Customs, Excise and Gold Tribunal - Delhi
Kelvinator Of India Ltd. vs Collector Of Central Excise on 12 September, 1991
Equivalent citations: 1992(38)ECR194(TRI.-DELHI)
ORDER
1. M/s. Kelvinator of India Ltd., Faridabad, have filed an appeal being aggrieved from the order passed by Collector of Central Excise, New Delhi. The said appeal was presented in the Registry on 26th day of June, 1991. Simultaneously, a stay application duly supported with an affidavit was also filed, and the matter was taken up for hearing yesterday, that is, the 11th day of September, 1991. The Bench pointed out that the affidavit attached with the stay application was not sworn before an Oath Commissioner and the applicant's senior advocate Shri Chandrasekharan had requested time for rectifying the defect. Shri M.S. Arora, the learned JDR, who appeared on behalf of the Revenue did not object to the grant of time. In the interest of justice the matter was adjourned for today for filing of the affidavit though the arguments were concluded by both the sides yesterday.
2. Shri M. Chandrasekharan, senior Advocate, with Ms. Savita Sharma, advocate, have appeared on behalf of the applicant. Shri Chandrasekharan pleaded that the applicant is carrying on the business of manufacturing refrigerators and deep freezers and the compressors is the main component of the refrigerator. It carries one year warranty and free repair and replacing for defects in material. The defective compressors received by the applicant after necessary repairs were taken out from the factory and the Revenue authorities are treating the repair as manufacture of compressors and by the present application the applicant has made a prayer for dispensing with the pre-deposit of the duty amount of Rs. 35,94,883.74 and penalty of Rs. One lakh. Shri Chandrasekharan, senior advocate, pleaded that the show cause notice is dated 5.6.1989 and the period involved is November 1988 to April 1989 and the Revenue has not invoked the extended period of limitation. Shri Chandrasekharan pleaded that the applicant's case is squarely covered by the decision of the Tribunal in the case of Shriram Refrigeration Industries Ltd. v. CCE, Hyderabad . Shri Chandrasekharan laid special emphasis on paras 5, 6, 7, 8, 9, 14, 15, 16 of the said judgment. Shri Chandrasekharan pleaded that the facts and circumstances of the present case are similar to the earlier decision and the same should be followed, and if the applicant is desired to pay the duty amount of Rs. 35,94,883.74 and penalty of Rs. One lakh, it will amount to undue hardship. He has pleaded for the grant of stay. Shri M.S. Arora, the learned JDR, who has appeared on behalf of the respondent-Collector stated that the decision of the Tribunal is a subject matter of appeal before the Hon'ble Supreme Court and he fairly stated that the appeal is still at admission stage and no slay has been granted by the Hon'ble Supreme Court. Shri Arora drew the attention of the Bench to the show cause notice which appears at page 122 of the paper book and stated that the price of the repaired compressor as well as of the new compressor is the same, and the Revenue authorities had correctly charged the excise duty on the alleged repaired compressor and stated that the activity of the applicant amounts to manufacture. Shri Arora pleaded that while disposing of the appeal in the case of Shriram Refrigeration Industries Ltd. (supra), the judgment of the larger Bench of the Tribunal in the case of National Organic Chemical Industries Ltd. Bombay v. CCE, Bombay , was not brought to the notice of the Tribunal and he laid special emphasis on para 15 of the said judgment. Shri Arora pleaded that in case the Tribunal had taken into consideration the judgment of the Tribunal in the case of National Organic Chemical Industries Ltd., the decision of the Tribunal might have been different. He also argued that the compressor which is being taken by the applicant for repair is completely dismantled, outer shell is completely cut and the parts are also intermixed and thereafter new parts are fitted and the whole compressor which has come up for repair in the applicant's factory loses its identity as a new compressor emerges and as such the duty charged by the Revenue on these compressors is in accordance with law. He also cited the decision of the Bombay High Court in the case of I.B.M. World Trade Corporation v. Union of India reported in 1980 ELT 274 (Bom) : 1990 (28) ECR 433 (Bom) and laid special emphasis on para 9 of the judgment. Shri Arora also referred to the decision of Patna High Court in the case of Shri Krishna Gyanoday Sugar Ltd. v. Government of India reported in 1980 ELT 813 (Patna) : 1980 Cen-Cus 26D, where the Hon'ble High Court had held that if defective sugar goes through reprocessing, the end product produced is sugar. He pleaded that in the matter before the Tribunal the compressor which had come for repair was dismantled and thereafter it emerges as a new commodity on putting new parts, and as such the excise duty has to be levied. He referred to the Supreme Court judgment in the case of Name Tulaman Manufacturers Pvt. Ltd. v. CCE , where the Hon'ble Supreme Court held that the activity of assembling the components amounts to manufacture as it brings into existence a new product because parts and end products are separately dutiable. He laid special emphasis on paras 3 and 4 of the said judgment. Shri Arora pleaded that the stay application filed by the applicants should be rejected. In reply, Shri Chandrasekharan argued that the judgment of National Organic Chemical Industries Ltd., (supra) as cited by the learned JDR is not applicable to the facts of the present case as in the case of National Organic Chemical Industries processing was involved. In the present matter there is no processing. In reply to the decision of the Bombay High Court in the case of I.B.M. World Trade Corporation (supra), Shri Chandrasekharan argued that the machine imported is only for the purpose of disassembling and salvaging of usable parts and in the present case it does not so and no reliance can be placed. In support of his arguments he drew the attention of the Bench to a decision of the Tribunal in the case of East India Transformers & Switch Gears (P) Ltd. v. CCE reported in 1989 (43) ELT 561 (Tribunal) : 1989 (25) ECR 346 Cegat SB-B1. Shri Chandrasekharan referred to page 229 of the paper book and para 20 of the impugned order. He argued that there is no manufacturing activity involved and the argument of the learned JDR that price should be the basis for judging the manufacturing activity cannot be a basis whether it amounts to manufacture or not. He pleaded that there were about 10,456 compressors, 9,737 compressors were to be treated by the applicant by way of warranty or after sales service and for the remaining 719 compressors, they have been charged the same price which is being charged on a new compressor for the repair. Shri Chandrasekharan argued that the price had been charged to cover up the repair charges. He also stated that the judgment in the case of Shriram Refrigeration Industries Ltd. is a recent judgment and there are no circumstances where the Tribunal should differ from its earlier decision especially when the appeal has been filed and no stay has been granted by the Supreme Court.
3. We have heard both the sides and have gone through the facts and circumstances of the case. The facts of the present case are similar to the facts in the case of Refrigeration Industries Ltd. (supra). The Tribunal while disposing of the matter in the case of Shriram Refrigeration Industries Ltd. v. CCE had looked into at length whether the compressors received by the appellants amounts to manufacture. Paras 5, 6, 7, 8,9, 10 to 15,19 and 20 are reproduced below:
5. Before we start discussion on the other issues relied on against the appellants, it would be worthwhile to determine the parameters of what Rule 173H permitted. This rule, as amended on 26.6.1976, reads as under:
Rule 173H. Retention or re-entry of duty paid goods in factory or warehouse-(1) The assessee may, subject to such conditions as may be specified by the Collector, retain in, or bring into, his factory or warehouse the goods on which duty has been paid, if such goods-
(a) are required for use in the manufacture of other goods in the factory, or (aa) are required in the factory for construction or repairs or for use as fittings or equipment or for any other purpose for which such goods are normally consumed; or
(b) need to be re-made, refined, reconditioned, repaired or subjected to any similar process in the factory; or
(c) cannot be transported due to circumstances beyond the assessee's control such as the suspension of booking on railways, non-availability of railway wagons or the break down of carriers; or
(d) are required for test or for studying designs or method of construction; or
(e) are required to be stored in the factory premises for retail sale or for issue as complimentary gifts or for repacking into packages so as to suit the requirements of individual customers.
(2) The goods retained in, or brought into, a factory or warehouse in accordance with the provisions of Sub-rule (1) may, if not subjected to any process amounting to manufacture be removed from the factory or warehouse without payment of duty subject to such conditions as may be specified by the Collector." (The portions underlined above were added by the amendment dated 26.6.1976).
We do not agree with the appellants that irrespective of whether the activity amounted to manufacture or not, so long as the activity was one of repair/re-conditioning/re-making, the benefit of the Rule would be available. "On a perusal and harmonious construction of the clauses of Rule 173(H), it would appear that to avail of the benefit of the said rule the process of "remaking" should be such that it falls short of remanufacture. A contention to the contrary ignores Clause (2) of the said Rule altogether" 1983 E.L.T. 1927 CE.G.A.T. Sriram Pistons and Rings Ltd. Ghaziabad v. Collector of Central Excise, Meerut paragraph 16(a). Though the stipulation that the activity of repair/reconditioning/remaking should not amount to manufacture was specifically put in Sub-rule (2) of Rule 173(H) with effect from 26.6.1976, the said stipulation was implied even earlier when Rule 173(H) is read together with the charging provision in Section 3 of the Act and the two are interpreted harmoniously. We hold, therefore, that all along Rule 173H permitted only repair/reconditioning/remaking provided the process employed did not amount to manufacture.
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) XXX 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 requires alteration 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, be 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 into 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 Excises 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 14H 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 must emerge having a distinctive name, character or 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 in the 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 E.L.T. (J. 593) P.C. Cheriyan 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 Excise 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 bringing 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 particularly 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. Irrepairable 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 setup 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 reassembled 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 pre-fix 'E' since the original engraving became indistinct 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 re-assemble 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 re-assembly 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 re-issuing, 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 from 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 proforma 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 of receipt of compressors sent by them to the authorities did not give co-relation 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 reprocessing/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 8.6.1973.
11. Having given the aforesaid factual background, we now come to the genesis of the Collector's charge. Apart from the incident of 15 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 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 S.R.I. had in fact manufactured the aforesaid 29,494, compressors, and that they had not merely repaired the said compressors. It had also to be held that defective compressors, brought back into the factory were utilised by S.R.I. 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 173H(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 re-issuing 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 E.L.T. 676 (Bom.) Century Spinning and Manufacture Co. Ltd. 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 re-imported into India after having been exported for repairs. The petitioners in that case exported old unserviceable worn-out 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 re-manufactured 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 sipnnerettcs have lost their identity". We have to bear in mind that in the case of its customs notification, the question of 'manufacture' was not involved; emphasis was only on identity of the exported and re-imported goods. The High Court held that the identity was to be decided on the basis whether the re-imported 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 sustain 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 specifications 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 part(s) 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 tests 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 having 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 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.
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 argument of loss of identity cannot sustain 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 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.
20A. 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 29.12.1976 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.
20B. 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.
The learned JDR had argued at length that in the case of Shriram Refrigeration Industries Ltd. v. CCE, Hyderabad (supra), the decision of National Organic Chemical Industries Ltd. (supra) was not taken into consideration. We have looked into the same. The facts are different and do not fit into the facts and circumstances of the present case. During the course of arguments the JDR has brought to our notice that the subject matter of Shriram Refrigeration Industries is before the Hon'ble Supreme Court and the appeal had at initial stage and no stay has been granted. The facts of the present case are similar. We have also looked into the Patna High Court decision in the case of Shri Krishna Gyanoday Sugar Ltd. (supra) and the Supreme Court judgment in the case of Name Tulaman Manufacturers Pvt. Ltd. (supra). The facts of the present case are different The Tribunal has occasion to deal a situation where a co-ordinate Bench of the Tribunal passed an order, the same has to be duly considered. Para 33 of the Order No. 424/90-C of M/s. Northern Plastics Ltd. which is relevant in this connection is reproduced below:
In the present appeal before the Tribunal whatever fresh material or evidence was placed, which was not placed before the earlier Bench of the Tribunal, the same has been duly considered and after giving due consideration, my learned brother has come to the conclusion. I do not find that the earlier decision was erroneous or perverse, in any way, and this Tribunal should not differ from the earlier decision and conclusions of the Tribunal. Bombay High Court in the case of Trikamal Maneklal reported in 33 ITR 725 had held that the Tribunal had considered the merits of the contention of the assessee and arrived at a certain decision, the order of remand made by the Appellate Tribunal was final under Section 33(6), and it was not open to the Appellate Tribunal to permit the correctness of that order to be questioned in the proceedings subsequently brought before it against the final order of assessment, merely because the Tribunal at the later stage is advised that the previous order was erroneous in law.
4. In view of the above discussion and keeping in view the decision of the Delhi High Court in the case of Uptron Powertroncis v. CCE, Meerut , we are of the view that prima facie the applicants appear to have a good case on merits. Further observations at this stage whether it amounts to manufacture or not will not be proper as the matter is sub judice. Keeping in view the above discussion we are of the view that if the applicants are desired to deposit the duty amount of Rs. 35,94,883.74 and penalty amount of Rs. One lakh, it will amount to undue hardship. We dispense with the pre-deposit of the same and further order that during the pendency of the appeal the Revenue authorities shall not pursue recovery proceedings for the duty amount of Rs. 35,94,883.74 and penalty amount of Rs. one lakh.
Pronounced and dictated in the open Court.