Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Karna Industries on 7 January, 1992
Equivalent citations: 1992(40)ECC293
ORDER
Harish Chander, Member
1. Collector of Central Excise, New Delhi, has filed a review application under Section 35-E(1) of the Central Excises and Salt Act, 1944, being aggrieved from the order passed by the Director(Publication) who was invested with the powers of Collector of Central Excise, New Delhi. The said review application was received in the Registry on 20.12.1988. The Central Board of Excise and Customs vide Order No. 46-R/88 dated 3.11.88 had ordered the review of the order passed by the Director (Publication), Central Excise Collectorate, New Delhi and the said order was passed on 22.11.1988 and as such the review application filed by the Collector of Central Excise, New Delhi, is within time. The present review application is to be treated as an appeal in terms of provisions of Sub-section (4) of Section 35-E of the Central Excises and Salt Act, 1944.
2. She facts of the case are that the respondents M/s. Karna Industries, 10/67, Kirti Nagar, New Delhi, are engaged in the alleged manufacture of Gas Compressors of various capacity falling under heading 84.14 of the Central Excise Tariff Act by the party from various sources namely M/s. Fedders Lloyd, M/s. Blue Star, C.P.W.D., Railways, Government undertakings etc. All unserviceable compressors so received by the part irrespective of the source they come from are cut open and dismantled completely. At this stage the identity of the components in relation to the compressor from which these have been taken out is lost. Even the relation to the control number painted by the party on the body of the compressor is lost. Also the source of its procurement cannot be made out after it is dismantled. (iii) After all the compressors are dismantled, the parts are further dismantled thereby making it impossible to trace out the source of its receipt or the control number assigned by the party. All the dismantled parts are subjected to inspection on air-gauges and other equipments. Parts requiring repair are sent for repair. The process of dismantling primarily is a process where old and used parts are salvaged to be further used for the manufacture of the compressors.
(B) Assembly Stage:- Assembly line is a continuous process in which bought out components along with all serviceable old and used parts taken out from the unserviceable compressors get into the stream of assembling process/manufacture. The old and used serviceable parts recovered from unserviceable compressors are used for the manufacture of compressor only to reduce the cost of production. The old parts received in the line cannot be linked to the compressor from which it was taken out. In the assembly line (i) piston and crank assembly is done in motor housing (ii) Rotors and fresh wound stators are fitted and (iii) all other components assembled. Compressors are tested, sealed dehydrated and painted. The control number which was assigned at the time of receipt of the compressor as stated earlier and whose identity was lost at the time of dismantling is reassigned to the compressor. This is done now by engraving it on the compressor. The engraved control number cannot at this stage be linked to control number earlier assigned.
As per Revenue's version assembling undertaken by respondents M/s. Karna Industries, New Delhi, it appears that they were engaged in the manufacture of compressor which were manufactured out of new bought out components alongwith salvaged, serviceable, old and used parts taken out from unserviceable compressors. The process of manufacture undertaken by the respondents appeared to fall within the ambit of definition "manufacture" as defined in Section 2(f) of the Central Excise and Salt Act, 1944. It also appeared to the Revenue authorities that there was evidence to show that old and used compressors were received into the factory by the respondents only to salvage serviceable parts in the assembly of new compressors. M/s. Royal Engineering Company stated to have purchased compressors and airconditioners from Kabaris and as well as from Government auctions. Mr. Mohan Lal, Accountant of M/s. Royal Engineering Company in his statement dated 15.9.86 stated to have sent these compressors to M/s. Karna Industries and after having received the Karna manufactured compressors stated to have maintained the buffer stock of the compressors for instant/off the shelf replacement. The customer bringing in the defective compressor is not concerned about the compressor he gets back. Shri Hafezudin, partner of M/s. Royal Engineering Co has also confirmed in his letter dated 8.10.86 the above version. Statement of Shri Subhash Maini, Proprietor of M/s. Koldsopt was recorded in which he stated that they purchase air conditioners from various sources including actions through Government agencies and Embassies, the defective burnt compressor taken out from which air conditioners were sent to M/s. Karna Industries who salvage the serviceable parts and manufacture a new compressor using new parts and M/s. Karna Industries as a matter of procedure sends back the compressor to the customer assigning them the same serial number which was originally borne by the Sri Ram Compressor. M/s. Karna Industries returns the compressor to their customers in the same quantity and usually assign the same serial number which was originally sent by the customers. This fact has been duly admitted in the statement by the Commercial Manager of M/s. Kama Industries. Revenue's view was that assigning the same compressor number was to cover their activity of manufacture in the garb of repairs and there was a clear demarcation of manufacture as it appears that according to liberal meaning repair means to restore to good condition, renovate, mend by replacing or refixing parts. The operations carried out for repair should only be such that the repair should preserve the identity of articles or goods which are subjected to repair. In short, repair of goods will only mean when repaired goods are returned to its owner, whereas the party undertakes the assembling in which identity of parts have been in relation to compressors from which these taken out is lost. The method of reassigning the serial number to the manufactured compressor which was by pick and choose method clearly indicates that it is only the original compressor's serial number added with prefix "Z" which has been reused, but otherwise it cannot be known as to who earlier had supplied the compressor. The respondents, as per Revenue, in their statement dated 5.8.86 confessed the facts that only correlation is to the effect that whatever quantity is received by them for repair is cleared by them. The Revenue was of the view that the activity was in the nature of manufacture. It was further observed by the Collector in his order that the charges collected from the customers were uniform irrespective of nature of extent of repair. Whatever minor repair a compressor may involve, the customer is charged standardised rate as for example indicated below:-
Group Model Customer Price
_________________________
(Cut open) (Sealed)
RAC 1622 2870 2330
1022 2725 2190
1012/1012L 2655 2120
The Revenue was of the view that the respondents themselves do not know the nature and extent of repair involved in each case. Ordinarily whenever repair is undertaken, repair charges are payable in accordance with the extent of repair. The significant point of repair would be that defective compressor comes to the repairs and the same compressor after necessary rectification/renovations goes back to its customer. In the instant case the compressors received for repair loses its identity as soon as the same was dismantled. Similarly, identity of components with reference to the compressors is also entirely lost. The compressor was like a new compressor and repaired compressor was just a nomenclature. The Collector also took the view that consumption of new components used in the manufacture of a compressor varies from 60% to 80% in terms of value as revealed from the respondents' balance sheets for the year 1981-82,1982-83,1983-84 and 1984-85/The year-wise break-up is as under:-
Year ending -- June 1981 .. 77.9%
1982 .. 79.7%
1983 .. 74.6%
1984 .. 60.2%
1985 .. 65.4%
It appears the Collector further observed that the respondents had merely adopted cost reduction technique. It was also observed that a new Sri-Ram compressor was available to the customer at a price which was comparable to the charges as charged by M/s Karna Industries for the compressors manufactured by them. The comparative prices are as under:-
Model. Basic price excluding taxes of Sri Customer price of compressor manu-
Ram compressor including handling factured by M/s. Karna Industries
charges effective from 1.3.86 including handling charges effective
from 1.3.86
(Cut Open) (Sealed)
1622 2685 2870 2330
1022 2360 2725 2190
1012/1012 L 2305 2655 2120
Accordingly, the Collector had taken the view that the respondents were engaged in the manufacture and clearance of excisable goods without having obtained the central excise licence and cleared the same from the place of manufacture without payment of central excise duty. Therefore, the respondents it appeared to have contravened the provisions of Rule 174, 9(1), 52A, 53, 173B, 173C, 173G of the Central Excise Rules, 1944. M/s. Karna Industries have manufactured total number of 50,021 out-warranty and in-warranty compressors for the period from October 1981 to August, 1986. They had cleared 41,269 compressors for the period from October 1981 to August, 1986 after manufacturing which was valued at Rs. 5,86,70,690/-. Besides, the respondents also manufactured and cleared 8,752 in warranty compressors on pro-rata basis and the assessable value woks out to Rs. 1,30,45,492/- and the total duty not paid by the respondents on 50,021 compressors valued at Rs. 7,19,16,182/- works out to Rs. 8,45,09,318/-. A show cause notice was issued to M/s. Karna Industries vide C.No. V(29A) 15/72-CE/86/9001 dated 6.11.1986 requiring them to show cause as to why (i) the Central Excise duty not paid by the party amounting to Rs. 8,45,09,318/- (BED Rs. 8,15,04,116/- and SED Rs. 30,05,202/-) be not demanded from them under Rule 9(2) of the Central Excises and Salt Act, 1944 [sic] (ii) Penalty should not be imposed on them under Rule 173Q of the Central Excise Rules, 1944 ibid (iii) land/ building plant and machinery used in connection with the manufacture and storage etc., of the said compressors should not be confiscated under Rule 173Q(a)(ii) of the Central Excise Rules, 1944 ibid. M/s. Karna Industries vide their letter dated 28.2.87 in reply to the show cause notice have stated that the full facts were not placed before the Collector by the investigating officers for issuing of the show cause notice and it was submitted that the respondents since 1985 have applied for a Central Excise licence in form AL4 for manufacturing of Jigs, Moulds, etc., under Tariff Item 68 of the Central Excise Tariff as it stood then. The central excise licence was granted and the ground plan for the factory premises was approved by the Excise Department. Detailed ground plans were submitted showing the factory premises which also included the premises where repairing of compressors was taking place and the same was approved. The respondents submitted that the premises where jigs, moulds etc., were manufactured was a part and parcel of the factory premises and that the Central Excise officers have to go through the premises where repairing was done to reach the place where jigs, moulds etc., were being manufactured. The respondents had relied on various decisions of the various Courts and had contended that they were having authorised service centre [for] Shri Ram Refrigeration Industries Ltd., who were the manufacturer of Shriram Brand hermetically sealed compressors for repairing of such compressors. Over a period of time a number of customers have chosen to utilise the service rendered by the respondents in repairing Shriram compressors and the customers can broadly be divided into the following categories:- (1) Government of India Departments (2) Public Sector Undertakings (3) Original Equipment Manufacturers such as Blue Star Ltd., American Refrigeration Co., Ltd., etc. (4) Private Enterprises and the trade customers like Goodyear India Ltd., Escorts Ltd., etc., and (5) Various individual customers in the trade including collecting agents of the respondents.
3. As per the Revenue, the respondents had a schedule of repair charges for various models of Shriram compressors which are defective, and that there was a difference in their repair charges for original works sealed compressors and the cut open (locally repaired) compressors. The defective compressors meant for repairing were sent by the customers of the respondents along with proper documentation depending upon the practice adopted by the customers. Certain customers sent their defective compressors along with work orders/job orders along with delivery challans giving the necessary details with regards to the defective compressors. There are other customers who have entered into annual repair contracts and on the basis of these contracts, keep sending the defective compressors for repairs on their challans/letter heads giving various details. It is significant to note that the customers challans/work orders over the period of time of more than twelve years mention about the repairing of compressors and not manufacturing of compressors. The accepted trade practice is therefore that the process undertaken by the respondents is only repairing. The work order/purchase order/challan etc., accompanying the defective compressors for repairing broadly carry the following information:
(i) The model/capacity/size of the defective compressors being sent for repair.
(ii) The serial numbers of defective compressors.
(iii) Whether the compressor is an original works sealed compressor or is a cut open (locally repaired) compressor.
(iv) Repair charges applicable.
The delivery challan accompanying the compressor for repair mentions the serial number of the compressor sent for repairs. The serial number appearing on the compressor indicates the model, the capacity and the month and year of manufacture etc. The respondents insist on mentioning of serial number to ensure that while, returning repaired compressors, the returned compressor must be of the same model/capacity etc. There may be a very few compressors, which are negligible as compared to the total compressors repaired in a year, wherein the serial numbers are not legible due to corrosion, dust deposit etc. Such defective compressors are received by the receiving clerk who determines its model and capacity by inspection and/or the compressor is cut open at receiving/inspection stage to ensure that while returning the repaired compressor the same model and capacity is returned. The receiving clerk compares the details given in the challan with the defective compressor received physically and the following checks are made at this stage, namely:-
(i) Whether the model, capacity etc., and serial number as given in the challan physically tally with model/capacity and the serial number engraved on the defective compressors? (ii) Whether the information given in the challan that the compressors are original works sealed or are cut open (locally repaired) compressors, is correct? (iii) Whether the compressors are economically repairable or not as per inspection based on his long experience. After receiving the compressor and completing the above mentioned formalities, the receiving clerk puts a stamp on both the copies of the challan, thus acknowledging the receipt of defective compressor for repair. The stamp reads as "Goods received subject to physical counting and verification from inspection department". The stamp indicates that the compressors have been received on the basis of preliminary inspection but in case any discrepancy of any form is found or if the compressor is not economically repairable, the service centre reserves the right to return the same in unrepaired condition. At this stage, it is significant to mention that if the receiving clerk feels that the compressors accompanying the challan do not tally with description therein or if the compressors on inspection are such that they are not economically repairable, he does not accept such compressors for repairing and makes suitable entries in the challan accompanying the defective compressors. The respondents wish to state that the compressors which are beyond economical repairs are returned in an unrepaired condition and shall herein after be termed as "irreparable" compressors. Similarly, compressors which are within the range of economical repairs wherein the replacement of new parts is low, shall hereinafter be termed as "repairable" compressors. As mentioned earlier, the respondents receive defective compressors for repairing from various sources. Whenever repairs are carried out on the repairable compressors, repairing charges as per the repair charges schedule are being charged. The respondents further give a 1 year warranty with regard to the compressors repaired by them and if any of the repaired compressors comes back to the respondents within the 1 year warranty period, the respondents undertake to repair the same without charging any further repair charges. Such compressors are termed by the respondents as "Inwarranty" compressors. Entries are made in "gate entry register" on the basis of the challans giving the details of the defective compressors received for repair. The corresponding control number of the gate entry register is then put on to the defective compressors with paint. The respondents have separate control numbers and colours for out of warranty compressors and inwarranty compressors received for repair. The compressors are then transferred to the store till they are sent for repairs. The inspection cell of the service centre cut open the defective compressors and if found to be in good condition further dismantling process starts otherwise returns back to the receiving clerk in an unrepaired condition, with the remarks on the issue slip along with irreparable compressor. Such compressors are ultimately returned to the customer. After repairs are completed, the serial number of original compressor which was issued to service centre for repair earlier is engraved on the repaired compressor of the corresponding model and capacity based on the repair priorities advised by the marketing department. In addition to the serial number, the respondents also put a prefix "Z" before the serial number. Another number known as warranty code number is also engraved. The respondents also put a sticker stating that the compressor is repaired by Karna. The repaired compressor along with report of the service centre is then handed over to the godown for despatch. The criterion for rejecting compressors at Receiving stage/Inspection stage will be that as and when the defective compressors are received by the receiving clerk along with the challans, the receiving clerk makes an inspection of the defective compressors. He compares serial numbers, sees the appearance and the general condition of the compressor. If from the general condition and appearance, the compressor is found to be in bad condition such compressors are returned by him at the receiving stage only. The inspection carried by him covers the condition of the top shell, terminals, bracket, coper tubes, its joint etc. An examination of these parts gives an idea of the condition of the compressors. Since the inspection by the receiving clerk is limited to the outer condition of the compressor as he is not being a technical person, the internal condition of the defective compressor is then checked by the inspection department of the service centre after the outer shell has been cut open. That it why the stamp put by receiving clerk states that compressors are received subject to physical counting and verification from inspection department. The inspection department see the condition of the assembly of parts inside the defective compressors. Some of the parts whose condition is seen are Gas Baffle, Discharge Muffler assembly; Wound Stator, Rotor, Top Shell, Bottom Shell, Terminals, Motor Housing, Suction Muffler, etc. In case the inspection department finds that any particular defective compressor is in bad condition, such compressors are returned back to the stores as irrespirable compressors. In addition to the above, irreparable compressors are also returned by the receiving clerk at receiving stage. Since the receiving clerk returns such compressors before giving an acknowledgement, such irreparable compressors are not entered in the company's record. The entries of such irreparable compressors are noted in challans themselves. In case a party brings say 20 compressors for repairs and if 2 are rejected necessary entry is being made in the challans and kept in the record. But there are certain parties who bring one/two compressors and if these are rejected as irreparable, the challans are also returned alongwith the compressor. Thus actual rejection of irreparable compressors is more than what is appearing on record. If the intention of the respondents was only to salvage the parts, as alleged in the show cause notice, the respondents would not have returned any compressor. Irreparable compressors are returned to all types of customers whether they are individuals, organisations, original equipment manufacturers or government departments.
4. In the light of the above facts, the respondents contended that the compressors received by them amounted to the repair and it does not amount to manufacture in terms of Section 2(f) of the Central Excises and Salt Act, 1944.
5. The respondents also stated that the practice adopted by them appears was the practice followed by practically all other manufacturers of compressors engaged in the repair of compressors. Some of these are Hyderabad Allwyn Ltd (Andhra Pradesh Government Undertaking), Voltas Ltd., Kirloskar Bros., Kelvinator of India Ltd., Shriram Refrigeration Industries Ltd., Godrej & Boyce Manufacturing Co. Pvt. Ltd. The respondents also submitted that they never sold repaired compressors to anybody and the respondents' company was a service centre where the customers bring the defective compressors for repairing and after doing the repair, the repaired compressor is returned back to the customer by charging only the repair charges. At the cost of repetition, it is stated that the respondents had never sold a repaired compressor. The respondents contended that it is an accepted and admitted position that they receive defective compressors for repairing and after repairing the compressors, the same model/capacity/specifications compressors is returned to the customer is hermetically sealed, in such a repair the compressor necessarily has to be cut open and the parts have to be dismantled and in the common trade practice this process was known as repair process only. The respondents also stated that the documents, work order, job order, billings etc., done in connection with the repairing of the compressors would go to prove that the process undertaken by the respondents is only repairing of compressors and not manufacturing of compressors, and many of the job orders received from Government Departments for the last 12 years describe the job work done by the respondents as repairing. It was also alleged in the show cause notice that the respondents are engaged in the manufacture of compressors from bought out components and in the process of assembly, salvaged, serviceable old and used parts taken out of unserviceable and defective compressors are used. It has also been alleged that the consumption of bought out new components varies from 60% to 80% in terms of value. The respondents deny the said allegations, and also argued that these were wrong presumptions. Consumption of 60% to 80% was incorrect as the quantity of new key components is only of the order of 45% to 31%. Annexure E to the show cause notice from where the percentages were worked out, indicates various details of repair, income, handling charges, raw-material consumption etc. For the year ending June 1985, the total value of the raw-material used for repairing of compressors have been indicated as Rs. 88,82,387/-. During the said year, the respondents had repaired a total number of approximately 10020 compressors. Thus the value of the consumption of bought out components on an average per compressor comes to approximately Rs. 886/-. The respondents also supplied a comparative chart of average consumption of new components in the repairing of compressors in the years in question and also undertook an independent exercise that if a new compressor of a particular model had to be assembled from new components purchased in the replacement market, what would have been the cost of the said compressor. The said exercise done on the basis of the cost of new components for SR 1622 model which is the majority model for repair alone comes to Rs. 4,200/- approximately, on the prices applicable on 1.1.86 and marked in the annexures submitted. This excludes assembling charges, overheads and the marketing expenses. As against this price, the actual repair charges which include spare parts cost, labour charges etc., and margin, as on 1.1.86 was only Rs. 1,920/- for original compressor for repair and Rs. 2,355/- for cut open compressor for repair for trade/Government customers and Rs. 1,720/- for original compressor and Rs. 2,125/- for cut open compressor for repair for large DEM customers, which will go to prove that only few new parts were fixed for repairing compressors. As indicated above, and as shown in the annexure, the average consumption of bought out components for the year 1985 comes to approximately Rs. 886/. On average basis, the consumption of bought out components as on 1985 when compared with the standard costing of the 1622 compressor excluding overheads plus margin on the price applicable as on 1.1.1986 is approximately 20% only. The respondents in reply to the show cause notice also mentioned that they had applied for L.4 licence for the manufacture of jigs, moulds etc., under tariff item No.68 in the year 1975 and a licence No. 69/68/75 dated 25.9.75 was granted for carrying on the manufacture of jigs, moulds etc. In the AL4 application for the licence it is clearly declared that the respondents were carrying on the activity of repair of compressors. The Department after physical verification of the premises had granted the L4 licence and the licence was renewed from time to time. In addition to the above, various classification lists the respondents are filing time and again which on the back page of the form I (Rule 173B) of the classification list regarding the activity of repair of compressors. These classification lists have also been approved by the department and it proves beyond doubt that the department had knowledge of the activity of repair of compressors and the approval of these lists clearly means that they have approved the activity of carrying on the repair of compressors as non-excisable. The officers of the department have repeatedly visited the respondents' premises either during the budget days or on their routine/surprise checks and have seen these activities repeatedly. The respondents had also relied on the decision of the Tribunal in the case of Shriram Refrigeration Industries Ltd., Hyderabad v. Collector of Central Excise, Hyderabad . Keeping in view the totality of the facts and circumstances of the case, the Collector had taken the view that the allegations in the show cause notice that M/s. Karna Industries were manufacturers of compressors was not proved. Accordingly, the proceedings started in this case vide show cause notice V(29A)15/72-CE/86/19001-5 dated 6.11.1986 were dropped.
6. Being not satisfied with the order passed by the Collector, a review application has been filed which is being treated as an appeal.
7. Shri M.S. Arora, the learned JDR, has appeared on behalf of the appellant-Collector. He reiterated the facts and pleaded that the respondents manufacture compressors but they are claiming as if they are repairing the compressors. He stated that the duty amount involved is Rs. 8,45,09,318 and the period involved is October 1981 to August 1986. The show cause notice is dated 6.11.1986 and the same was duly served. Shri Arora pleaded that the issue is whether the compressor received as unserviceable and thereafter being converted into a serviceable compressor will amount to manufacture. He also referred to the point of reference being made to the Tribunal. He referred to the show cause notice which appears at page 218 of the paper book and on the 1st page of the show cause notice the process of receipt and dismantling stage has been mentioned there. He also drew the attention of the Bench to assembly stage which has been mentioned in internal page 2 of the show cause notice which appears at page 219, 220, 221 of the paper book. Shri Arora pleaded that from the Assembly line it is a continuous process in which bought out components old and used parts are taken out from unserviceable compressor got into the stream of assembling process/manufacture. He also argued that the old parts received in the line cannot be linked to the compressor from which it was taken out. In the assembly line piston and crank assembly is done in motor housing. Rotors and fresh wound stators are fitted and all other components assembled and then compressors are tested, sealed, dehydrated and painted. The control number which was assigned at the time of receipt of the compressor whose identity was lost at the time of dismantling is reassigned to the compressor. This is done by engraving it on the compressor. The engraved control number cannot at this stage be linked to control number earlier assigned. Accordingly, M/s. Karna Industries are engaged in the manufacture of compressor which are manufactured out of new bought out components along with salvaged serviceable old and used parts taken out from unserviceable compressors. The process of manufacture undertaken by the respondents appear to fall within the ambit of definition "manufacture" as defined in Section 2(f) of the Central Excises and Salt Act, 1944. Shri Arora further argued that the respondents were undertaking the manufacture of compressors out of new parts along with used, salvaged parts from unserviceable compressors was supported by the fact that the respondents collect the charges on the uniform rate irrespective of the nature or the extent of the repair. Whatever minor repairing the compressor may [have] involved the customer is charged standardised rate as for example indicated below:
Group Model Customer Price
________________________
(Cut open) (Sealed)
RAC 1622 2870 2330
1022 2725 2190
1012/1012L 2655 2120
Shri Arora argued that old compressors are bought by the respondents and after doing necessary manufacturing activity they go out as new compressors. Shri Arora argued that ordinarily whenever repair is undertaken repair charges are payable in accordance with the extent of the repair and whereas the charges of the respondents are uniform. The repair [sic] was that the defective compressor comes to the repairer and the same compressor after necessary rectification/renovation goes back to its customer whereas it is not so in the case of M/s. Karna Industries. The compressor received for repair loses its identity as soon as it is dismantled and identity of components with reference to the compressors are also entirely lost. The respondents in doing so have given the product going out of factory a nomenclature of repaired compressor whereas they have actually salvaged the serviceable parts from the unserviceable compressors and used the same for the manufacture of compressor alongwith new parts. Shri Arora argued that consumption of new components used in the manufacture of a compressor varies from 60% to 80% in terms of value as revealed from party's balance sheets for the year 1981-82, 1982-83, 1983 and 1984-85. The yearwise break up is as under:
Year ending June, 1981 : 77.8%
1982 : 79.7%
1983 : 74.6%
1984 : 60.2%
1985 : 65.4%
Shri Arora argued that this process means manufacture. In support of his argument, he cited the following decisions:-
(1) Name Tubman Manufacturers Pvt. Ltd v. Collector of C.E. .
The Supreme Court has held that "a part/component may be goods as known in the excise laws and may be dutiable at the same time, the final product assembled from such duty paid parts/ components may be separately known and dutiable under excise Saw because when parts and the. end product are separately dutiable both are taxable".
(2) Haryana State Electricity Board v. Collector of C.E. The Tribunal has held that "the component parts of the transformers are commercially and factually distinct from the transformer. A transformer made out of such component parts is commercially a separate product and traded as such and known as such. Its functions and uses are totally different from the functions and uses of the component parts. In the result, the transformer when it comes into existence would be a distinct manufactured product different from its component parts and hence would attract excise duty separately. Since tax was not being demanded on the same goods on which tax had already been paid but on a distinct and separate product, the question of double taxation would be involved.
(3) Shriram refrigeration Industries Ltd. v. CCE, Hyderabad (4) P.C Cheriyan v. Mst. Barfi Devi 1979 ELT (J.593) In para 8, the Hon'ble Supreme Court had observed that tyre remains a tyre.
Shri Arora pleaded that applying the ratio of the Section (4) above, the compressor after dismantling does not remain a compressor. Shri Arora further argued that Shriram Refrigeration case does not become precedent. In support of his argument, he cited the decision of the Supreme Court in the case of Prakash Chandra Pathak v. State of U.P. . He also referred to Para 9 of Shriram Refrigeration Industries order. Shri Arora also referred to Bombay High Court decision in the case of Century Spinning and Manufacturing Co. Ltd v. Union of India reported in 1981 ELT 676 (Bom) wherein the Hon'ble Bombay High Court has held that "if the specifications and weight of the worn out spinnerettes sent out abroad for repairs were of identical weight and exact description on import it cannot be concluded that the said spinnerettes had lost their identity because of melting or repairing abroad and had become a different product, ineligible for exemption under Notification" and pleaded that the earlier decision of the Tribunal in the case of Shriram Refrigeration is based on the Bombay High Court decision in the case of Century Spinning and Manufacturing Co. Ltd. He pleaded that certain facts were not placed and as such the decision is not correct in accordance with law and cannot be treated as a precedent. Shri Arora argued that the earlier decision of the Tribunal has come to a conclusion that no manufacturing activity is involved for the compressor and it amounts to repair work based on the Bombay High Court judgment. He referred to para numbers 9 and 13 of the decision in the case of Shriram Refrigeration 1986 (26) ELT 353. In para 9 the Tribunal has discussed the evidence as well as the process employed in the manufacture of the compressors and para 13 deals with "the same form". The Tribunal had observed that even if it could be said that the repaired compressor lost its identity because of additional new parts or inter-mixing of old parts, as in this case, the activity remains one of repair and no commercially different article under Rule 173-H would still be admissible. He argued that in the case of Century Spinning and Manufacturing Company Ltd. the Bombay High Court has held that worn out or repaired cannot be said that a new product of manufacture and levied to payment of duty (sic). He argued that this judgment was based on a certificate issued by DGS&D and the old decision was based on that certificate. He argued that no such certificate is in the present case. He also referred to a decision in the case of IBM World Trade Corporation v. Union of India reported in 1980 (ELT) 274 (Bom) where the Bombay High Court has held that "if condemned data processing machines are imported only for the purpose of disassembling and salvaging of usable parts to be used for manufacturing new machines in India. The contention that the said machines were capable of being used without being dismantled in the country and were also capable of being repaired and used in the country is without any basis and cannot be accepted. The fact that the Data processing machine had never lost the identity and should be treated as machines is not correct and sufficient to conclude that the said machines would attract duty under Item 33-D of the Central Excise Tariff for the payment of countervailing duty". Shri Arora again referred to para Nos.19 and 20 of Shriram Refrigeration and Industries Ltd. case 1986 26 ELT 353. Para 20 deals with the ground taken by the department and it is mentioned that "(1) The incident of 15 compressors detected with duplicate marks and numbers was ultimately decided in favour of the appellants; (2) The two grounds of high quantity of rejected parts and high cost of repairs were dropped by the Collector himself during adjudication; (3) The argument of loss of identity cannot be sustained in the Spinnerettes' case; and (4) Just by intermixing of identical parts as between defective compressors of the same model and specification, it could not be said that the reassembled or repaired compressors were not in the same form as those brought into the factory; nor going by the test laid down by the Constitution Bench of the Hon'ble Supreme Court in the Allenbury Engineers' case and reiterated by a full Bench of the Hon'ble Supreme Court in the Barfi Devi's case, could it be said that reassembled or repaired compressors were commercially distinct article as compared to the goods that were brought into the factory for repairs". Shri Arora referred to the order-in-original particularly page 354 of the paper book and argued that the consumption of bought out new components varies from 60 to 80% in terms of value as revealed from the respondents' balance sheet. Shri Arora referred to page 25 of Shriram Refrigeration case where there is an observation by the Tribunal that "if the authorities have a feeling that what is really happening is not what is made out to be, they would have to investigate the matter thoroughly and substantiate their case with proper evidence". Shri Arora also referred to the following decisions:
(1) MSCO Pvt. Ltd. v. Union of India and Ors., where the Hon'ble Supreme Court has interpreted the word industry as expression it means skill, ingenuity, dexterity, diligence, systematic work or labour, habitual employment in the productive arts, manufacturing establishment.
(2) Tata Iron & Steel Co. Ltd. v. Union of India and Ors. where the Supreme Court has held that "forged products in rough machined condition dutiable on weight after machining and polishing is done to remove excess surface skin. Said process incidental or ancillary to the completion of manufacture of forged products".
(3) Empire Industries Ltd. and Ors. v. Union of India and Ors. where the Hon'ble Supreme Court has held that transformation of an object into a different commercial commodity sufficient to constitute manufacture under Section 2(f) of the Central Excises and Salt Act.
Shri Arora referred to the statement of Shri Subash Maini who is in the business of air conditioners, which appears at page 233 of the paper book, where he has mentioned that Shriram make compressors have fixed charges for repairing as per M/s. Karna Industries tariff. He also referred to the statement of Shri Hafizsuddin which appears at page 244 of the paper book. In his statement he mentioned that the compressors which received from customers are of different capacity and Karna Industries charge the repairing charges according to their capacities. As repairing charges of 11/2 ton capacity compressors is approximately Rs. 1920/- to Rs. 2355/-. The repairing charges of 1 ton capacity is approximately Rs. 1710/- to Rs. 2140/-. The price of compressor received for repair is approximately Rs. 200/- or Rs. 250/-. In his statement he has further stated that it is impossible to say that whether the number of the repaired compressor which has been received back after repair is same or not and the number on the painting body is engraved with the help of hand machines. He further stated that whenever anybody for repair and ask for the immediate delivery then Karna Industries take repair charges and give him the delivery from their stock if it is available with them. He also referred to a statement which appears at page 246 where he has told there are 47 Shriram Compressor, 6 Voltas, 2 Kirloskar and 2 Others, total 57 are lying in his ship and out of which only 2 have to be sent to Karna and the rest will be sold as scrap. Shri Arora has also referred to the statement of Shri Mohanlal which appears at page 249 of the paper book where he deposed that a person who sell these items deal in old items and are kabadis. Sometimes he purchases big plants of air conditioners and their compressors from these kabadis and the persons who sell old articles. Shri Arora again referred to the show cause notice at pages 218-223. He laid great emphasis on the fact that the compressor after salvaging of the old compressor parts and after putting new parts loses its identity. He further argued that after the goods loses identity a new product emerges and as such it amounts to manufacture. In support of his argument he cited the following decisions:
(1) Paras 6,7 and 8 in the case of Gujarat State Fertilizers Co. Ltd v. Collector of C.Ex .
(2) Para 8 in the case of Collector of C.Ex v. Jayant Oil Mills Pvt, Ltd .
(3) Atul Glass Industries Ltd. and Ors. v. Collector of Central Excise and Ors. .
(4) Jain Engineering Co. v. Collector of Customs, Bombay .
(5) Bharat Forge & Press Industries (P) Ltd. v. Collector of C.Ex. .
Shri Arora argued that identity enjoy great importance and the decision of the Tribunal in the case of Shriram Refrigeration will not apply here and does not become a precedent as the decision in the case of National Organic Chemical Industries Ltd., Bombay v. Collector of Central Excise, Bombay (Tribunal) was not cited before the Tribunal. He pleaded that the earlier decision for the interpretation of notification No. 119 and laid special emphasis on para No. 15 he argued that now it has to be seen whether the Collector was right in applying the ratio of the earlier decision. He referred to page 354 of the paper book where it has been observed that the party has merely adopted cost reduction technique, Shri Arora argued that in deciding the classification of the product the function is very important and it predetermines the classification. Since the function was not looked into properly, Shriram Refrigeration cases loses its binding force. In support of his argument he cited the following decisions:
(1) The Regional Manager and Anr. v. Pawan Kumar Dubey .
(2) Para 13 in the case of Tata Iron and Steel Co. Ltd v. Union of India and Ors. .
(3) Paras 8, 17 and 18 in the case of Motiram Tola Ram and Ors. v. Collector of Customs, Bombay .
(4) Para 27 in the case of Dhrangadhra Municipality, Dhrangadhra and Ors. v. Dhrangadhra Chemical Works Ltd. and Ors. .
(5) Para 3 in the case of Bhartia Electric Steel Co. Ltd v. Collector of C.Ex .
Shri Arora pleaded that in view of the facts and the legal position explained by him, the earlier decisions of the Tribunal in Shriram Refrigeration case should not be binding and in case the Tribunal decide the matter on merits, it is in favour of the Revenue since both on limitation as well as penalty aspects of the case have also to be looked into and as such he prayed for the matter to be remanded. He also pleaded for the acceptance of the appeal filed by Revenue.
8. Shri Ravinder Narain, the learned advocate, in reply stated that the show cause notice is dated 6.11.86 and the period involved is from October 1981 to August 1986 and the respondents M/s. Karna Industries are the authorised repairing agents of Shriram Refrigeration Company for the compressors manufactured by Shriram Refrigeration for the northern region. He argued that for the southern region the repair is being undertaken by M/s. Shriram Refrigeration, and this has been so done for their geographical arrangement. He explained how the repair activity is being done on the hermetically sealed compressors. He stated that the hermetically sealed compressors cannot be repaired unless the same are cut open and are totally dismantled after taking out the parts. He argued that the earlier decision of the Tribunal reported in 1986 26 ELT 353 is correct in accordance with law and there is no distinction as alleged by the Revenue from the present matters. He referred to page 2 para 2 of appeal No. E. 1091/S2-B1 in the case of Shriram Refrigeration Industries Ltd. He also referred to pages 5, 6 and 7 of the earlier decision of the Tribunal in the case of Shriram Refrigeration where Rule 172-H has been reproduced and which deals with retention or re-entry of duty-paid goods in factory or warehouse. Shri Ravinder Narain also referred to paras 6 and 7 of the Shriram Refrigeration case and in para 7 the Tribunal has discussed the whole case law on the manufacture and the judgments cited are in the case of Allenbury Engineers Private Ltd. v. Ramakrishna Dalmia and Ors. and P.C. Cheriyan v. Mst. Barfi Devi reported in 1979 ELT J-593. Para 6 relates to the dictionary meanings. He argued that the decision of the Bombay High Court in the case of IBM World Trade Corporation v. Union of India reported in 1980 ELT 274 (Bom) was on different basis. Shri Ravinder Narain argued that the decision of IBM World Trade Corporation is dated 13.7.79 and the decision in the case of Century Spinning and Manufacturing Company reported in 1981 ELT 676 (Bom) is dated 30.6.79. He argued that Century Spinning and Manufacturing Co. decision is correct in law. He also referred to para 7 of the Shriram Refrigeration which appears at page 9 of the order. Shri Ravinder Narain argued at length on manufacture and what amounts to manufacture has been dealt with by the Supreme Court in the following decisions:-
(1) Allenburry Engineers Private Ltd. v. Ramakrishna Dalmia and Ors. .
(2) South Bihar Sugar Mills Ltd. and Anr. etc. v. Union of India and Anr. etc. and Tata Chemicals Ltd. Bombay v. R.M. Desai, Inspector, Central Excise, Mithapur and Ors. 1978 ELT (J-336).
(3) Union of India and Ors. v. Delhi Cloth and General Mills Co. Ltd and Ors. 1977 ELT (J.199).
(4) P.C. Cheriyan v. Mst. Barfi Devi 1979 ELT (J.593) (5) Idandas v. Anant Ram Chandra Shri Ravindcr Narain argued that it is very important to see what commodity is coming in and what commodity is going out. He referred to para 8 of the Shriram Refrigeration case which appears at page 10 of the order. He stated that para 9 deals with the evidence and para 11 deals with the genesis of the Collector's charge. Shri Ravinder Narain argued that the warranty to the new compressor is 2 years and for the repaired compressor is one year. He also referred to para 12 of Shriram Refrigeration at pages 14, 15, 16 and 17 of the said order. In this regard he referred to a decision in the case of Lathia Industrial Supplies Co. Pvt. Ltd. v. Collector of Central Excise, Baroda reported in 1987 (29) ELT 752 (SC) where the Hon'ble Supreme Court has held that "Re-rubberising and relining" of old and used rollers does not amount to manufacture both before and after 14.8.1986. Shri Ravinder Narain again referred to the earlier order of the Tribunal in Shriram Refrigeration case in appeal E. 1091/82-B1 and argued that the main contention of the Revenue is that after carrying on the repairing activity on the compressor the compressor will lose its identity. Shri Ravinder Narain referred to page 221 of the paper book where the prices of the cut open and sealed compressors have been given. On page 224 which is an annexure S-7 the details of the raw material consumed on bought out parts have been given. On pages 209 and 211 which are the annexures 01 to 03 where the rates of different parts have been given. Shri Ravinder Narain argued that if 100 per cent components are used then it can be said that a new compressor comes into existence. He refers to pages 364, 365, 366 and 367 which is the reply to the show cause notice. He argued that the comparison of the value in para 2 of the show cause notice it is alleged that the consumption of bought out new components varies from 60 to 80% in terms of value. This comparison is made keeping into consideration the repair charges recovered from customers by Karna Industries as against the price paid by them in respect of bought out new components used in the process of repairs. He argued that this comparison is of no use, as a percentage calculated in this manner does not in any way indicate as if 60% to 80% of the parts in number are bought out and replaced. He further argued that the percentage cited in the show cause notice is totally erroneous and these percentages had been arrived by dividing the total cost of the material purchased for repair with the repair charges recovered. The calculations of 60% -- 80% have been made on a totally erroneous basis. For compressors repaired within one year warranty no repair charges are charged and as such the repair charges recovered as shown in the profit and loss account does not include any income from repairing of inwarranty compressors as the repairs are done free. The repair charges represent charges received for repairing out of warranty compressors only. However, the cost of the material consumption as shown in the balance sheet includes the cost of parts utilised in repairing inwarranty compressors also. Shri Ravinder Narain also stated that if a comparison in terms of value is made so as to determine the extent of new bought out components used in the process of repair, then the price of bought out new components purchased and used is to be compared with the total value of the compressors if made wholly out of new components (at the price at which such components are available to Karna Industries) and not with the repair charges. To illustrate this point, a computation has been made for Model No. SR 1622 which is received for repair in maximum quantity, which appears at page 211 of the reply to the show cause notice. This statement shows that if a compressor of the said model was to be assembled wholly out of bought out new parts at prices at which Karna Industries purchases such parts, then the total cost of components of such compressor would be approximately Rs. 4,200/-. Comparing this with the value of bought out new parts, used for repair of compressors, the percentage works out to approximately 20% only. This does not even take into consideration other over-head and assembly charges including labour and no consideration is made of any profits. If ail these factors are taken into consideration, the percentage of new bought out parts used would be still lower. The allegation in the show cause notice suggesting replacement of parts to the extent of 60% to 80% is wholly misleading and incorrect. Even if the percentage of replaced parts is high which, as stated above, is not so, in the present case, it would make no difference on the question of the legal issue as to whether the activity amounts to manufacture or not, so long as the product received in is a compressor and after dismantling and repairing goes out as a compressor in the same form. Shri Ravinder Narain further stated that Kama Industries had to purchase parts at replacement market price, and as such no comparison can be made between the cost of parts to Karna Industries with cost of parts to Shriram Refrigerator Co., which are manufactured by them and or are procured at original equipment manufacturer price. As a result of this differential in the price at which components/parts are available to Karna Industries as against Shriram Refrigeration Co., the total cost of compressor if assembled Out of wholly bought out new parts by Karna Industries would be very high when compared with the cost to Shriram Refrigeration Co. The cost of such a compressor made wholly out of new bought out parts to Kama Industries would be about Rs. 4,200/-exclusive of assembly, overhead charges, whereas the selling price of Shriram Refrigeration of such a compressor made by it would only be Rs. 2,685/-. He argued that the allegation that 60% to 80% of bought out new parts in terms of value are utilised, is patent from the fact that the cost of compressor to Kama Industries if assembled out of wholly bought out new components would be Rs. 4,200/- and 60% to 80% of this would be Rs. 2,520/- to Rs. 3,360/-. As against this, the average repair charges for model SR 1622 is only Rs. 2,030/-. It is absurd to even suggest that repair charges would be lower than the cost of new bought out components used for repairs and the other expenses towards, overheads, assembly charges etc. would not be covered by repair charges. Shri Ravinder Narain also drew the attention of the Bench to page 208 of the paper book where the average bought out prices have been mentioned for the years 1981 to 1985 which vary from Rs. 742/- to Rs. 886/-. He referred to pages 172 to 180 and stated that the compressors which cannot be repaired are returned by the respondents. He also referred to pages 181 to 192 of the paper book where there is mention in the Register as to the return of the compressors. At page 192 a letter written by the Sub-Divisional Engineer, Electrical Sub-Division, Chandigarh which shows that the compressors which were beyond repairs were sent back to the party. Shri Ravinder Narain argued that the facts of the present matter are similar to the earlier decision of the Tribunal in the case of Shriram Refrigeration and Industries and the Departmental Representative's arguments that the facts are not acceptable cannot be taken into consideration. Shri Ravinder Narain again pleaded that the compressor for repair will go back after repair and no manufacturing activity is involved and the extent of replacement of components will not convert the repair into manufacture. He referred to page 224 of the paper book where the raw material consumption for bought out parts was given year wise from 1981 to 1985 and also referred to page 209 of the paper book where the details of the components have been given. He referred to the show cause notice para 2 at page 280 and also bottom of page 219. Shri Ravinder Narain argued that the argument of the learned Departmental Representative that these are purchases from kabadis are not tenable as only those compressors which are retrievable are taken for repairs. He again drew the attention of the Bench to certain bills and challans where irreparable compressors have been returned by the respondents. Shri Ravinder Narain argued that in the show cause notice nowhere there is an allegation that this was scrap. He referred to page 241 of the paper book in which the statement of Shri Hafizsuddin has mentioned that according to the agreement he was the collecting agent of M/s. Karna Industries and accordingly whatever Shriram Compressors will be received by him for repairs would be sent on his challan. He referred to a case of Saraswati Industrial Syndicate Ltd v. UOI where it was held that "Repairing, reconditioning (reshelling) of the old worn out Sugar Mill Rollers by the petitioner does not amount to manufacture and is not liable to duty under item 68 of the Central Excise Tariff -- application of number of processes during repairing or reconditioning immaterial". In para 10 of the order the High Court have also observed "in a recent case the Bombay High Court in Century Spinning and Manufacturing Company Limited v. Union of India -- 1981 ELT 676 held that merely because the worn out spinnerettes were melted or repaired, it cannot be said that new product was manufactured, which was liable to payment of duty. It could not be said that the spinnerettes had lost their identity because of melting or repairing abroad and had become a different product". Shri Ravinder Narain also referred to the case of Supreme Court in Lathia Industrial Supplies Company Private Limited v. Collector of Central Excise wherein it has been stated that "'re-rubberising and relining of old and used rollers would not amount to manufacture both before and after the 14th March 1986". Shri Ravinder Narain also referred to the following decisions:-
(1) Docket No. 1259A Order No.15/90-B1 dated 13.2.90 Ugar Sugar Works Limited v. Collector of Central Excise (2) Order No.60-61/90/B1 dated 25.4.90 Collector of Central Excise v. Binny Ltd. Supreme Court upheld the order. 1991 54 ELT A52 (3) Empire Industries Ltd. v. UOI .
Lastly, Shri Ravinder Narain referred to a decision of the Tribunal in the case East India Transformers & Switch Gears (P) Ltd. v. Collector of Centra Excise, reported in 1989 (43) ELT 561 (Tribunal), where the Tribunal had held "Repair of transformers not to amount to manufacture -- change of oil, H.T. leg coils and other parts -- parts duty chargeable on spare parts manufactured and used in old transformers but not on labour charges". Shri Ravinder Narain pleaded for the dismissal of the appeal filed by the Revenue.
9. Shri M.S. Arora, in reply, argued that the functions of the compressor was not considered by the Tribunal. Shri Arora pleaded that for the sake of argument and discussion even if it is presumed that 20% of the parts are replaced it cannot be said to be the same compressor, when the compressor is received in the factory it is non-functional, when it goes out of the factory it is functional. Lastly, Shri Arora relied on a decision of the Tribunal in the case of Gujarat State Fertilizers Co. Ltd. v. Collector of Central Excise where it was held that reprocess of sugar amounts to manufacture. Shri Arora has pleaded for the acceptance of the Revenue's appeal.
10. We have heard both the sides and have gone through the facts and circumstances of the case. Both sides have also filed the written synopsis. We have duly considered the same also. The facts are not disputed. The respondents are the agents for the repair/reconditioning/remaking of the defective compressors made by Shriram Refrigeration and Industries Ltd. Earlier, the Tribunal had gone in detail with the same issue in the case of Shriram Refrigeration and Industries Ltd. v. CCE Hyderabad . Shri M.S. Arora, has laid great emphasis on the argument that the earlier decision does not become a precedent as Shriram Refrigeration Industries decision was passed without considering the impact of the high cost of repairs and high quantity of rejected part and this decision is not binding in view of the decision of the Tribunal in the case of Motiram Tola Ram and Others v. Collector of Customs, Bombay, . The argument of Shri Arora is not tenable as while disposing of the earlier appeal the, Tribunal had taken into consideration all the aspects of the matter. There is no dispute that the defective compressor comes in the factory for necessary repair and after repair and replacement of parts it goes back as a compressor. The Tribunal had dealt at length in the case of Shriram Refrigeration Industries Ltd. . Relevant paras 6 to 22 from the said judgment are reproduced below:-
6. This brings us to the question as to what is repair and what is manufacture and where exactly the line is to be drawn between the two. The Central Excise Act and the Rules do not define repair/reconditioning/remaking. These words have, therefore, to be interpreted in their popular sense as commonly understood. The impugned order, in its paragraph '6', gives the following meanings of these words as taken from 'The Concise Oxford Dictionary' (Third Edition):-
(a) the word 'recondition' is recorded to mean 'overhaul and refit'
(b) xxxx xxxx xxx
(c) The Word 'remake' is recorded to mean to make once more or again 'often with the implications that previous doing was deficient or erroneous or now required alternation or improvement....'
(d) the word 'repair' is recorded to mean 'restore to good condition, renovate, mend by replacing or refixing parts'.
When the Government of India amended Rule 173H on 26.6.1976, simultaneously, by their letter dated 2.7.1976, the Government clarified:-
It may, however, to noted that remaking, refining, reconditioning or subjecting the goods to any other similar process will not amount to manufacture if the goods are subsequently cleared after rectification of defect in the same form in which they were retained or brought in the factory.
The above clarification was circulated for information to the public by the Collector by means of a Trade Notice dated 20.7.1976. These contemporary expositions of the meaning of Sub-rule (2) of Rule 173H let it be known that if the goods were cleared after rectification of defect in the same form in which they were brought the factory, the activity would not amount to manufacture.
7. On the point as to what is the meaning of manufacture as contrasted to repair, guidance is also available from two judgments of the Hon'ble Supreme Court. Though both these judgments were in the context of Section 106 of the Transfer of Property Act (the point at issue being whether certain premises were used for manufacturing purposes or not), still they are relevant to the issue before us for the reason that the Hon'ble Supreme Court applied the same popular meaning of 'manufacture' to the provisions in the Transfer of Property Act, as applicable in the Central Excises Act. The first of these two judgments -- Allenburry Engineers Private Ltd. v. Ramakrishna Dalmia and Ors. was by a Bench of five Supreme Court Judges. In this case, certain premises were used for storage, reconditioning and resale of army disposal vehicles. The reconditioning activity was quite of an extensive nature and involved replacement of parts, including bodies of the vehicles. Some of the new spare parts required were manufactured in the premises. Applying the same popular meaning of manufacture as applied to the Central Excises Act -- bringing into existence a commercially distinct article -- the Supreme Court held that the premises were not used for manufacturing purposes and that the reconditioning process, including manufacture of new spare parts, carried on in the premises was one of repairs which itself was incidental to the dominant activity of storage and resale of vehicles undertaken in the premises. We quote certain relevant portions from this Constitution Bench judgment of the Supreme Court:-
'In South Bihar Sugar Mills v. Union of India the Act with which the Court was concerned was the Central Excise and Salt Act, 1944, which furnished no special definition of the word "manufacture". The question canvassed there was whether carbon dioxide, one of the constituents of kiln gas produced as one of the processes necessary for refining sugar, could be said to have been manufactured, quite apart from the manufacture of sugar itself. This Court held that what was produced was kiln gas, a compound of different gases and not carbon dioxide, though it was one of the different gases which made up kiln gas and therefore did not attract item 14-H in the Schedule to the Act. Since the Excise duty was leviable under the Act on manufacture of goods, the Court explained the connotation of the word "manufacture". In so doing, the Court said that the word manufacture' implied a change but that a mere change in the material was not manufacture. There must be such a transformation that a new and different article use. This was also the meaning given to the word 'manufacture' in Union of India v. Delhi Cloth & General Mills .' 'In all these cases the statute or the notification concerned did not furnish any artificial meaning to the expression "manufacture" and the Court applied therefore, the ordinary meaning as commonly understood to that expression '.
'According to him, Allenbury & Co. Ltd. had in 1948 purchased disposal vehicles which were stored for sale int he premises in question. The vehicles were in a damaged condition when they were purchased. In some cases chassis were missing or they were bent or broken, most of the parts were broken and missing. These used to be repaired and then sold. The Company had put up a workshop where these vehicles were repaired, reconditioned and painted before they were sold. The repairs, according to him, involved in some cases making of new bodies and new parts. For that purpose, the appellant company had to have in the workshop lathes, drill machines, welders etc. and had employed some 200 to 500 workmen '.
'Even if the evidence of Jain were accepted in toto, and we were to find that some spare parts were being manufactured for repairing or reconditioning the vehicles, the dominant purpose of the lease would still have to be regarded as one for storage and resale of the vehicles and not for manufacturing purposes. Manufacturing of spare parts would then be merely incidental to the main purpose of disposal of these vehicles as without repairing or reconditioning them, such disposal could hardly have been possible. In our opinion, the appellants failed to establish that the dominant purpose of the lease was manufacturing purpose '.
The second judgment [1979 ELT (J.593) - P.C. Cherian v. Mst. Barfi Devi] was by a Bench of three Supreme Court Judges. Reiterating that 'The broad test for determining whether a process is a manufacturing process, is whether it brings out a complete transformation for the old components so as to produce a commercially different article or commodity', the Supreme Court held that the premises used for retreading of tyres could not be held to have been used for manufacturing purposes. However, in paragraph 11 of this judgment, the Supreme Court added:-
'In some enactments, for instance in the Excuse Act, the term manufacture has been given an extended meaning by including in it repairs, also'.
8. It is apparent that when the Government of India and the Collector clarified that if the goods, after rectification of defects, were cleared in the same form in which they had been brought into the factory, the process would not amount to 'manufacture' for the purpose of Rule 173H(2), they were conforming to the ratio of the Supreme Court judgments on 'manufacture' as applied to the Central Excises Act. Reading the judgments and the clarification together, it amounted to saying that if the process of rectification of defects did not result in brining into existence of commercially distinct goods and the goods were cleared in the same form in which they had been brought into the factory, the process would be one of repair and not of manufacture.
9. Let us now see what the evidence on record shows the appellants were doing to the defective compressors received in their factory. According to the show cause notice in the case and further particulars given to us during the hearing, the process employed by them was as follows:
(i) The outer shell of the compressors was cut open
(ii) The inner components of the compressors were then dismantled piece by piece.
(iii) The individual parts so obtained were sent to the respective sections in which similar new parts were manufactured. In these sections the received parts were tested and repaired. Irreparable parts were rejected and were replaced by new parts.
(iv) After such testing/repairs/replacements, the parts were brought back to a separate repair assembly line set up in 1971. Here, the parts were re-assembled to make a compressor.
(v) In about 60% cases, bottom shells of the returned compressors required replacement. Serial number of the compressor is engraved on the bottom shell. So, when the bottom shell itself was replaced, serial number of the returned compressor was re-engraved on the new bottom shell of the re-assembled compressor with a prefix 'R' (to denote repair). In the remaining 40% or so cases, where bottom shells were not replaced, the serial number was nevertheless re-engraved with the prefix 'R' since the original engraving became a distinct because of wear and tear, acid bath etc. The appellants used to receive about 600 to 800 defective compressors per month. Because of the large scale operations, they could not dismantle and reassemble each compressor individually and separately. They were doing this work in batches. It was quite common, because of the batch operation, that original components of one defective compressor would go into the reassembly of another defective compressor, of course, of the same model and specification.
On the accounting side, the appellants used to send an intimation to the authorities when defective compressors were received in their factory. They maintained a register of "repairs" in Form V prescribed by the department. At the time of reissuing, separate series of gatepasses were made out for clearance of the reassembled compressors. In the monthly RT.12 returns sent to the authorities, a separate note was made about the repaired compressors cleared in the factory.
10. The above procedure had been evolved between the appellants and the department over the years since the inception of the appellants' factory in 1964. During 1969, the Collector proposed certain amendments in the procedure. Inter alia, he wanted to amend the profornia of the register in Form V making provision for noting the particulars of parts required at the time of receipt of the compressors instead of filling in this information after servicing was completed. He also wanted to prescribe a job card for each defective compressor. The appellants when consulted by the Collector expressed certain practical difficulties in implementing the proposed changes. Nevertheless, the Collector went ahead and issued a notification on 3.10.1969 prescribing maintenance of a job card. However, in view of the difficulties expressed by the appellants, the Collector rescinded his notification on 22.10.1970. Three years later, on 8.6.1973, an offence case was registered against the appellants on the ground that they were not filling up columns 7, 8 and 9 of the Form V register and that the intimation or receipt of compressors sent by them to the authorities did not give correlation to the original duty-paying documents under which the defective compressors had been initially cleared from the factory. In their defence reply, the appellants stated their difficulties in filling up columns 7, 8 and 9 and added that in view of these difficulties the authorities had earlier agreed on 26.6.1968 that the appellants need not indicate the details of repercussion/repairs in columns 7, 8 and 9 of Form V register. On 15.10.1973, the Collector dropped further proceedings against the appellants in the case booked on 8.6.1971.
11. Having given the aforesaid factual background, we now come to the genesis of the Collector's charge. Apart from the incident of 14 compressors with duplicate marks which, as we have already discussed, were ultimately decided finally by the Appellate Collector in favour of the appellants, we find that the Collector has held the charges as proved in his order on the following two grounds:-
(i) the dictionary meanings of repair/reconditioning/remaking as extracted in paragraph 6 above, implied that identity of the article must be preserved but in the process employed by the appellants the identity of the returned compressors was lost.
(ii) the contents of the appellants' letters dated 18.6.1969 (stating appellants' objections to amendments proposed by the Collector in the maintenance of Form V and prescription of job card) and 29.12.1976 (stating the appellants' difficulties in attaching a job card or ticket to each individual component of the defective compressor to facilitate reassembly of the very same parts to form the rectified or repaired compressor) and 30.4.1977 (defence reply of the appellants to the show cause notice) disclosed 'that the so called repairing of the compressors was nothing short of the manufacturing of compressors by assembling salvaged parts from the defective compressors received from places outside the factory of the assessee, with certain other parts, which (other parts) could be new or the salvaged ones'.
Let us examine each of these two grounds.
12. Taking the point of identity first the Collector has relied on the following sentence occurring in the appellants' letter dated 29.12.1976:-
The defective compressors received for repairs cannot be identified after they are dismantled. Before dismantled, section, however, records the particulars of the defective compressors received for repairs. This section also maintains records of the defective components sent to components shops for reconditioning'.
From this, The Collector concluded as under:-
'It has to be held in view of the foregoing that SRI has in fact manufactured the aforesaid 29, 494, compressors, and that they had not merely repaired the said compressors. It has also to be held that defective compressors, brought back into the factory were utilised by SRI solely for the purpose of salvaging the serviceable parts out of the defective compressors'.
The appellants explained during the hearing before us that what they meant by loss of identity was that because of batch-wise dismantling, identity of the individual components with reference to the original defective compressor was lost and not that the identity of the reassembled rectified compressor was lost. However, on careful consideration, we find that there is nothing objectionable in the statement of the appellants even if its literal meaning is taken. It is a matter of common knowledge that compressors are sealed units. There is no way of repairing a defective compressor unless its outer shell is cut open and the assembly inside the compressor is dismantled. After such dismantling, what would be visible to the naked eye would be only individual parts and not a compressor. This situation is not peculiar to compressors but occurs in the matter of repairs of practically all items of machinery and appliances. The important point is that after rectification/replacement of the defective parts, the parts are reassembled in the form of the parent equipment. The equipment is once again identifiable with the form in which it had been received for repairs, with the difference that after removal of the defects it has been made serviceable and thus given a new lease of life. If one were to object to the process of dismantling in the course of repair work, the provision for repairs made in Rule 173H would become a dead letter so far as machinery items were concerned. Even in the case of non-machinery items, the identity of the article is liable to change in the course of repairs/refining/ reconditioning/ remaking. For example, when old and worn out tyres are taken up for retreading, the remnants of the original tread have to be shaved off first before putting on fresh rubber for retread. In the course of retreading, the shaved-off tyre hardly looks like a tyre, it is only carcass or base of a tyre. But after retreading the article again emerges in its original form as a tyre. In the same way, no objection can be taken if the identity of the defective compressor is lost for the time being when it is cut open and dismantled. We saw in paragraph 6 earlier that the Government of India and the Collector in their clarifications of Rule 173-H(2) did not insist on any in-process identity but only stipulated that the article, after rectification of defects, should be cleared in the same form in which it had been received into the factory. In other words the question of identity or that of the same form is relevant only at the time of reissuing of the repaired article.
"13. That brings us now to the question as to what is the meaning of 'the same form'. To put it in more precise terms, in the context of the case before us, if the parts taken out of one defective compressor go into the reassembly of another defective compressor of the same model and specification,, because of the large scale batch operation, can it be said that identity of both the defective compressors has been destroyed and the reassembled unit ceased to be in the same form as the defective compressors received into the factory were on this issue of identity and form, guidance is available from a judgment of the Bombay High Court reported at 1981 ELT 676 (Bom) -- Century Spinning and Manufacture Co. v. Union of India. In this judgment customs notification No. 58/61 was in focus. This notification provided for concessional duty for articles which were reimported into India after having been exported for repairs. The petitioners in that case exported old unserviceable wornout spinnerettes for remelting refining and remaking of new spinnerettes. The department denied duty concession on the ground that the imported goods were really new or remanufactured spinnerettes and that their identity could not be established with those exported for repairs. The Hon'ble Bombay High Court held that 'the goods exported are of identical weight and exact description. Merely because the worn out spinnerettes are melted for the purpose of repair, it cannot be concluded that the said spinnerettes have lost their identity'. We have to bear in mind that in the case of this customs notification, the question of 'manufacture' was not involved, emphasis was only on identity of the exported and reimported goods. The High Court held that the identity was to be decided on the basis whether the reimported articles were of the same weight and description or not, the consideration that in the course of remaking the exported worn out spinnerettes were melted and because of such melting they lost their identity was not given any importance. In the case before us, there is no evidence that the returned defective compressors are totally scrapped. Rather, objection is taken by the department to the appellants' activity on the ground that in the course of repair/ reconditioning/ remaking, parts taken out of different compressors of the same model get inter-mixed and hence the reassembled compressors, because of not having their original components in them, cannot be called identical with those that were received in the factory. This objection of the department cannot be sustained in view of the ratio of the Bombay High Court judgment. According to the said ratio, if the remade spinnerettes were of identical weight and exact description, as of worn-out spinnerettes, there was no loss of identity because of in-process melting of the old spinnerettes. Applying the same ratio, if the reassembled compressors are in identical quantity and of identical model and specification, as of the returned defective compressors, there is no loss of identity of the defective compressors because of inter-mingling of parts between defective compressors of the same model and specifications. To put it in simpler words, if 500 defective compressors of a particular model and specification come in and in lieu thereof 500 repaired compressors of the same model and specification go out, there is no loss of identity. Two compressors of identical model and specification would be having identical parts. It is hardly material if serviceable parts of one, on reassembly, go into the other and vice versa. We saw in paragraph '6' above that the definition of repair contemplated renovating or mending by replacement or refixing parts. If there is no loss of identity when the original defective parts of a compressor are replaced by new spare parts, how could there be loss of identity if serviceable parts of one defective compressor went into reassembly of the other identical defective compressor and vice versa. We would go even further and say that even if it could be said that a repaired compressor has lost its identity because of addition of new parts or inter-mixing of old parts, as in this case, so long as the activity remains one of repair and no commercially different article comes into existence, Rule 173H would still be admissible.
"14. We have no doubt in our mind that this is also what the Government of India and the Collector meant when they said that if the returned goods are re-issued 'in the same form', it would not amount to 'manufacture'. Whether there is manufacture or not, has to be judged by the test laid down by the Hon'ble Supreme Court. Unless it can be established that a commercially distinct article having a different name, character or use has come into existence, there is no manufacture. As per the evidence available on record, defective compressors come in and repaired compressors of the same model and specification and in the same quantity (or number) go out. Since, the re-issued compressors are in the same form, going by the test laid down, by the Bombay High Court, the activity should not, according to clarification of the Government of India and the Collector, amount to manufacture. And it does not amount to manufacture as per the test laid down by the Hon'ble Supreme Court. Just because two re-issued compressors of the same model and specification may be haying parts taken out from the one or the other, they do not, by any stretch of imagination, become a commercially distinct product, they are still compressors and are of the same model and specification as brought in for repairs.
"15. We have asked ourselves the question whether it would be possible to conclude that there was manufacture involved where the bottom shell, which carried original serial number, had to be replaced and, consequently, the same serial number re-engraved with the pre-fix 'R' on the new bottom shell. Our answer is in the negative. The bottom shell is just one of the parts of a compressor. If it is permissible to replace any unserviceable part, logically, no objection could be taken on replacement of the unserviceable bottom shell also. The bottom shell does not become something special just because serial number of the compressor is engraved on it. Even after replacement of the bottom shell, the reassembled unit would still be a repaired compressor of the same model and specification. By no stretch of imagination, can it be said that a commercially new or distinct article has come into existence.
"16. The learned Joint Chief Departmental Representative relied on two judgments of this Tribunal [1983 ELT 1927 -- Sriram Pistons and Rings Ltd v. Collector of Central Excise, Meerut and -- Collector of Central Excise, Baroda v. Lathia Industrial Supplies Co. Ltd.] and a judgment of the Calcutta High Court in support of his contention that there was manufacture of new articles in the present case. We do not agree with him. In Sriram Piston's case, the Tribunal held that the returned pistons were nothing but scrap, that they were, in fact, scrapped and new pistons made therefrom and that, therefore, it was a case of conversion of scrap into a different and distinct commodity known as pistons. In the case before us, as we have already stated, there is no evidence to show that the returned compressors are just scrap or that they are, in fact, scrapped. In the Lathia's case, the Tribunal held that the metal roller without coating of rubber which came in could not be said to be the same goods as a rubber coated roller which went out and hence the activity of rubber coaling brought into existence a commercially new product. The Calcutta High Court case related to dismantling of ships. In that case, a ship was dismantled into scraps of various types and, therefore, the Hon'ble High Court held that one commodity was converted into another commodity amounting to manufacture. Unlike these three cases, what happens in the case before us is that defective compressors come in and equal number of repaired compressors of the same model and specification go out. Hence, the cases are clearly distinguishable.
"17. In support of the Collector's conclusion that returned compressors were utilised for salvaging a few serviceable components from them which were used in the manufacture of fresh compressors and such fresh compressors were cleared merely by embossing thereon the serial number of the returned compressors with the prefix 'R', the learned Joint Chief Departmental Representative putforth the following two arguments, as contained in the show cause notice:-
(1) 'The officers observed from the scrap Transfer Notes in which rejected components of service Compressors were accounted for, that rejected components were more in quantity than those found serviceable. The motor housings and the bottom shells which constitute the main structure of the compressors were also rejected was observed that during the year 1975-76 in the case of motor housing and bottom shells which are used at the rate of one each for a compressor, the rejections were to the tune of 6423 and 6075 respectively as against 10,977 compressors shown as repaired during the year. Thus, it appears that the process is one of manufacturing of fresh compressors in which a few old components salvaged from the returned compressors might have been used.
(2) The officers also observed that M/s. Shriram Refrigeration Industries, are not collecting repair charges on the merits of each case. The following were found to be repair charges fixed by the company in comparison with the value of a compressor of fresh manufacture.
Compressor Value of fresh Repairing charges in respect of old Model compressor compressor received for repairs __________________________________ Motor Burnt. Motor O.K. Rs. Rs.
SR 1822 1145 700 550 SR 1622 1145 700 550 SR 1322 1100 700 550 SR 1022 985 700 550 SR 1012 1015 700 550 SR 1012L 1015 700 550 SR 912 1025 700 550 SR 712 1015 700 550 SR 522 775 550 400 SR 412 700 550 400 SR 412L 700 550 400 SR 312 610 550 400 SR 212 560 550 400 SR 112 540 550 400It appears from the above that the repair charges are invariably more than 50% of the value of fresh compressor, and in some cases even exceeding the value of fresh compressor and such charges can hardly be called repair charges. The repair charges appear to be actual value of fresh compressor with a suitable reduction in consideration of the old, serviceable components salvaged from the returned compressors and used in the assembly.
"18. In their reply to the show cause notice the appellants explained the above two grounds to the Collector as under:-
'In paragraph (3) of the show cause notice, it has been stated that the officers observed from scrap transfer notes that rejected components were more in quantity than those found to be usable. Reliance has been placed on two components viz., motor housings and bottom shells.
8. It has been stated that whereas the rejections of motor housing and bottom shells were 6423 and 6075 respectively the number of compressors received for repairs was 10,977. At this stage, we beg to submit that the department itself has specified in the SRP Handbook that the principal raw materials which go into the manufacture of compressors are stators and rotors. During the period 1.10.74 - 31.12.76 there was not a single rejection of stators while the number of rotors scrapped was only 2427 (about eight per cent of compressors repaired). There is bound to be a higher rejection in the case of rotors as these are shrink-fitted on the crankshaft. In case the crankshaft journal wears out beyond the specified tolerance limits, the rotor has to be pulled out mechanically from the crankshaft. In the process it gets distorted and has to be scrapped.
9. The reasons for the comparatively higher incidence of scrap in the case of bottom shells and motor housings have been given in detail in our letter No. SC/EXC/M-17/10548 dated 29.12.76 (annexure-II). These are reproduced below for ready reference.
Bottom Shells: A glassmatic terminal is welded to the bottom shell. In the event that the glassmatic terminal is damaged or its insulation breaks down, it become necessary to scrap the bottom shell as it is not possible to remove the welded terminal and reuse the bottom shell. Sometimes the shells are damaged in transit and are dented or distorted to such an extent that compressor motor cannot be remounted inside them. Such shells have to be scrapped.
Motor Housing: In the event that the compressor is rendered defective because of motor failure, the stator is to be removed from the motor housing. The stator is originally shrink-fitted inside the motor housing. The process of shrink-fitting involves heating the motor housing so as to allow it to expand and the stator is then dropped inside it. On cooling, the housing contracts and grips the stator firmly. No mechanical pressure is applied so as to prevent distortion. For removing the stator from the motor housing, it has to be forcibly pulled out on account of which the motor housing gets distorted and is rendered unusable. The defective bottom shells are sold as sheet metal scrap, after damaging the glassmatic terminal so as to prevent any misuse or resale as a spare part. The scrapped motor housings are sent on our account to aluminium suppliers for remelting and refining. The refined alloy is returned to us and is used again in the Die Casting shop for making the die cast components like motor housings, pistons, connecting rods, end bearings etc' '18. Another ground for alleging that the compressors are 'manufactured' are the so called high repair charges fixed by the company in comparison with the value of compressors of fresh manufacture. We submit that 60% of the compressors received by us for repairs are within the warranty period and no charges are realised for repairing these compressors (annexure-IV). The repairs in these cases are done free of cost. It is only in respect of the remaining 40% which form a negligible percentage of the total market population of compressors manufactured by us, that the repair charges mentioned in paragraph 4 of the show cause notice have been fixed. It will be appreciated that compressors are hermetically sealed and are known in the market as sealed units. Each of these has to be cut open irrespective of the value of the compressor or of size or model. Thereafter each part has to be checked, rectified or replaced and replacements, is almost the same in all cases. The charges for repairs, which two cases, have been deliberately kept high as the models in question are slow moving. Another reason for the higher charges is to discourage the repairs of these models.' "19. In his impugned order, the Collector neither adverted to the aforesaid two grounds mentioned in the show cause notice nor to the appellants reply thereto. The only reasonable conclusion from this would be that the Collector was convinced by the appellants' reply and he dropped these two grounds while adjudicating upon the matter. The learned Joint Chief Departmental Representative wants us to take these two grounds into account without telling us as to what is wrong with the appellants' explanation in regard to these two grounds. Obviously, we are unable to accede to his request.
"20. To sum up, of the various grounds taken up by department against the appellants (1) The incident of 15 compressors detected with duplicate marks and numbers was ultimately decided in favour of the appellants;
(2) the two grounds of high quantity of rejected parts and high cost of repairs were dropped by the Collector himself during adjudication;
(3) the arguments of loss of identity cannot be sustained in view of the test laid down by the Hon'ble Bombay High Court in the spinnerettes' case; and (4) just by inter-mixing of identical parts as between defective compressors of the same model and specification, it could not be said that the reassembled or repaired compressors were not in the same form as those brought into the factory; nor going by the test laid down by the Constitution Bench of the Hon'ble Supreme Court in the Allenbury Engineer's case and reiterated by a Full Bench of the Hon'ble Supreme Court in the Barfi Devi's case, could it be said that reassembled or repaired compressors were commercially distinct article as compared to the goods that were brought into the factory for repairs.
Apart from the above specific grounds, the Collector has also stated in paragraph 9 of the impugned order that the contents of the letters dated 29.12.1976, 18.6.1969 and 30.4.1977 of the appellants disclosed that the so called repairing of the compressors was nothing short of the manufacturing of compressors by assembling salvaged parts from the defective compressors, received from places outside the factory of the assessees, with certain other parts, which (other parts) could be new or the salvaged ones. This is a vague statement. The Collector does not say specifically as to which parts of these letters of the appellants lead to his conclusion. The appellants say that there is nothing at all in these letters to warrant the conclusion arrived at by the Collector. The only specific portion quoted by the Collector is from the appellants' letter dated 29.12.76 where they have stated that 'the defective compressors received for repairs cannot be identified after they are dismantled'. This particular portion has already been discussed by us in detail in paragraph 12 above and we have held that there was nothing objectionable in it for the simple reason that after dismantling what is visible are various parts of the compressor only and not the compressor itself and that the material thing is that after repairs the parts can be put back in the form of the original compressor.
On the available evidence, we have, therefore, to agree with the appellants, so far as the substantive issue is concerned, that their activity was one of repair/reconditioning/remaking which did not amount to manufacture of any new article and hence they were entitled to the benefit of Rule 173H. If the authorities have a feeling that what is really happening is not what is made out to be they would have to investigate the matter thoroughly and substantiate their case with proper evidence. On the present showing, however, no violation of rules by the appellants is proved and hence the demand for duty and the imposition of penalty in the impugned order cannot sustain.
"21. In view of our finding on the substantive issue, it is unnecessary for us to go into the other points raised before us in detail. Suffice it to say that the procedure followed by the appellants was within the knowledge of the authorities and had, in fact, been evolved over the years in agreement with the agreement with the authorities. The appellants were sending intimations to the authorities at the time of receipt of defective compressors, were maintaining accounts in Form V, were issuing separate gate passes and were making a separate note in their monthly R.T 12 returns regarding re-issue of the repaired compressors. The charge of clandestine removal is, therefore, not proved nor is any suppression or fraud established to warrant invoking of limitless time for making of duty demand under Rule 9(2). Imposition of penalty of the amount of over Rs. 3/- crores under Rule 173Q was also not warranted.
"22. In view of our above discussion, we set aside the impugned order and allow this appeal with consequential relief to the appellants.
11. We have also taken into consideration the argument of Shri Arora, the learned JDR, as to the percentage of the replacement of parts. The learned JDR contended that the respondents receive defective compressor in the shape of scrap and their collecting agents had purchased few of these compressors from Kabadis in the nature of scrap and after carrying on the necessary repair and job work on the same it came out as new compressor, is not acceptable. The respondents' advocate has pleaded that the total cost of components which are needed for assembling new compressors with 100% new parts is about Rs. 4200/- without labour charges. As against this the repair charges claimed by the respondents are about Rs. 2400/-. No prudent businessman will spend more than the receipts. The respondents' pattern of uniform charge of repair is a very correct pattern of charge, the air-conditioner compressor consists of very large number of parts. In case the respondents have to charge for repair actual part-wise, they have to cut open each and every compressor in the presence of the customer and make an estimate and thereafter they will have to get the estimate approved. It will require too much time and as a result of it most of the man-power will be lost in making the estimates. Then there will be dispute with each customer as to the nature of the charge and spare parts used. With a uniform charge the customer is in a better position to get one year repair warranty of the same. In view of the above discussion, we are of the view that no manufacturing activity is involved and the activity is in the nature of repair. Thus the argument of Shri Arora is not tenable. The Tribunal in the case of East India Transformers & Switch Gears (P) Ltd v. Collector of Central Excise, reported in 1989 (43) ELT 561 (Tribunal) has held that the repair of transformers does not amount to 'manufacture'. Paras 12 and 13 of the said judgment which is relevant to the issue is reproduced below: "We observe that the process of repair of the transformer as set out in the Assistant Collector's order essentially consisted of replacement of the transformer oil and the H.T. leg coils and change of some minor parts. While holding the repair work done as manufacture, the Assistant Collector has merely stated that in the Circumstances it amounts to manufacture rather than repair. The Collector (Appeals) in his order has rightly observed as under:-
I am of the view that the 'repairing' undertaken by the appellant amounts to process of 'manufacture' depends upon the detailed process undertaken".
However, he has not in this background discussed how in the context of the repairs undertaken the process of repair could be considered as manufacture. There is nothing on record to show that in any individual case as held by the learned Collector (Appeals), transformer loses its identity as such and all the essential parts required for working of the transformer were replaced. We, in the facts and circumstances of the case, are only taking note of the process of repair as set out in the Assistant Collector's order under as mentioned above.
In view of the case law discussed above, we hold that the repair of transformers in the instant case does not amount to 'manufacture'. The appellant is liable to pay duty on the value of spare parts manufactured and used in the old transformers and no duty is chargeable on the labour charges".
In view of the above discussion, we did not find any merit in the Revenue's appeal. The point referred to the Tribunal is accordingly decided against the Revenue. In the result, the appeal is dismissed.