ORDER

Per P.K. Kapoor - This is an appeal against the order dated 25.11.85 passed by the Additional Collector of Central Excise, New Delhi. Briefly stated the facts of the case are that on a visit to the appellant's factory on 12.11.84 the Central Excise Officers found that they were engaged in the slitting of Jumbo Audio Magnetic Tape received from other parties on job work basis. They seized 606 spools of such slit Audio Magnetic Tapes of width not exceeding 6.5mm valued at rs. 12,020/-. After further investigation the appellants were served with a show cause notice dated 18.2.85 requiring them to show cause why Central Excise duty amounting to Rs. 39,375/- should not be recovered from them on Slit Audio Magnetic Tapes valued at Rs. 1,50,000A falling under item 59( 1) of Central Excise Tariff and why penalty should not be imposed on them. The appellants were also asked to show cause why 606 pools of Audio Magnetic Tapes of width not exceeding 6.5 mm seized from their factory should not be confiscated. Thereafter, by the impugned order the Additional Collector held that by Slitting Jumbo Audio Magnetic Tapes rolls falling under tariff item 59(5) into Magnetic Tapes not exceeding 6.5 mm in width, the appellants had brought into existence a new product falling under T.I. 59(1). He, therefore, confirmed the demand of duty amounting to Rs. 39,375/- and ordered the confiscation of 606 seized spools of Audio Magnetic Tapes of width not exceeding 6.5 .mm valued at Rs. 12,120/-. He, however, gave an option to the appellants for redemption of the confiscated spools on payment of a fine of Rs. 4000/-. He also imposed a penalty of Rs. 20,000/- on the appellants under Rule 173Q, Rule 9(2), and 52A (5) of the Central Excise Rules, 1944.

2. Appearing on behalf of the appellants Shri Harbans Singh, Ld. advocate stated that liability to Central Excise duty under the Schedule to the Central Excise Tariff Act, 1985 on any product can arise only if it is established that the process giving rise to that product constitutes manufacture within the meaning of Section 2(f) of the Central Excise and Salt Act, 1944. He contended that there could be no duty liability on Mgnetic Tapes of width not exceeding 6.5mm produced by the appellants by Slitting Jumbo rolls of Magnetic Tapes of larger width received from customers since slitting of jumbo rolls into tapes of smaller width does not amount to manufacture. He stated that the Additional Collector's finding that slitting of jumbo rolls of Audio Tapes into tapes of width not exceeding 6.5mm amounted to manufacture on the grounds that jumbo rolls of audio tapes were classifiable under Tariff Item 59(5) and after slitting into tapes of width of not exceeding 6.5mm they fall under Tariff Item 59( 1) was erroneous since jumbo rolls of audio tapes were not converted by Tariff Item 59(5) which covered prepared media meant only for video or image on sound recording. In support of his contention that slitting of jumbo rolls of audio tapes of width not exceeding 6.5mm did not amount to manufacture he cited the following decision:-

(i) CC Vs. Hindustan Photo Films 1991 (52) ELT 301 (Tri)

(ii) Computer Graphics (Pvt) Ltd. Vs. UOI 1991 (52) ELT 491 (Mad)

He contended that the decision of the Tribunal in the case of Dipen Textiles (P) Ltd. Vs. Collector of Central Excise, reported in 1992 (62) ELT 430 holding that slitting of jumbo rolls of video tapes into pancakes or tapes of smaller width amounts to manufacture can have no bearing on the appellants case since the appellants had stated their activity of slitting jumbo rolls in 1984 and the said decision of the Tribunal was of a much later date. He submitted that even if it was held that duty was recoverable on the goods in question and the demand confirmed by the impugned order is held as sustainable, there would be, no case for the confirmation of the order imposing penalty since the appellants had commenced their activity of slitting jumbo rolls of tapes only a few m