; THE ENTIRE PROCESS ABOVE WAS CARRIED, OUT IN "TUBE MILL" SECTION THE APPELLANT SOLD ABOUT 30% OF THE ENTIRE PRODUCTION OF MS PIPES FROM THE TUBE MILL SECTION TO ITS WHOLESALE DEALERS AFTER PAYMENT OF DUTY UNDER SUB HEADING 7306.90. THE BALANCE 70% OF THE PIPES MANUFACTURED IN TUBE MILL SECTION WERE TRANSFERRED, TO ANOTHER SECTION KNOWN AS "GALVANISING SECTION", WHICH WAS FAR AWAY FROQ1 THE TUBE MILL SECTION AND IN A DIFFERENT SHED. ACCORDING TO THE ASSESSEE, IN THE GALVANISING SECTION, THE FULLY FINISHED MS PIPES WERE GALVANISED. THEY WERE WASHED IN RUNNING WATER AND DIPPED IN MOLTEN ZINC ACCORDING TO THE ASSESSEE, GALVANISATION OF PIPES