Customs, Excise and Gold Tribunal - Delhi
Haryana State Electricity Board vs Collector Of Central Excise on 7 September, 1993
Equivalent citations: 1994ECR238(TRI.-DELHI), 1993(68)ELT469(TRI-DEL)
ORDER P.K. Kapoor, Member (T)
1. This is an appeal against the order passed by the Additional Collector of Central Excise. The appellants are a State Government undertaking engaged in the generation and distribution of electricity. After the visit of an audit party to the appellants' workshop at Dhulkoti which is licenced for the manufacture of transformers, they were served with a show cause notice to explain as to why duty demanded from them under Rule 9(2) of the Central Excise Rules, 1944 and why penalty should not be imposed on them under Rule 173Q in respect of 29 Desert Coolers assembled during the period 1-4-1980 to 31-3-1983 in their workshop out of exhaust fans and water-pumps purchased from the market. The appellants contended that they were engaged in the generation of electricity and 27 Desert Coolers fabricated in their workshop out of duty-paid exhaust fans and water-pumps bought from the market and scrap iron/tin sheets available in their workshop, were meant for the use in their own offices and not for sale. They contended that the fabrication of 5 coolers in 1980-81,10 coolers in 1981-82 and 14 coolers in 1982-83 for the use in their own offices could not be deemed as "manufacture" within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 and the Rules framed thereunder and accordingly no duty could be recovered by the department on the coolers in question. They also contended that the demand issued beyond the period of 6 months was time-barred since the appellants' workshop was visited from time to time by Central Excise officers, who were aware of the fabrication of coolers by the appellants for their own use. However, by the impugned order dated 24-1-1983 the Additional Collector confirmed the demand of duty of Rs. 26,136.60 on 29 pieces coolers fabricated by the appellants during the period 1-4-1980 to 31-3-1983. He also imposed a penalty of Rs. 5,000/- on the appellants under Rule 173Q.
2. On behalf of the appellants, the learned advocate Shri P.D. Jain appeared before us. He stated that the appellants were engaged in the manufacture and distribution of electricity. He contended that no duty could be demanded on the 29 pieces of Desert Coolers assembled during the period of 3 years in the workshop of the appellants out of duty paid exhaust fans and water-pumps purchased from the market and scrap iron/tin sheets available in their workshop, since such assembly of coolers meant for use by the appellants in their on offices and not for sale did not constitute "manufacture" within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. He stated that the appellants had never dealt in Desert Coolers and they had never offered such goods for sale in the market. He submitted that under these circumstances on the ratio of the Tribunal's decision in the case of Life Insurance Corporation of India, Bombay v. CCE Bombay reported in 1985 (21) E.L.T. 816 no duty could be demanded on the coolers assembled by the appellants for their own use out of bought out parts. He submitted that the appellants were genuinely under the belief that assembly of coolers out of bought out parts for their own use did not amount to manufacture. He argued that for this reason and in the absence of any allegation of misstatement, collusion or fraud the demand was time-barred since the extended period beyond 6 months was not invokable. On these grounds he pleaded that the impugned order may be set aside.
3. On behalf of the department the learned SDR Shri B.K. Singh reiterated the findings of the Additional Collector and pleaded for the rejection of the appeal.
4. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the following questions arise for consideration in this case :-
(i) Whether the assembly of a small number of Desert Coolers out of duty paid exhaust fans and water pumps bought from the market, when meant for their own use and not for sale, amounted to manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
(ii) Whether the demand issued to the appellants was time-barred.
5. Taking up the first point, we find that it is an admitted fact that the appellants were mainly engaged in the manufacture and distribution of electricity. It is not the Department's case that they were in the business of manufacture and sale of 'Desert Coolers'. During the period 1-4-1980 to 31-3-1983 the total number of Coolers assembled by them in their workshop was only 29. Out of these 5 pcs. were assembled in 1980-81,10 pcs. in 1981-82 and 14 pcs. were assembled in 1982-83. The main parts required for the assembly of the disputed 'Desert Coolers' viz. exhaust fans, and water pumps were purchased by the appellants from the market, The body of the cooler was fabricated out of scrap tin/iron sheets available in their workshop. The assembled'Desert Coolers' were invariably used by the appellants in their offices/factory and were never offered or advertised for sale as ready assembled units. It is seen that in the case of Life Insurance Corporation of India, Bombay v. CCE, Bombay reported in 1985 (21) E.L.T. 816 the Tribunal has held that if water coolers were erected by a person by his own efforts and for his own use through assembly of different parts, the product would not be excisable. Paras 7 and 8 of the said decision being relevant are reproduced below :-
"7. We have carefully considered the submissions made on both sides. On behalf of the Department, it has been stated that the assembling of Exhaust fans and Tully pumps for installing coolers amounts to manufacture and also that it is not necessary that a manufacturer should be continuously engaged in the business of manufacture for profit and that a manufacturer in terms of Section 2 of the Central Excises and Salt Act includes a person who engages in production or manufacture on his own account. The Department have cited in their favour the decision of CEGAT in the case of Orissa Construction Corporation in which it was held inter alia that open market sale or standardised mass production is not necessary to establish the excisable character of the goods. We find that this aspect of the matter has been dealt with at length and adequately in the judgment of the Hon'ble High Court of Allahabad in the case of Mother India Refrigeration Industries. In this decision, it was held that under sub-items (1) and (2) and Entry 29A of the Central Excise Tariff only such refrigerating and air-conditioning appliances, which are ordinarily sold or offered for sale as ready assembled units, are liable to duty. It is essential, in the first instance, that they should be manufactured as ready assembled units and, secondly, that they should be sold or offered for sale as such. It followed from this decision that, if such appliances are erected by a person from his own effort and for his own use through assembly of different parts, the product will not fall within this Entry and would not be liable to duty, as such appliance would be neither ready assembled unit nor sold or offered for sale as such. The Hon'ble Allahabad High Court took note of Tariff ruling issued by the Central Board of Excise and Customs, which also supports this interpretation. Referring to the argument that the duty leviable under the Excise Act is not the event of manufacture and that the purpose or the object of manufacture is irrelevant and that, further, that it is immaterial whether the article is manufactured for the purpose of sale or consumption or even destroyed, it was held by the Hon'ble Allahabad High Court that while this proposition is generally true under the Excise Act, but when an entry in the schedule specifically refers to and restricts the applicability to duty to goods which are ready assembled units and which are generally offered for sale, the concept of sale is necessarily brought in. We are of the view that it is hardly possible to take a view different from the views expressed in the above decision of the Hon'ble High Court of Allahabad in so far as interpretation of the scope of sub-item (2) of Entry 29A of the Central Excise Tariff is concerned.
8. It may be added that there may be millions of consumers spread along the length and bredth of the country who, during summer, are taking recourse to installing coolers in their residences and offices by purchasing separately exhaust fans and pumps and hiring the services of the ordinary carpenters for constructing the wooden cabins and putting up the same. It is inconceivable that we should have a pattern of Excise Levy which should treat the residences of millions of ordinary citizens as factories and subject them to the requirements of declaring their premises for taking out a Central Excise licence, maintaining excise records and taking clearances on payment of duties on gate passes, etc. It is precisely for this reason, no doubt, that while drafting the relevant Tariff Item, sale or offer for sale as ready assembled units was made a pre-condition for charge of duty. On the ratio of the Tribunal's decision quoted above we hold that the coolers assembled by the appellant out of duty-paid parts purchased from the market, when used exclusively in their factory and not offered for sale, were not excisable.
6. The appellants have stated that they had throughout acted under the bona fide belief that the Desert Coolers assembled by them for their own use were not excisable. They have also pointed out that the Departmental Officers were regularly visiting their workshops and they were aware that 'Desert Coolers' required by the appellants for their own use were being assembled in the workshop out of duty-paid exhaust fans and water pumps purchased from the market. They have also pointed out that at no stage had the Departmental Officers held the activity of assembly of small numbers of Desert Coolers by the appellants as an activity amounting to manufacture in terms of Section 2(f) and the demand was raised only at the instance of an objection raised by the Audit Party. Having regard to these facts we are inclined to agree with the appellants that they were acting under the bona fide belief that small number of 'Desert Coolers' assembled by them for their own use out of duty paid exhaust fans, and water pumps were not excisable. In this regard we find that in the case of Padmini Products v. Collector of Customs and Excise reported in 1989 (43) E.L.T. 195, the Hon'ble Supreme Court has held that extended period of 5 years for raising a demand for the recovery of short levy will not be applicable in case of mere failure or negligence on the part of the manufacturer either not to take a licence or not to pay duty in case where there was scope for doubt. Para 8 of the said judgment being relevant is reproduced below :
8. Shri V. Lakshmikumaran, learned Counsel for the appellant drew our attention to the observations of this Court in Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad - 1989 (2) SCC 127 where at page 131 of the report, this Court observed that in order to sustain an order of the Tribunal beyond a period of six months and up to a period of 5 years in view of the proviso to Sub-section (1) of Section 11A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. It was observed by this Court that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability beyond the period of six months had to be established. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful mis-statement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal, however, had held contrary to the contention of the appellants. The Tribunal noted that dhoop sticks are different products from agarbaties even though they belonged to the same category and the Tribunal was of the view that these were to be treated differently. Therefore, the clarification given in the context of the agarbaties could not be applicable to dhoop sticks etc., and the Tribunal came to the conclusion that inasmuch as the appellant had manufactured the goods without informing the Central Excise authorities and had been removing these without payment of duty, these would have to be taken to attract the mischief of the provisions of Rule 9(2) and the longer period of limitation was available. But the Tribunal reduced the penalty. Counsel for the appellants contended before us that in view of the trade notices which were referred to by the Tribunal, there is scope for believing that agarbaties were entitled to exemption and if that is so, then there is enough scope for believing that there was no need of taking out a licence under Rule 174 of the said Rules and also that there was no need of paying duty at the time of removal of dhoop sticks, etc. Counsel further submitted that in an event apart from the fact that no licence had been taken and for which no licence was required because the whole duty was exempt in view of Notification No. 111/78, referred to hereinbefore, and in view of the fact that there was scope for believing that it was exempt under Schedule annexed to the first notification, i.e., 55/75, being handicrafts, the appellants could not be held to be guilty of the fact that excise duty had not been paid or short-levied or short-paid or erroneously refunded because of either any fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder. These ingredients postulate a positive act. Failure to pay duty or take out a licence is not necessarily due to fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act. Suppression of facts is not failure to disclose the legal consequences of a certain provision. Shri Ganguly, appearing for the revenue, contended before us that the appellants should have taken out a licence under Rule 174 of the said Rules because all the goods were not handicrafts and as such were not exempted under Notification No. 55/75 and therefore, the appellants were obliged to take out a licence. The failure to take out the licence and thereafter to take the goods out of the factory gate without payment of duty was itself sufficient, according to Shri Ganguly, to infer that the appellants came within the mischief of Section 11A of the Act. We are unable to accept this position canvassed on behalf of the revenue. As mentioned hereinbefore, mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract Section 11A of the Act. In the facts and circumstances of this case, there were materials, as indicated to suggest that there was scope for confusion and the appellants believing that the goods came within the purview of the concept of handicrafts and as such were exempt. If there was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that belief, when there was no contrary evidence that the producer or the manufacturer knew that these were excisable or required to be licensed, would not attract the penal provisions of Section 11A of the Act. If the facts are otherwise, then the position would be different. It is true that the Tribunal has come to a conclusion that there was failure in terms of Section 11A of the Act. Section 35L of the Act, inter alia, provides that an appeal shall lie to this Court from any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment. Therefore, in this appeal, we have to examine the correctness of the decision of the Tribunal. For the reasons indicated above, the Tribunal was in error in applying the provisions of Section 11A of the Act. There were no materials from which it could be inferred or established that the duty of excise had not been levied or paid or shot-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or of the rules made thereunder. The Tribunal in the appellate order has, however, reduced the penalty to Rs. 5000/-and had also upheld the order of the confiscation of the goods. In view of the fact that the claim of the revenue is not sustainable beyond a period of six months on the ground that these dhoop sticks, etc. were not handicrafts entitled to exemption, we set aside the order of the Tribunal and remand the matter to the Tribunal to modify the demand by confining it to the period of six months prior to issue of show cause notice and pass consequential orders in the appeal on the question of penalty and confiscation. The appeal is allowed to the extent indicated above and the matter is, therefore, remanded to the Tribunal with the aforesaid directions. This appeal is disposed of accordingly.
On the ratio of the judgment quoted above we hold that the demand issued on 27-4-1984 for the recovery of the alleged short levy during the period 1-3-1980 to 31-3-1983 was time-barred.
7. In view of the above discussion both the questions have to be answered in favour of the appellants. For these reasons we set aside the impugned order and allow the appeal.