Custom, Excise & Service Tax Tribunal
M/S. Supreme Cables vs Cce & St, Pondicherry on 3 January, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
E/698/2010 & E/699/2010
(Arising out of Order-in-Original No. 5/2010 (C) dated 26.07.2010, passed by the Commissioner of Central Excise, Puducherry).
1. M/s. Supreme Cables Appellants
2. M/s. Acer India Pvt. Ltd.
Vs.
CCE & ST, Pondicherry Respondent
Appearance Shri R. Parthasarathy, Advocate for the Appellant Shri B. Balamurugan, AC (AR) for the Respondent.
CORAM :
Honble Ms. Sulekha Beevi, Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing/Decision: 03.01.2018 FINAL ORDER No. 40067-40068/2018 Per Bench Both these appeals since emanating from the same impugned order, they are taken up together for common disposal.
2. The facts of the case are that M/s. Acer India Pvt. Ltd., the appellants in appeal No. E/699/2010 (hereinafter referred to as Acer), are engaged in the manufacture of Personal Computers, Laptops and Computer Systems. It appeared to the department that Acer had imported laptops and that they are loading software on them at the premises of one M/s. Supreme Cables, appellant in appeal No. E/698/2010 (hereinafter referred to as Supreme) on job work basis. During investigation, the officers opened some cartons lying in the premises of Supreme at random and found that they contain laptop computers received from Acer and that the machines could not be operated upon. However, in respect of other cartons, which had completed the QC at the premises of Supreme were found to contain laptop computers loaded with application software. It also emerged that the work ELCOT 2008 was printed on the laptop computers by screen printing at the premises of Supreme. From the statements of various persons employed by Acer and Supreme it emerged that the imported laptop computers had been sent to Supreme, for dismantling of the Hard Disk Drive (HDD) copying of the software into the HDD, mounting the HDD again in the laptop computer and also for subsequent testing. It appeared that as per Note 6 to Section XVI of the first schedule to the Central Excise Act, 1985 and also as per Section 2 (f) (iii) of the Central Excise Act, 1944, the processes carried out on the imported laptop computers amounted to manufacture. Hence, SCN dated 08.10.2009 was issued to both Acer and Supreme, interalia proposing demand of central excise duty and cesses along with interest thereon; confiscation of seized laptops and imposition of penalties under various provisions. After due process of law, the adjudicating authority vide the impugned order dated 26.07.2010, demanded duty liability of Rs.35,90,378/- with interest from Acer and Rs. 1,11,95,801/- with interest from Supreme; imposed penalty equal to duty demanded under Section 11 AC of the Act on both Acer and Supreme; confiscated 1095 laptops seized from Acer and 651 laptops seized from Supreme, however, gave an option to redeem the goods on payment of redemption fines of Rs. 7,05,000/- and Rs. 4,20,000/- respectively. The adjudicating authority however extended the benefit of Cenvat Credit, of only the CVD paid, subject to fulfilment of conditions stipulated in Cenvat Credit Rules and production of all requisite data and documentation to the jurisdictional authority. Aggrieved, both Acer and Supreme filed these appeals.
3.1 Today when the matter came up for hearing, on behalf of both the appellants, Ld. Advocate, Shri R. Parthasarathy made oral and written submissions which can be broadly summarized as under:-
a) The laptops in dispute are purchased by Acer from M/s. Acer Asia Pacific SDN BHD, Malaysia under proper sale invoices. The imported laptops are already pre-loaded with the necessary BIOS and Linux operating software.
b) The laptops in question were only with the software supplied by the customer, viz., ELCOT, because the customer desired that the users in his organization had a specific requirement of graphics usage compatibility. This fact ipso facto does not mean that the laptops as imported were not in usable condition.
c) The laptops in dispute are received at the Appellants premises and unpacked. The availability of the accessories in the cartons such as Battery Adopter, Power Cord, Warranty Card, Manual and software license is checked. Thereafter, the appellants dismantle HDD of the laptop computer and copy all the software contained in the Master HDD and again mount the HDD in the laptop computer. The same are then sent for the next process namely, BURN-IN with the adapter and power card. During the Burn-in process, the appellants check the HDD health and also that in the meantime, the battery gets fully charged. Then under FQC, the appellants do physical test so scratches or dent, if any and also the functional test on to the completeness of the computer. Finally, the appellants do the cleaning and packing of the laptop computers after entering the availability of all accessories including the spare CDs software for future contingencies and affix the label of Acer brand on the cartons.
d) The goods as imported are treated as pre-packed commodity and levied to CV duty under Section 4A on MRP basis by Customs on the ground that the goods are intended for retail sale. Consequently, the activity of taking out the laptop from the packing and putting it back into the same carton cannot be considered either as packing or repacking.
e) The labelling or re-labelling activity done at the factory is only to comply with the provisions of SWM Act and the rules made there under. Consequently, this activity also cannot be considered as the activity contemplated under Section 2 (f) (iii).
f) None of the other activities like unpacking, dismantling the hard disk from the laptops, mounting of the HDD back to the laptops, conducting Burn test, carrying out physical and functional test and screen printing the same ILCOT on the laptops are covered by the artificial definition of manufacture under Section 2 (f) (iii) of the Central Excise Act, 1944.
Ld. Advocate submitted that the processes carried out on the imported laptops were only done in compliance of the supply order requirements of M/s. ELCOT, which is a Govt. of TN undertaking. Hence, the appellant had no intention to suppress, misstate or commit any fraud with intent to evade payment of duty.
3.2 Ld. Advocate further submitted that in fact on the other hand on bonafide belief that they were only involved in resale/trading of the imported goods, they had applied and received refund of the Special Additional Duty (SAD) paid on the imported goods. In fact, the sum of SAD and CVD components, when taken together, will exceed duty demand confirmed in the impugned order. This also will indicate that the appellants had no reason to suppress or wilfully evade any payment of duty liability. In the circumstances, imposition of penalty on both the appellants under Section 11 AC is unjustified.
4. On the other hand, on behalf of the department, Ld. AR, Shri B. Balamurugan, AC, supported the adjudication. The submissions made by the Ld. AR can be summarized as under:-
a) Acer were getting the work of repacking, relabeling and loading of software, testing activities etc., at the premises of Supreme Cables, who were not registered. In fact, when the officers visited the premises, it was found that they had not displayed even a name board also.
b) He drew our attention to para-23 of the impugned order, wherein the Commissioner has analysed in detail the scope of manufacture in Section 2 (f) (iii) of the Act and has arrived at a well-reasoned finding that the eleven processes are carried at the premises of Supreme, which result in the emergence of the product is required by the buyer (ELCOT).
c) The said processes are indispensible without which ELCOT will not accept the laptops in question.
5. Heard both sides and have gone through the facts of the case.
6.1 For better understanding, Section 2 (f) as it was in force during the disputed period is reproduced as under:-
(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 Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or
(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, 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 who engages in their production or manufacture on his own account 6.2 It is not disputed that the imported laptops are subsequently sent to Supreme in their individual packings, ie., in unit containers. It is not the case that the purpose of sending these laptops to Supreme is only for quality control checks, or for that matter, to ensure that the imported laptops are in working condition. On the other hand, we find that the master hard disk drive is totally dismantled and removed from the laptops and various softwares are loaded on them, only after which the HDDs are fixed back into the laptops. There are extensive processes which are undertaken subsequently as listed out by the adjudicating authority in para-21 of his order. The name ELCOT is screen printed on each laptops. In our considered opinion, all these are definitely processes which involved repacking of goods in or into the unit container, and in addition relabeling, testing, and loading of software without which the laptops would not be fully functional and would not be accepted by ELCOT. The ingredients of Section 2 (f) (iii) of the Act will definitely get attracted in respect of processes undertaken, hence the impugned activity will definitely fall within the legal definition of manufacture under the said Section 2 (f) (iii) ibid.
6.3 We therefore do not find any infirmity to t he decision of the adjudicating authority that the processes carried out would amount to manufacture. Hence, we do not interfere with the duty demand of Rs. 35,90,378/- with interest thereon made against Acer and Rs. 1,11,95,801/- with interest made against Supreme Cables. So ordered.
6.4 However, coming to the matter of confiscation of goods and imposition of penalty, we do not find that the conduct of the appellants was in any way contumacious. It is relevant to note that the appellants had imported the laptops for intended resale and had in fact claimed and obtained refund of SAD on these imports. The appellants have however erred in having subjected the imported goods to post import processes which amount to manufacture within the meaning of Section 2 (f) (iii) of the Act. Nonetheless, they undertook these processes as required by ELCOT, a Govt. undertaking, as laid out in the tender and contract, which certainly was public knowledge. As averred by the Ld. Advocate, the sum of the components of SAD and CVD exceed the duty liability demanded in this case. This being so, we are of the opinion that the ingredients of Section 11 AC will not be attracted in this case, hence, no penalty under that Section can be imposed. In view thereof, the penalties imposed under Section 11 AC on both the appellants are set aside. So also, for the same reason, we set aside the confiscation of 1095 laptops from Acer and 651 laptops from Supreme and also set aside and the redemption fines imposed thereon.
7. Both the appeals are partly allowed on above terms.
(Operative part of the Order pronounced in the open Court)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
BB
9