Customs, Excise and Gold Tribunal - Mumbai
Dodsal Pvt. Ltd. vs Commissioner Of Central Excise on 21 October, 2005
Equivalent citations: 2006(193)ELT518(TRI-MUMBAI)
ORDER T. Anjaneyulu, Member (J)
1. The Appellants are, Registered Company and their employees, aggrieved from the very same order, were heard together and these appeals are being disposed of by this common order.
1.2 The Company carried out inter alia the business of laying of pipe lines for water transmission, on a cross country basis, on a contract from the Bangalore Water Supply and Sewerage Board, (herein after referred to as BWSSB). This required fabrication and laying clear water transmission main line of a total length of 94 Kms. On an upgradient of about 300 metres laid in straight, Zig zag in an up and down manner to avoid villages, rivers, nullahs, national highways crossings for execution of the project. The pipe line was to be laid down from T.K. Halli to Harohalli and then to Bangalore city. They are registered as an assessee under the C.Ex Act, both in respect of their Tataguni Unit and Jakkasandra Unit and have discharged C.Ex duty in respect of goods manufactured at these units and complied with the statutory requirements.
1.3 The scope of the works contract was fabrication and laying of 1975 mm/1625 mm/1225 mm diameter M.S Pipes (also referred to as spools) fabricated out of 8 mm to 14 mm thick M.S Plates for the total length from T.K Halli to Bangalore connecting 2 ground level reservoirs. The contract included providing of transmission line appurtenances (like manholes, butterfly valves, scour valves, expansion bellows etc.) as per the drawing and specifications provided by BWSSB. The entire project was covered by two contracts. W4B and W4C projects were on contract awarded to the Appellants. The raw materials for fabrications was supplied by BWSSB. The Appellants had installed their own machinery and equipments in the land provided by BWSSB, which was designated as 'Fabrication Yard.' One at Tataguni and other at Jakkasandra, for W4B and W4C projects respectively. Duties were paid on the spools fabricated and subsequently also on 525 mm, 600 mm, 900 mm and 1500 mm diameter pipes.
1.4 The appurtenances as per the specific drawings and specifications of BWSSB were described as 'specials'. The present dispute is whether the Appellants were liable to pay Excise Duty on such 'specials' viz. Miter Bends, Ring Girders, Cones/Reducers, Elbows Joints etc. used in the execution of the pipe line project.
1.5 Some of these 'specials' were fabricated by the appellants at the site of the project out of material supplied by BWSSB, which are as under:
(a) 525/600/900/1500 mm dia steel pipes
(b) Ring Girders and supporting structures
(c) Manhole stubs; Scour valves, stubs stand
(d) R.F.pads
(e) Scour valve shells
(f) Mitre bends
(g) Y Joint
(h) Reducers
(i) Cones
(j) M.S Ladders
(k) Water storage tanks Many of the above items 'specials' were fabricated at the project site itself in order to suit the spot requirements and facilitate execution of the project.
1.6 There are certain items, which the appellants got fabricated by the job workers at their factory out of base material supplied by the appellants. They are the following:
(a) Base plates for Ring Girders
(b) Flanges i.e. Blind flanges & Adapter Flanges
(c) Threaded Rods for Ring Girder structure.
1.7 The Appellants had supplied to the said job worker the raw material and after carrying out the necessary fabrication process, including machining etc, in its factory, supplied the finished items to the Appellants. The items fabricated by the job worker, on a job work basis, were finished goods and no further processing was required to be done. In fact, items like flanges, threaded rods/bolts and base plates were cleared from the factory of the job worker to the laying site, without any further operation by the appellants.
1.8 Enquiries were launched by the department and the Commissioner issued two separate show cause notices under the proviso to Section 11A(1) of the C.Ex. Act, 1944 in respect of Jakkasandra Unit and second in respect of Tata-guni Unit dated 11-6-2003. The allegations, in both of these notices, are common in nature, to the effect that the Appellants had manufactured/fabricated various 'specials' like Ring Girders, Manholes of various diameters, R.F Pads, Flanges, Blind flanges, Mitre bends, scoure valve, stubs, Y-joint, Ring Girder supporting structures i.e. base plates, steel pipes of 22 mm thick wall, pipes of 900 mm dia, Reducers with flanges etc. classifiable under sub-heading No. 7305.90 of the Schedule to CETA 1985 that all these items were cleared clandestinely, without accounting in their Daily Stock Account Register without payment of appropriate duty, that they had suppressed the fact of manufacture and clearances of such special pipes and other specials, that duty allegedly evaded in respect of such clearances made during the period from August 2000 to July 2002 worked out to Rs. 1,43,09,989/- in the case of the Show Cause for Jakkasandra and Rs. 23,09,473/- in the case of Tataguni Unit. The notices also proposed to impose penalty under various provisions of Central Excise Act and the Rules.
1.9 The Ld. Commissioner after considering the material passed the impugned order confirming the entire amount of demands except for an amount of Rs. 81,000/- and imposed penalties. The gist of the submissions made and the findings of the Commissioner are recapitulated as below :
---------------------------------------------------------------------
SR. DESCRIPTION OF THE ITEM FINDINGS OF THE NO. SUBMISSION THEREON COMMISSIONER
--------------------------------------------------------------------- 1 Ring Girders:
(i) These are not pipes. Not (i) Held classifiable under
classifiable under 7305.90 7305.90
(ii) Not marketable. No evidence (ii) Held marketable without
adduced to grove the marketability adducing any evidence.
2 Ring Girder supporting structures:
The company has not manufactured Simply held that the company
these items. Manufactured by the job is liable to pay the duty. No
worker. Hence the job worker is liable finding regarding the Applic-
to pay the duty and not the company ability or otherwise of
relied upon various case laws. various case laws relied upon
by the company.
3 Steel Pipes 22mm thick 1975mm dia:
These are components of the Ring Girder No findings given. These have
and not cleared as such. Hence, have been charged to duty again
lost identity as pipes. No duty is though the demand on Ring
payable. Girders is confirmed, thus
amounting to double taxation
on this item.
4 (a) Cones:
(i) These are not pipes, hence not (i) No finding about the
classifiable under 7305.90 dispute raised. Simply held
classifiable under the said
(ii) Not marketable, hence not (ii) No evidence adduced to
dutiable. hearing prove the market-
ability. Held marketable
and dutiable
(b) Pipes 1500mm dia:
Admitted the duty liability N.A.
(c) Reducers:
(i) These are only duty paid pipes of (i) No finding on this
1500mm dia to which a cone of 1975>1500 specific plea.
dimension is welded at one side. Thus
no new product has emerged and no
manufacturing activity involved
(ii) Not classifiable under 7305.90 (ii) Held classifiable under
7305.90 though the goods are
apparently classifiable
under 7307.00
(iii) Confirmed the demand
separately on cones, pipes
and again on reducers,
thereby amounting to
double taxation on both
cones and pipes.
(d) Flanges:
Not manufactured by the Company. Admitted that the goods
Manufactured by the job worker. manufactured by the job
worker. Still held that
the company is liable to
pay the duty.
5 Manhole 600 mm dia including R F Pads:
These are only stubs i.e. smaller Mere cutting of smaller
lengths of pipes cut from the duty pipes from a longer pipe
paid pipes and hence not dutiable as and cutting of a segment
no manufacturing activity involved. from the duty paid pipe
The RF pads are also segments cut held to be amounting to
from duty paid pipes. manufacture.
6 Manhole 525mm dia stub:
The company admitted that it had No findings on these
Manufactured about 21 metres of 525mm submissions.
dia pipes and calculated the duty
liability on the same and the amount
was adequately covered under the ad hoc
payment already made. Contended that
no further duty is payable on
these stubs because there is no activity
of manufacture involved.
7 Miter bends:
(i) These are all such odd angled bends (i) Held to be marketable
like 2, 17, 27, 35, 57 etc. which are without any evidence
not marketable and hence not dutiable. being adduced.
(ii) These are fabricated out of duty (ii) Though the payment of
paid pipes. duty on pipes is not
disputed, not considered
this payment, thereby
amounting to double levy
on pipe value.
(iii) These ere actually fabricated (iii) No finding on this
at site as was evident from the cited plea.
document and hence no duty was required
to be paid.
8 14mm thick 1975 dia 2.5 mtrs shell:
These are only remnant pieces of spools No findings. The plea not
i.e. duty paid pipes. Hence, no further considered.
duty is payable. In fact the entries
were shown during the course of personal
hearing.
9 M.S. Tanks:
These are only Water Storage Tanks No findings on these pleas.
meant for the company's own use. Are
not classifiable under 7305.90. The Confirmed the entire demand
value adopted is highly excessive and amount.
Without any rational basis. Each tank
is not worth more than Rs. 2000/-.
10 Goods manufactured on job work basis:
The company had sent the raw material Not spoken anything about
to M/s. Venkateshwara Engineering for the various case laws
manufacture of various types of flanges, relied upon. Simply held
threaded bolts, Base plates etc., it was that the company is liable
submitted that on all those items the to pay the duty without
company was not liable to pay any duty proving that the company is
since the company could not have been the actualmanu facturer of
treated as manufacturer of those items those goods.
in view of several judicial decisions
that were cited.
11 Scour Valve shells:
These goods are all remnant pieces of No finding on this plea.
duty paid pipes that were remaining The contentions raised
after cutting for Milter bends, RF have not been considered.
pads etc., This was specifically
shown and explained during PH also.
12 Defective pipes cleared to BWSSB :
These were considered on par with No finding on this plea.
the prime quality pipes. It was The plea is totally
contented that obviously these ignored without assigning
pipes could not be treated on par any reason.
with the prime quality pipes,
instead should be treated as scrap.
13 Y Joint:
This in fact has come into existence No finding on this
at site as it was practically specific plea. Even the
impossible to transport the joined obvious impossibility
pipes and hence was not fabricated of transportation has
at the yard. not been considered.
----------------------------------------------------------------------
Hence these appeals.
2.1 After hearing both sides and considering the materials it is found
(a) there is no dispute that they had duly and correctly discharged their liability for payment of excise duty on the MS Pipes (also referred to as spools) fabricated by the appellants at their yards at Jakkasandra and Tataguni. The only dispute is whether the Appellants were liable to pay excise duty on certain transmission pipeline appurtenances, which were described as 'specials', and used in the execution of the pipe-laying project.
(b) The Appellants have explained, in detail, the nature and use of the 'specials' in the execution of the pipe laying project. The case of the Appellants, as far the 'specials' is, that those were not excisable goods, as they were fabricated exclusively as per the designs and specifications provided in the contract between the Appellants and M/s. BWSSB and were only for use in the execution of the pipe laying project specific for the site. It is not the case of the department that the Appellants have been manufacturing and selling such items (specials) in the market. The position, that they were fabricated only for the purpose of use in the pipe laying project executed by the Appellant's, in terms of the Contract between the Appellants and M/s. BWSSB, is not in contest. That being the position, the Appellant's submission, that such 'specials' fabricated by them for execution of the project were not marketable and hence cannot be held to be liable to excise duty and no excise duty can be levied thereon treating them as excisable goods, has to be examined. Proceeding to do so, it is held -
(i) Applying the tests prescribed by the Apex Court by various decisions especially Moti Laminates Pvt. Ltd. v. CCE - , it is imperative that the levy under Central Excise Act, would be attracted only after the test of marketability was established. It is always open to an assessee to prove that even though the goods were mentioned in the schedule, they could not be subjected to duty as they were not marketable in the sense of capable of being brought to the market for being bought and sold. A perusal of the adjudication order, indicates that this test does not pass in the case of goods fabricated at Jakkasandra and Tataguni, except possibly for ladders and M.S. Water Tanks.
(ii) The 'specials' fabricated, as per drawing, designs and specifications, could not be marketed to anybody else, as they were exclusively for use, as per the requirement of the site, where they were to be placed like ring girders, specifically designed were to be erected at bridge piers and abutment locations on pipe shells and they were not goods which would be capable of being bought and sold for any general use and thus cannot be held to be marketable. These fabrications were conducted at the site and not at the yards, as has been presumed in the order impugned. The entire stretch of such a huge pipe line project running cross country would consist of straight M.S. Pipes bends, mitres, Ring Girders, Joint expansion bellow, adopters etc. Basically it is contended that Bends and Mitres of the volume and magnitude could not be fabricated at the yards. The Appellant sites and instance, of bends fabricated out of spools (10 metres straight length pipes) dispatched to particular pipe laying locations and laid there as per site conditions. If such bends were to be manufactured at yards, there were chances of mismatch and variations. Further it is submitted as per contract specifications such bends have to undergo hydro tests and it is practically impossible to conduct such test in the yard as it is not technically feasible. Since due to varying atmospheric temperature, there would be thermal expansion of the pipeline, which has to be accounted. Therefore such items have necessarily to be fabricated at the site. The adjudicator appears to have over looked this essential aspect of a technological necessity. This cannot be ignored.
(iii) The fabrication of tanks at sites from bits and pieces of plates will not amount to manufacture, following the decision of this Tribunal in the case of Palmtech Engineer Pvt. Ltd. - & Board's Circular No. 17/89 dated 21-4-1989 and the fact that such tanks are not part of the pipe lines as is not a finding of fact arrived.
1(iii) The department's case proceeds on an incorrect notion for example ring girders are being considered as nothing but pipes of 1975 mm dia of 22 mm thickness. They are basically a special pipe support on river bridges to accommodate the lengthier span of 12.5 metres. These supports are formed as a pipe component with additional stiffening, which will be anchored on the hammerheads of the pipe bridges. These complex operations have therefore necessarily to be carried out at site and it would be wrong to presume that the Ring Girders were fully fabricated pipes at the yards and just to be used in the execution of laying of pipelines.
(iv) The Adjudicating Authority has also wrongly presumed that the Appellants were required, as per the Contract, to fabricate the Ring Girders at the yard. Nothing in the Contract could be found that the Ring Girders have to be fabricated at the yard only. Fabrication of Ring Girders can be completed only at the site and the required quality control tests in respect of most of the Ring Girders were done at site is the submission which cannot be rejected.
The Appellants contention that the ring girders and the other 'specials' fabricated at the sites and used in the technical execution of the pipe line project cannot be therefore held to be excisable goods. These 'specials' so fabricated at site emerge in any case as final products embedded to the pipe line, which, in turn, is embedded in the earth or/and other civil structures and thus become parts of immovable property and cannot be levied to C.Ex. duty.
(c) The finding of the Id. Commissioner that mere cutting of smaller pipes from a longer duty paid pipe amounts to manufacture in the case of manhole stubs and other such stubs, is a finding in error, as no new commercially identifiable product known to persons dealing with it, has emerged in a larger pipe just being cut into a smaller one to meet the requirements of fitting into the works contract of the pipe line being laid. Similarly the charge of duty on Mitres, Cones and Reducers cannot be upheld, merely because some officers of the Appellant company have accepted them to be liable to duty under C.Ex. Act. The Commissioner was required to find out the levy, by applying the law on manufacture, as laid down by the Apex Court. Levy of duty cannot be upheld, merely because some officer of a company agrees to pay duty, as found by the Id. Commissioner. It is well settled that there cannot be an estoppel in matters of taxation especially the levy and levy cannot be arrived at by private contract and acceptance or that the Company was not permitted to contest the same.
1(e) When goods are not excisable per se the point at which they emerge will not be very relevant. The finding of the Commissioner that all these goods came into existence in the yard of the Appellants cannot be upheld. In view of the confirmation Shri Tyagaraja of M/s. Venkateswara Engineering Works and other job workers on record; the goods fabricated at the premises of a processors job worker would be chargeable to duty as per the decision of the Constitution Bench in the case of Ujagar Prints - holding the Appellants liable for duty on the fabricated goods by the job workers therefore cannot be upheld.
(f) There is force in the submission that the appellants were carrying out certain process for modifying for adoption of the pipes for specific use in the project as the pipe line has to pass through various directions and after adoption the pipes continues to be pipes for the purposes of carrying water and as per the definition of pipes under the C.Ex. Tariff. Therefore a mere change of physical shape and size for the purpose and need of specific configurations of the main pipe line would not meet the requirements of manufacture under the C.Ex. law. This position has been upheld by this Tribunal in the case of M/s. True Forge Pvt. Ltd. - relying upon the decision of the HonTjle Supreme Court in Bharat Forge & Press Industries Pvt. Ltd. - . Nothing contrary has been shown and perusal of the decision in the case of True Forge Pvt. Ltd. - which was a case of whether manufacture takes place when pipes are converted into fittings viz elbows, T pipes, reducers etc. and the Tribunal held that no manufacture took place. Therefore we found no reason to uphold the demands on manufacture found to have taken place in the case of pipe fittings herein. We find that the decision in the case of Artson Engineering Ltd. - , Tega India Ltd - , Thungabhadra Steel Products Ltd - relied upon by the Sr. Counsel for the Appellants is well founded to call for setting aside the duties arrived at on the Appellants in these cases.
(g) The demands in this case are found to be barred by limitation as no fraud or wilful misstatement or suppression of facts with intent to evade payment of duty could be established particularly as the supply was to BWSSB a Govt. of Karnataka undertaking and in light of established position that conversion of duty paid pipes into pipe fittings when the later are not proved to be marketable as new identifiable commercial goods would not amount to manufacture is the settled law. The demands relates to the period August 2000 to July 2002, the SCN should have been issued within one year of the date of filing of the returns, the department's attempt to invoke the proviso of Section 11A(1) to avail the benefit of extended period is not warranted. The principles laid down by the Apex Court in Tamil-nadu Housing Board's case , Chemphar Drug & Liniments - , Cosmic Dye Chemical - would clearly lead to the conclusion that the demands in this case are barred by limitation except for part of the period July 2002. As no case for wilful intent to evade duty could be established in the facts herein.
(h) certain items like Steel Laders etc. could be held to be dutiable however, it is not known whether those items were cleared in July 2002, the month for which the duty demand could be confirmed. Therefore no duty demands on the Appellant company can be upheld for the goods fabricated at the yard or/and the sites. The duty demands for the goods fabricated at the job workers premises cannot be confirmed on the Appellant company. The duty demands as made are required to be set aside.
(i) Since no duty demands as per the proviso to Section 11A(1) could be determined in absence of the ingredients of the proviso clause. Therefore penalty under 11AC and interest under Section 11AB cannot be upheld.
(j) Since no duty demands are being confirmed and no goods have been determined to be liable to be confiscation the penalty imposed under Rule 26 of the C.Ex. Rules, 2002 on the General Manager, Manager Executive and Project Manager, the other Appellants herein cannot be upheld.
3. In view of the findings herein the order is set aside and appeals allowed.
(Pronounced in the Court on 21-10-2005)