By TIOL News Service

NEW DELHI, Feb 28, 2006 : WE had in the month of October 2005 highlighted the Supreme Court decision in Metlex (I) Pvt. Ltd. delivered on 12.02.2004 where it was held that lamination or metallization of duty paid plastic film does not amount to manufacture within the ambit of Section 2(f) of the CEA’44 since no new distinct product comes into existence.

This was a deadly blow to the Board Circular 93/75/86-CX.3, dated 9.10.1986 wherein it was clarified that such a process of lacquering/laminating or metallization of duty paid bare films (Ch.39) is liable to excise duty notwithstanding the fact that such lacquered/laminated or metallized films may fall under the same sub-heading under the CETA’85.

However, inspite of the said Supreme Court decision, it was observed that many manufacturers located in Jammu, Kashmir and Udhampur were not willing to avail the benefit flowing out of the said judgment but were paying Central Excise duty on such Metallized films (Chapter 39) for the reason that they were profiting by operating under notification 56/2002 CE, dated 14.11.2002 which permitted them to claim a refund of the duty paid by them through the account current.

However, the department had taken a stand that since the Supreme Court had held that the process of metallization did not amount to manufacture, no central excise duty is payable and consequently these assesses are not entitled for Cenvat credit as well as no refund is admissible to them.

What followed was a spate of demand notices on this count.

Fortunately, as suggested by us in our column, a chapter note has been inserted in Chapter 39 of the CETA’85 by the Finance Bill 2006, so as to provide that in respect of goods falling under heading 3920 & 3921, the process of metallization shall amount to “manufacture” and this change comes into force with immediate effect.

Now, what would happen to those demand notices issued earlier? Only time will tell…

There are maladies we must not seek to cure because they alone protect us from others that are more serious – Marcel Proust, Remembrance of Things Past.