Customs, Excise and Gold Tribunal - Delhi
Rubicon Steels vs Commissioner Of C. Ex. on 24 December, 2002
Equivalent citations: 2003(88)ECC210, 2003(153)ELT73(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in this Appeal, filed by M/s. Rubicon Steels, is whether the activities undertaken by them amounts to manufacture so as to make the products exigible to Excise duty.
2.1 Shri B.L. Narsimhan, learned Advocate, submitted that the Appellants are engaged in the fabrication of certain parts out of the materials received from Railway Coach Factory (RCF); that the activities undertaken by them are basically in the nature of punching and bending; that at the time of supply of fabricated items, they paid excise duty on the process/jobwork charges though the activity undertaken by them did not amount to manufacture; that on account of bona fide belief they did not include the value of the materials supplied by RCF in the assessable value and availed of the benefit of SSI exemption Notification; that the Commissioner, under the impugned Order, has confirmed the demand of duty and imposed equivalent amount of penalty holding that after the process of punching, welding and bending undertaken by the Appellants, goods having a distinct name, character and use emerge which are different from raw materials and thus the activities undertaken by them amount to manufacture and that by including the cost of raw materials in the value of impugned goods, the total clearance value exceeds the eligibility limit of Rs. 3 crores under the SSI Notification.
2.2 The learned Advocate, further, submitted that there are three items in dispute, viz., Outer door assembly, carline and Bottom Side Wall Assembly; that in respect of Carline, they receive carline blank which is in the form of sheet of cut to length size and the processes undertaken by them are punching and small bending at specified places; that further processes such as drilling to fit the conduits, sockets and inserting of wiring in conduits are carried out by RCF subsequently; that subsequently sheet is welded with car-line to make the roof of the coach. He also mentioned that in respect of bottom side wall sheet, they receive side wall sheet of cut to length size and they do the processes of punching and bending at specific places; that after the receipt RCF welds 8 pieces of the bottom side wall with each other to convert them into a single piece which is then welded with side wall sheet and is fitted with the frame of flooring of the coach. He thus contended that both the products undergo a substantial change at the hands of the RCF before the same are used in the manufacture of Railway Coach.
2.3 He also mentioned that in respect of Outer Door Assembly, the Appellants receive door on which they fix angles, rods and bolts only and return the door to RCF who does the drilling operations, threading operations to fit the window frame. He contended that the activity undertaken by them does not bring into existence a new commercial product with distinct name, character and use; that even after the fabrication activity undertaken by them, the items are only in semi-finished nature and further finishing operations are undertaken by RCF; that consequently Note 6 to Section XVII of the Schedule to the Central Excise Tariff Act is not applicable since the said Note can be invoked only in a situation where the operation are in the nature of finishing or completion operations; that Note 6 will apply only when an incomplete article, by the process of completion, is converted into a finished or completed article.
3. Finally, the learned Advocate submitted that substantial demand of duty is hit by time-limit as the show cause notice has been issued on 20-12-99 for demanding duty for the period from 1994-95 to August, 1999; that longer period of limitation is not invocable since the fact that they were not including the material cost was known to the Department through the invoices filed by them which duly made reference to the Purchase Order placed by RCF; that it was open to Revenue to ask for Purchase Orders. Reliance has been placed on the decision in the case of Hindustan Syringes Pvt. Ltd. v. Commissioner of Central Excise, New Delhi, 1998 (29) RLT 323 (CEGAT). He also contended that moreover they were under the bona fide belief that since they were receiving only job charges from RCF, they were liable to pay duty only on job charges; that in any case in the Purchase Order it was clearly indicated that excise duty, if payable, would be extra and the same would be to RCF's account; that thus there cannot be any intention to evade payment of duty; that the intention to evade payment of duty can arise only in a situation where the excise duty liability is to be borne by the manufacturer himself and not by the buyer; that this legal position is supported by the decision in the case of Rajasthan Cylinders & Containers v. Commissioner of Central Excise Jaipur, 1998 (29) RLT 423 (CEGAT).
4. Countering the arguments, Shri S.M. Tata, learned Senior Departmental Representative, submitted that from the processes undertaken by the Appellants it is apparent that the processes of edge bending and punching have given the steel sheets a definite shape, character and use which otherwise would have been just steel sheet pieces; that on account of use of additional raw materials such as angles and rods, Outer door assembly have attained the definite shape, character and use as an outer door assembly; that accordingly Note 6 to Section XVII of the Tariff is attracted and the processes shall amount to manufacture. He also submitted that extended period of limitation for demanding duty is invocable as the Appellants did not disclose the fact of non-inclusion of cost of materials in the assessable value of the impugned goods; that their intention is apparent from the statements dated 23-8-99 and 20-2-99 of Shri Tarsem Chand Bansal, Proprietor, who has deposed that they did not declare the said fact as the Department might have demanded duty on the cost of raw materials. He, further, submitted that there is no force in the contention of the learned Advocate that duty, if any, was payable by RCF as incidence of indirect Tax is generally passed on to the Customers; that mentioning of Purchase Order Number in Invoice does not convey any information to the Department and the ratio of the decision in Hindustan Syringes case is not applicable as the relevant invoices of UNICEF showing selling price and total price in US Dollars and excisable value in Indian Rupee had been filed along with monthly RT 12 Returns and it was open to the Department to check and verify the conversion from US Dollar into Indian Rupee.
5. In reply, the learned Advocate, mentioned that knowledge on the part of the Department is evident from Order-in-Original No. 111/Commr./Demand/98, dated 20-5-1998 in which show cause notice issued in 1996 for denying the benefit of SSI Notification No. 175/86-C.E., dated 1-3-1986 was adjudicated upon; that the assessable value was not at all disputed rather accepted to be proper in those proceedings.
6.1 We have considered the submissions of both the sides. The Apex Court in the case of Union of India v. J.G. Glass Industries Ltd. - 1998 (97) E.L.T. 5 (S.C.) = 1997 (23) RLT 768 (S.C.), after analysing the various judgments on the aspect of 'manufacture' has laid down a two-fold test for deciding whether the process is that of "manufacture". The two-fold test is as under :
"First whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity already in existence will be of no commercial use but for the said process."
6.2 The learned Advocate has explained the processes undertaken by the Appellants in respect of all the three items in question and has also shown us the photographs of the materials received from R.C.F. and of Products after the processes undertaken by them. The Revenue has not disputed the same. After going through the processes of punching and binding of sheets cut to size received by them, the products obtained by them are car-line and bottomside wall sheet which undoubtedly satisfy the two-fold tests laid down in J.G. Glass Industries case inasmuch as different commercial products emerge as a result of processes undertaken by them. The processes which are undertaken by RCF afterwards are the process in relation to their use in the manufacture of Railway Coach. We, therefore, hold that the processes undertaken by the Appellants in respect of carline and Bottom side wall sheet amount to manufacture. However, we agree with the learned Advocate that the processes undertaken by them in respect of Outer Door Assembly do not amount to manufacture. The Appellants receive outer door from Railway Coach Factory and attach/fix angles, rods and locks thereon. Moreover, after the receipt of the outer door from them after these processes, M/s. R.C.F. undertake further processes of drilling and threading to complete the outer door. The Revenue has not succeeded in establishing that a complete outer door comes into existence as a result of processes undertaken by them. In the case of Outer Door Assembly neither the tests laid down in J.G. Glass case are satisfied nor the requirement of Note 6 to Section XVII of conversion of an article which is incomplete or unfinished into complete or finished article is fulfilled.
7. Coming to the question of invokability of extended period of limitation for demanding duty, we observe that the Appellants have not disputed the fact that they had not disclosed to the Department, that the duty liability is discharged by them without including the cost of materials received by them free from M/s. RCF. It is also not the case of the Appellants that copies of Purchase Orders were submitted to Revenue along with the invoice. It is well settled law that the excise duty is payable on the entire value of the excisable goods including the cost of materials supplied by the customers free of cost [Ujagar Prints v. Union of India ; 1988 (38) E.L.T. 535 (S. C.)]. In our view, mere mention of Purchase Order Number in Invoices will not disclose to the Department that the cost of materials has not been taken into consideration while paying the excise duty. The fact that the excise duty is payable by RCF will not have any effect on the aspect of invokability of extended period of limitation. It has been held by the Larger Bench of the Tribunal in the case of Jay Yushin Ltd. v. Commissioner of Central Excise, New Delhi, 2000 (119) E.L.T. 718 (Tri. - LB) = 2000 (39) RLT 501 that the aspect of Revenue neutrality on the ground that Modvat Credit is available to the buyer of the assessee's manufactured goods will not be a defence. We also observe that in Rajasthan Cylinders' case, the Appellants therein had indicated in the covering letter cost of bare cylinders, cost of self closing valves, cost of imported steel sheets and fabrication charges per cylinder. It was observed by the Tribunal in the said decision that "the work sheet did not seek to camouflage the omission to include, the transportation charges from Port to the factory." In the matter before us the Appellants have not submitted any cost data at all and as such the ratio of the said decision is not applicable to the facts of the present matter. However, we find substance in the submissions of the learned Advocate that the Department was aware of the supply of material free of cost by RCF which is apparent from the show cause notice dated 30-4-96 issued to the Appellants for disallowing the benefit of Notification No. 175/86-CE. Accordingly, following the ratio of the decision of the Larger Bench of the Tribunal in the case of Nizam Sugar Factory v. Commissioner of Central Excise, Madras, 1999 (114) E.L.T. 429, we hold that extended period of limitation is not available to Revenue for demanding duty from 30-4-96. The extended period is, however, invocable for the period prior to 30-4-96.
8. The matter has to go back to the Jurisdictional Adjudicating Authority to recompute the duty amount payable, if any, by the Appellants on account of our observations contained in the Order for the period prior to 30-4-96 and for the period which is within 6 months prior to the date of issue of show cause notice dated 30-12-1999. We leave the question of penalty to the Adjudicating Authority after determining the amount of duty of excise payable by the Appellants.
9. The Appeal is disposed of in these terms.