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CASE NO.:

Appeal (civil) 4247-4248 of 2000

PETITIONER:

Siddhartha Tubes Ltd.

RESPONDENT:

Commissioner of Customs & Central Excise, Indore (MP)

DATE OF JUDGMENT: 16/12/2005

BENCH:

Ashok Bhan & S.H. Kapadia

JUDGMENT:

JUDGMENT

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 galvanization includible in the assessable value of

m.s. galvanized pipes. In these civil appeals, we are concerned with the

period May 1994 to July 1996.

Appellant was engaged inter alia in the manufacture of m.s. galvanized

pipes. These pipes were made from H.R. coils. The pipes emerging on hydro

testing stage were pickled in acid, washed in running water and galvanized

by dipping in molten zinc.

The appellant filed its classification list claiming that "galvanization"

did not amount to manufacture. The appellant claimed that m.s. galvanized

pipes were non-excisable goods, as the said pipes had been processed out of

duty paid m.s. pipes manufactured in its factory. A show-cause notice was

issued by the department stating that the appellant had cleared m.s. pipes

without adding the cost of galvanization. Accordingly, the department

alleged under-invoicing. According to the appellant, there were two

sections in its factory, namely, "tube mill section" and "galvanizing

section". According to the appellant, 30% of its total production was in

m.s. pipes cleared from tube mill section and the balance 70% of the pipes

were transferred to another section, known as galvanizing section, in which

the fully finished m.s. pipes were galvanized. According to the appellant,

the process of galvanization took place after completion of the manufacture

of the m.s. pipes, which were cleared on payment of duty and since the

process of galvanization took place after completion of m.s. pipes and

since galvanization did not amount to manufacture, the department was not

entitled to load the cost of galvanization on the normal price of m.s.

pipes.

Shri Joseph Vellapally, learned senior counsel appearing on behalf of the

assessee submitted that the process of galvanization 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 alia engaged in the

manufacture of m.s. 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 m.s. pipes and tubes. For manufacture of

m.s. pipes and tubes, steel coils, strips and slits of required thickness

were purchased from the market by the assessee. These items were then

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rolled in, welded and cut to required lengths and to ensure smoothness,

grinding was carried out throughout the lengths of 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 assessee, the above entire process

was carried out in "tube mill" section. The appellant sold about 30% of the

entire production of m.s. 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 a