Custom, Excise & Service Tax Tribunal
Defence Land Systems India Pvt. Limited vs Commissioner Of Central Excise & St, ... on 10 October, 2017
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SCO 147-148, SECTOR 17-C, CHANDIGARH 160 017
COURT NO. I
Appeal Nos. E/51172/2014,E/53424/2015 & E/60585/2016
(Arising out OIO No. 8/Commissioner/Fbd/CX/2013 dt.14.11.2013, OIO No.18/GDL/Commissioner/CX/FBD/2015 dated 29.6.2015 and OIO No.06/Commissioner/FBD/2016-17 dt.31.8.2016 passed by the CCE, Delhi-IV)
Date of Hearing : 07.02.2017
Date of Decision : 10.01.2017
For approval and signature:
Honble Mr. Ashok Jindal, Member (Judicial)
Honble Mr. Devender Singh, Member (Judicial)
Defence Land Systems India Pvt. Limited - Appellant
vs.
Commissioner of Central Excise & ST, Delhi-IV - Respondent
Appearance
Shri D.B.Shroof, Sr. Advocate Sh.Dinesh Agarwal & Sh.Anik Shah,Advocates for the appellants
Shri Atul Handa, AR for the respondent
CORAM:
Honble Mr.Ashok Jindal, Member (Judicial)
Honble Mr. Devender Singh, Member (Judicial)
FINAL ORDER NO :
Per. ASHOK JINDAL :
The appellant is in appeal against the impugned order confirming the demand of duty holding that bullet-proofing activity undertaken by the appellant amounts to manufacture.
2. The facts of the case are that the appellant is doing the bullet-proofing activity on the vehicle manufactured by M/s. Mahindra and Mahindra on job work basis. The appellant undertakes bullet proofing of the vehicle, namely, Mahindra Bolero Jeep, Mahindra Scorpio, Mahindra Bolero Camper, Mahindra Scorpio, Mahindra Bus into Mahindra Rakshak (Rakshak), Mahindra Marksman (Marksman), Mahindra RIV (RIV), Mahindra Bullet Proof Scorpio (BPS) and Mahindra Bullet Proof Bus (BPS) respectively. The dispute is in respect of bullet proofing process in respect of the M & M Scorpio, M & M Bolero Jeep and M & M Bus. The process of bullet proofing involves the removal of the body shell of the vehicle and reinforcing the same with bulletproof sheets, strengthening the platform by welding iron studs on the weak joints of the platform and replacement of coils and shock absorbers so as to enable the platform to bear the increased weight of the base vehicle after bullet proofing. The body shell is then reinstalled on the platform and the floor is covered with a ballistic carpet. The glass is also changed to thicker bullet proof glass. These vehicles are also sold to defence establishments, paramilitary forces, State Police and to individual in India and abroad. There is no change whatsoever to the external or internal appearance of these vehicles and their use to which the vehicles are used for. The Scorpio remains a Scorpio; the Bolero Jeep remains a Bolero Jeep and the Bus remains a Bus. All three vehicles are used for transportation of passengers both before and after bullet proofing. The bullet proofing is merely an additional accessory to these vehicles.
3. In 2003, the Revenue started enquiries as the process of bullet proofing of the motor vehicle known as Mahindra Rakshak (Mahindra Bolero Jeep) amounts to manufacture or not. It was alleged that as the bullet proofing was done by a division of Mahindra & Mahindra, the cost of bullet proofing should be included in the value of base vehicle cleared by Mahindra& Mahindra in terms of Rule 10A of the Central Excise Valuation Rules, 2000 as the said activity amounts to manufacture. It was alleged that the activity amounts to manufacture and cost of bullet proofing was to be added to the cost of base vehicle paid by Mahindra & Mahindra.
4. On appeal, the order of the adjudicating authority was set aside holding that the process does not amount to manufacture and duty cannot be charged on the value addition carried outside the factory of clearance on account of certain processes not amounting to manufacture. The matter travelled to the Tribunal. The Tribunal upheld the order of the Commissioner (Appeals) reported in 2010 (262) ELT 366 (Tr.) which has been affirmed by the Honble Apex Court reported in 2016 (334) ELT 193 (SC).
5. The issue with regard to the Mahinidra Rakshak vehicles once again came up for consideration before the Commissioner of Central Excise, Nashik who vide order dated 17.06.2004 confirmed the demand of duty by adding the value of bullet proofing which was undertaken on a job work basis as bullet proofing did not amount to manufacture. The said order was set aside by the Tribunal reported in 2015 (321) ELT 513 (Tri.-Del.), holding that the bullet proofing does not amount to manufacture therefore, the value of bullet proofing is not to be added in the assessable value as bullet proofing is done by an independent job worker. An enquiry was initiated against the appellant for non-payment of duty on bullet proofing activity, the appellant reply that their activity did not involve manufacture and no duty was required to be paid. Thereafter on further investigation, a show cause notice dated 29.1.2013 was issued to the appellant alleging that the department came to the knowledge on 01.01.2012 that the appellant carried out the process which amount to manufacture and they have intentionally did not disclose this fact in the ER-1 return and not pay duty as the process of bulleting proofing amounts to manufacture as such process converted the base vehicle into a specialized vehicle having a distinct name, character and use. Therefore, the duty was demanded. Further, two show cause notices in respect of bullet proofing carried on the Scorpio and the Bus for the period January, 2013 to December, 2013 and January, 2014 to December, 2014 were issued. The show cause notices were adjudicated and confirmed the demand holding that the activity undertaken by the appellant amounts to manufacture. Consequently, they are liable to pay duty. Aggrieved from the said orders, the appellant is before us.
6. Learned Counsel for the appellant submits that the show cause notice dated 29.1.2013 is barred by limitation as the adjudicating authority ignored the fact that as far back as in 2003, the department after making the requisite inquiries alleged that the appellants predecessor-in-title (MDS) was, by bulleting proofing the M & M vehicles, manufacturing new product. Further, a mere perusal of the Order dated 17.06.2004, it is clear that the very same process of bullet proofing that has been set out by the department in the present show cause notice have been taken from the appellants letters dated 1.1.2012 and 24.7.2012. The charge of suppression is false and erroneous, therefore, on this alone ground, the order confirming the demand is to be set aside. To support his contention, he relied on the following decisions:
(i) Anand Nishikawa Co. Limited - vs. CCE-2005 (188) ELT 149 (SC)
(ii) CCE vs. Malleable Iron & Steel Castings Co.Pvt.Ltd.-1988 (100) ELT 8 (SC)
(iii) Prabhu Steel Industries Ltd. vs. CCE-1997 (95) ELT 164 (SC)
(iv) CCE vs. Pioneer Scientific Glass Works-2006 (197) ELT 308 (SC)
(v) Uniworth Textiles Ltd. vs. CCE, Raiipur-2013 (288) ELT 161 (SC)
7. He further submits that the Commissioner (Appeals) and the Commissioner Nashik had held that bullet proofing does not amount to manufacture. Therefore, due to change of opinion, the extended period of limitation is not invokable. To support this contention, he relied on the decision of the Honble Madras High Court in the case of Madura Power Corp.(P) Limited -2008 (229) ELT 521 (Mad.) and in Honble Allahabad High Court in the case of Shahnaz Ayurvedics -2004 (173) ELT 337 (All).
8. He further submits that the activity of bullet proofing does not amount to manufacture. He submits that as the activity of bullet proofing of Rakshak held by the Commissioner (Appeals) as far back in 2003 does not amount to manufacture. The said order has been affirmed by this Tribunal which has been subsequently affirmed by the Honble Apex Court. Further, the Commissioner, Nashik in his order confirmed that bullet proofing does not amount to manufacture. The said order has been affirmed by this Tribunal. Therefore, the activity of bullet proofing in respect of the said vehicle does not result in into existence a new product, having a new name, character and use. A mere comparison of the pictures of the M & M Scorpio, Bolero Jeep and Bus with the pictures of the BPS, Rakshak and BP Bus would show that there is no change whatsoever to the external or internal appearance of these vehicles. The Scorpio remains a Scorpio and the bus remains a bus. Both are used for transportation of passengers both before and after bullet proofing. Thus their use also remains the same, namely, carrying of passengers. The character of the vehicles also does not change. The bulleting proofing is merely like an additional accessory being added to these vehicles.
9. He further submits that the bullet proofing process only involves the removal of the body shell of the vehicle and reinforcing the same with bullet proofing sheets from the inside, strengthening the platform by welding iron studs on the weak joints of the platform and replacement of coils and shock absorbers so as to enable the platform to bear the increased weight of the base vehicle after bullet proofing. The body shell is then reinstalled on the platform and the floor is covered with a ballistic carpet. The glass is also changed to thicker bullet proof glass. These vehicles are sold to defence establishments, paramilitary forces, State Police and to individuals in India and abroad. The said activities does not amount to manufacture, to support this, he relied on the following decisions:
(1) Union of India vs. Delhi Cloth & General Mills Co. Limited -1977 (1) ELT J199 (SC)
(2) Servo-Med Industries Pvt. Limited vs. CCE-2015 (319) ELT 598 (SC)
(3) Deputy Commissioner of Sales Tax vs. Pio - Food Packers-1980 (6) ELT 343 (SC)
(4) Crane Betel Nut Powder Works vs. CCE-2007 (210) ELT 177 (SC)
(5) VeeKalyan Industries vs. CCE-1996 (83) ELT 262 (SC)
(6) CCE vs. Tarpaulin International -2010 (256) ELT 481 (SC)
(7) Metlex (I) Pvt. Limited vs. CCE-2004 (165) ELT 129 (SC)
(8) Gujarat Steel Tubes Limited vs. State of Kerala-1989 (3) SCC 127
(9) Sterling Foods vs. State of Karnataka-1986 (26) ELT 3 (SC(
(10) CCE vs. Midas Techniquies Pvt. Limited -2015 (329) ELT 926 (Tri.)
(11) Fram & Company vs. CCE - 1987 (30) ELT 541 (Tri.)
10. He contended that the bullet proofing/security of the passenger are just an additional feature or accessory. He relied on the decision of the Apex Court in the case of Mehra Bros vs. Joint Commercial Offier-1991 (51) ELT 173 (SC) to say that an accessory is an object or device that is not essential in itself but adds to the beauty or convenience or effectiveness of something else or is supplementary or secondary to something of greater o primary importance. In this case, the primary purpose of the vehicle remains the same, namely, transportation of civilians. The bullet proofing of the body is not essential but adds to the security of the passenger. The bullet proof Scorpio, Rakshak or the Bullet proof Bus cannot be distinguished from the base vehicle, and even they are known as Bullet Proof Scorpio, Rakshak and Bullet Proof Bus it cannot be said that it is a different product. He relied on the decision in the case of CCE vs. Dilip Chhabaria Designs Pvt. Limited -2015 (325) ELT 390 (Tri.).
11. He further submits that the value addition does not by itself constitute production or manufacture and cannot be made the sole test for determining whether an article has been produced or manufactured. Value addition without any change in the name, character or any use cannot constitute criteria to decide what manufacture is. To support this, he relied on the decision of the Honble Supreme Court in the case of S.R. Tissues Pvt.Ltd.-2005 (186) ELT 385 (SC) and Satnam Overseas Limited vs. CCE-2015 (318) ELT 538 (SC).
12. He further submits that there is no chapter note in chapter 87 which artificially defines fabrication of bodies on the existing motor vehicles as amounting to manufacture. The fabrication of bodies on existing motors vehicles in any event does not amount to manufacture as held in the following judgements:
(a) Darshan Singh Pavitar vs. UOI-1988 (34) ELT 631 (P&H)
(b) Malwa Motor Body Works vs. CCE-1989 (44) ELT 653 ((T)
(c) CCE vs. Roplas (India) Ltd.-1991 (52) ELT 240 (T)
(d) CCE vs. Roplas (India) Ltd.-1998 (98) ELT 441 (T)
(e) CCE vs. Concept Engineering (P) Ltd.-2001 (134) ELT (T) 136 (T)
13. He further submits that assuming that bullet proofing activity does not amount to manufacture. What should be the correct classification of the Bullet Proof Scorpio:
i. Heading 8703 3299 or 8707 as proposed by the appellant or
ii. Heading 8703 3392 as proposed in the show cause notice or
iii. Heading 8703 3292 as held by the Commissioner.
14. It is his submission that the show cause notice proposed classification of the BP Scorpio under sub heading 8703 3392. This sub-heading is not applicable for two reasons:
(i) the sub-heading is applicable to vehicles of a cylinder capacity exceeding 2500 cc, whereas the Scorpio has a cylinder capacity of only 2179 cc; and
(ii) the said sub-heading covered Specialized transport vehicles like ambulances, prison vans, and the like . The BP Scorpio is not a specialized vehicle where the exterior and the interiors are altered for a specialized use. An ambulance is fitted with life-saving equipment, stretcher and is used for transport patients. A prison van is a minibus with the cage to transport prisoners. Such vehicles are not used for ordinary civilian transportation. The bullet proof Scorpio is not fitted with any life-saving equipment, stretcher or any prison like cage or similar kind of altered exterior/interior.
15. He further submits that the Commissioner has purported to classify the vehicle under a third heading not proposed in the show cause notice. The Commissioner has therefore clearly travelled beyond the scope of show cause notice which is not permissible in the light of the decision of Tribunal in the case of Aurobindo Pharma Limited vs. CCE-2008 (10) STR 611 (T). He further submits that this sub-heading is not applicable for the reasons set out hereinabove.
16. He further submits that the Scorpio manufactured by M & M classified under sub heading 8703 3299. There being no difference between the base vehicle and the bullet proof vehicle, the bullet proof Scorpio is also therefore classifiable under the same sub-heading. He submits that in the show cause notice there was no proposal for classifying the bullet proof bus and hence the appellant did not make any submission with regard to the classification thereof in their reply. In any event, the appellant was under the bonafide view that bullet proofing of the bus did not result in any manufacturing activity and hence no submissions were made regarding the classification of the bullet proof bus. Despite the same, the adjudicating authority has purported to classify the said vehicle under sub heading 8703 3392 wrongly alleging that there was no dispute with regard to its classification under that sub-heading.
17. He further submits that without prejudice to the aforesaid, the classification under heading 8703 is manifestly incorrect and shows total non-application of mind and heading 8702 covers motor vehicles for transport of 10 or more than persons. Heading 8703 covers motor cars and other vehicles other than of heading 8702. The bus including the bullet proof bus is meant to transport more than 10 persons and therefore, remains classifiable under heading 8702 whereas the Commissioner has classified under sub heading 8703 3392 which is not applicable to bullet proofing bus.
18. In alternate, he submits that at the most, the appellant was manufacturing a body. The classification would then be under heading 8707 and there is no allegation to that regard.
19. He further submits that the adjudicating has erred in recalculating the demand by working backwards from the cum-duty price. He also submitted that the penalty is not imposable on the appellant in the light of the following decisions:
(a) CCE vs. Pioneer Scientific Glass Works-2006 (197) ELT 308 (SC)
(b) CCE, Belgaum vs. S.R.V.Automobiles-2014 (299) ELT 301 (Kar.)
(c) CCE, Mumbai vs. Danmet Chemicals Pvt. Limited - 2007 (216) ELT 3 (SC)
20. He therefore submits that the impugned orders are to be set aside.
21. On the other hand, learned AR submits that the sole issue before the adjudicating authority is whether the bullet proofing of Scorpio Jeep and Bus amounts to manufacture or not, and whether the extended period of limitation is invokable or not.
22. The appellant is doing manufacturing activity on behalf of the principal manufacturer M/s. Mahindra& Mahindra who is the actual person receiving the orders from the ultimate user and also receiving the final price from the ultimate users. As per judicial pronouncements of the Honble Apex Court, an activity to be called as manufacture under Central Excise law, a new commercial product should emerge, different from the one with which the process started. After bullet proofing done by the appellant, a new product comes into existence because inserting bullet proof layers by using specific frames, by removing the body of the base vehicle, strengthening the platform by welding iron studs on the weak joints of the platform and by replacing the normal windows and tyres with specialized bullet proof windows and tyres, by inserting a ballistic carpet, changing the coil and shock absorbers, bullet-proofing sheets are reinforced in the front wall, doors, tail gate and roof, the stripped interiors are reassembled, etc. to an extent that the value of the manufactured vehicle becomes more than double of the normal vehicle. Thus, the normal vehicles and the bullet proof vehicles have a commercially different use and a commercially separate market.
He also relied on the following decisions:
(a) UOI vs. Delhi Cloth & General Mills Ltd.-1977 (1) J199 (SC)
(b) UOI vs. Parle Products Pvt.Ltd.-1994 (74) ELT 492 (SC)
(c) AP State Electricity Board s. CCE, Hyderabad-1994 (70) ELT 3 (SC)
(d) Empire Industries Ltd. UOI-1985 (20) ELT 179 (SC)
(e) South Bihar Sugar Mills Ltd. Vs.UOI-1978 (2) ELT J 336 (SC)
(f) Indian Cables Co. Limited vs. CCE-1994 (74) ELT 22 (SC).
23. He further submits that this is incorrect to say that the decision of the Tribunal is applicable to the facts of the present case. As in that case, the question was of valuation of the base vehicle when it was cleared on payment of duty by principal in Nasik to its job worker in Delhi. The issue of consideration is that case was whether the value addition done by the job worker should be added to the value of the base vehicle cleared on payment of duty for bullet proofing whereas the issue in the case in hand is whether the bullet proofing activity done by the job worker amounts to manufacture or not.
24. He further submits that malafide intention of the party is clearly brought out by the adjudicating authority as the appellant never disclosed the fact to the department that the process carried out by them to produce Marksman, RIV and BPS amounts to manufacture. It came to the notice of the department only when the audit of the unit was conducted. This fact was also not disclosed during filing ER-1 returns, therefore the impugned orders are to be upheld.
25. Heard both sides and considered the submissions.
26. On careful consideration of the submissions made by both sides, the following issues emerge for consideration:
(a) Whether the activity of bullet proofing amounts to manufacture or not?
(b) Whether the vehicle has been classified correctly by the adjudicating authority in the facts and circumstances of the case or not?
(c) Whether the issue of classification considered by the adjudicating authority is beyond the scope of the show cause notice or not:
(d) Whether the extended period of limitation is invokable or not?
(e) Whether the penalty on the appellant are imposable or not?
27. Whether the activities comes under manufacturing or not, we find that the said issue came up before this Tribunal in the case of Mahindra & Mahindra Limited (supra) wherein the this Tribunal held as under:-
4.?The Revenue heavily relied upon the Honble Supreme Courts decision in the case of Siddhartha Tubes Ltd. v. Commissioner of Central Excise, Indore - 2006 (193) E.L.T. 6 (S.C.) to submit that as there is a value addition to the base vehicle, therefore, the appellants are liable to pay the duty after taking into consideration the cost of value of bullet-proofing. The Revenue also submitted that as the appellants received the order of Bullet Proof Jeep and supplied the vehicle as per the order, therefore, the duty is to be paid on the Bullet Proof Jeep and not on the base vehicle. It is also submitted that when the base vehicle is supplied to job-worker, the responsibility of supply of Bullet Proof Jeep to the police departments remained with M/s. Mahindra & Mahindra ltd. Hence the demand is rightly made.
5.?We find that the Tribunal in the appellants own case where the Bullet Proof Jeep was supplied to J&K Police and the process of bullet proofing was undertaken by the job-worker, the Tribunal after relying upon the Boards Circular No. 139/08/2000-CX, dated 4-1-2001 whereby the Revenue obtained the opinion of the Law Ministry in respect of the ratio of the decision of Honble Supreme Court in the case of Siddharth Tubes Ltd. (supra) and it has been clarified that the judgment of Siddharth Tubes Ltd. does not enable the department to charge duty on value addition outside the factory of clearance on account of certain processes not amounting to manufacture of manufactured goods in a separate/other unit of the same group or by any independent job worker.
6.?The Tribunal has held as under in the case of the appellant i.e. CC Nasik v. Mahindra & Mahindra (supra) :
4.?We have considered the rival submissions and relevant records. The moot point is what is the transaction value in this case. Departments contention is that since MML is a single entity and order is placed on one of their divisions, the value to be adopted is for the vehicle supplied to the customer and not the value of the base vehicle removed from the respondent. It would be appropriate to consider the relevant legal provisions and consider this submission.
5.?Factory as defined under Section 2(e) of the Act means :-
Factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on.
Rule 174 of erstwhile Central Excise Rules, 1944 and Rule 9 of Central Excise Rules, 2002 required every manufacturer to be registered and C.B.E. & C. is empowered to specify conditions and limitations. The Board vide Notification No. 35/2001-C.E. (N.T.), dated 26-6-2001 as amended has prescribed conditions. According to the notification, if a registered person has more than one premises, he shall obtain separate registration certificate for each premises. The fact that each premises should have a registration emerges from the provisions of Sec. 4 of the Act which requires determination of value at the place of removal. Naturally, place of removal has to be one place. What follows from the provisions relating to registration is that each factory or premises of a manufacturer is required to be registered except those who are covered by exemption.
6.?In terms of the legal provisions discussed above, it is quite clear that goods have to be assessed at the place of removal and if the value cannot be determined under main provisions of Section 4(1)(a) of the Act, rules for valuation have to be resorted.
7.?A hypothetical example makes the position clear. Let us take an assessee who has 4 divisions in different parts of the country, each making plastic granules, plastic films, plastic bags and printed bags. For the finished product of one division, the finished product of another division is the raw material. If a purchase order is placed on the division for printed plastic bag, question arises whether the division clearing the granule can be asked to pay duty on the value of printed bags or any of other two divisions can be asked to do so. If the product undergoes a process which does not amount to manufacture, department cannot demand duty including cost of each process just because the unit making raw material belongs to the same company. Legal provisions remain the same irrespective of who takes up the process. If there is no sale or if value cannot be determined under Sec. 4(1)(a) value has to be determined under Sec. 4(1)(b).
8.?We also find that Commissioner(Appeals) in her order has considered this aspect in detail before setting aside the order. Her observations relevant are reproduced below for better appreciation :-
15.?Now the question as to under these types of transaction and circumstances, whether the value of processing carried out by the independent contractor can be included in the assessable value of the goods cleared, without carrying out such process from the appellants premises. In this regard the appellants have referred to the C.B.E. & C. Circular No. 139/08/2000-CX, dated 4-1-2001 on the subject, in which while dealing with similar circumstances, the Board has clarified as under :-
In view of the Supreme Court judgment in the case of M/s. Siddharth Tubes Ltd. [2000 (115) E.L.T. 32 (S.C.)] and in J.G. case [1998 (97) E.L.T. 5 (S.C.)] Ministry of Law was requested to advise as regards to duty liability on value addition where the duty paid goods are cleared to other units for carrying further processes not amounting to manufacture and the other unit belongs to same group or is that of the job workers who merely processes the goods without owning them and collects job charges and return or cleared the goods on behalf of the supplier of the goods. The Law Ministry has advised that the judgment of the Siddharth Tubes Ltd. does not enable the department to charge duty on value addition outside the factory of clearance on account of certain processes not amounting to manufacture of manufactured goods in a separate/other unit of the same group or by any independent job worker.
The advise of the Ministry of Law has been accepted by the Board.
16.?Now as per the above clarification, the duty cannot be charged on the value addition carried out outside the factory of clearances on account of certain processes not amounting to manufacture of manufactured goods by an independent job worker. I am inclined to agree with the appellants contention that the above clarification squarely applies in their case where the bare vehicles were cleared from their factory on payment of duty and the value addition on account of bullet proofing was carried out by the independent job worker viz. M/s. Metaltech Motor Bodies, in the premises of the job worker.
(6).?Almost an identical issue relating to the place of removal after the amendment came up before the two member Bench headed by the President of the Tribunal, in Castrol India Ltd. v. C.C.E, New Delhi - 2000 (118) E.L.T. 35 (Tribunal) = 2000 (41) RLT 652 (CEGAT). In that case blended lubricating oil was removed from the place of manufacture in bulk in tankers to the depots/packing place from where oil was sold after repacking in smaller quantities. The cost of packing done at the depot/packing place was sought to included in assessable value even after amendment of Section 4, effective from 28-9-1996, but the same was disallowed by the Tribunal and it was observed as under :-
In the case of removal of goods from the depot the time of removal shall be the time at which such goods were cleared from the factory as per definition of time of removal provided by sub-clause(b)(a) to clause (iv) of Section 4 of the Act.
The same view had also been taken by the Western Bench of the Tribunal in Sarita Chemicals Ltd. v. C.C.E., Mumbai IV - 2000 (119) E.L.T. 394 (Tribunal) = 1999 (34) RLT 573 (CEGAT).
18.?It is seen from the aforesaid observations of the Tribunal that the goods should be assessed in the condition in which the same are cleared from the factory and the value addition on account of the processing carried out by the job worker subsequent to the clearance of the goods should not be taken into account.
9.?We find ourselves in complete agreement with the conclusion of Commissioner (Appeals). The Boards circular cited by her shows that C.B.E. & C. had consulted Law Ministry and had reached the same conclusion. Decisions cited by Commissioner (Appeals), Boards circular and our analysis of legal provisions show that Commissioner (Appeals) order has to be upheld. We find no merit in the appeal and dismiss the same.
10.?The ratio of the above decision is fully applicable to the present case. We find no reason to take a different view.
11.?In view of the above decision, the impugned order is set aside and the appeal is allowed.
The said issue also came up before the Tribunal in the case of Nasik unit of the appellant and the Tribunal again held that Bullet Proofing does not amount to manufacture.
28. In view of the above, following the precedent decision of this Tribunal in the case of Mahindra & Mahindra (supra), we hold that Bullet Proofing of Mahindra Bolero and Mahindra Rakshak does not amount to manufacture and no duty is payable by the appellant.
29. With regard to Mahindra Scorpio and Mahindra Bus, we find that the process undertaken by the appellant involves the removal of body shell of the vehicle and reinforcing the same with bullet proofing sheets from the inside, strengthening the platform by welding iron studs on the weak joints of the platform and replacement of coils and shock absorbers so as to enable the platform to bear the increased weight of the base vehicle after bullet proofing. The body shell is then reinstalled on the platform and the floor is covered with a ballistic carpet. The glass is also changed to thicker bullet proof glass. We have seen that Mahindra Scorpio remains as Mahindra Scorpio and Mahindra Bus remains as Mahindra Bus before and after the bullet proofing and the use of the vehicles also remains same to carrying the passengers and the character of vehicle also do not change on accessories being added to these vehicles. It has been observed by this Tribunal in the case of CCE, Mumbai vs. Dilip Chhabria Designs Pvt. Limited (supra) wherein the issue before this Tribunal was that, whether customisation of the motor vehicles as per requirement of customers amounts to manufacture and duty is required to pay. The said issue has been examined by this Tribunal and this Tribunal has held as under:-
6.?In all the appeals the issues to be decided by us are as under :
(a) Whether customisation of the motor vehicles as per requirements of customers amounts to manufacture as per Section 2(f) of Central Excise Act, 1944 and/or Chapter Note 3 of Chapter 87 of Central Excise Tariff.
(b) Whether dropping of demand by the Commissioner on alleged removal of add on kits and parts from Powai and Silvassa units are correct.
(c) Whether the Respondents are entitled for SSI Exemption Notification No. 8/2001-C.E., dated 1-3-2001 during the year 2001-2002.
(d) Whether personal penalty imposed for Rs. 5000/- each in two OIO on Shri B.D. Bajaj is correct or to be increased to Rs. 10,000/- each.
As regard demand of duty on customization of motor vehicle we find that the respondent is carrying out the activity of cosmetic changes on the duty paid cars and vehicles these duty paid vehicles are completely ready for use with its body. They are doing cosmetic changes as per the requirement of the customer inside and outside of the vehicle. In our considered view these activity do not amount to manufacture for the reason that the original duty paid motor vehicles remained as motor vehicles only, except some changes and due to these changes original identity of the product in terms of Central Excise provisions does not change. We find that revenue in their appeal mainly emphasized on chapter Note 3 of Chapter 87 which is reproduced below : -
for the purpose of Heading Nos. 8701 to 8705 building a body or fabrication or mounting or fitting of structures or equipment on the chassis would amount to manufacture of motor vehicle
The Revenue contended that any activity of fabrication if undertaken on the chassis of old vehicle and also the activity of mounting or fitting of any equipment on such chassis shall amount to manufacture of a motor vehicle. Each such activity described in the said Chapter Note would independently qualify for being manufacturing process attracting central excise levy on the resultant motor vehicles in terms of said Chapter Note. As per the fact of the present case it is undisputed that in the activity of customization of the car, the respondent has only made partial changes in the completely built up vehicle therefore they have neither fabricated any body/equipment nor mounted the same on chassis. Therefore the activity of customization carried out by the respondent does not fall under the four corners of Chapter Note 3. Considering this undisputed position Ld. Commissioner has correctly held that customization of the completely built up vehicle does not amount to manufacture even in terms of Chapter Note 3. We do agree with the findings of the Commissioner. As regard the judgments cited by the revenue, we find that in all those judgments the activities were of fabrication of complete body and mounting thereof on the chassis. Therefore the said judgments particularly Kamal Auto Industries v. CCE (supra), and CCE v. Satguru Auto Builders (supra) are not applicable in the present case. In view of this, we upheld the setting aside the demand in respect of customization of the motor vehicle. As regard the dropping of the demand on account of alleged removal of add on kits and parts and shortage found in the physical stock verification in Powai and Silvassa unit, we find that there are serious conflicts between the allegation made in the show cause notices and Commissioners findings in the impugned orders. The ld. Counsel also made submissions that due to claim of SSI Exemption demand is not sustainable and also it is time bar. We therefore find that as regard demand of excise duty on alleged removal of add on kits and parts from Powai and Silvassa unit needs re-consideration. Therefore for this part of the demand we remand the matter to the Original Adjudicating Authority for passing a fresh order after appreciating the facts, considering the representation, if any, made by the respondent, issue of time bar etc. As regard the duty demand related to clearances claimed to be covered under SSI Notification No. 8/2001-C.E., dated 1-3-2001 during the year 2001-02 it is observed that Ld. Commissioner while computing the aggregate value of Rs. 3 Crores during the year 2000-01 made an error that value of Rs. 1,03,04,873/- towards clearances of bus/tempo traveler was not taken into account therefore aggregate value remained below Rs. 3 crores, accordingly extended the benefits of SSI Exemption Notification No. 8/2001-C.E., dated 1-3-2001. We find that there is no dispute particularly when the Honble Bombay High Court in the appellants own case held the clearances of buses/tempo traveler as dutiable denying the exemption Notification No. 3/2001-C.E., dated 1-3-2001, the value of the same i.e. Rs. 1,03,04,873/- is includible in the threshold limit of Rs. 3 cores during the year 2000-01 and accordingly the respondent is not eligible for SSI Exemption in the year 2001-02. However, the issue of time bar is yet to be considered by the adjudicating authority in respect of duty demand proposed by denying the SSI exemption, we therefore direct the adjudicating authority to reconsider the demand related to SSI exemption from limitation aspect. The ld. Counsel made submission that whatsoever demand is confirmed the abatement of excise duty be given considering the value as cum duty. We agree with this and direct the Adjudicating authority to compute the duty, if any arise after deduction of excise duty from the cum duty value. As regard personal penalty on Shri B.D. Bajaj we find that ld. Commissioner has imposed penalty of Rs. 5,000/- in each OIO Nos. 26/2003, dated 10-12-2003 and 27/2003, dated 10-12-2003 whereas on reading of Rule 209A of Central Excise Rules, 1994 and Rule 26 of Central Excise Rules, 2001. We find that minimum limit of penalty amount is Rs. 10,000/- therefore the Commissioner has erred in imposing penalty of Rs. 5,000/- in each order. We therefore hold that the penalty of Rs. 10,000/- in each order on Shri B.D. Bajaj should be imposed. In view of our above discussion, we upheld the setting aside the demand in respect of customization of motor vehicle as held by the Ld. Commissioner in order in OIO No. 25/2003, dated 10-12-2003. However the matter relates to OIO No. 26/2003 and 27/2003 both dated 10-12-2003 (Except the demand of Rs. 16,48,780/- which has been finally decided by Honble Bombay High Court vide order dated 12-3-2015) needs to be reconsidered by passing a fresh order by the adjudicating authority. Needless to say that principles of natural justice shall be followed in de novo adjudication, which is expected from the Adjudicating Authority to be completed preferably within three months from receipt of this order. The appeals are disposed of by way of remand.
Further we find that, in the case of Servo-Med Industries Pvt. Limited (supra), the Hon'ble Apex Court has laid down a test to determine whether the activity amounts to manufacture or not, as under:-
27.?The case law discussed above falls into four neat categories.
(1) Where the goods remain exactly the same even after a particular process, there is obviously no manufacture involved. Processes which remove foreign matter from goods complete in themselves and/or processes which clean goods that are complete in themselves fall within this category.
(2) Where the goods remain essentially the same after the particular process, again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and the changes brought about by the said process.
(3) Where the goods are transformed into something different and/or new after a particular process, but the said goods are not marketable. Examples within this group are the Brakes India case and cases where the transformation of goods having a shelf life which is of extremely small duration. In these cases also no manufacture of goods takes place.
(4) Where the goods are transformed into goods which are different and/or new after a particular process, such goods being marketable as such. It is in this category that manufacture of goods can be said to take place.
We find that the Hon'ble Apex Court observed, whether the goods remain essentially the same after the particular process, again there can be no manufacture.
30. Admittedly, in this case the Scorpio remain Scorpio and the Bus remains the Bus after bullet proofing and therefore, it cannot be said that the activity of bullet proofing amounts to manufacture. Accordingly, we hold that the activity undertaken by the appellant does not amount to manufacture. Merely few additions do not constitute a production or manufacture.
31. We, further find that CBEC vide Circular No. 14/87 dated 30.12.1987 clarified the position as under:-
3. The Conference took note of the clarification issued by the Ministry vide F. No. B. 19/4/86-TRU (pt.), dated 1-7-1986, according to which building of body chassis by independent body building units would amount to manufacture of goods under heading Nos. 87.02 to 87.04 as the case may be. However, in this cases, only certain modifications on the body already built are carried out, hence this process cannot be considered as manufacture. Accordingly, it was decided that conversion of old buses into lorries by certain modification will not amount to manufacture and the resultant goods are not liable to duty. However, if a complete new body is built on the old chasis, it may amount to manufacture, as has already been clarified in the Ministrys letter, dated 1-7-1986.
In that circumstances, we hold that activity undertaken by the appellant does not amount to manufacture.
32. Further, we find that in the show cause notice the vehicles in question were proposed to be classified under Chapter 8703 3392 and the ld. Commissioner has classified the vehicles under Chapter heading 8703 3292. For better appreciation, we reproduce the Chapter tariff heading as under:-
Tariff Item
Description of goods
8702
MOTOR VEHICLES FOR THE TRANSPORT OF TEN OR MORE PERSONS, INCLUDING THE DRIVER
8703
MOTOR CARS AND OTHER MOTOR VEHICLES PRINCIPALLY DESIGNED FOR THE TRANSPORT OF PERSONS (OTHER THAN THOSE OF HEADING 8702), INCLUDING STATION WAGONS AND RACING CARS
8703 32
--
Of a cylinder capacity exceeding 1,500 cc but not exceeding 2,500 cc 8703 32 92
----
Specialized transport vehicles such ambulances, prison vans and the like 8703 33
--
Of a cylinder capacity exceeding 2,500 cc 8703 33 92
----
Specialised transport vehicles such as ambulances, prison vans and the like We find that Chapter heading 8703 33 proposed in the show cause notice is applicable to the vehicles having capacity of 2500cc whereas the Scorpio is having Cylinder Capacity of 2179cc. In that circumstances, the classification proposed in the show cause notice under heading 8703 33 92 is not applicable to Scorpio and Bolero. We further find that in the case of Bus, the correct classification would be under Chapter 8702, as applicable to the motor vehicles having capacity of 10 or more persons including driver. Admittedly, the Bus carries more than 10 persons and the classification proposed in the show cause notice under Chapter 8703 is not applicable to the Bus. In that circumstances, we hold that the classification proposed in the show cause notice is contrary to the facts of the case in hand. Accordingly, we hold that the classification proposed in the show cause notice is not sustainable. Moreover, the adjudicating authority has sought the classification under Chapter heading 8703 32 92 which is beyond the scope of the show cause notice. Therefore, the same is not permissible in law as held by this Tribunal in the case of Aurobindo Pharma Limited (supra), wherein in Para 6, the Tribunal held as under:-
6.? On a very careful consideration of the issue, we find that the show cause notice has actually invoked the liability to Service Tax payable on the service provided by Consulting Engineer service which is very clear from the show cause notice. The show cause notice has given the scope of the services of Consulting Engineer and it does not refer to any other service such as Chartered Accountant Service, Commercial Training or Coaching Service, etc. Therefore, it is very clear that the demand is beyond the scope of the show cause notice. Further, the appellant has relied on the following case laws :
(i) Siemens Ltd. v. CST, Bangalore - 2007 (8) S.T.R. 33 (Tri.-Bang.)
(ii) Volvo India Ltd. v. CST, Bangalore - 2007 (7) S.T.R. 600 (Tri.-Bang.)
(iii) Waters India Pvt. Ltd. v. CST, Bangalore - 2006 (4) S.T.R. 524 (Tri.-Bang.) In the above cases, it has been held that even if the services are within the purview of Service Tax but if they do not conform to the alleged service in the show cause notice, then no Service Tax is payable. The ratio of the cases are squarely applicable. With regard to the Out of pocket expenses, the DGFT and Board have clarified that out of pocket expenses reimbursed on actual basis are not includable in the value of the Service Tax. The following were relied on by the appellants, which are very appropriate to the facts of this case.
(i) Trade Notice No. 5/98 Service Tax 14-10-1998
(ii) Scott Wilson Kirkpatric (I) Pvt. Limited vs. CST, Bangalore - 2007 (5) S.T.R. 118 (Tri.-Bang.) In view of the above, we are of the view that the demand of Service Tax to the tune of Rs. 81,284/- is not sustainable. Therefore, no interest and penalty also can be levied. Hence, we allow the appeal with consequential relief. Therefore, we hold that the adjudication order is beyond the scope of show cause notice with regard to the classification proposed in the show cause notice. Accordingly, the adjudication orders are set-aside.
32. As we have decided the issue on merit, in favour of the appellant, therefore, we are not going into the issue of limitation. As the demand is not sustainable against the appellant, the penalties imposed are also set-aside.
33. With these terms, we set-aside the impugned orders and allow the appeals with consequential relief, if any.
(Pronounced in the open court on 10.10.2017)
(Devender Singh) (Ashok Jindal)
Member (Technical) Member (Judicial)
KL
23
Appeal Nos. E/51172/2014, E/53424/2015 & E/60585/2016