Customs, Excise and Gold Tribunal - Tamil Nadu
Madras Power Supplies vs Commissioner Of Central Excise, ... on 9 November, 2001
Equivalent citations: 2002(80)ECC144, 2002(149)ELT369(TRI-CHENNAI)
JUDGMENT S.L. Peeran, Member (Judicial) 1. This is an appeal arising from Order-in-Original No. 10/96 dt. 7.2.96 by which the Commissioner has confirmed the duty demand of Rs. 17,01,614/- under Rule 9(2) read with proviso to Section 11A(1) of the CEA. The Commissioner has imposed penalty of Rs. 2,00,000/- under Rule 173Q. 2. The Appellants have been alleged of violating various provisions of Central Excise Act and Rules on the ground that they manufactured and sold D.G, sets to various customers through out India after assembling and commissioning the same. The Appellants have claimed that they are only dealers and they purchased the duty paid items from various places and they were only doing trading activity and they were not doing any manufacturing activity at the premises. They claimed to have received contracts for supply of goods to the projects and the entire installation in various projects and were done by separate contractors, who had obtained contracts with their contractors, who had obtained contracts with their purchasers. The Appellants case is that they purchased duty paid items from M/s. Kirloskar Electric Company Ltd., Ashok Leyland and M/s. Batliboi & Co. and they were supplying the items as second sales and the invoices were endorsed to their purchasers. For the purpose of commercial taxes, the second sales have been approved by tax authorities. They were transported and delivered to the project sites at the expenses of the Appellants. The Central Excise officers visited the trading premises of the appellants on 24.11.1992 and recovered all the invoices and records for the purpose of verification from the year 1990 and they proceeded to initiate recovery proceedings holding that they were manufacturing and assembling D.G. Sets and were liable to pay Central Excise duty. 3. The Ld. Commissioner in the impugned order has not taken into consideration, according to them, any of the evidence placed by them with regard to the sale of the goods and about their not indulging in the activities of assembling or manufacturing at the site of the purchasers. The Commissioner has straightaway entered into the findings that this case is covered by the Apex Court judgment rendered in the case of Narne Tulaman Manufacturers Pvt. Ltd. v. CCE reported in 1988 (37) ELT 566 (SC) and that of TISCO reported in 1998 (37) ELT 291 and as they were removing D.G. Sets they were classifiable under the chapter heading 85.02 and as it commercially known in the market as such they are doing the activity of buying and selling and therefore their removal from the appellants trading place is to be considered as manufacture and hence on that reasoning the duty liability was confirmed. The appellant's contention is that the place of assembly of the items to bring into existence D.G. sets are spread through out the country and the Commissionerate has no jurisdiction to initiate proceedings against them for activity of manufacture carried out at site by separate contractors. 2. Arguing on behalf of the Appellants the Ld. Counsel points out that they had filed detailed reply dt. 17th October, 1995 clearly indicating that they were not engaged in the manufactured of D.G. set as they were purchasing diesel engines, alternators, control panels, fuel tank, base frame and transported them to the site of the customers and assemble was done by the respective buyers. They were only selling the parts and the same invoice was endorsed as second sales. The assembly took place at various site to bring into existence, the D.G. Set, which was not done by t hem. On assembly it became an immovable property. Therefore, such activity carried out by different contractors did not bring into existence goods for exicibility. Therefore, the commissioner has wrongly relied on the judgment rendered in the case of Naren Tulaman (supra) which is not applicable to the facts of the present case. He relied on the judgment rendered by the Madras High Court in the Case of reported in (127) ELT 44 and that of Universal Micro Systems v. CCE., Cochin reported in 1999 (107) ELT 505 (T) wherein it has been held that installation of items is not production or a process of manufacture. He further relied on the judgment rendered in the case of CCE v. Radiant Electronics Ltd as reported in 1996 (85) ELT 102. On the other hand, the Ld. DR Shri S. Kannan submitted that from the facts of the case it revealed that the Appellants were supplying D.G. Sets to the buyers itself in an assembled state and it is a manufactured item. Therefore, the Commissioner has rightly held the item to the D.G. sets classifiable under Chapter sub Heading 8502 of the CETA and hence they were required to pay the duty as they had not taken licence and cleared the same with following the Central Excise Rules. 3. On a careful consideration of the submissions made by both the side and perusal of the records, we notice that the appellants have made out a strong case in their favour. The appellants were only trading concern and they were purchasing various items from various manufacturers and they were supplying the same to the respective buyers and were getting it installed through separate contractors. The Commissioner has not given any answer to this plea and the findings on the record clearly indicate that the demand has been made out only on the basis of the invoice of the same seller. The Commissioner has taken into consideration the judgment of the Supreme Court rendered in the case of Narene Tulaman (supra). This judgment has been distinguished by the Apex Court in the jurisdiction of subsequent judgments in the case of Quality Steels and Tubes v. CCE, 1995 (27) 372 (SC), Mittal Engineerings v. CCE 1997 (117) ELT 203 and Triveni Engineering Ltd. v. CCE, 2000 (120) 273. In the instant case the question of assembly and manufacture has not taken place at appellants' premises. The Hon'ble Supreme Court has now clearly held in the case of M/s. Triveni Engineerings Ltd (supra) that the process of manufacture has to take place on the appellants premises, and if the items cannot be considered as goods. In the present case the department has not proved that the appellants were carrying out the activities of assembling and manufacture at their premises to bring into existence excisable goods. Merely because they sell the items as D.G. Sets, it cannot be considered as process of manufacture. They were supplied to various places in the country. The place of manufacture even in terms of Section 2(f) of the CEA in this case would be the place of assembly and setting up of the D.G. Set. As the said activities were arrived out in various places of the country by their purchasers through their contractors, therefore the appellants cannot be considered as "manufacturer." There is force in the submissions made by the appellants and the judgments relied by them apply to the facts of the case. Respectfully following the ratio of the judgments cited above, the impugned order is set aside and the appeal is allowed. (Order dictated and pronounced in the open court) Jeet Ram Kait, Member (T)
4. I have perused the order proposed by my learned brother Shri S.L. Peeeran, M(J) and I am not in agreement with him since the appellants on their own admission have been receiving orders for supply of Gen. sets and they have been purchasing different components which go into the making of the Gen. sets supplied from the market and thereafter they install the Gen. sets at the premises of the customers. The learned lower authority has taken note of the letter dated 21.10.91 addressed by them to one M/s Jennyz Bottlers (P) Ltd and also to M/s Daily Thanthi, wherein the appellants had supplied two Gen. sets of 250 kVA and also 150 KVA respectively and had offered warranty for a period of 12 months. If the appellants were not engaged in any manufacturing activity, the question of giving any warranty would not arise. The submission of the appellants were that there were only very instances of supply of Gen. sets as such and their supplied Gen. sets to all the customers in all cases. If the appellants were held to be manufacturers of Gen. sets, Modvat Credit would be available to them and to that extent duty liability would come down considerably. This point is required to be re-considered and re-examined by the lower authority after taking into account all the documentary evidence so produced by the appellants. It is observed from the record that no facts or figures have been furnished by the appellants in regard to how many Gen. Sets have been supplied and as to what was done with respect to other supplies made for the installation of the Gen. sets at site. Therefore, taking note of the fact that the appellants had received orders for supply of Gen. sets and this position is not denied, I am of the considered opinion that the order of the lower authority prima facie appears to be well reasoned. However, since the appellants have stated that there were only few instances of supply of Gen. sets as such and their supply therefore could not be taken into reckoning to hold as if the appellants had supplied Gen. sets to all the customers, in all cases, the case is required to be remanded for de novo consideration in view of the above submission of the appellants. Gen. sets are also moveable property and are not embedded to earth at the site of the customers. The Hon'ble Supreme Court in the case of Triveni Engineering Ltd. reported in 2000 (120) ELT 273 has held that if the items are assembled at site and new item comes into existence as immovable property, then only such item cannot be considered as goods. Since Gen. sets are goods and can be mounted on trolley and moved from one place to another, this fact is required to be re-examined. Appellants shall be at liberty to produce all the evidence before the original authority and the original authority shall decide the case de novo after taking into consideration all the evidence on record and in the light of the observations made above. The order of the lower authority is therefore set aside with a direction to consider the case afresh in accordance with law.
POINTS OF DIFFERENCE In views of (sic) matter is referred to third member for determining the following points.
In the facts and circumstances of the case, whether the appeal is to be allowed by setting aside the impugned order as held by learned Member (J) in his order Or In the facts and circumstances of the case, the matter is required to be remanded for de novo consideration as held by Member (T) for the reasons set out by him.
P.G. Chacko, Member (Judicial)
5. This matter has come up before me as 3rd Member, consequent on the difference of opinion between learned Member (Judicial) and learned Member (Technical), brought out be paragraphs 1 to 4 of Miscellaneous Order No. 143/2001 dated 17.5.2001.
6. The facts of the case have already been stated in the orders recorded by the learned Brothers. However, for my limited purpose, I shall state briefly the relevant facts as brought out be submissions of the counsel and the DR today. M/s Madras Power Suppliers claimed to be dealing in various commodities including Diesel Generating Sets ( in short, DG sets). During the period 11/90 to 11/92, they procured various components and parts of DG sets, such as Engineers, Alternators, Fuel Tanks, Base Frames, Control Panels etc. from various manufacturers and either supplied the goods as such to their customers or assembled them into DG sets and supplied the same to their customers. The department held them to be liable to pay duty of excise on the complete DG sets as well as on the components of DG sets treating the latter as DG sets in unassembled (CKD) form. The department, therefore, demanded duty on the above clearances at the rate applicable to DG sets classifiable under Chapter Heading 85.02 of the Schedule to the CETA. This demand amounted to Rs. 17,01,614/-. The demand was raised by way of show-cause notice dated 30.5.1994, which also proposed to impose penalty on the party for alleged contravention of Central Excise Rules. Allegations in the show-cause notice were contested by the party. In adjudication of the dispute, the Commissioner of Central Excise held that the appellants installed DG sets at the premises of their customers and supplied the same to the customers on principal-to-principal basis and, therefore, they were the manufacturers of the DG sets. The Commissioner, accordingly, confirmed the entire demand of duty under Rule 9(2) of the CE Rules 1944 read with the proviso to Section 11A(1) of the CE Act, 1944 and also imposed a penalty of Rs. 2 lakhs on the party.
7. Aggrieved by the order of the Commissioner of Central Excise, M/s Madras Power Suppliers filed the captioned appeal. The South Regional Bench of the Tribunal heard both sides on 17.05.01.
8. The learned Member (J), in the order which he recorded for the Bench, held that the appellants' activity could not be considered as a process of manufacture and the appellants were not to be considered as 'manufacturer'. Accordingly, he set aside the impugned order and allowed the appeal. On the other hand, learned Member (T) opined that the order of the adjudicating authority was, prima facie, well-reasoned and that the appellants appeared to have been engaged in manufacturing activity. However, learned Member (T) remanded the matter to the adjudicating authority directing it to decide on the issues afresh after considering all the evidence (including additional evidence which might be adduced by the party) available on record.
9. Upon perusal of the texts of the orders recorded by learned Brothers, I have reasons to agree with the results arrived at be learned Member (J) as also to, respectfully, disagree with the remand order of learned Member (T). The department's allegation was that the appellants were indulging partly in supplying complete DG sets to customers and partly in supplying components of DG sets to customer's site and assembling the same and supplying as complete DG sets to the customer at the site. The department conceded that the appellants had not factory. Therefore, any supply of complete DG sets by the appellants to their customers could only be by way of trading activity. The complete (finished) DG sets so supplied were not manufactured by them. As regards the second limb of the above allegation, I observe that this very allegation in the show-cause notice (SCN) is patently ambiguous inasmuch as, on the one hand, the SCN relied on Note (4) of Section XVI of the CETA 1985 ( which Note governs classification of machine supplied in the form of its components) and, on the other, it alleges assemblage of components by the appellants at customer's site and supply of the fully assembled DG sets to the customer (in which context, the Section Note is irrelevant). When the matter came to its adjudication stage, the department's arguments based on the Section Note were apparently given the go-by and its case of assemblage of components into DG sets by the appellants at customer's site received selective approval. The adjudicating authority found to the effect that the appellants brought the components to customer's site and assembled them into, and installed/commissioned, DG sets at such site. It also found that the DG set was attached to the ground on installation. It, however, held the DG set to be excisable goods, after observing that its attachment to the ground did not render it an immovable property. This finding of the ld. Commissioner that the DG set did not become immovable property despite its attachment to the ground is not supported by any evidence or sound reasoning. In this view of the matter, it can be safely concluded that the DG sets in question did not pass the test of excisability laid down by the Supreme Court in the case of Triveni Engineering & Industrial Limited [2000 (120) ELT 273] as rightly observed by learned Brother Sh. S.L. Peeran in his order.
10. Any levy of duty of excise is on manufacture and collection of duty should taken place at the time and place of removal of the goods. In the instant case, the Commissioner held the appellants to be manufacturers, after holding that their activity of installing DG sets at their customers' sites amounted to manufacture. As the appellants had no factory of their own, there could be not clearance of DG sets from factory. Installation of DG sets took place at the customers' sites. The sites of installation are not forthcoming from the show-cause notice or from the impugned order. If only the customers' sites are shown to be within the territorial jurisdiction of the adjudicating authority, any demand of duty on the DG sets by that authority could be sustained, assuming that the DG sets were excisable goods. Otherwise, that authority has no jurisdiction to demand any such duty. In the instant case, there is no finding in the impugned order that the customers' sites at which the DG sets were found to have been assembled by the appellants were within the jurisdiction of the Collector/Commissioner who issued the demand notice and confirmed the demand. I find that the appellants had raised the jurisdictional objection before the adjudicating authority. But that objection was discarded as irrelevant by the Commissioner, though indeed it was a valid objection.
11. In view of my findings already recorded, the order of the Commissioner of Central Excise, Chennai cannot be sustained. Accordingly, I set aside the impugned order and allow the appeal.
(Dictated and pronounced in open Court) MAJORITY ORDER In view of majority order, the impugned order is set aside and appeal allowed with consequential relief, if any, as per law.