Holding

The conversion of lead and aluminium sheets into electrodes by attaching headers creates a new, marketable product with a distinct name, character and use, constituting manufacture liable to excise duty, and the extended period of limitation is rightly invoked due to willful suppression of information.

Summary

The respondents, Hindustan Zinc Ltd., manufacture zinc by electrolysis using lead and aluminium sheets fitted with headers to form anodes and cathodes. The Revenue issued show‑cause notices for excise duty and penalty, asserting that the fitted sheets constitute a new product—electrodes—liable to duty. The Tribunal held there was no manufacture, reasoning that the headers merely facilitated use and the product was not marketable. The Supreme Court reversed this, holding that the conversion creates a distinct, marketable product known in the market, thus constituting manufacture liable to excise duty, and that the Revenue correctly invoked the extended period of limitation because the respondents deliberately suppressed information. The Court set aside the Tribunal order and allowed the appeals, remitting the question of liability between the assessee and job workers to the Tribunal.

Issues considered

The attachment of headers to lead/aluminium sheets creates a new product (electrodes) liable to excise duty
Whether the resulting product is marketable and therefore constitutes manufacture
Whether the Revenue may invoke the extended period of limitation due to alleged willful suppression of facts
Who is liable to pay duty – the assessee or the job workers (remitted for further determination)

Legislation cited

Central Excise Act, 1944

Subjects

central excisemanufactureelectrodesanodescathodesmarketable productextended period of limitationwillful suppressionclassification listduty liability

Judgment

COMMISSIONER OF CENTRAL EXCISE, JAIPUR A
v.
M/S. HINDUSTAN ZINC LTD.

MARCH 24, 2004

[S.N. VARIA VA AND H.K. SEMA, JJ.] B

Central Excise Act, 1944-Manufacture of anodes for the purpose of
) 4
electrolysis for manufacture ofzinc-Suppression of manufacture of anodes in
the Classification list-Show-cause notice issued for payment· of duty and C
penalty invoking extended period of limitation for wi/fitl suppression offacts-
Tribunal holding that there was no manufacture of anodes-Correctness of-
Held, anodes after conversion become a new product known in the market
with a distinct name, character and use and marketable as such-Hence liable
to excise duty---On facts, the extended period of limitation is rightly invoked
by the Revenue. D
Respondent-assessees are engaged in the manufacture of zinc, lead
and products thereof. Zinc is manufactured by a process of"electrolysis.
For electrolysis, the respondents manufacture cathodes and anodes. The
cathodes are manufactured by welding Aluminium Header of a specific
size with an Aluminium Sheet of a specific size and thereafter welding E
Copper Tips on the Header for better conductivity. Aluminium Hooks are
then welded on the Header for facilitating the lifting of Cathodes as and
when desired. Anodes are manufactured by melting lead ingots containing
specific quantity of silver and casting it in the required size. A header is
then welded with the cast rolled plate. Respondent-assessees filed a F
Classification list showing anodes and cathodes having headers .in respect
of one of the units. In respect of another unit, they had filed a Classification
list merely showing anodes and cathodes without headers on them.

Revenue issued show-cause-notices to Respondent-assessees for levy
of Central Excise duty and penalty for manufacture of cathodes and G
anodes. Tribunal allowed the appeal of the respondent-assessees on the
ground that there was no manufacture of cathodes and anodes; that the
headers are attached to facilitate the use of aluminium or lead sheet in
the process of electrolysis; that no new product with a distinct name,
character and use has emerged; and that the headers are not marketable.
527 II
528 SUPREME COURT REPORTS [2004] 3 S.C.R.

A Hence the appeal by the Revenue.

Respondent-assessees submitted that the headers were attached to '
keep the lead and aluminium sheets emerged in the cell for facilitation of
the process of electrolysis; and that the Revenue was not entitled to invoke
the extended period of limitation on the respondents.
B
Allowing the appeals, the Court

HELD: I. I. The lead and aluminium sheets by themselves cannot and
do not act as electrodes. They become electrodes only after certain . (

conversion process is undertaken. The lead and aluminium sheets are ""
C converted into electrodes which is a new product known in the market
with a distinct name, character and use. Respondent-assessees paid duty
on the product at the other unit on the basis that there was manufacture.
The Commissioner has also noted that the product is bought in the market
by a company. This shows that the product is marketable. The Tribunal
D has failed to notice this. It is a settled law that for a product to be
marketable, there need not be actual purchase or sale. So long as a new
and distinct commodity known in the market has come into existence, there
is manufacture. The headers are attached in order to see that the lead and
aluminium sheets become positive and negative electrodes so that current
can pass through them. Without the headers, it would not be possible to
E pass the current through the sheets. [530-C-F[

1.2. From the facts stated in the order of the Commissioner, there
was conscious withholding of information by the respondent-assessees and
thus the extended period of limitation has been rightly invoked. [53;3-·El

f CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3252 of 1998.

From the Judgment and Order dated 19.11.97 of Central Excise, Customs
and Gold (Control) Appellate Tribunal, New Delhi in F.O. No. E/1614/97-B
in A. No. E/4192 of 1992-B.

G WITH

C.A. No. 2305 and 5632 of 2000.

Ranjeet Kumar, Dileep Tandon, Sanjeev Sen and B.K. Prasad for the
Appellant.
H
' C.C.E. v. HINDUSTAN ZINC LTD. [VARIAVA . .I.]

A.R. Madhav Rao, Viswanath Shukla, V. Balachandran, Alok Yadav
529

A
~ and Rajesh Kumar for the Respondents.

The Judgment of the Court was delivered by

S. N. VARIA VA, J. All these Appeals can be disposed by this common
Judgment as the point involved is the same. B
Briefly stated the facts are as follows:

The Respondents are engaged in the manufacturing of zinc, lead and
products thereof. Zinc is manufactured by a process known as electrolysis. In
this process zinc sulphate solution is electrolyzed with the help of an electric c
current which is passed through it. The current is introduced into the solution
by means of electrodes. A lead sheet fixed with a header acts as positive
electrode (anode) and an aluminium sheet fixed with a header acts as negative
electrode (cathode). For the purposes of electrolysis the Respondents
manufacture the cathodes and anodes. The cathodes are manufactured in the
following manner. Aluminium Header of the size of I 030 x 45 x 25 mm is
D
welded with an Aluminium Sheet of the size 1105 x 610 x 5 mm. Thereafter,
Copper Tips are welded on the Header for better conductivity. The last process
'i
is to weld Aluminium Hooks on Header for facilitating the lifting of Cathodes
as and when desired. The Cathode is of specific size which consists of various
parts namely, sheet, Header, Copper tips and Hooks and not merely of E
aluminium Sheet and Header.

The anodes are manufactured by procuring lead ingots containing 1-
02% silver. These ingots are melted and the molten is cast in the required
size. The size of the cast/rolled product is 1070 x 1575 x 8 mm. A header
is welded with the cast rolled plate. The header is manufactured by casting F
the copper bed in lead. In the lead cast/rolled product three holes are provided
in which anode spacers are put for avoiding contact between anodes and
cathodes.

At this stage, it must be mentioned that the Respondents have a unit at
Visakhapatnam. They also have a unit at Debari, Udaipur, Rajasthan. It is an G

- JS
admitted position that in respect of Debari unit the Respondents filed a
Classification list showing the anodes and cathodes having headers. The Debari
unit paid duty on the cathodes. However, in respect of Visakhapatnam unit
the Respondents filed a Classification list mernly showing anodes and cathodes
without showing that they had put headers on them. H
530 SUPREME COURT REPORTS [2004] 3 S.C.R.

A Show-cause-notices were issued to the Respondents as to why they
should not pay duty on cathodes and anodes manufactured by them. The
Commissioner of Customs and Central Excise held that there was a
manufacture and directed payment of duty and also imposed a penalty. The
Customs, Excise and Gold [Control] Appellate Tribunal (for short Tribunal),
B however, allowed the Appeal of the Respondents on the ground that there
was no manufacture. It was held that the headers were attached only to
facilitate the use of aluminium or lead sheet in the process of electrolysis. It
was held that no new product with a distinct name, character and use has
emerged. The Tribunal further held that these headers were not marketable.
+·'
The Tribunal did not go into the contention, raised on behalf of the
C Respondents, that the manufacture, if any, was done by the job workers and
that if duty was to be paid it would have to be paid by the job workers.

We have already noted the manufacturing process. The lead and
aluminium sheets by themselves cannot and do not act as electrodes. They
become electrodes only after the process mentioned above is undertaken.
D Thus the lead and aluminium sheets are converted into electrodes which is a
new product known in the market with a distinct name, character and us<:.
The Respondents pay duty on that product at the Debari unit as they accept
that there has been manufacture. The Commissioner in his Order dated 3 lst
March, 1997 has also noted that the product is bought in the market by one
E Mis. Cominico Binani Zinc Limited. This shows that the product is marketable.
The Tribunal has failed to notice this. Even otherwise, it is settled law that
for a product to be marketable there need not be actual purchase or sale. So
long as a new and distinct commodity known in the market has come into
existence there is manufacture. We are unable to accept the submission that
the headers are attached merely to keep the lead and aluminium sheets emerged
F in the cell. From the process set out above it is clear that the headers are
attached in order to see that the lead and aluminium sheets become positive
and negative electrodes so that the current can pass through them. Without
the heade~s it would not be possible to pass the current through the sheets.

On behalf of Respondents it was submitted that in two of these matters
G the Department had invoked the extended period of limitation when they
were not entitled to do so. In dealing with this aspect the Commissioner has
set out as follows:

"During the relevant period, i.e. June, 89-February ,94, the a~sessee, •
-
inter alia, furp.ished the following description in their classification
H
C.C.E. v. HINDUSTAN ZINC LTD. [VARIAYA . .I] 531

List submitted for approval. A

"S. Effective Classification S. No. of Description
No. Date List No. the item of the goods

l. 1.3.1989 7/88-89 7 Lead Anodes
Cast Anode B
Sheets

2. 20.3.1990 2/89-90 7 -do-

. 3. 24.7.1991 l/91-92 7 Lead Anodes
Cast Anodes c
4. 1.3.1992 2/91-92 7 -do-

5. 1.3.1993 Not Shown

In letter C.No.V/L/CL-1191-92/HZL/V AL, dated 20.9.1991 a D
specific query had been raised by the concerned Assistant
Commissioner, regarding classification of the product, relevant extracts
of which are reproduced as under:

"In respect of the products mentioned at S.No.7, viz., Lead
Anodes, Cast Anode Sheets, such description of the goods does E
not appear in Central Excise Tariff. So you must write the exact
description of the goods [emphasis supplied] as mentioned in
Central Excise Tariff to avoid any type of confusion and
possibility of mis-classification''.

·:- The assessee in the letter reference No. VZS/S&D/CE/CL/91-92/16949, F
dated 30.9.1991, ir.teralia, stated that "We have written the full
description of the goods [~mphasis supplied] being manufactured by
us mentioning Heading number as we felt correct these sheets are not
rolled products, but are only cast" [emphasis supplied].

6.2. From the above classification furnished by the assessee, it is G
evident that the Lead Anodes/Cast Anode Sheets mentioned in the
classification List referred to mere Cast Lead Sheets. It did not include
the impugned product, viz. "Lead Anodes" which comprised 2 distinct
excisable goods, I. Cast Lead [Anode] Header 2. Cast Lead [Anode]
Sheets. In none of their classification Lists, the assessee had shown H
532 SUPREME COURT REPORTS J2004] 3 S.C.R

A the product. Cast Lead Header/Anode Header, an integral part of ~
Lead Abode, for approval. The material information regarding
manufacture of "lead Anodes" [Cast Lead Sheet+ Cast Lead Header]
and their captive use in the electrolysis process was never disclosed
in the classification Lists which were approved by the Department
not the fact intimated to the Department at any stage. The assessee's
B contention that they had exhibited the product, "Lead Anodes'', in
their classification List is not borne out by the evidences on the
record. The description "lead Anodes mentioned with Cast Anode
,,_.' ~
Sheets", in the Classification List referred to only the Cast Lead
[anode] Sheets. This fact is amply clear from the clarification given
c by the assessee in their letter quoted above. It is emphasized that the
fact of manufacture of Lead Anode out or assemblage of Cast Lead
Sheet and Cast Lead Header was not disclosed/mentioned in any of
their Classification Lists nor in any correspondence on the subject.
This is in stark contrast to their disclosure of all material particulars
pertaining to manufacture and captive use of Lead Anodes in the
D Classification List filed in respect of their other manufacturing unit at
Debari [Udaipur, Rajasthan]. The description furnished by their unit
at Debari is mentioned as below:

S.No. Effective Classification S.No. of Description
Date List No. the item of the goods
E
I. I .3.1989 5 Lead Anodes
[Complete with
Headers] used in
the electrolysis
plant for recovery
F of Zinc and I or ,
Cadmium
2. 1.9.1989 7 tead Headers
[i.e. Copper Strip
around which
G casting of Lead is
done]. This is
finally fixed with
Lead Anode Sheet
which is ultimately
•
used in the
H
C.C.E. v. HINDUSTAN ZINC LTD. fVARIAVA . .I.] 533

manufacture of A
Zinc and I or
Cadmium.

6.3. The. same description had been repeated in their subsequent
approved classification List, with effect from 20.3.1990, 25.7.1991,
1.3.1992 and 1.3.1993. The point to be stressed is that while the B
assessee furnished the complete description of the product, viz., Lead
'Anodes manufacturer in their Debari Unit, they had willfully
suppressed the fact of manufacture and captive use of Lead Anodes
in respect of Visakhapatnam Unit. They did not make any mention of
the manufacture of Lead Anode in the Classification Lists submitted C
during the relevant period. This was a clear case of willful suppression
of facts and/or deliberate concealment of facts. If the intention of the
assessee were bonafide, they would have certainly furnished the
complete particulars of manufacture in their Classification List relating
to Visakhapatnam Unit as they did in respect of their other Unit at
Debari. The assessee knew fully that the goods were excisable and D
liable to duty as their other unit paid duty on those goods. Hence,
they cannot plead ignorance/doubts etc. Conscious or deliberate
withholding of information and/or suppression of facts is fully
established in this case."

On these facts we are in full agreement with the Commissioner that there was E
conscious withholding of information and thus the extended period of limitation
had been rightly invoked.

In this view of the matter, the Order of the Tribunal cannot be sustained.
It is accordingly set aside.
F
• That brings us to the question as to whether the Respondents are liable
to pay duty or t)ie job workers are liable to pay duty. This would require
looking into the facts and material. We therefore remit the matters back to the
Tribunal who shall, after going into the facts and materials, decide the same.

For the above-mentioned reasons the impugned Orders are set aside.
G
The Appeals are allowed to the extent set out above. There will be no order
as to costs.

B.S. Appeals allowed.
H