Holding

Pulverisation of granules into moulding powder is a "manufacture" and the powder is a marketable, excisable good; the 4 Nov 1997 notice is time‑barred, the 1 May 1997 notice must be reconsidered under the amended law, and the valuation issue is remitted.

Summary

OK Play India Ltd., a manufacturer of plastic water tanks and toys, pulverised LDPE and HDPE granules into moulding powder. The Central Excise Department issued show‑cause notices demanding duty for two periods, alleging that the conversion was a "manufacture" and that the powder was an excisable good. The Supreme Court held that, under Section 2(f) (or 2(t)) of the Central Excise Act read with Note 6(b) of Chapter 39 of the Central Excise & Tariff Act, 1985, the conversion of granules into moulding powder constitutes manufacture and the powder is marketable, thus excisable. The notice dated 4 Nov 1997 was beyond the limitation period and was set aside, while the notice dated 1 May 1997 was ordered to be reconsidered in light of the 2000 amendment and the deletion of Rule 9(2). The Court also remitted the issue of profit‑margin valuation to the Commissioner for fresh determination. The appeals were disposed of without costs.

Issues considered

Whether conversion of LDPE/HDPE granules into moulding powder amounts to "manufacture" under Section 2(f)/2(t) of the Central Excise Act read with Note 6(b) of Chapter 39, Central Excise & Tariff Act, 1985.
Whether the moulding powder produced is an "excisable good" under Section 2(d) of the Central Excise Act.
Whether the Department could invoke the extended limitation period (six months to one year) under Amending Act 10 of 2000 for the notice dated 4 Nov 1997.
Whether the notice dated 1 May 1997 is valid in view of the amendment to Section 11A and the deletion of Rule 9(2).
How the profit‑margin should be calculated for valuation of captively consumed goods (gross profit vs net profit).

Legislation cited

Central Excise Act, 1944s. 11A, s. 2(d), s. 2(f), s. 2(t)
Central Excise and Tariff Act, 1985s. Note 6(b) Chapter 39
Central Excise (Valuation) Rules, 1975s. 6(b)(ii)
Finance Act, 2000s. 110

Subjects

manufactureexcisable goodscentral exciselimitation periodvaluationprofit marginLDPEHDPEmoulding powderAmending Act 10 of 2000

Judgment

A MIS. O.K. PLAY (INDIA) LTD.
v.
COMMISSIONER OF CENTRAL EXCISE-II, NEW DELHI

FEBRUARY 4, 2005.

B [S.N. VAR!AVA, DR. AR. LAKSHMANAN AND S.H. KAPADIA, JJ.]

Central Excise Act, 1944 :

Section 2(j)-Conversion of LDPE and HDPE granules into moulding
C powder amounts to manufacture by virtue of Note 6(b) of Chapter 39 of
Central Excise and Tariff Act, 1985.

Section 2(d)-Mou/ding powder produced by powdering of granules-
Dutiabi/ity of-Held: The records show that from time to time assessee obtained
moulding powder from the market-Moulding powder being marketable falls
D within the term 'an excisable goods' hence liable to duty-Tribunal rightly
classified the said product under Heading 39.01 of Central Excise and Tariff
Act, 1985.

Section I I-A-Demand-Extended period of limitation-Invocation of-
E Assessee producing powder by pulverizing granules-Department fully aware
of the process undertaken by assessee-Factory regularly visited by the
officers-Nothing to show basis of invoking extended period of limitation-
Demand being beyond limitation period liable to be set aside.

Questions arising in the present appeal are whether the process of
F conversion of granules into moulding powder in the manufacture of water
tanks and toys by the appellant-assessee amounts to manufacture within
the meaning of Section 2(t) of Central Excise Act, 1944 read with note
6(b) of Chapter 39 of Central Excise and Tariff Act, 1985; whether the
said powder was an 'excisable product' in terms of Section 2(d); whether
there was a deliberate attempt on the part of asses£ee to evade payment
G of duty for invoking extended period of limitation; and whether extension
of period from 6 months to one year by virtue of Amending Act I 0 of 2000
dt.12.5.2000 would apply to notices given prior to 12.5.2000.

Disposing of the appeals and remitting the matter to Com missioner
(Adjudication), the Court
H 1086
..
'
O.K. PLAY (INDIA) LTD. v. C.C.E. 1087
HELD : 1.1. The Second Clause of Section 2(1) of Central Excise Act, A
1944 states that any process, which is specified in section/chapter notes of
the Schedule to the Central Excise Tariff Act, 1985, shall amount to
"manufacture". The intention of the Legislature was to levy excise duty
on those acti\'ities also that do not result in any new commodity.
11092-DI B
1.2. Reading of Note 6(b) of Chapter 39 of Central Excise and Tariff
Act, 1985, shows that blocks and powders are two different "primary
i. forms" and if the block is pulverized into powder, the activity would
amount to "manufacture" in terms of clause (ii) of section 2(1). Therefore,
as a consequence of the new definition of 'manufacture" in terms of section C
2(1), the activities which otherwise do not amount to "manufacture", can
now be treated as "manufacture" and made liable to duty. (1093-A-BI

2. The records maintained by the assessee show that on several
occasions, the assessee had bought the moulding powder from the market,
which indicates that moulding powder is marketable commodity and, D
therefore, excisable in terms of section 2(d). The Tribunal rightly held that
• .) the said powder was classifiable under Heading 39.01 of the 1985 Act.
11093-CI

3.1. The department had issued two notices dated 1.5.1997 and
4.11.1997. Show-cause notice dated 1.5.1997 demanded duty from the E
assessee for the period October, 1996 to March, 1997 whereas the show-
cause notice dated 4.11.1997 demanded duty for the period May, 1993 to
September, 1996. As regards the show-cause Notice dated 4.11.1997, the
assessee has maintained its record as per rule I 73G indicating on daily basis
the opening and closing balances, the stock of raw-materials as well as the
stock of pulverized powder and the use of pulverized process. The said F
registers were certified from time to time by the officers of the department.
The factory of the assessee was visited by the officers of the department from
time to time. The assessee had assigned on several occasions their activity
.. to job workers with the permission of the department, No objection was
ever taken by the department. No evidence has been brought on record to G
show as to on what basis the department has sought to invoke the extended
period of limitation, particularly, when the department was fully aware of
the process undertaken by the assessee for converting the granules into
powder. In the circumstances, the Tribunal was right in directing the
proceedings against the assessee to be dropped pursuant to show-cause
Notice dated 4.11.1997. (1094-A-B; C-DI H
1088 SUPREME COURT REPORTS [2005) 1 S.C.R.

A 3.2. The Show Cause notice dt. 1.5.1997 was issued by the department \
in terms of Rule 9(2) read with Section 11-A. Assessee had not challenged
the demand made under this Show cause notice as time barred even under
the law as it then stood. The contention on limitation was not argued by
the assessee before the Tribunal which disposed of the matter on 18.7.2000
B (which is after 12.5.2000 when the Amending Act 10 of 2000 came into
force). Rule 9(2) had been deleted with effect from 12.5.2000. In the
circumstances, the matter requires reconsideration by 1the Adjudicating
Authority. (1099-CJ

ITW Signode India Ltd. v. Collector of Central Exci.~e. [2004) 3 SCC
C 48 and Collector of Central Excise, Baroda v. Cotspun Limited, (1999) 113
ELT 353, referred to.

4. Issue as to whether calculation of the profit margin includible in
the manufacturing expenses, should be on 'gross profit' or 'net profit' of
the previous year, requires reconsideration by the Adjudicating Authority.
D [1093-F-GJ

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 275-276 of
2001.

From the Judgment and Order dated 18. 7.2000 of the Central Excise
E Custom and Gold (Control) Appellate Tribunal, New Delhi in A. Nos. E/457/
98-C and E/732/99-C in F.O. Nos. 322-323 of 2000-C.

S. Ganesh, Ms. Nisha Bagchi,_ Ms. Meenakshi Arora, Vishal Kum?T,
Ms. Reena Khair and Ajay Aggarwal for the Appellant.

F Rajiv Dutta, G. Umapathy and P. Parmeswaran and B.K. Prasad for the
Respondent.

The Judgment of the Court was delivered by

KAPADIA, J. The short question which arises for determination in
these civil appeals filed under section 35L (b) of the Central Excise Act,
G 1944 is - whether powdering of Low Density Polyethylene (LOPE) and High
Density Polyethylene (HOPE) granules into moulding powder amounts to
"manufacture". ..
Assessee manufactures plastic water storage tanks and toys. On 24.4.1997
the factory of assessee was visited by Officers of Anti Evasion Branch of
H Central Excise Commissionerate Delhi. During this visit, it was noticed that
O.K. PLAY (INDIA) LTD. v. C.C.E [KAPADIA, .I.] ] 089

the assessee had installed the injection, moulding, extruding and pulverizing A
machines operated with electric power to handle plastic inputs and produce
moulded shapes for manufacturing toys, water storage tanks, desks, tables
etc. On enquiry, the process revealed that the moulding machine accepted the
plastic input only and since the inputs, consisting of LOPE and plastic
colouring materia:, were procured in the granular form, the same was first
required to be intermixed in specified proportion and then pulverized to B
produce the moulding powder. This was done with extruders and pulverizers.
After receiving the two inputs, the extruder through hoopers melted and
mixed them in the melting and mixing chambers to produce filaments which
after being cooled were chipped into small pieces. These small pieces produced
with the extruder were later placed in the pulverizers which grinded them C
into powder.

Accordingly two show-cause notices dated 1.5.1997 demanding duty
for the period October, 1996 to March, 1997 and dated 4 .11.1997 for the
period May 1993 to September 1996 were issued to assessee calling upon
them to show-cause as to why the above process was not "manufacture" in D
,J view of note 6(b) to Chapter 39 of the Central Excise Tariff Act. 1985
(hereinafter referred to for the sake of brevity as "the 1985 Act"). According
to the show-cause notices, the aforestated process constituted "manufacture"
and the moulding powder constituted "excisable goods" as defined under
section 2(d) of the Central Excise Rules 1944 (hereinafter referred to for the E
sake of brevity as "the 1944 Rules") resulting in escapement of duty from
assessment. Consequently, the department issued the above two show-cause
notices under rule 9 read with section I !A of the 1944 Act.

In reply, the assessee contended that conversion of granules into
moulding powder did not amount to "manufacture'', in terms of section 2(f) F
, T
of the 1944 Act; that the said moulding powder was prepared as per
specifications and requirement depending on the end product being water
tanks or toys and consequently no other manufacturer besides the assessee

- could use the said powder prepared by the assessee. It was further contended
that the said powder was not marketable and, therefore, it did not constitute
"excisable goods" as defined under section 2(d) of the said 1944 Act. G
By order dated 18.11.1997 and 29.12.1998, the Commissioner
(Adjudication) held that conversion of granules into moulding powder
constituted "manufacture" in terms of note 6(b) to Chapter 39; that both
granules and the moulding powder forms fell under Tariff Heading 39.01; H
1090 SUPREME COURT REPORTS [2005] I S.C.R.

A that while using the said powder in the manufacture of plastic water tanks
and toys, the assessee should have paid duty on the basis of deemed clearances,
since the powder was captively consumed; that the assessee had started the
above conversion process from I0.5.1993; that the assessee was aware that
the said powder was excisable and yet wilfully omitted to file the requisite
B classification list; that the manufacturing expenses did not include the profit
margins; that even the quantity produced did not tally with the records
maintained by the assessee; and consequently the Adjudicating Authority
confirmed the show-cause notices under rule 9 read with section I IA of the
1944 Act. By the aforestated orders the Commissioner (Adjudication) upheld
the invocation of extended period of limitation under show-cause notice dated
C 4.11.1997. The Commissioner (Adjudication) also found from Form-IV register
that the assessee has been buying the moulding powder at times from the
market.

By the impugned judgment, the Tribunal has upheld the orders of the
Commissioner (Adjudication).
D
Mr. S. Ganesh, learned senior counsel appearing 011 behalf of the
assessee, submitted that the process of pulverizing moulded powder did not
constitute "manufacture". He contended that powdering of LOPE and HOPE
granules into moulding powder did not amount to "manufacture". He submitted
that the assessee is a manufacture of plastic water storage tanks, toys, chairs
E for children etc; that one of the raw-materials was LOPE and HOPE granules,
which in turn were mixed with colouring agents/additives; that the momding
powder was made depending upon specifications of the end product and that
no other manufacturer could use the moulding powder prepared by the assessee
and, therefore, it was not a marketable product and hence cannot be considered
p as "excisable goods" in terms of section 2(d) of the 1944 Act. It was urged
that since the said powder was not a marketable product, there could be no ...,.. ;
manufacture under section 2(f) of the said 1944.Act. It was further contended
that no evidence was led by the department to show that the said powder was
a marketable product. It was submitted that note 6(b) of Chapter 39 was not
applicable as both granules and powder were of the same primary forms. It
G was urged that the department had only relied on stray purchases of powder
for manufacture of tanks which was meant for exclusive use only by the
asscssee and , therefore, ~uch instances did not prove marketability of the
said product. It was further urged that the Commissioner had failed to deduct
depreciation from the profit margin and accordingly, it was contended that
H the matter should be remitted to the Commissioner (Adjudication) for fresh
O.K. PLAY (INDIA) LTD. v. C.C.E [KAPADIA, J.] I 091
~
determination on the question of valuation of the said powder. On the question A
of limitation, it was urged, that the assessee had maintained stock registers
during the entire period; that these were audited; that they indicated
pulverization and ,therefore, the department was not entitled to invoke the
proviso to section 11 A(I) of the 1944 Act vide show-cause notice dated
4.11.1997.
B
Shri Rajiv Dutta, learned senior counsel appearing on behalf of the
department, submitted, that the above enumerated process of conversion of
•• granules into moulding powder was a manufacturing process in terms of note
6(b) of Chapter 39 of the 1985 Act; that the purchase of the said pulverized
powder on few occasions by the assessee from the market as evidenced by
the registers produced by the assessee indicated that the said product was
c
marketable; and that it constituted "excisable goods" as defined under section
2(d) of the 1944 Act. Learned senior counsel further submitted that the assessee
was in the business of manufacturing of plastic water storage tanks since
1990; that from 1992, they are in the business of manufacturing of 'toys';
that they were aware that the above process constituted "manufacture"; that D
) they were aware that the said powder was marketable and yet they cleared
" the goods as non-excisable and without filing the classification list, in breach
of the said 1944 Rules, solely with the intent to evade payment of duty and,
th.erefore, the department was right in invoking the extended period vide
show-cause notice dated 4.11.l 997.
E
Two questions arise for determination in these appeals. Firslly, whether
process of conversion of granules into moulding powder constituted
"manufacture" in terms of section 2(f) of the 1944 Act read with note 6(b)
of Chapter 39 of the 1985 Act and whether the said powder was an "excisable
product" in terms of section 2(d) of the 1944 Act? Secondly, whether on the p
' 1"'
facts and circumstances of this case, the department was right in invoking the
extended period of limitation vide show-cause notice dated 4.11.1997?

In order to answer the first question, we quote sections 2(d) and 2(f)
of the 1944 Act, which read as under :
G
"2. Definilions. - In this Act, unless there is anything repugnant in the
subject or context, - ·

(d) "excisable goods" means goods specified in the First Schedule
and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of
1986) as being subject to a duty of excise and includes salt; H
1092 SUPREME COURT REPORTS (2005) I S.C.R.

A (f) "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
B Chapter notes of The First Schedule to the Central Excise
Tariff Act. 1985 (5 of 1986) as amounting to manufacture.

and the word "manufacturer" shall be construed accordingly and
shall include not only a person who employs hired labour in the
production or manufacture of excisable goods, but also any person
c who engages in their production or manufacture on his own
account."

Section 2(t) contains two clauses and instead of setting out the activities
in respect of different tariff items, clause (ii) simply states that any process,
which is specified in section/chapter notes of the Schedule to the Tariff Act,
D shall amount to "manufacture". Under clause (ii), the Legislature intended to
levy excise duty on activities that do not result in any new commodity. In
other words, if a process is declared as amounting to "manufacture" in the
section or chapter notes, it would come within the definition of"manufacture"
under section 2(t) and such process would become liable to excise duty. The
effect of this definition is that excise duty can be levied on activities which
E do not result in the production of a new commodity or where the raw-
material does not undergo such a transformation as to loose its original identity.

As this stage, we quote note 6 to Chapter 39 of the 1985 Act, which
reads as under :

F "6. (a) In heading Nos.39.01 to 39.14, the expression "primary forms"
applies only to the following forms :-

(i) Liquids and pastes, including dispersions (emulsions and

G
suspensions) and solutions;

(ii) Blocks of irregular shape, lumps, powders (including
moulding powders), granules, flakes and similar bulk forms.
-
(b) Notwithstanding anything contained in Note 3 to this Chapter, '
heading Nos. 39.01 to 39.14 shall also include primary forms obtained
from conversion of another primary form, falling under the same
H heading, and such conversion shall amount to "manufacture"."
O.K. PLAY (IND!A) LTD. v. C.C.E [KAPADIA. J.] I093
Reading note 6(b ), it is clear that blocks and powders are two different A
"primary fonns" and if the block is pulverized into powder the activity wou Id
amount to "manufacture" in tenns of clause (ii) of section 2(f). By the very
language of note 6, conversion from granules into moulding powder would
result in "manufacture". Therefore, as a consequence of the new definition of
"manufacture" in terms of section 2(f), the activities which otherwise do not B
amount to "manufacture" can now be treated as "manufacture" and made
liable to duty.

On the question of marketability, we find from the register in Form-IV
maintained by the assessee that on several occasions, the assessee had bought
the moulding powder from the market, which circumstance by itself indicates C
that moulding powder is marketable commodity and, therefore, excisable in
terms of section 2( d) of the 1944 Act. The Tribunal was, therefore, right in
holding that the said powder was classifiable under Heading 39.01 of the
1985 Act.

Now on the question of valuation of the moulding powder, the D
Commissioner (Adjudication) found that the manufacturing expenses of the
assessee did not include the profit margins and accordingly, the Adjudicating
Authority worked out the profit margins on the basis of the ratio of gross
profit: Sales for the year ending 31.3.1996. According to the assessee, the
Commissioner (Adjudication) had erred in taking into account the gross profit
of the previous year while calculating the pro~t margin. In this connection, E
reliance was placed by the assessee on Circular No. 258/92/96-CX dated
30.10.1996 issued by Central Board of Excise & Customs, New Delhi, which
prescribes the formulae for calculating the value of the captively consumed
goods under rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975.

.. ..._ r F
The short point which arises for determination is - whether calculation
of the profit margin, includible in the manufacturing expenses, should be on
'gross profit' or 'net profit' of the previous year. We do not wish to express
any opinion. Suffice it to state that this issue will have to be decided by the
'. Commissioner (Adjudication) afresh. Accordingly, we remit the matter back
to the Commissioner (Adjudication) for a fresh detennination in the light of G
the circulars no. 26/88 dated 4.4.1998 no. 258/92/96-CX dated 30.10.1996
no. 692/8/2003-CX dated 13.12.2003 as also any other circular which might
have been issued by the Central Board of Excise & Customs during the
relevant period.

Now coming to the second question of limitation, the facts enumerated H
1094 SUPREME COURT REPORTS [2005] I S.C.R.
l,;
A above show that the department had issued two notices dated 1.5 .1997 and
dated 4.11.1997. Show-cause notice dated 1.5.1997 demanded duty from the ~

assessee for the period October, 1996 to March, 1997 whereas the show-
cause notice dated 4.11.1997 demanded duty for the period May, 1993 to
September, 1996. As regards the show-cause Notice dated 4.11.1997, we find
that from time to time, the assessee has maintained its record as per rule
B 173G in Form-IV. The said register indicated on daily basis the opening and
closing balances; it indicated the stock of polyethylene raw-materials as well
as the stock of pulverized powder; it also indicated use of pulverized process .j

and lastly the said registers were certified from time to time by the officers
of the department. A detailed summary was also given on the last page of the
c register indicating description of granules and the moulding powder with the
quantity of additives. The factory of assessee was visited by the officers of
the department from time to time. The assessee had assigned on several
occasions their activity to job workers with the permission of the department.
No objection was ever taken by the department during the aforestated period
of about four years. No evidence has been brought on record to show as to
D on what basis the department has sought to invoke the extended period of
limitation, particularly, when the department was fully aware of the process .. •
undertaken by the assessee for converting the granules into the powder. In
the circumstances the Tribunal was right in directing the proceedings against
the assessee to be dropped pursuant to show-cause Notice dated 4.11.1997.
E
Now coming to the validity of the show-cause notice dated 1.5.1997
demanding duty for the period October, 1996 to March 1997, it was urged
on behalf of the assessee that the impugned show-cause notice was issued on
1.5.1997; that it was issued prior to the Amending Act 10 of 2000; that the
law as it stood on 1.5.1997 authorized the department to demand duty only
F for six months which period now stands increased to one year in view of
Amending Act 10 of2000 with effect from 12.5.2000; hence, it was submitted
that the department was not entitled to demand duty for the entire period
commencing from October, 1996 to March, 1997 vide show-cause notice
dated 1.5.1997. Relying on the judgment of this Court in the case of ITW
G Signode India ltd. v. Collector of Central Excise, reported in (2004] 3 sec
48. It was submitted that the object of the Amending Act 10 of 2000 was to
eliminate the basis of the judgment of this Court in the case of Collector of
Central Excise, Baroda v. Cotspun limited, reported in (1999) 113 ELT 353
and, therefore, the said amendment did not extend the period beyond six
months for notices given prior to 12.5.2000.
H
0.K. PLAY (INDIA) LTD. v. C.C.E [KAPADIA, J.) 1095
On behalf of the department, it was submitted that in view of the A
Amending Act I 0 of 2000, the period of limitation has been extended by the
Legislature from six months to one year and consequently, the demand fell
within section 1IA(I) as amended with effect from 12.5.2000. In this
connection, reliance was placed by the department on the Circular No. 588/
25/2001-CX dated 19.9.2001 issued by the Central Board of Excise & B
(
Customs, which reads as under :

"Recovery of duties not levied or not paid or short levied or short
paid or erroneously refunded - Retrospective validation by Finance
Act, 2000 of action taken under Section 11 A of Central Excise Act,
1944.
c
Subject : Retrospective validation of action taken under section
I IA of Central Excise Act, 1944, under Finance Act,
2000.

Attention is invited to the provisions contained in Sections 97
and 110 of the Finance Act, 2000. D
>
2. Queries have been raised from field formations about the exact
scope and amplitude of these changes. The matter has been examined
in consultation with Additional Solicitor General. A copy of the
opinion of ASG dated 20.4.2001 is enclosed. The Board has accepted
the opinion given by the Learned Additional Solicitor General. You E
are requested to take follow up action in accordance with the advice
of the ASG.

3. This may be brought to the notice of field formations.

( Receipt of this circular may please be acknowledged. F
5. Hindi version will follow.
OFFICE OF SHRI KIRIT N. RA VAL
1 ADDITIONAL SOLICITOR GENERAL
SUPREME COURT
NEW DELHI
G
I. My opinion is sought on the question of the scope and amplitude
of the retrospective amendment to Section 11 A of the Central Excise
Act specifically enacted to protect the Revenue's interest after the
judgment of the Hon 'ble S.upreme Court in the case of Collector of
Central Excise, Baroda v. Cotspun Limited, reported in (1999) 113 H
-
1096 SUPREME COURT REPORTS [2005] l S.C.R.

A EL T 353. My attention is drawn to the fact that by virtue of Section
110 of the Finance Act, 2000, any action taken under Section 11 A of
the Central Excise Act, demanding duty on account of non-payment,
short-payment, non-levy, short-levy etc. within a period of six months
or five years, as the case may be, from the relevant date as defined
in clause (ii) of sub-section (3) of said section, shall be deemed to be
B and to always have been for all purposes validity and effectively \_

issued or served under that section notwithstanding any approval,
expense or assessment relating to the rate of duties on or value of the
excisable good by any Central Excise Officer under any other provision
of the Central Excise Act or the Rules made thereunder. Sub-section
c (2) of the said section also provides that any action taken anything
done under Section 11 A at any time during the said period shall be
deemed to be and to have always been, for all purposes, as validity
and effectively taken or done as if sub-section (I) had been in force
in all material times, notwithstanding anything contained in any
judgment, decree or order of any court, tribunal or other authority.
D
2. Thus it can be seen from Section 110 of the Finance Act, 2000 that
the section seeks to grant legitimacy to all the actions taken for the
recovery of the duty from the period 17 .11.1980 and that any action
initiated in respect of any case after such date shall be deemed to
have been validly taken and any judgment, decree or order of any
E court, tribunal or other authority shall not be an impediment to such
an action.

3. In this background, my opinion is sought on the following queries:-

(I) Whether it is correct to hold that the amendments would
F only cover demands for a period of six months prior to issue
..,.
of SCN?

(2) Whether demands for the extended period where such
demands were held as time barred on the ground that there )
was approved classification list/price list etc. would be
G covered by the amendments?
l;/
1.., (3) Whether these provisions would apply to proceedings that
.. have attained finality and where appeal periods have expired?
'il
(4) Could recoveries be made in such cases, and what would be I
;·
H the period up to which such proceedings could be reopened
• ~
,,,
I
O.K. PLAY (INDIA) LTD. v. C.C.E [KAPADIA, J.) 1097
and recoveries made? A
(5) What would be the time limit, if any, for initiating
proceedings under the amended provisions?

(6) What is the kind of notice/order that should be issued for
recoveries of dues in respect of proceedings which have B
attained finality?

(7) How should the Department proceed in respect of matters
which are pending in appeal in Tribunal and Courts?

4. My answer to the queries as under :-
c
QUERY NO. I:

In the "Negative" - in view of the fact that the word "one year"
has been substituted by the word "six months" by section 97B of the
Finance Act. Further, the amendment has been stated to be effected
from 17th November, 1980. D
> QUERY NO. 2:

In the "Affirmative" - such demands which were earlier held to
be time barred because of the approval of the classification list would
also be covered by the amendment as the amendment has been made E
retrospective w.e.f. 17th November, 1980. The factum of approval
after that date will not come in the way of recovering the amounts
which would be covered by such amendment.

QUERY NO. 3:
F
T Under Section 110 of the Finance Act, any notice issued after the
17th of November, 1980 will be protected by the validating Act. The
necessity for the amendment arose to over-come the judgment of the
Hon'ble Supreme Court in the Cotspun Ltd. case. Further, the power
to amend the law retrospectively has been recognized judicially in a
number of pronouncements [for example, Prithvi Cotton Mills Ltd. v. G
Broach, [I 969] 2 SCC 284]. The said judgment in para 4, clearly
provides "If the legislature has the power over the subject matter and
competence to make a valid law, it can at any time, make such a valid
law and make it retrospectively so as to bind even past transactions."
Therefore, where notices have already been issued, the judgments H
1098 SUPREME COURT REPORTS [2005] I S.C.R.

A rendered in the context of the earlier provision would cease to be of
relevance. In fact, in the case of Cotspun itself, where the judgment
of the Supreme Court was rendered, in view of the validating
provisions, recovery could be made notwithst:1tlding the Cotspun
judgment. Under these circumstances, if the SCNs have been issued
then even in respect of past proceedings which e.ven judgments have
B been rendered it will be open to the Department to make recoveries.

QUERY NO. 4:

Recoveries can be made in such cases for the period subsequent
to I 7th November, 1980 when the retrospective operation of the
c amended provisions has come into play. However, this is subject to
the SCNs having been issued in time. It is also worth noting that if
SCNs have not been issued so far, now it will not be open to issue
SCNs for the past period unless it is within the period of limitation
as prescribed under the amended provisions.
,
D QUERY NO. 5:

The time limit for initiating proceedings under the amended
provisions would be one year for issuance of fn:sh notices. However,
as far as recoveries pursuant to notices already issued or subject
matter of pending proceedings are concerned lhe same are covered
E
by answer to the previous queries.

QUERY NO. 6:

In respect of matters which have received finality, the demand
notices should be issued referring to the amendment carried _out and
F pointing out that in view of the amended provision, it is necessary for
the assessee to make the payment, as demanded. Reliance should be
placed on the amendments for the purpose of making recoveries.

QUERY NO. 7:

G As far as the pending matters are concerned, the Department
should file an affidavit indicating the amendment having been carried
out and the request that the controversy be decided in the context of
the amended provisions."

We cannot allow the assessee to raise the above contentions for the first
H
O.K. PLAY (INDIA) LTD. v. C.C.E (KAPADIA. J.] I 099
)
t.ime before this Court. In the present case, the show-cause notice dated A
1.5.1997 was issued by the department in terms of rule 9(2) of the 1944 ·
Rules read with section 11 A of 1944 Act. Rule 9(2) applies. to cases of
clandestine removal of goods without assessment. According io the counter
affidavit filed on behalf of the depiirtment, the quantity of moulded powder,
cleared during October, 1996 to March, 1997 as indicated in the worksheet B
produced before the Commissioner, was I, 17,442 Kgs., whereas according to
RG-1 Register, the quantity was I, 18,484 Kgs. Further, the assessee has not
challenged the demand raised under the said show-cause notice dated 1.5 .1997
as time barred even under the law as it then stood. The contention on limitation
was not argued by the assessee before the Tribunal which disposed-of the
matter on 18.7.2000 (which is after 12.5.2000 when the Amending Act 10 of C
2000 came into force). Rule 9(2) has been deleted with effect from 12.5.2000.
In the circumstances, the matter needs to be looked into afresh by the
Adjudication Authority. Since, we have remitted the matter to the
Commissioner on the question of valuation, we direct him to decide also the
question of limitation arising out of show-cause notice dated 1.5.1997 afresh D
in the light of section 11A(1 ), as amended and in the light of deletion of Rule
)
9(2) with effect from 12.5.2000.

For the aforestated reasons, we hold that the process of pulverization
under which granules are converted into moulding powder constitutes
"manufacture" that the moulding powder produced by the aforestated process E
was marketable; that the show-cause notice dated 4.11.1997 was beyond
limitation; that the Commissioner (Adjudication) will decide the question 'Jf
valuation under rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975,
in the light of Circulars dated 4.4.1988, 30.10.1996 and 13.2.2003 issued by
the Central Board of Excise & Customs; and lastly, the Commissioner
(Adjudication) will also decide the question of limitation for the duty demanded F
under the show-cause notice dated 1.5.1997 in the light of the Circular dated
19 .9 .200 I issued by the Central Board of Excise & Customs as well as in the
light of Amending Act I 0 of 2000 under which section 11 A( I) stood amended.

Accordingly, these appeals are disposed-off with no order as to costs.
G
D.G. Appeals disposed of.