Customs, Excise and Gold Tribunal - Delhi
Shriram Pistons And Rings Ltd. vs Cce on 9 October, 2003
Equivalent citations: 2004(92)ECC336, 2004(164)ELT289(TRI-DEL)
ORDER
K.K. Usha, President (J)
1. In these appeals at the instance of the assessee challenge is against the order passed by the Commissioner (Appeals) dated 17.4.2003. The issue to be considered is whether the modvat credit taken by the assessee was in contravention of Rules 57AA and 57BB of the Central Excise Rules, incidentally, the question, whether the piston ring set cleared by the assessee has undergone a manufacturing process.
2. The appellants are, inter alia, engaged in the manufacture of pistons, piston rings, pins and engines valves falling under Chapter sub-heading No. 8409.00 of the Central Excise Tariff. These items are supplied to various OE manufacturers who further make use of them in the manufacture of final products, namely, parts of motor vehicles etc. In is the case of the appellants that the piston rings manufactured by them is tailor made to specific requirements of the OE manufacturer-buyers. One particular set of rings can be made use of only for a particular vehicle model. For example piston rings made and meant for Maruti Zen model vehicles cannot be made use of in Maruti Esteem model.
3. The appellants import piston rings from aboard. After testing the conformity with reference to specifications, they undertake match test of the rings manufactured by them. Once the rings are assembled together to form a piston rings set, they supply them to the concerned vehicle manufacturer under whose specifications such set have been manufactured by the appellants.
4. Appellants filed declaration in terms of Rule 57G and availed modvat credit of the duty paid on the rings. On clearance of piston right set on appropriate payment of duty, the appellants utilize the credit of the duty paid on inputs, namely, the rings. While so, show cause notice dated 7.11.2001 was issued alleging that the activity of setting the rings together undertaken by he appellants does not amount to manufacture and therefore, modvat credit of the duty paid on the rings is not admissible. It was also proposed to impose penalty on the appellants under Rule 173-Q of the Central Excise Rules, 1944. The appellants filed detailed reply to show cause notice wherein they had stated that on receipt of the imported rings, they wash the rings and subject such rings to the test of match, size and other specifications on such imported ring with the other rings manufactured by the appellants. After the test on conformity to specifications rings are made into a set. It has a distinct name, character and use. The adjudicating authority did not accept the contention raised by the assessee. He confirmed the proposal in the show cause notice. The Commissioner (Appeals) also rejected the case put forward by the assessee. He took the view that the appellants are not carrying out any manufacturing activity on the imported rings. These rings are complete finished products, which are sold in the same form along with the rings manufactured by them. Appellant was carrying out only the trading activity and therefore, is not entitled to take credit of the duty paid on the rings imported.
5. The learned Counsel for the appellant points out that there is no dispute raised by the Revenue that the appellants have discharged duty liability on the higher value ont he piston ring set. If that be so, there is no reason for denying credit of the duty paid on input rings to make such set. The assessee has placed reliance on the decision of this Tribunal is Standard Surfactants Ltd. Vs. CCE 2000(36) RLT 375. Even though the Commissioner (Appeals) refers to the above fact in his order, he does not consider the above contention at all.
6. According to the appellants, the process undertaken by them in matching the imported rings with those manufactured by them according to the requirement of each customer would satisfy the definition of 'manufacture' under Section 2(f) of the Central Excise Act. The piston ring set which is finally cleared by assessee consists of the following rings:-
(i) Top ring
(ii) 2nd Compressing ring (imported)
(iii) 3rd and 4th ring (as applicable to a particular model) The testing which is carried out by the assessee involves technical work relating to conformity or otherwise of the rings imported and the other rings used making a coil piston rings set. It is submitted that the ring set is not any set of rings available in the market but are tailor-made and according to the specific requirement of OE buyer/manufacturer. It is also submitted that the observation made by the Commissioner (Appeals) that the rings supplied in packed condition as such is not fully correct. Imported rings and those manufactured by the appellants are packed in one pack since they form a set and have to match with each other.
7. It was further contended by the appellant that even if the process undertaken by it does not amount to manufacture and the imported ring is to be considered as an accessory when it is cleared in one pack along with other manufactured rings, Modvat credit is still available to the assessee under Rule 57B. It provides that modvat credit can be taken on the accessories of final product which is cleared along with final product and its value is included in the value of the final product.
8. The learned DR contended that the process undertaken by the assesssee will not come within the definition of the term 'manufacture' under Section 2(f). Therefore, according to the Revenue, assessee is not entitled to take credit of the duty paid on the rings imported.
9. We find merit in the contention raised by the appellants on both ground. In the nature of process undertaken by the assessee, as explained above, we find that new and different article emerges having distinct character and use. The rings imported by the assessee cannot be as such used as piston ring set in a particular model of motor vehicle. The Revenue has no case that a piston ring set made with the imported rings can be utilised in any model of automobile. The assessee's case is that each model of the automobile has different specification regarding piston ring set and the assessee is supplying piston ring sets in accordance with such specification. The above being the position, we have no hesitation to hold that the process undertaken by the appellants would amount to manufacture.
10. Apart from the above, admittedly the piston rings set is being cleared on a higher value and duty is being paid on that value by the appellants. The appellants have correctly relied on the decision of this Tribunal in Standard Surfactants Ltd. Relevant portion of the order reads as follows : -
"The undisputed facts in this regard are that the appellant markets a product called 'Ariel Super Soaker and Bar'. This is a composite pack of soap powder and soap cake/bar. The appellant obtains the soap bar from outside but manufactures the soap powder. Duty is paid on the pack of Ariel Super Soaker and Bar..............There are no two definitions in the Central Excise law for the purpose of levying duty as manufacture and for granting input credit. It at all, the position is more liberal with regard to input credit, as it allows credit in respect of any item used in or in relation to the manufacture. We, therefore, hold the finding on this score to be wholly illegal and set aside the duty demand on this score also.
11. The appellant are on goods ground in their contention that, they are entitled to take credit under Rule 57-B even if their activity does not amount to manufacture. Rule 57B during the relevant time reads as follows:-
"Rule 57B-Eligibility of credit of duty on certain (inputs) - (1) Notwithstanding anything contained in Rule 57A, the manufacturer and final products shall be allowed to take credit of the specified duty paid on the following inputs used in or in relation to the manufacture of the final products, whether directly or indirectly and whether contained in the final products or not namely-
(i) inputs which are manufactured and used within the factory of production;
(ii) paints;
(ii) inputs used as fuel,
(iv) inputs used for generation of electricity or steam, used for manufacture of final products or for any other purpose, within the factory of production;
(v) packing material and materials from which such packing materials are made provided the cost of such packing materials is included in the value of the final product.
(vi) accessories of the final product cleared along with such final product, the value of which is included in the assessable value of the final product.
Explanation - For the purposes of this sub-rule, it s is hereby clarified that the term 'inputs' refers only to such inputs as may be specified in a notification issued under rule 57A."
Even if the imported rings are being supplied along with the rings manufactured by the assessee as an accessory of piston ring set, the assessee is entitled to take credit by take in recourse to clause (vi) of Rule 57-B. A similar view taken by this Tribunal in Rico Auto Industries Ltd. Vs. CCE New Delhi 2003 (57) RLT 271 (CEGAT-Del.). We do not find any consideration on this issue by the Commissioner (Appeals).
12. For the above reasons, we find that the denial of credit to the appellants is unjustified. We, therefore, set aside the order impugned and allow the appeals.