Customs, Excise and Gold Tribunal - Tamil Nadu
Bpl Sanyo Utilities And Appliances Ltd. ... vs Commissioner Of Central Excise on 16 September, 1999
Equivalent citations: 2000(67)ECC742
ORDER V.K. Ashtana, Member (T)
1. This is an appeal against Order-in-Original No. 17/97 dated 19.6.97 passed by Commissioner of Central Excise wherein duty of Rs. 1,10,50,630 has been confirmed on the appellants M/s. BPL Sanyo Utilities & Appliances Ltd. for the period from 5.5.92 to 31.8.95 under Proviso to Section 11-A of the Central Excise Act. Penalty of Rs. 25,00,000 have been imposed on this appellant as also penalties of Rs.10,00,000 on the Deputy General Manager (operation) and the Senior Manager (Production). Furthermore, land, building, plant and machinery, etc. have been confiscated and offered Redemption on payment of Rs. 30,00,000. The issue concerns the classification and assessment to duty of sub-assemblies of Washing Machines (alleged to be complete washing machines, though not assembled).
2. Heard Shri Lakshmikumaran, Ld. Advocate and Ms. Srimati, Ld. Advocate for appellants and Shri S. Kannan, Ld. DR.
3. Ld. Advocate submits that the following facts are not in dispute with respect to this order impugned:-
(a) The disputed items are manufactured in their factory at Whitefield, Bangalore.
(b) That these items can be broadly grouped into three main sub-items namely (i) Tub Sub-assembly, (ii) Control plate assembly, and (iii) the various loose parts. These loose parts amounting to 23 in number.
(c) These were packed suitably and cleared on payment of duty from appellants, this factory as parts of washing machines.
(d) Such consignments were re-routed to two different units in India namely their another factory near Bangalore and another factory at NOIDA in U.P.
(e) At both these locations, the consignments so received were unpacked and subjected to certain processes as are detailed in the affidavit of Shri S.K. Das, Deputy General Manager, NOIDA which is on record.
(f) As a result of these operations enumerated and detailed in the said affidavit, both these units wherein such operations were conducted were registered under the Central Excise Act as a manufactur of Washing Machines, paid duty on the end product cleared as Washing Machines and observed all other relevant excise procedures including claiming Modvat on the consignment received as inputs of the final product under Rule 57A.
4. Ld. Advocate submits that the basic dispute arises on (a) Whether the manner in which these consignments were cleared in three distinct Sub-assemblies as mentioned above, would make each such clearance constitute the clearance of washing machine itself and not parts the of as claimed by the appellants, and (b) the operations conducted at NOIDA and Bangalore units as per the said affidavit, would amount to manufacture thereof or mere assembly of an already complete washing machine in unassembled form. Ld. Advocate further submits that for the purposes of assessment to duty, the tariff structure during this periods has also to be taken into consideration, which has been clearly recorded in para 31 of the order impugned. For the ease of reference, the same is reproduced below:
Period Heading/SH Washing M/s Parts Notification
BED SED BED SED
1.3.92 to
28.2.93 84.50 25% 15% 20% 15% 155/86 dt. 1.3.86
1.3.93 to
28.2.94 84.50 30% - 25% - TR & 54/93
1.3.94 to
14.3.95 84.50 20% - 20% - 46/94
15.3.95 to
31.8.95 - 20% - 15% - TR
Ld. Advocate explains that a perusal of the above tariff structure would show that up to 14.3.95, both washing machines as well as parts thereof were covered by a single tariff sub-heading namely 84.50 and the effective rates of duty on the washing machines as such was as per the tariff rate but the effective rate of duty for the parts of washing machine was as per the exemption notifications in currency as indicated above. In this connection, Ld. Advocate cites the decision in the case of Sipani Automobiles Ltd. v. CCE as reported in 1997 (72) ECR 948 and that of Lakshmi Electrical Control Systems by final order No. 1250/98 dated 1.7.98 wherein, in similar circumstances, the Tribunal has concluded that interpretative rules cannot be applied to the notification and therefore where the exemption is expressly provided by a notification, even though if the item is deemed to be a complete product in terms of the Rule 2(a) of the interpretative rules, the exemption for assessment purposes given as parts cannot be denied on the grounds of applicability of interpretative Rule 2(a). He submits that this is exactly the facts of this case. Inasmuch as that even if it is to be held, then as alleged by the Revenue what was cleared should be deemed to be a complete washing machine having essential characteristics thereof under Rule 2(a), but since actually the goods cleared were Sub-assemblies noted above, and which were claimed to be parts, therefore the exemption available to parts could not be denied even if it was held that under the deemed legal provisions of interpretative Rule 2(a) all of them taken together would mean the clearance of a washing machine as such. Therefore, he submits that on this ground alone up to 14.3.95 the demands does not survive.
5. For the period from 15.3.95 to 21.8.95, Ld. Advocate submits that there were in existence separate Sub-headings for the washing machines and parts and that both were assessable to duty in terms of the tariff rates as no other notifications were in existence, and for this period Ld. Advocate presses his submission on limitation. Therein he submits that the department was all along in the know of what actually was being cleared. All these were being cleared on Central Excise statutory documents, on the basis of classification list submitted and approved and assessment thereto to finalised on RT-12 Returns, duty paid here was taken as Modvat credit on NOIDA and other factory at Bangalore and hence the entire transactions were Revenue neutral and lastly, even if it were to be held that what was cleared here was SKD machines in Kit form, then Notification No. 217/86 under which Chapter X procedure would have been available to the present appellants for clearance of these goods to the licensed unit at NOIDA as well as at Bangalore, who could have then applied for L-6 licence. In such a case also, there would be no question of any leakage of revenue. When there is no leakage of revenue and the entire transaction is Revenue neutral, there could obviously be no clearance with an intent to evade duty. Intention to evade duty is one of the critical components in invoking the proviso to Section 11A(1). Therefore, the extended period under the said proviso can just not be applied. On this, he cites the decision in the case Lakshmi Electrical Control System (supra). He, however, fairly concedes that for about two months period which falls within 6 months from the date of issue of show cause notice, he does not press the arguments and leaves it to the decision of the Bench. He submits further that when there is no intention to evade duty, there is no ground for imposition of such heavy penalty both on the appellant company as well as on the individual employees thereof.
6. Ld. DR has very diligently submitted that the nature in which the goods were cleared from the appellants' factory and the quantities in which they were cleared in each consignment clearly goes to show that what was cleared was in fact washing machines in unfinished condition which had acquired all the essential characteristics of a washing machine. He also submits that having acquired the essential characteristics it could also be said that the said washing machine was cleared in an unassembled condition. Therefore, clearly the provisions of interpretative Rules 2(a) are attractable. He draws support for this conclusion from the fact that what was cleared were not a plethora of parts running into hundres of items which are required towards completion of a modern hi-technology washing machine but were mere three groups of sub-assemblies. Out of these groups, the first assembly namely Tub Assembly had even the container which were normally going to do the washing, i.e. Tub, the Motor which would be the prime mover as well as the basic structure including the legs thereof were supporting. Therefore, it cannot be said that such an integrated sub-assembly were parts. The second sub-assembly was again a fully assembled item containing all the electric and electronic spare parts mounted on appropriate covers/panels already internally duly wired and which only needed to be connected to the Tub sub-assembly with the help of some of the loose parts which contained the third item. He submits that even the three items are taken together, not one screw, clamp, cables or wire pieces extra was needed to complete the washing machine when this operation was conducted at MOID A and other unit at Bangalore. He argued that it is significant to note thai not one part or component was actually manufactured in addition to the conglommeration of items which were supplied by the appellants to both these locations. This being the case, he submits that interpretative Rule 2(a) clearly would apply to the facts of this case. He further submits that the affidavit of Shri S.K. Das clearly admits to this position when the deponent has averred that all the components received were used in the assembly of the washing machine, nothing more was required and nothing more was left. He also submits that in the said affidavit, this technically qualified person of the appellants has nowhere stated that these components taken together had not acquired the essential characteristics of the washing mahcine. There is no categorical denial of the allegation contained therein. He also placed reliance on answer to question number 6 of Shri M. Ramkumar, Senior Manager (Production) at Whitefield factory of the appellants in his own statement given before the officers on 11.7.95 as contained in page 191 of the Paper book which reads as follows:-
On visual examination of tub sub-assembly, can one say that it has attained the essential character of a washing machine inasmuch as the tub sub-assembly consist of wash tub and spin tub and leg frame consist of motors and frames? No. Although the shape of tub sub-assembly does look like a washing machine, the tub sub-assembly being only the physical aggregate of leg, frame and lower wash tank, without any electrical connections and controls, does not perform any of other functions of the washing machines like washing, spinning, holding water, draining out etc. He submits that since the electrical connections and controls were also included in each consignment, therefore by his own admission, what was submitted were 3 sub-assemblies which together would have the essential characteristics of the complete washing machine. On the issue of applicability of the interpretative rule to the notification as well as arguments on limitation, he reiterates the Order-in-Original and in particular submits that after 15.3.95, there being no notification available, the goods would have to be definitely classified under the sub-heading meant for washing machine in view of the applicability of the said interpretative note 2(a) namely sub-heading 8450.10 and differential duty would clearly be payable from this period onwards also.
7. We have carefully considered the rival submissions and the records of the case. In view of the change in the tariff structure in the middle of the disputed period, i.e. from 15.3.95, we find that the issue has to be considered for the two periods, i.e. the periods of dispute upto 14.3.95 separately and the post 15.3.95 period separately as the law on tariff has to be applied as changed. With respect to the period of dispute ending with 14.3.95, we find that even if it is led that the benefit of interpretative Rule 2(a) to these clearances is attracted as argued by Revenue, then also there is great force in the submission of Ld. Advocate that since there was a single tariff sub-heading covering both the washing machines as such and parts thereof and further, since the parts thereof enjoyed partial duty exemption under the relevant notifications in currency, therefore the exemption claimed under those notifications could not be denied to the appellants merely on the ground that because of application of Rule 2(a) what was cleared was deemed to have acquired the essential characteristics of a washing machine. We find that this issue is in fact no longer res integra as the same was considered in detail by the Tribunal in the case of Sipani Automobiles (supra) which decision has been followed in a number of subsequent decisions by the Tribunal thereafter. We find that the facts in this case are identical inasmuch as that in the case of Sipani Automobiles, the consignment imported was sought to be held as a complete vehicle by applying interpretative Rule 2(a) of the Customs Tariff Act and in the present case, the interpretative Rule 2(a) of the Central Excise Tariff Act 1985 which is totally pari materia to the same interpretative rule under the Customs Tariff Act is being applied. We also find great force in the submissions of Ld. DR that interpretative Rule 2(a) would be applicable to this clearance because it is nobody's case that hundreds of parts which go to constitute a washing machine were cleared. It is not disputed that what was cleared was only two major sub-assemblies and 23 loose parts. Further, these loose parts were merely to be used in assembling the two sub-assemblies together and that such an assembly, when performed, would lead to the emergence of a fully working washing machine. We note that the electric control panel when mated to the tub-assembly with the help of these loose parts would create a fully working washing machine as known in the market and as bought by a customer. We also find that significantly enough it is on record that no new component, loose part or any other substance of significance was produced or procured as bought out item and used during the process of such assembly either at the NOIDA or the second Bangalore unit. This is clear from the affidavit noted above. Therefore, we have no hesitation to conclude that what was cleared from the appellants' White field unit had acquired all the essential characteristics of a washing machine, albeit the same was cleared in unassembled condition, which the appellants also chose to call Kits. Therefore, in view of the above findings, we find that the ratio of the decision in the case of Sipani Automobiles is available for application to the facts of this case. Respectfully applying the same, we find that even though what was cleared was a deemed washing machine in terms of Rule 2(a), yet the items assessed as spare parts under the relevant notification were not so wrongly assessed and hence no demand of differential duty arises up to 14.3.95.
8. Coming to the period thereafter, we find that since parts of washing machines have been removed from the ambit of the sub-heading for washing machine complete, as also that there is no notification exempting such parts, therefore the demand for differential duty on these clearances, which we have already held above to be deemed as washing machines would survive on merits. It is now left only for us to consider the Ld. Advocate's arguments on limitation for this period. On a careful consideration thereof, we find substantial force in the submissions of Ld. Advocate already noted above. In particular, what convinces us of the absence of intent to evade duty on the part of the appellants is the Revenue neutrality of the entire transaction on two different counts. Firstly, even if duty was payable on me deemed washing machine, the Modvat credit on entire duty paid at Whitefield unit would have been available to both at NOIDA and at Bangalore units. This was what was actually being practised. Secondly, if the department had objected to the appellants' classification of these goods as parts and had approved the classification list under law as a deemed washing machines, then the appellants would have access to the provisions under Notification 217/86 by which they could have removed without payment of duty and only paid duty at the point of final assembly. Thirdly, they would have discharged the full duty burden at Whitefield unit and thereafter they would not be required to be under Central Excise control at NOIDA or the other unit at Bangalore. When either of these three situations are considered, the holistic picture which emerges is that there was no motivation available in law to the appellants to evade duty. Since intention to evade duty is a mandatory requirement for the invocation of the extended period under proviso to Section 11A(1), therefore in the absence of such an intent, we clearly find that the extended period is not applicable in the facts of this case. Accordingly, we find that the differential duty demanded for the period commencing 15.3.95 would be payable in case of only that period of clearance which fall within 6 months from the date of issue of show cause notice. Except to this extent, the duty demand contained in the order impugned is set aside. Further, as we find that there was no intention to evade duty, as clearances were made as per approved classification list and on statutory documents, therefore, imposition of penalty on either the appellant company or the two employees thereof is not justifiable. Hence, the penalties imposed on the company as well as the individuals in the order impugned is also set aside. The provision regarding confiscation of plant and machinery, etc., as per well laid down law, is not to be invoked in cases where there is no mens rea. Therefore, we find that the confiscation ordered in the order impugned and the redemption fine is also to be set aside. Ordered accordingly. It is made clear that the amount of duty payable in terms of this order is to be quantified by the concerned assessing officer and informed to the appellants. The appellants have already pre-deposited certain sums. If the amount finally quantified is found less than the amount so pre-deposited, then the excess pre-deposit is liable to be returned to them as per law. The appeal succeeds partially in above terms.