Customs, Excise and Gold Tribunal - Tamil Nadu
Ion Exchange (India) Ltd. vs Commissioner Of C. Ex. on 16 July, 2002
Equivalent citations: 2003(159)ELT499(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. By this appeal the appellants viz. M/s. Ion Exchange (India) Limited, Hosur challenged the Order-in-Original No. 51/94 dated 15-6-1994 passed by the Collector of Central Excise, Coimbatore whereby he has confirmed a duty demand of Rs. 4,87,68,512 (Rupees four crores, eighty-seven lakhs, sixty-eight thousand, five hundred and twelve only) on the appellants under the provisions of Section 11A of the CE Act, 1944 read with Rule 9(2) of the C. Ex. Rules, 1944. The appellants have also been imposed consolidated penalty of Rs. 50,00,000- under the provisions of Rule 9(2) and Rule 173Q of the C. Ex. Rules, 1944. The period involved is 1/88 to 6/93.
2. The facts of the case as narrated in the Order-in-original No. 51/94, dated 15-6-1994 from Paras 2 to 16 are reproduced below :
"2. M/s. ION Exchange (India) Ltd., Hosur (hereinafter referred to as 'ION'), are engaged in the manufacture of pressure vessels, pipe works and Industrial water treatment plants, classifiable under Chapter sub-heading Nos. 7308.00, 7309.00 and 8421,00 respectively of the Schedule to the Central Excise Tariff Act, 1985.
3. The Central Excise officers attached to Hosur II Dvn, on 10-7-1992, visited M/s. Pan Ven Industries, Hosur and verified the stock and accounts and noticed that the unit was fabricating various items of iron and steel such as pipe works, vessels, etc., on behalf of ION, out of the materials supplied by the latter as per the drawings specified. On completion of the work the goods are being sent to ION under delivery challans, and labour invoices raised for labour charges. The unit has not included the value of raw materials as per the provisions of Section 4 of the Central' Excises and Salt Act, 1944. The officers detained the fabricated goods which were kept ready for removal. The goods were released unconditionally as they are hired labourers.
4. The officers also visited ION and found that they had supplied various raw materials such as M.S. Sheets, M.S. Flats, etc., to various job workers which were fabricated as per the drawings and specifications of ION, as M.S. pressure vessels, tanks and pipe works. On verification of stock and accounts it was noticed that various types of pressure vessels, pipe works received from various fabricators found lying in the stockyard, which were detained by the officers on 10-7-1992 on the reasonable belief that they are kept for removal without payment of duty.
5. The officers' also' visited the following units and recovered incriminating documents.
(a) Agnel Engineering Works, Hosur;
(b) Alfa Fluid Systems, Hosur; and
(c) Jas Engineering, Hosur.
6. ION purchased M.S. Sheets, plates of various thickness and sent to different job workers to make dishes and shells, etc. The dishes and shells are collected by ION and are sent to make pressure vessels. The pressure vessels are sent for rubber lining to rubber liners. The pressure vessels so rubber lined are received by ION after inspection at fabricators site and on payment of labour charges. The waste arising are collected by ION (as per auditors' report)
7. ION are purchasing various pipes, flanges, valves, nozzle, etc., to make required pipe structures as per the drawings of fabricators, and these pipe structures are sent for rubber lining as per the contract. The materials are received by M/s. ION without payment of duty without valid Central Excise documents. As per the Annual 'Rate Contract' for supply of mild steel pressure vessels and atmospheric (pressure) tanks/towers. ION have full control over the job workers, and the relevant clauses in the contract evidence this.
8. The models, the drawings and raw materials are determined by ION after R&D work and market survey. Each type of fabrication work is assigned to a particular job worker which are inter-connected to complete the entire water treatment plant. The so fabricated vessels are branded by ION and are despatched to dealers after being grouped and packed in undeclared premises in CKD condition after affixing the brand name 'INDION' and are giving test certificate to their clients for guarantee.
9. Inventory control of raw materials are being done by ION, at the so called vendor's premises who are directed to submit periodical reports for the stock and inventories. Insurance cover for the goods and materials at fabricators site are taken by ION. The components received by ION are cleared after grouping and packing in their premises and cleared in CKD condition, which appear liable to Central Excise duty. The job workers/fabricators are only hired labourers of ION, in the manufacture of water treatment plants. The pressure vessels, tanks and pipe works are manufactured by ION by hiring job workers for fabrication. But they cleared water treatment plants under the guise of bought out items, without Central Excise licence, without observing Central Excise procedures and without payment of duty.
10. In his statement dated 23-7-92 and 4-11-92, Shri S.S. Ranganathan, General Manager of ION, inter alia, deposed that :
10.1 there is a contract between them and fabricators with regard to manufacture/supply of components to suit their specifications for a specific period at a specific price within mutually agreed supply dates, as per Indian Contract Act and Sale of Goods Act.
10.2 depending upon vendors, labour charges are paid, they send raw materials for various components to those who make components to them that a category of equipments ordered by some customers who handle corrosive water, corrosive acid are required to be protected against corrosion by rubber lining are sent to rubber liners, and surface cleared by sand blasting in accordance with IS 4682, they supplied raw materials if the raw material cost is reflected in total supply value they deduct to the extent of raw materials supplied. They evaluate each vendors capability to do job as per their requirement. They procure bought out components such as pressure vessels, tanks, pipes and these are thereafter packed and despatched to dealers/customers. The items listed in Annexure referred to is combination of bought out components as well as fabricated components and for convenience such groupings are given model numbers/designations. These are despatched in the same condition in which they are supplied to them after suitable packings. They specify quantity, size, and description of components that come under a group for which they have given model no/designation for sake of convenience.
11. In his statement Shri E.A. Chandrasekaran, Proprietor of M/s. Alpha Fluid Systems, Hosur, inter alia, stated that :
11.1 ION Inspection Dept/vendor evaluation Department verify the quality of the welder to see whether they are competent enough as per their requirement; for each and every time, whenever welders are changed, the new personnel should be got approved by ION. They also inspect the progress of activity and they have no title over the items fabricated for ION as the designs are patterned one.
12. In his statement dated 21-7-1992, Shri K.V. Vagulabaranan, partner of M/s. Pan Ven Industries, Hosur, inter alia, deposed that :
12.1 ION are exercising various control, direction, supervision over the manufacture of goods processed by them. They also exercise quality control of raw material, machinery in their factory, efficiency of labour force and finished product. They do not have title over the goods fabricated by them. ION are their principal and they are job workers.
13. In his statement dated 11-8-1992, Shri George D.C. Proprietor of M/s. Agnel Engg. Works, Hosur, has, inter alia, deposed that they do job work for ION, for the manufacture of pressure vessels, atmospheric tanks, etc., as per their drawings and specifications. ION supply the raw materials and deduct the cost from the bills. ION, also exercise control over quality, supervise and inspect, they also have a general rate contract agreement with ION.
14. In his statement Shri K. Jayasankar, Managing Partner of M/s. Jas Engg. Hosur, inter alia, deposed that :
14.1 they are doing job work for and on behalf of ION, as per drawings, specifications, out of raw materials supplied by them as per direction. ION exercise control/inspection/supervision of the fabrication work undertaken and have general rate contract agreement with ION. '
15. A show cause notice of even no. dated 13-1-1993, was issued to ION, Hosur, wherein they have been asked to show cause to the Collector of Central Excise, Coimbatore as to why :
(i) the Central Excise duty of Rs. 4,87,68,512/- for water treatment plant and Rs. 92,91,352.41 for components such as pressure vessels and pipe works, manufactured and cleared by them during the period 1/88 to 10-7-92 should not be demanded from them under Rule 9(2) of Central Excise Rules, 1944 read with proviso to Section 11A of Central Excises and Salt Act, 1944.
(ii) a penalty should not be imposed on them under Rules 9(2), 173Q and 226 of Central Excise Rules, 1944.
(iii) the seized goods valued Rs. 12,90,806/- should not be confiscated to Government under Rules 9(2), 173Q and 226 of Central Excise Rules, 1944.
16. Shri K.V. Vahulabaranan, Partner of M/s. Pan Ven Industries Hosur, Shri E.A. Chandrasekaran, Proprietor of M/s. Alfa Fluid System, Hosur, Shri George, D.C., Proprietor of M/s. Agnel Engg. Works, Hosur, Shri K. Jayasankar, Managing Partner of M/s. Jas Engg., Hosur, appeared liable for penal action for fabricating pressure vessels, atmospheric tanks on behalf of their principals without informing the Department and thereby abetting the offence. So, the above were required to show cause to the Collector of Central Excise, Coimbatore, as to why :
(i) a penalty should not be imposed on them under Rule 209A of Central Excise Rules, 1944."
3. The Appellants were issued with show cause notice dated 13-1-1993 and after considering the submissions made by the appellants, the original authority has given detailed findings and passed a detailed order confirming duty and imposing penalty from Paras 28 to 56 of his order dated 15-6-94, which are reproduced below :
"28. I have carefully gone through the records of the case, replies to the show cause notice and the arguments of Shri. C. Natarajan, Advocate of the noticee. Show cause notice, dated 13-1-1993, inter alia, alleges that the components such as pressure vessels and pipe works were got manufactured through job workers and that the goods were manufactured out of the raw materials supplied by M/s. ION. Since the job workers are dummy units and M/s. ION are the real manufacturers, the duty sought to be demanded on this ground works out to Rs. 92,91,352.00.
29. The next allegation is that M/s. ION removed Industrial Water Treatment Plants, standard/package type falling under Chapter 8421 during the period from Jan. '88 to June '92 without payment of duty, without observing the procedures required to be followed under Central Excise Rules. The duty proposed to be demanded on this score is Rs. 4,87,68,512/-. The duty mentioned above viz Rs. 92,91,352/- and Rs. 4,87,68,512/- are proposed to be demanded under proviso to Section 11A of Central Excises and Salt Act, 1944.
30. M/s. ION wanted to peruse the documents relied upon in the show cause notice and they wanted to cross-examine the job workers to whom they entrusted the job of manufacturing parts of water treatment plants. Initially they were permitted to peruse the documents and take xerox copies before the Asstt. Collector, Hosur II Division. But, later on, the documents relied upon in the show cause notice were returned to the assessee in full on an undertaking from M/s. ION that they would not tamper with any records and would be producing the records returned, pending adjudication whenever called upon to do so, by the Central Excise department. As such their request to peruse the documents relied upon in the show cause notice has been fully complied with. Permission was granted to cross-examine the job workers and Shri C. Natarajan, the learned Advocate, on behalf of M/s. ION cross-examined the following job workers.
(a) Sri E.A. Chandrasekaran, Proprietor, M/s. Alpha Fluid Systems, Hosur.
(b) Sri K. Vahulabaranan, Partner, M/s. Pan Ven Industries, Hosur.
(c) Sri K. Jayashankar, Managing Partner, M/s. Jas Engg. Works, Hosur.
31. In the cross examination; the Advocate tried to elicit from the deponents that the job-workers are independent SSI Industries; that they have their own investment production schedule, etc. The learned Advocate further elicited from the witnesses that M/s. ION owes substantial money to the job workers.
32. As regards the proposal to demand duty of Rs. 92,31,352/- on the components got manufactured through job workers M/s. ION have vehemently contended the following :
32.1 M/s. Pan Ven Industries, M/s. Alfa Fluid Systems, M/s. Jas Engg and M/s. Agnel Engg. Works, are not dummy units and they are not hired labour. Each of the above units are independent small-scale manufacturing units; they have their own plant and machinery, infrastructure, labour and control over the day-to-day management. All the job workers have also filed necessary declaration with the Central Excise department. They have also contended that the transaction between ION and the job worker is on a principal to principal basis. Hence, the allegation in this regard is unsustainable. The contractors buy raw material in the open market, fabricated and manufactured pressure and non-pressure parts. The job workers discharged job sales-tax liability on the parts sold to M/s. ION. Hence, the transaction cannot be termed as job work. The raw materials viz. steel plates, dish ends are not supplied free of cost but against debit notes. The contractors are not required to render account of raw material either produced independently or procured by them against debit notes. Scraps generated in the course of manufacture of pressure and non-pressure parts are retained by the job workers and they do not render any account for the scraps. In fine M/s. ION have contended that the allegation that the entire work was done on job work is only on the basis of misconception. They sincerely believed that the value of clearances of the job workers was within the exemption limit and in the event they had exceeded exemption limit they would have certainly claimed excise duty from them as in the case of sales tax. There is a valid contract entered into between ION and the independent job worker. In view of the existence of the contract, the job workers cannot be termed as dummies or hired labour. Had they been dummies or hired labour, there was no necessity for contracts with many restrictive clauses. The contract provides for 50 days credit from the date of acceptance of the supply for passing their bill after inspection. The contract contains a clause regarding inspection of goods and rejection of the goods found unfit which evidences that the product manufactured by the contractors belong to them. The loss on account of rejection of the goods will be to the account of the job worker. The price escalation in the contract indicate that the relationship between the two are at arms length. The contract further contains a clause that excise duty is extra if applicable. Clause 10 of the contract provides that the materials before despatch should be offered for inspection by the inspectorate of ION, and delivered in their works. The inspection clause in the contract is a clear evidence to prove that the job workers are the manufacturers, M/s. ION is the manufacturer of goods they would not have insisted on inspection of products. Clause 13 of the contract states that M/s. ION has the right to cancel any order in part or in full.
33. In this regard, I find that apart from the above averments of M/s. ION, the job workers in their cross-examination have deposed that they not only obtained steel from ION against debit notes whenever there is scarcity in the market, they also obtained steel from open market and they further deposed that they used to mix the steel obtained against debit notes from M/s. ION and the steel which they procured from the open market and M/s. ION did not insist that they should use the steel supplied by them exclusively for the fabrication of the parts intended for ION. The job workers further deposed that on the day the debit notes were raised there was considerable outstanding due from M/s, ION. In this regard, I find that the materials on record do not prove that the job workers are dummy units or hired labourers, though M/s. ION have supplied raw materials to the job workers and raised subsequent debit notes. The decision of the Hon'ble Tribunal in the case of Kerala State Electricity Board v. Collector of Central Excise, confirmed by the Supreme Court, has settled the law on the subject holding that the contractor will be the manufacturer. In the circumstances, I hold that the demand relating to the parts of water treatment plants got manufactured by the job workers, from M/s. ION is not maintainable.
34. As regards the proposal to demand duty on the industrial type of water treatment plants, M/s. ION have vehemently contended that they sent duty paid materials like pumps, valves, pressure vessels, etc. to the customer. The customer erects/assembles those parts into a water treatment plant for which the services of an engineer of M/s. ION is spared. They have further contended that they are not the manufacture of the 'Industrial Water Treatment Plant' and hence duty cannot be demanded from them.
35. I have carefully examined the evidences in this regard and I find from the records that M/s. ION are engaged in the manufacture of 3 types of water treatment plant as under :
(i) Prototype
(ii) Standard Type (also called package type)
(iii) Large Sale Turnkey Project erected to earth.
36. In so far as the mini type is concerned, there is no dispute regarding excisability as M/s. ION has been discharging duty liability on this product. As regards 'Turnkey Type' M/s. ION are not paying duty on the project ground that they are immovable property. The show cause notice has excluded from its purview the first and third categories of water treatment plants. The dispute in the present adjudication proceedings is regarding the dutiability of standard or package type industrial water treatment plant sold through dealers. 37. I find from the case records that the dealers place orders with M/s. ION for the supply of Industrial Water Treatment equipment. M/s. ION procure pumps, pressure valves, resins from the open market and pressure vessels and Frontal Pipe Works are obtained got manufactured through the independent job workers. The various parts and components so Collected are brought to the factory of M/s. ION. The parts suitable for a particular type of water treatment equipment are packed in dealwood boxes and sent to the dealers/customers who placed orders for the equipment. The marketing pattern of water treatment equipments by M/s. ION is that the customer approach their dealer for the supply of their requirements and the dealer in turn place order with the company for the direct supply to the dealer. This pattern of sale is given in their letter dated 14-8-91, captioned "Marketing plan for Standard Plant and Instruments". The invoices are raised on the dealer and appropriate sales tax for the sale of Standard or Package type water treatment plant to the dealers are paid. As such the fact that the Standard or Package type water treatment plant in question were sold to the dealers is evidenced from the invoices raised. When the dealers sell or supply the Standard or Package type water treatment plant to the customers normally a service engineer from M/s. ION is deputed to ensure proper assembly and trouble free operation. Sometimes a qualified person from the dealer is also sent for the above purpose. Training has been reportedly imparted to the qualified persons of the dealer by M/s. ION. Sometime the customer himself errects the water treatment equipment because as seen from the pamphlet it is very easy to install.
38. It is seen that the issue for consideration in this adjudication proceedings is whether there is manufacture of water treatment equipment by M/s. ION. The fabrication of pressure vessels and pipe fittings through independent contractors is solely intended for the supply to the dealers of Water Treatment plant. The procurement of other components viz. pumps, motor, valve etc. is also for the above purpose. The above said parts and components are brought to the factory of M/s. ION and packed in dealwood cases. I find that name plates have been procured from M/s. Swestic Processors and they are affixed on the Water treatment plants. The name plates indicates the particular type of water treatment plant, the serial number etc. to identify that the products have been supplied, and brand name IDION of M/s. ION. The name plate is also placed in the dealwood cases along with the component parts.
39. The invoices raised for the sales further indicate that dealers are passed commission at the rate of 12.5%. A detailed packing specification is also prepared and enclosed to the invoices. It is relevant to recall here the observations of the Hon'ble Tribunal in the case of Pressure Cooker and Appliances Ltd. v. Collector of Central Excise, Chandigarh reported in 1987 (28) E.L.T. 566.
"The law of Central Excise does not define manufacture and this it seems for a very good reason which is that there are hundreds and thousands of ways by which goods can be presented brought out, created, made to appear. Some process of manufacture are complicated and some process of manufacture are very simple."
40. It is further observed that in the instant case various items received at the appellants depots were assembled and packed in such a way that a new commodity comes into existence that has not been there in the form and appearance earlier. The packing process and assembling of components that make up the complete product has been so adopted as to escape duty liability that should have been discharged on the completion of each unit. The appellants arranged their affairs in such a way that they could present a case to the department that what they sold is not a manufactured by them but by someone else. The appellant cleverly set up a scheme to avoid tax and confuse the department. The arrangement for the sale of standard/package type water treatment plant is not as innocent as M/s. ION claim it.
41. The next argument of the company is that the water treatment equipment was brought into existence only at the site of the customer in a progressive manner on a platform solely constructed for the purpose and the water treatment plant in question is an immovable property. In this regard, I find from the printed photographs available in the pamphlets issued by M/s. ION that the water treatment equipment in question have been simply placed on an elevated concrete platform only to facilitate the flow of water. I also find from the photographs of the model 'Industrial Two Bed Upflow Deionisers' printed in the pamphlet, that the concrete platform is intended to place the two drums separately, one for inflow and another for outflow. The photograph in the pamphlet further indicate that the concrete platform is solely intended for positioning the equipment and not for any other purpose. I have already held that the packing of various components resorted by M/s. ION is not an innocent act and the packing as such, with the collection of items in each package creates a visual impact on the customer of a complete water treatment equipment and not a mere collection of disassembled components. The pamphlets issued by the manufacturer clearly indicate that the unit is supplied in knocked down condition and can be easily installed at site. Hence, the question of immovability of the water treatment equipment does not arise as it is clearly indicated in the pamphlet that the product can be easily installed. Since the manufacturer has raised this argument, I have considered this aspect but I do not find any merit in his contention.
42. It is pertinent to recall here the deposition of Shri Ranganathan, General Manager of M/s. ION, in his statement dated 4-1-1993. He has stated that the scheme of packing is the company's brain child and it is admitted that the water treatment plant sold are for the specific requirements of the customer. Though the water treatment plant is sent in dealwood cases, it enters the trade stream as water treatment plant, a product of M/s. ION. The goodwill and reputation of M/s. ION is very much relevant for the sale. The unit of sale is the number of each equipment and parts as such are never sold. Perusal of the invoices reveals that the price is charged only for the water treatment plant and not for parts and components as claimed by the manufacturer.
43. In this regard, I find that M/s. Mansel Equipment P. Ltd. (hereinafter referred to as 'M/s. MEPL') have sought certain clarifications as to whether the water treatment plant supplied by M/s. ION is a machinery or parts. M/s. ION in their letter dated 24-4-1992 have confirmed that what they had supplied is only a machinery and not parts. This correspondence provides absolute proof to show that the sale is that of water treatment plant and not parts. Another significant fact is that in the year 1993 a dispute arose between the sales tax department and M/s. MEPL as to whether the item supplied by them attracts single point sales tax or multi point sales tax. While defending the dispute before the sales tax authorities a plea made by the dealer on the advise of M/s. ION is that what they supplied was only a machinery and not parts.
44 The pamphlets issued by the company indicate that the standard or package type of water treatment equipment are sold in dealwood cases in CKD condition, for convenience in transport. The mere fact that water treatment plant are supplied in disassembled condition does not mean that no excisable articles has come into existence. In this regard, I find the judgment of Patna High Court in. the case of Tata Iron & Steel Co. Ltd. v. UOI and Ors. reported in 1988 (33) E.L.T. 297 (Patna) is very relevant. I, therefore, hold that the claim of the company that they only sold parts of water treatment plant and not water treatment plant as such is not factually correct and therefore not maintainable.
45. As regards their plea that because Asstt. Collector, Hosur II Divn in his letter dated 3-3-1987 has confirmed that there is no duty liability on the water treatment plant in question, I find from the letter dated 27-10-1986 of M/s. ION addressed to the Asstt. Collector of Central Excise, Hosur Divn., furnished by the company in their paper book, that they have contended that the word 'manufacture' would not really apply to any of their activities. In this letter they have stated that their water treatment plant can be classified under the following two broad categories.
(a) Packaged plants : These plants are supplied by them either in a fully assembled condition or in a semi-knocked down condition. These can be used by the purchaser at his site directly after unpacking in the case of fully assembled plants or by putting together two or three sub-assemblies in the case of plants sent in a semi-knocked down condition.
(b) Industrial Plants : These are entirely in the form of components we send to the purchaser's site where main components are erected and grounded (enchored with bolts in concrete) on special civil foundations made for this purpose. Subsequently, other components are assembled to make the installation complete. In such cases purchasers avail of the services of their engineers located in offices all over the country to supervise the installation of such plants. Bills for supervision are raised by their concerned offices in that area and are not in any way related to the value of equipment supplied by them. In brief the water treatment plant in such cases cannot perform or operate till such time it is erected on its foundation and becomes an immovable property.
46. In this regard, I find that though M/s. ION sell the following three types of water treatment plant;
(i) Prototype (ii) Standard/package type (iii) Large scale turnkey projects erected at site, they have mis-represented the facts to the Asstt. Collector that their water treatment plants can be classified into two categories. They have categorised proto type and standard type in one category and turnkey projects in another category. Their deliberate omission to mention proto type and categorization of two types of water treatment plant is a calculated act to suppress the vital fact of manufacture of standard type water treatment plant which is done evidently with an intent to evade payment of duty.
47. The Asstt. Collector, Hosur in his letter C. No. IV/16/458/86 T3, dated 3-3-1987 has categorically clarified that Industrial Water Treatment plants, need not suffer duty if the following two conditions are satisfied.
(i) The item industrial water treatment plant after erection and installation gets fixed into the earth thereby becoming an immovable property at site; and
(ii) have suffered appropriate excise duty at the time of clearance from the respective factories.
48. A perusal of the above correspondence reveal that M/s. ION, when they sought clarification regarding dutiability of water treatment plants, they informed the department that they are engaged in the manufacture of only two types of water treatment plants, i.e. package type water-treatment plant and Industrial water treatment plants. But the fact remains that they are engaged in the manufacture of the following three types of water treatment plants.
(i) Prototype water treatment plant.
(ii) Standard type water treatment plant (also called package type)
(iii) Large scale turnkey project water treatment plants.
49. Prototype water treatment plants are supplied in fully assembled condition and package/standard water treatment plants are supplied in the form of sub-assemblies in semi-knocked down condition. To mislead the department, they mis-represented the prototype as package type. For prototype water treatment plant as they were paying duty, the Asstt. Collector's clarification is only with regard to industrial water treatment plants erected and installed at site. As there is no doubt as to the dutiability of the prototype and Standard type water treatment plants, the Asstt. Collector has clarified the position with regard to industrial water treatment plants. Prior to the clarification, M/s. ION paid duty on all the three types of water treatment plants. On receipt of clarification with regard to Industrial water treatment plants, M/s. ION should have further sought clarification on standard type. But, however, M/s. ION have interpretated on their own that the clarification of the Asstt. Collector in respect of large turnkey project water treatment plant erected at site, is applicable to for Standard type also. On the basis of such erroneous interpretation, M/s. ION have filed refund claim both for Industrial type water treatment plant and Standard type water treatment plant. The Asstt. Collector issued a show cause notice in C. No. V/84/18/33/87 T2 dated 30-12-1987, I find that the show cause notice has been issued for the water treatment plant assembled at site. In their reply dated 8-1-1988 M/s. ION have pleaded that the item Industrial water treatment plants being erected and get fixed into the earth and thereby it became an immovable property. In his order No. 26/88, dated 4-3-1988, the Asstt. Collector has held that the parts if suitable for use solely or principally with a particular kind of machine or equipment are to be classified with the machine or equipment of that kind, and hence further held that the entire duty collected on the water treatment plant when they were cleared in CKD condition from the factory of the assessee is valid and proper. The Asstt. Collector, therefore, rejected the refund claim filed by the Company. In this regard, I find that the Company on account of their erroneous interpretation filed refund claim for Standard type water treatment plant also. The Asstt. Collector, Hosur while rejecting the claim for refund of duty paid on water treatment plants instead of rejecting the claim relating package type water treatment plant, entered into the aspect of classification of parts and rejected the refund claim in full, i.e. claim relating to industrial water treatment plant and package type water treatment plant.
50. The company filed appeal before the Collector (Appeals), Madras, against the order of the Asstt. Collector, Hosur. In the statement of fact enclosed to the Form EA1, the company categorically stated that the dispute relates to large scale industrial water treatment plant to be erected at the site of customers. They have further stated that each water treatment plant is specifically designed for the customers as per the blue print and the drawings. The entire water treatment plant is a functional system which came into existence at the site of the customer, and it is immovable. The Collector (Appeals) in his order No. 73 and 190/88, dated 27-7-1988 has observed that the facts incorporated in the grounds of appeal were not disputed by the Asstt. Collector and the Collector (Appeals) has therefore, held that under the given set of facts, when there is no manufacturing activity on the part of the appellants, but the bought out goods are erected at the site of the customers there being no manufacture in the premises of appellant, collection of duty is against the provisions of Section 3 of the Act. In this regard, I find that the Asstt. Collector, Hosur has in his letter dated 3-3-1987 has clarified that large industrial water treatment plant erected at site need not suffer duty. But M/s. ION instead of seeking further clarification as regards the duty liability to Standard type of water treatment plant, they have thoroughly misrepresented to the departmental authorities that the refund claim relate to the large industrial water treatment plant erected at site alone. This wilful mis-representation by M/s. ION is apparently evident from the reply to the show cause notice dated 8-1-1988 and the statements of facts and grounds of appeal filed before the appellate authority. 1 further find that initially when they sought clarification on 27-10-1986, they admitted the fact that the package type water treatment plant are cleared in fully assembled or in semi-assembled condition. Since M/s. ION have admitted that package type water treatment plant are dispatched in assembled or semi-assembled CKD condition, the Asstt. Collector restricted his clarification with reference to industrial water treatment plants alone. But in the original as well as appellate proceedings relating refund claim, the company wilfully suppressed the fact about the position of standard type water treatment plant and thoroughly mis-represented that the dispute relates to industrial water treatment plant i.e. turnkey projects.
51. M/s. ION cannot deny the fact that they were not aware of the dutiability of standard type of water treatment plant during the period Jan '88 to June '92 the period of demand covered in the show cause notice. Because, it is evident from their internal correspondence dated 12-3-1988 addressed to Shri A.N. Joshi by Shri Sridhar, the then works manager that legal opinion sought for by the company regarding the duty liability on standard type water treatment plant has been referred to. The correspondence further reveal that their Counsels and Consultants have given opinion that the standard type of water treatment plant are dutiable. Despite this clear legal opinion about the duty liability on package type of water treatment plant, M/s. ION have suppressed the fact of manufacture of clearance of standard/package type of water treatment plant through dealers and wilfully mis-represented before the departmental authorities that what they manufactured and cleared were only large industrial water treatment plants erected at site.
52. The next aspect for consideration is whether there was wilful suppression of fact or wilful misstatement during the period Jan '88 to June '92 in respect of package type of water treatment plant cleared without payment of duty. In this regard, I find that during the material period the company treated package or standard type water-treatment plant as industrial water treatment plant erected as turnkey project and stopped payment of duty. The fact that they sold such water treatment plant through a net work of dealers as assembled or semi-assembled in SKD condition has not been denied but this material fact was suppressed. The company on their own presumed that package/standard type water treatment plants are also not excisable and cleared the same without payment of duty. They withheld the fact of sales of such package type of water treatment plant through dealers to the knowledge of the department. This apart, the company have created an impression before the departmental authority that the entire activity of M/s. ION relate to industrial water treatment plant being erected at the site of customer as a turnkey project. I find that they succeeded in their claim for refund through mis-representation of facts and they should not be under the wrong impression that they can succeed for even through his representation. In view of the above, I hold that there are just and adequate reasons to apply proviso to Section 11A(1) of Central Excises and Salt Act, 1944 to demand duty for the period of five years.
53. As regards the value furnished, the company has disputed the correctness of the figures furnished in the show cause notice. The claim of the company in this regard is that the value furnished in the show cause notice is inclusive of the value of turnkey projects executed by them during the relevant period. In this regard, I find that a summon, dated 18-7-1992 was issued to M/s. ION, wherein, they have been required to furnish the value of package or standard type water treatment plant sold during the relevant period. In response to the summons they have in their letter PS/IEI/HPS/92, dated 24-7-1992 have furnished the value of the standard/package type water treatment plant sold by them. The value furnished by them has been accepted and duty has been proposed to be demanded. The company has furnished the figures to the investigating officers and now the company questions the correctness of their own figures perhaps to divert or distract the adjudication proceedings. The particulars of turnover of water treatment plants furnished by the company in their balance sheet for the relevant years are as furnished below :
53.1 Turn-over of Water Treatment Plant of M/s. ION (A) 1989-90 :
Rs. 27,29,59,443/-
Refer Schedule 17 Note (7) in page 25, Balance sheet 1990-91.
1990-91 :
Rs. 31,08,00,293/-
1991-92 :
Rs. 35,61,01,059/-
Refer Schedule 17 Note (11) in page 25, Balance sheet 1991-92 1988-89 :
(B) Value of Water Treatment Plants (Portable) on which duty is paid (1) 1989-90 :
Rs. 75,06,575.53 (2) 1990-91 :
Rs. 78,92,345.70 (3) 1991-92 :
Rs. 76,81,034.63 (4) 1988-89 :
Not available.
(C) Taxable turnover as per TNGST, Returns (1) 1989-90 :
Rs. 5,94,09,311.10 (2) 1990-91 :
Rs. 7,75,66,252.65 (3) 1991-92 :
Rs. 9,10,53,850.00 (4) 1988-89 :
Rs. 5,50,09,142.00 The mini water treatment plant cleared by them on payment of duty during the relevant period are also furnished. If the claim of the company that the figures furnished in the show cause notice is inclusive of the turnkey projects there is huge balance left over, for which the company have not adduced any reason whatsoever. In the circumstances I am unable to give any credence to their plea and hold that the value adopted in the show cause notice which has been furnished by them is correct.
54. As regards the proposal to confiscate the goods seized viz (i) Pressure vessels of various types valued Rs. 9,34,760/- and (ii) pipe works of various sizes and type valued Rs. 3,56,046/- totalling Rs. 12,90,806/-. I have already held that the job workers are the manufacturers and not M/s. ION since the transaction between the two were on principal to principal basis. In the circumstances no offence has been committed in respect of goods under seizure and hence the goods are liable to be released. The goods under seizure were provisionally released to the owner on execution of B11 bond for Rs. 13,00,000/- with a cash security of Rs. 60,000/-. In the circumstances, I lift the seizure and discharge the B11 bond executed in this regard.
55. Now I come to the proposal to impose penalty on M/s. ION, I hold that M/s. ION have manufactured standard/package type of water treatment plant and cleared the same without payment of duty in contravention of the provisions of Rule 9 of Central Excise Rules, 1944. M/s. ION have tried to take shelter through sheer mis-representation of facts. The clarificatory orders of the Asstt. Collector relates to giant water treatment plant of turnkey project type. They mis-used the same for clearances of package/standard type water treatment plant without payment of duty. They have misrepresented before the Asstt. Collector and the Collector (Appeals) that what they manufactured was only giant water treatment plant of turnkey project type and obtained the refund. The refund sanctioned! was erroneous. Due to the passage of time, the limitation period for the recovery of the erroneous refund has expired. M/s. ION is covered under the scheme of self-removal procedure and a lot of trust and confidence had been vested on the assessee in the matter of clearance, determination of duty liability and discharge of duty liability. The manufacturer is expected to act bona fide in the transaction relating to taxation as there is no departmental supervision on production and clearances. In this case, I find that they managed to clear package/standard type of water treatment plant without payment of duty through wilful mis-statement. In this regard, I find that in one of the letter in their internal correspondence dated 12-3-1988 signed by Shri Sridhar, addressed to Shri Joshi and Shri S.S. Ranganathan, there is a clear reference to the advocate's legal opinion to the effect that parts of standard/package type of water treatment plant obtained from job workers and brought in their factory and despatched in dealwood cases as a complete set would tantamount to manufacture. Despite this clear cut legal advise and understanding of the legal issues involved, the unit has continued to clear package/standard type water treatment plant without payment of duty. Their deliberate evasion of duty in respect of standard/package type of water treatment plant manifests seller disregard to the requirements of law and breach of trust deposed on them in the matter of excise clearances. The facts and evidences on records prove in ambiguous terms that there was suppression and wilful mis-statement of facts to evade payment of excise duty on package or standard type water treatment plant. This is not a case where it can be said that the manufacturer was so arranging his affairs as to avoid the duty payable by him. The theory that the citizen has the liability to so arrange his affairs that the tax attaching under the appropriate Acts would be less than it otherwise should be, itself undergoes a qualitative change on the basis of the trust and relevance placed on him for tax payment. In any case, this case cannot be considered as mere avoidance of duty. This is a case of deliberate and wilful evasion of duty. In view of the legal opinion available to them, they cannot contend that they believed bona fide that package/standard type of water treatment plant were not dutiable. The manufacturer knew it for certain that water treatment plant of standard/package type are liable for excise duty. It is therefore held that the company have contravened the provisions of Rule 173Q(1)(a) and (d) and they are liable to penalty. As regards the quantum of penalty, I find that this is a fit case for stringent action. The decision of the Hon'ble Patna High Court in the case of Tata Iron & Steel Co. Ltd. v. UOI and Ors. reported in 1988 (33) E.L.T. 297 (Patna) is relevant.
56. As regards the proposal to penalise the workers under Rule 209A, I have already held that the transaction of the job workers with M/s. ION is a principal to principal and hence I am inclined to drop further proceedings against them."
4. The appellants have taken the following grounds and prayed for setting aside the impugned order and granting consequential relief.
GROUNDS OF APPEAL (1) The order of the learned Collector of Central Excise confirming that the appellants have cleared industrial water treatment plants in a CKD condition is contrary to facts and without basis and therefore unsustainable in law.
(2) The learned Collector has failed to take into consideration the various aspects of the case, evidence, records and documents before adjudicating the matter and erred in concluding liability on grounds and reasons not germane to the facts and circumstance of the case.
(3) The learned Collector having held in Para 35 and Para 36 that the prototype plants and large scale turnkey plants are excluded from the purview of the show cause notice, erred in concluding liability in the order for both medium sized plants/trade literature plants and large scale turn key plants.
(4) The learned Collector has erred in holding that parts suitable for particular type of water treatment equipment are packed in deal-wood boxes and sent to dealers/customers. The order is contrary to facts and it has been repeatedly affirmed that there is no packing operations carried out in the appellant's premises. The pressure vessels, tanks and pipe fittings do not undergo any packing and other bought out items, if found fit, are redespatched in the existing packing condition and other miscellaneous items are put in boxes, only to facilitate easy transportation.
(5) The appellant submit that what has been despatched are only components of industrial water treatment plant and invoice cannot be a basis to conclude that what is supplied is a water treatment plant and learned Collector failed to appreciate the fact on record before confirming the demand.
(6) Having held that the supply of items is followed with an erection process wherein the appellant company either depute an engineer or a qualified person is sent by the dealer, the learned Collector erred in holding that what is supplied is water treatment plant, especially when the plant can emerge only upon installation. The erection requires supervision by a qualified engineer and execution of work by labourers.
(7) Having held that there is a process of erection requiring supervision of a service engineer/qualified person to ensure proper assembly and trouble free operation, the learned Collector has contradicted in concluding that the equipment is easy to install by placing reliance on the pamphlets issued by the appellant company.
(8) The learned Collector at Para 38 wrongly concluded that the appellants affix name plate, later contradicting that name plates are placed in dealwood boxes along with the components. The order further observes at one place that what is despatched are components, later contradicting that the appellants have despatched a plant.
(9) The appellant submit that any despatch would require packing list/packing specification and this can form no basis to conclude the nature of despatch and the order therefore is vitiated, for having framed a conclusion on this basis.
(10) The learned Collector wrongly placed reliance in the case of Pressure Cookers and Appliances Ltd. v. Collector of Central Excise reported in 1987 (28) E.L.T. 566 where the facts and circumstances are totally different and not anyway similar to the issue in dispute.
(11) The learned Collector wrongly observed in Para 40 that appellant received various items, assemble and pack in such a way that a new commodity comes into existence. This finding is opposed to facts and lacks basis. There is no material on record to suggest that goods are assembled or packed by the appellant, and these have been denied even at the enquiry stage, and there is no evidence on record to show the contrary.
(12) The appellants submit that there is no basis for the findings in Para.40 and the same is not supported with any evidence, and the order therefore is vitiated.
(13) In Para 41, the learned Collector has wrongly concluded from the appellants' pamphlets that "equipment in question have been simply placed on an elevated concrete platform only to facilitate the flow of water". Also "that the concrete platform is intended to place the two drum separately that the concrete platform is solely intended for positioning the equipment and not for any other purpose". This finding is opposed to facts and shows lack of technical knowledge. The pamphlets referred to are used to describe industrial equipment which are operated under pressures starting at 3.5 kg/cm2 and going as high as 7.0 kg/cm2. Concrete platforms are always constructed to fix or anchor such equipment firmly to the earth so as to make them immovable. This is necessary to ensure there is no ruptures (explosion) of the equipment which would otherwise be hazardous to the life of plant, operators. What the learned Collector refers to as "two drums" are in fact two pressure vessels which necessarily have to be anchored to the earth by means of concrete. All such equipment are to be anchored to the earth in specific positions with reference to other equipment forming the plant. It is therefore wrong to conclude that concrete platforms are intended "solely" to position equipment. The order is contrary to Para 37 which states that Service Engineers/qualified persons are required to ensure proper assembly and trouble free operations which finding concurs with the factual position.
(14) The learned Collector ought to have examined the details and evidence on record as to the installation process and misled himself by placing reliance on trade literature/pamphlets especially when this aspect has been comprehensively answered in the reply to the show cause notice and also during the proceedings. The findings at Para 41 contradicts Para 37 and the order is vitiated.
(15) When the appellants have specifically denied any packing operation, the learned Collector erred in concluding that each package created an impact on the customer of a complete water treatment equipment and not mere collection of disassembled components. The findings is without basis, unsupported with any proof or evidence on record and contrary to facts.
(16) The appellants state that it has been specifically denied that there is no manufacturing operations or supply in a knocked down condition and this fact has not been contradicted by the Collector in the order. However, the Collector erred in observing that appellants have supplied in knocked down condition by placing reliance on pamphlets without showing one instance of physical removal. The entire order proceeds on the basis of Pamphlets which are mere advertisement and sales promotion tools and the detailed submission made in this regard has been clearly ignored by the Collector in his order.
(17) The appellants state that the learned Collector has incorrectly observed in Para 42 that packing is company's brain child, by placing reliance on statement of Shri S.S. Ranganathan, General Manager. No such statement has been made as is borne out from the record. Any inference flowing therefrom is therefore vitiated.
(18) The appellants state invoice or price is not the basis to conclude, the nature of supply or the nature of transactions and definitely no basis to conclude that there is packing operations taking place in the appellant unit.
(19) The appellant reiterate that there is no evidence on record to prove even one incidence of removal of an entire plant as presumed by the Department. Hence reliance on letter dated 24-4-92 to M/s. Mansel Equipments Pvt. Ltd. has no relevance or significance since this clarification pertained to sales tax legislation where the scope of assessment and entries in schedule are differently worded and appellants were clearing portable unit as whole on payment of duty. The learned Collector erred in concluding removal of parts as plants on the basis of this letter.
(20) The appellants state that the findings at Para 41 and Para 44 are clearly contradictory in nature. Having held in Para 44 that supplies have been made by the appellants in a disassembled condition, the learned Collector has contradicted this position in Para 41 by observing that each package creates an impact on the customer of a complete water treatment equipment and not a mere collection of disassembled components.
(21) The appellants state that reliance on the judgment of Patna High Court in Tata Iron & Steel Company v. Union of India, 1988 (33) E.L.T. 297 is out of context since in the case before the Court there is actual manufacture of goods, assembly, disassembly and supply in a knocked down condition, No such fact exists in the impugned case and any conclusions flowing therefrom stating that what is sold is a plant and not parts is bound to be factually erroneous.
(22) The appellants submit that all along since inception both the department and the appellants have consistently maintained supply of two sets of plants namely portable Deioniser (prototype) and industrial water treatment plant. In fact, even during the current enquiry, summons were issued on 18-7-92 seeking particulars for total supplies of the industrial water treatment plant and data has been furnished by the appellants for the total operations on 24-7-92. Department for the first time in the show cause notice has made distinction in the industrial water treatment plant by separating into two categories one as large scale industrial water treatment plant and the other as medium scale, and the notice dated 13-1-93 and order dt. 15-6-94 excluding large scale plants from the purview of the proceedings. Therefore the findings in Para 46 that appellants have misrepresented facts, through their earlier letter dated 27-10-86 is opposed to facts. There is no controversy that both the appellants and the Department have consistently acknowledged and maintained two categories of plant namely portable plants which are manufactured and cleared on payment of duty and industrial water treatment plants which were merely traded items.
(23) The learned Collector erred in observing at Para 46 that the appellants have manufactured standard type water treatment plants. There is no material on record to substantiate this finding. Appellants have specifically pleaded that there is neither manufacture nor packing operations and components are only despatched without any of these operations.
(24) The appellants submit that there is no basis to conclude that the appellants have misrepresented prototype, which are duty paid plants as packaged type.
(25) Learned Collector has erred in substituting his own reasons to the letter of the Assistant Collector of Central Excise dated 3-3-87 and the reasoning given by the learned Collector lacks basis. The letter of the Assistant Collector dated 3-3-87 is clear and plain, as to its relevance to industrial water treatment plant as a whole, consistent with the common thinking shared by the appellants and the Department. The view of the department cannot be attributed as appellant's misrepresentation.
(26) Learned Collector at Para 49 has clearly observed that the Assistant Collector in his order, dated 4-3-88 has clearly entered into a finding on the aspect of classification of parts. The specific findings as to removal in CKD condition was reversed by the order of the Collector of Central Excise (Appeals), dated 27-7-88 on the ground that there is no manufacturing operations. This finding of fact is not under dispute in the proceedings. The appellants therefore submit that when the issue has been dealt in detail, in the earlier proceedings, the impugned demand both on merits and on limitation is unsustainable in law and liable to be set aside.
(27) As submitted, earlier the appellants state that it was specifically clarified through written submissions dated 13-12-93 that the earlier proceedings related to the entire range of trading operations comprising of medium and large size plants and issue was prosecuted as a whole till it was decided in favour of the appellants through the order of the Collector (Appeals), dated 27-7-88. In the circumstances, the appellants state that the findings at Para 51 that the earlier issue related only to large scale water treatment plants as found in the order and the appellants Grounds of Appeal before Collector is opposed to facts. The Department kept confusing portable Deionisers with medium size plant and erred in holding at Para 50 that appellant misrepresented the issue before the authority. The appellants reiterate that there was no confusion.
(28) The appellants submit that as rightly observed, duties were paid on all types of water treatment plant and after the order of Collector (Appeals) dated 27-7-88, duties were paid only on portable Deionisers which were manufactured and cleared on payment of duty. Duty was not discharged on trading activities. Therefore, the findings at Para 49 that the appellant presumed non-dutiability for the entire trading activities and clarifications were obtained only on large scale plant is contrary to facts and there is no such indication in the earlier proceedings. Even the summons dated 18-7-92 prove ample testimony about the common understanding of the nature of operations by the appellant and the department. The appellant, therefore, submit that the findings in Para 49 is speculative and does not arise out of any factual reasons.
(29) The appellants state that the statutory documents like the classification and price list and the annual stock taking report would clearly indicate the various categories of appellant's operation including the trading activity since duty was intermittently paid on trading operations, till the order of the Collector of Central Excise (Appeals) dated 27-7-88. The appellant therefore submit the findings at Para 50 is again presumptous and contrary to facts.
(30) The appellant deny the findings at Para 51. The documents relied upon and the conclusions flowing therefrom are first contrary to facts and secondly not part of the show cause notice proceedings. No reliance has been placed by the Department on these documents in the show cause notice and these have not been found even in the annexure to the notice. The documents were not even cited or provided during the hearing held on different dates. The order therefore is vitiated for having rendered a finding ex parte.
(31) The appellants state that even on merits the findings in Para 51 are contrary and opposed to facts. Documents relied upon relate to the period when the dutiability of trading operations were pending before the Department, and it was opined that issue is argueable in nature. Pursuant to the thinking, the appellants have in fact discharged duty under protest till a finality was reached through the order of the Collector (Appeals), dated 27-7-88 after which appellant stopped paying duty on trading activity.
(32) The appellants state the findings at Para 51 are opposed to facts since the documents referred, relate to the trading activities as a whole and not specifically to standard type of plants as observed by the Collector in the order.
(33) The appellants submitted that the findings at Para 52 is erroneous and contrary to facts. The observation that water treatment plant has been sold in assembled or semi-assembled CKD condition and the same has not been denied is clearly erroneous. The appellants reiterate when there is no assembly, manufacture or packing of the trading items, the question of removal in CKD does not arise. This finding is again in contradiction to the finding at Para 44.
(34) The learned Collector erred in observing that the sale of package type of water treatment plant was withheld from the department. When duties were discharged on trading operations, the statutory records such as the classification list, price list, annual stock taking report would clearly indicate that these items were within the scope of levy, and department is thoroughly familiar and aware of the appellants operations.
(35) The appellants submit the observations at Para 52 that the appellants succeeded in the refund application through a wrong impression and misrepresentation of facts is incorrect for reasons stated in the previous grounds. Department's reasoning in the show cause notice, is no ground to attribute misrepresentation on the part of the appellant especially when the department is aware of the activities.
(36) The appellants state that the findings in Para 53 are in contradiction to Para 36 for having confirmed the demand on the entire trading operation. The appellants state that the show cause notice and the order has excluded large scale industrial plant, from the purview of the proceedings. Summons were originally issued on 18-7-92 seeking value of all the industrial plants, and appellant through their letter dated 24-7-92 supplied data for all the industrial plants. Show cause notice dated 13-1-93 specifically excluded large scale plant from the purview of the proceedings and confined the scope only to medium size water treatment plant. Appellant therefore urged in the reply to show cause notice dated 9-12-93 and also in written submission dated 13-12-93 that even though show cause does not allege liability on large scale plant, demand has been made on the total operations and therefore the figures pertaining to large scale plant have to be excluded. The necessary data to this fact has been filed and the same has not been adverted to in the order, and learned Collector erred in confirming demand on the entire trading operations, including large scale plants.
(37) Learned Collector erred in confirming the entire demand on the ground that they pertain only to standard type of water treatment plant. The findings is incorrect to facts, as is borne out by record-Therefore, the order is liable to be set aside, as vitiated.
(38) The appellants urge that the findings that the summons dated 18-7-92 and reply dated 24-7-92 confined only to furnishing of value of standard/package type plant is factually incorrect. The records would reveal that information sought was for all industrial plants. The total clearances and data supplied by the appellant again relate to all industrial plants and it is only in the show cause notice large scale industrial plants have been excluded from its purview. In the circumstances the conclusions are contrary to facts.
(39) The appellants submit that the figures as relied in Para 53 tally with the books of account, since the balance sheet includes total turnover of all the appellant's units at Hosur, Bombay and Pune works. The figures relied in Clause (3) at Para 53 also reconciles with the sales tax books and returns. In the circumstances there is no evasion or miscalculation and there is no huge turnover left over as presumed by the learned Collector. The Department has erred in addressing this aspect without appreciating the issue in the proper prospective. The findings arise out of misappreciation of facts, and out of context reference to facts and figures.
(40). The appellants submit that the order confirming huge penalty of Rs. 50,00,000/- lakhs is ex facie bad in law, especially when there are palpable contradictions in the order, patent errors, mis-calculations in figures non-examination and non-appreciation of contention and evidence on records. The order is therefore liable to be set aside. The appellant state that findings in Para 55 is factually incorrect and the order therefore is liable to be set aside.
(41) The appellants submit that Rule 2A of the classification rules is subject to Section 3 of Central Excises and Salt Act, 1944. Therefore, in the absense of any manufacture or assembly, neither Section 3, nor Rule 2A of classification rules is applicable to the case. In the circumstances, the order of the learned Collector confirming manufacture or mere despatch of components/trading activities runs contrary to the provisions of the Act and the order therefore is not sustainable in law.
(42) The appellants further state that there is contradiction as to the findings in the order of the learned Collector and the same also runs contrary to the allegations in the show cause notice. It was originally the case of the Department in the show cause notice that the procurement and despatch of components would amount to manufacture. This has been denied both factually and legally. However, the order proceeds to confirm the demand on the ground that there is assembly and manufacture for which no basis was made at any stage, and even the order does not sustain the findings on any factual basis. When the fact of assembly and manufacture does not exist and the conclusion are factually erroneous and without basis, the entire order has to be set aside as vitiated.
(43) The appellants submit that Para 11 of the statement of facts comprising of five parts, eliciting the errors, contradictions non-examination evidences and contentions confirming demand in violation of natural justice based on documents, copies of which were not provided may kindly be read as one of the grounds of appeal as duly raised in the appeal memorandum.
(44) The appellants state that when there is no manufacture or assembly, the learned Collector erred in concluding at one place that there is a removal in CKD and in another place that supplies in the form of sub-assemblies were made in a semi-knocked down condition. Apart from the inconsistency in the observation, the conclusions are contrary to facts.
(45) The appellants submit that the order confirming the de mand under the extended period of limitation is unsustainable and un justified. The findings are incorrect and contradictory to the conclusions arrived by other earlier Assistant Collectors and Collector (Appeals), exercising quasi-judicial powers and functions. The order has substituted the earlier conclusions through own presumptions without any basis. Further, demand has been confirmed based on documents which are not part of show cause notice or adjudication proceedings. The inferences arise out of their own thinking and has surfaced for the first time and the appellants have been denied an opportunity to remit the same. The appellants reiterate there is enough evidence on record to show and substantiate that there is adequate disclosure and the Department is aware of appellants trading operations and the order is therefore ex facie bad and liable to be set aside. Therefore, it is just and necessary that in the facts and circumstances of the case, it is prayed before the Hon'ble Tribunal that the order of the Collector of Central Excise in Sl. No. 51/94, dated 15-6-94 may be set aside and grant consequential relief and thus render justice.
5. They have also submitted written submissions which were received in the Registry on 29-6-2001. These written submissions are repetition of the grounds of appeal. They have also submitted certain case laws in the Court on 3-7-2001 on the legal position as to whether packing of the goods would amount to manufacture.
6. Appearing on behalf of the appellants, S/Shri N. Venkataraman and M. Venkataraman learned Counsels submitted that show cause notice was issued on 13-1-1993 invoking the extended period of limitation which was for the period 1/88 to 6/93. They further submitted that they are engaged in the manufacture of pressure vessel, pipe works and industrial water treatment plant classifiable under sub-heading 7308.00, 7309.00 and 8421.00 respectively of the Schedule to the Central Excise Tariff Act, 1985. Water treatment plant is a fabricated item of pressure vesssel and pipe and tubes etc. and they use other items like cables etc. and they are using duty paid bought out items. Fabricated portion of the pressure pumps are sold to them by various vendors situated in Hosur. The allegation of the department is that job workers are dummy units and appellants are the real manufacturer as the appellants manufacture major portion of the water treatment plant. Systematic packing of these items with other bought out items would amount to manufacture is the case of the department. Therefore, the appellant is the manufacture of the components as well as manufacturer of water treatment plant. Further they submitted that that the Commissioner has dropped demand against various job workers on the ground that all vendors are independent manufacturing unit and those job workers are having relationship on principal to principal basis and are not hired labourers of the appellant who happened to be the principal manufacturer. The Commissioner had dropped demand against these job workers applying the ratio of the judgment of the Hon'ble Supreme Court in the case of Kerala State Electricity Board reported in 1992 (62) E.L.T. A52 whereby the civil appeal No. 140 of 1989 filed by the Revenue was dismissed by the Hon'ble Apex Court on 12-3-1990. The learned Counsels also invited our attention to Paras 34 and 35 of the impugned order dated 15-6-94. They further submitted that prior to 1-3-86 the goods were manufactured without the aid of power and till 1986 they have not paid any duty for the period from 1981 to 3-3-1987. It was after the introduction of the 1986 tariff with effect from 1-3-86 they filed classification list in respect of both trading activities and other activities, but have not given any proof as to how trading activities were allowed to be undertaken in the same premises and how the classification lists were allowed to be filed for water treatment plant for which trading activities were undertaken. They also invited our attention to proforma A, B and C and Part D and submitted that the appellants had manufactured only portable water treatment plant, and industrial water treatment plant were traded by them. The Supdt. of Central Excise had written to them that they should file revised classification list and they paid duty under protest. Since they have succeeded before the CCE (Appeals) they excluded the item again from the classification list. They have also filed ground plan both for the manufacturing area as well as for the area where trading activities were undertaken by them. The learned Counsels also submitted that the charge against the appellants was that the appellants knew that these trading activities are liable to duty and the trading activities they were trading for big industrial water treatment plant and also for the medium sized water treatment plant. The contention of the department is that what was adjudicated was for manufacture of big items and not for medium sized item. Since the appellants did not disclose the medium sized item, therefore, the department alleged that there was suppression of facts. They also invited our attention to page 356 of the paper book which contains the view of the ION Exchange Manager at Hosur under which it was stated as under :
"(a) Abandon the idea of a go-down - continue to operate from the factory.
(b) As per consultant's advice, begin paying excise under protest from 1st May, 1988 - Our new financial year.
A second expert opinion will help decide the course of action to be taken. The main question - if we operate from a separate go-down - are there not good chances for our now having to pay excise?"
The learned Counsels further submitted that the department has alleged that because of the expert opinion instead of paying excise duty they have started clearing the goods without payment of duty. They further submitted that from 16-6-88 they filed revised classification list after issue of the show cause notice. Prior to issue of show cause, they had filed classification list dated 27-7-88 and the CCE (Appeals) allowed their appeal holding that there is no manufacture. Therefore on 29-11-88 they filed revised classification list deleting the item on the basis of a favourable order from the CCE (Appeals). The plea of the department is that these items were not adjudicated and hence there is suppression of facts. The learned Counsels also took out some pamphlets to prove their case. They also invited our attention to Page 21 of the blue book containing written submissions which gives the details of their disclosure during the earlier proceedings. They also invited our attention to Paras 34, 35 and 38 of the impugned order. They submitted that the department's case is based on Para 10 of the show cause notice. They further submitted that their trading activities are in respect of standard type. They also invited our attention to Para 39 of the impugned order in which the merits of the case are dealt with by the Collector and also Para 40 wherein the Collector has used the words "assembled and packed" which is contradictory. There is no allegation of assembly of water treatment plant in Paras 41, 42, 43 and 44 in which it has been held that the scheme of packing is the Company's brain child to clear the goods without payment of duty and these words have been wrongly used and the appellants denied the same. They have also challenged the findings in Para 46 of the impugned order as there is no evidence to support the finding. They have also invited our attention to Paras 46, 47, 48 and 49 and after doing so, they also invited our attention to the various case laws submitted by them in defence of their case.
7. Shri K. Veeraraghavan, the learned ACGSC appearing on behalf of the department submitted written submission on 3-7-2001 and additional written submission on 6-7-2001, the relevant portion of which are reproduced below :
"(1) There are certain admitted facts in this case. It is submitted that for the treatment of water, 3 types of plants are manufactured by the Appellant. They are namely-1. Prototype 2. Package type also called Standard type 3. Large Scale Plants on Turnkey basis. In the "prototype" or "portable type", the appellants are paying duty. In the large scale plants, specially designed and made for industrial purposes, the appellants are not paying duty. The area of dispute is restricted package type also called "standard type."
(2) According to the Revenue, there is no difference between the "prototype" and the "package type". Whatever may be the individual requirements, the water treatment plants supplied, as regards the package type and the standard type, are the same. To put it in other words, both the said types are standardized, irrespective of the user.
(3) As regards the large scale plants required for industrial purposes, the design of such plant varies, according to the nature, and extent of the individual user. There is no specification of standardized design for each industry to suit its need and exclusive design is individually devised. Further, such large scale plants are constructed on the earth and at the site and as such being embedded to the land and thus an immovable property.
(4) As regards the "prototype" and "package type", the only difference is the size which is also not substantial. Excepting the size, there is no other area of difference. The 'prototype' is assessed to duty and on a parity of reasoning, package type should also be similarly placed. The only difference, if at all, it could be called a difference, is only in the nature of delivery of plant. The 'prototype' can be purchased across the counters whereas the package type is given in (CKD) condition after affixing the patent and registration brand viz. 'INDION' along with the test certificates to the customer for guarantee purposes and such guarantee is for the entire equipment viz. Water Treatment Plant.
(5) When the customer purchases the package type, he is given the equipment as a whole of course in parts which is easy for the purpose of package and assembling. The clearance of the system is more akin to the pattern of sale of a ceiling fan which is normally sold both in wholesale as well as in retail in unassembled condition. As the consignment of a ceiling fan on sale is not identified in the names of the individual parts like blades, rods, motor screws etc., the parts sold in the present case are known in the market as a Water Treatment system only. Further, in the instant case, the purchaser is charged as a whole for the entire plant and if any of the customer finds it difficult despite the instructions for assembling the technicians of the company assists in assembling the plant. Therefore what is sold by ION EXCHANGE (INDIA) LTD., is the whole of the plant tested and guaranteed but for the purpose of package and transport disassembled in parts. Eventhough this could be said to be factual difference between the 'prototype' and 'package type', this difference will not account for a difference in principle. Therefore this attracts duty as in the case of 'prototype' which is now beyond dispute. In fact the customer of the appellant identifies the standardized package type industrial water treatment plant as a whole system while purchasing from the appellant and not as a individual components of a system. It is also worth while to quote an example like purchase of ceiling fan in which a entire fan is sold in disassembled package and the buyer can easily assemble it for the usage.
(6) The aforesaid facts are supported by the statement of Shri S.S. Ranganathan, General Manager, M/s. ION EXCHANGE (INDIA) LTD., given under Section 14 of Central Excise Act, 1944 which are not denied or disputed and which completely puts a seal to the dispute raised as regards the duty payable. Relying on the statement also, the duty has been validly assessed and it is now settled law that the voluntary statements are to be given credence and in fact the Apex Court has ruled in 2000 (Cri.) Section 1275 that such statements have independent evidentiary value.
(7) There is again a clinching circumstances, in proof of facts that invariably a single unit is sold and not the components thereof. Further, a study of the invoices raised by ION Exchange Ltd., and also other documents regarding payment of sales tax reveals that the goods cleared from their premises has been declared as a machinery and not as components. Therefore, if the sales tax is assessed as a single unit, it is not known as to how it could be different for the assessment of excise duty. Again, even as per the ION Exchange's showing a claim, they have introduced this 'prototype' as a manufacturer of water plant. Further there is nothing evident to show that ION Exchange sold only components or parts for a single unit as a whole. A perusal of the invoices reveals that the price is charged only for the water treatment plant and not for parts and components as claimed by the manufacturers. Again as per their own showing, the balance sheets disclose only the sale of water treatment plants and not the sale of components. The marketing letters also show that this package type is simple to operate and easy to install and the unit is supplied in knocked down condition and easily assembled at site. Again by their letter dated 24-4-1992 they have themselves clarified that what they have supplied is only a machinery and not components.
(8) All the above mentioned documents form part of the records of the proceedings.
(9) It is also stated that in some of the clearances of the said goods under dispute, the petitioner is clearing the same in assembled condition only. Such type of clearances in assembled condition is done in the case of exports. It is submitted that such type of clearance alone would suit the petitioner for the purpose of claiming rebate. It is submitted that it cannot be that the same goods on one hand can be excisable and on the other hand non-excisable.
(10) Apart from the above, it also proves the fact that the goods under dispute are marketable in assembled condition. Therefore, the goods pass the test of marketability a vital criteria for levy of excise duty."
LEGAL CONTENTION
1. In finding out the assessment of the "prototype" plant in question, Rule 2(a) of the rules for interpretation of the First Schedule to the Excise Tariff is relevant and the said Interpretative Rule provides a complete answer to the issue on hand and the same is reproduced below.
"(The First Schedule) - Excise Tariff (see Section 2) Rules for the interpretation of this Schedule
2. (a) Any reference in a heading to goods shall be taken to include to reference to those goods incomplete or unfinished, provided that the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods, complete or finished or falling to be classified as complete or finished by virtue of this rule, removed, unassembled or disassembled."
2. The question is whether M/s. ION Exchange who claim to purchase the various components and sell the same cannot be called a manufacturer or not. The matter is no longer Res Integra and is covered by a judgment of the Supreme Court. There is no need to go into this question since M/s. Ion Exchange themselves claimed to be the manufacturers as evidenced by the aforesaid materials as well as the statement of Shri K.V. Vagulabaranan. In fact the standardization of the product was perfected as a result of M/s. Ion Exchange (India) Ltd., Research and Development activity (R & D) which speaks the fact that the standardized is a unique feature of their product and the activity of the assessee is not a trading one but a clear case of manufacturing. The said standardization is a privy to Ion Exchange India Ltd., only and as such it distinguishes from a regular trade and in the statement of Shri S.S. Ranganathan, the standardization is claimed as the company's brain child, and the Water Treatment plant as unique product of the individual skill gained from R & D Unit belonging to them.
3. The contention of M/s. ION Exchange that they cannot be called manufacturers by claiming reliance on the decisions regarding cable jointing Kit and TI Diamond cannot be sustained. As regards cable jointing Kit, the person who supplies the individual components for Kits pay duty on that component and secondly the jointing Kit as such is useless and unless it is jointed by two cables to make it functional, it cannot work. But this water treatment plant, the plant itself is functional and requires no further accessory. In the case of M/s. T.I. Diamond, the position is the same and the various parts have suffered duty individually. In the case on hand, admittedly, neither the various parts or components of water treatment by themselves suffer any duty for nor the Water Treatment Plant is sold as such suffer any duty. If the case of ION Exchange is accepted, then this Water Treatment Plant as such viz. the package type will become free of duty.
4. M/s. ION Exchange wrote a letter to the Department seeking clarification in respect of large scale plants and the clarification was given to them by the department. In seeking such a clarification they disclosed only two types of water treatment plants viz. "Portable type or prototype" and industrial large scale plant. As already stated, the clarification was given only to Industrial plants. The fact of ION Exchange manufacturing another type viz., package type also called standard type water treatment plant was never disclosed to the department. The fact of such manufacturing package type and sale of package type - standard type, came to be known to the department only when the officers visited the premises of the suppliers in other words the fact of package type was omitted to be disclosed with intention to evade tax. It was only then that the department came to know that this package of "standard type" was also being manufactured and marketed by ION Exchange Ltd. As already stated, the statements recorded in this behalf from S.S, Ranganathan, indicate that the scheme of packing is the company's brain child and that it is derived as a result of labour of R&D for the standardization for grouping and combination of products. Further, correspondence which came to light during the visit of the department officials also indicates that the opinion of Counsel of Ion Exchange to the effect that 'Package type' or the 'standard type' would also be a dutiable product. Therefore, the petitioner appears to have been posted with the up to date legal position on the issue. However, the history was that nevertheless, the petitioner preferred to remain silent on the issue and continue to clear the goods without payment of duty. The act of the petitioner clearly exposes their mala fide on the issue and the malice in the instant issue clearly established. The department came to know the designs of the petitioner for the first time only during the investigative process.
5. It was also found by the Commissioner that the 'standard type' was also being sold in the guise of industrial plant for which alone the department earlier gave a clarification. In the circumstances, the misrepresentation and suppression by ION Exchange in respect of the 'package type' or the 'standard type' is clearly made out and established and as such, the durability is attracted. Further to take advantage of the extended period, as found in proviso to Section 11A of Central Excise Act, 1944 the initial burden is on the department to show that extended period of 5 years can be availed of and when once the initial burden is discharged by certain evidence, the burden shifts to the assessee and thereafter the provision relating to extended period of limitation itself, should be construed liberally as ruled by Apex Court in its judgment referred 1995/SCC (1) P. 50 since the fiscal legislation is to be given some laxity as per the law of the land. Respondent submits that the Apex Court clearly ruled the law that omission to state or declare a particular type of goods or products itself amount to suppression of a fact with intention to evade tax and as such even in such cases the extended period of 5 years can be invoked as provided under Section 11A of Central Excise Act.
6. The Hon'ble CEGAT vide Misc. Order No. 559/2000 in E/SB/5378/1994 has referred under Para 2 to a decision of CEGAT in the case of Eureka Forbes Ltd. - 2000 (122) E.L.T. 550 (T) and observed that the facts and circumstances of the said case are identical to the present case and considering the fact that the issue in the Eureka Forbes Ltd., case was referred to Larger Bench, directed that the outcome of the Larger Bench decision may be awaited. Accordingly the further proceedings were adjourned to 5-4-2000 for mention.
7. The respondent submits that the decision of Larger Bench has since been received. However, it is humbly submitted that the facts of Eureka Forbes Ltd. case are distinguished from the facts of the present case due to the following :-
(i) The issue decided in the Eureka Forbes Ltd. was whether or not aquaguard manufactured by the assessee and sold along with pre-filter and other accessories procured by the assessee would be complete without pre-filter and other accessories. In the present case the issue is not as to the inclusion of any part with the main item to determine its excisability.
(ii) In the instant case, the appellant does seek to exclude the value of any part with the main machinery.
(iii) Where as the issue addressed in the present case is whether in the particular facts and circumstances of the case and issue that the goods procured by the assessee, which are subjected to "standardization" and cleared in disassembled condition is excisable or not in terms of Rule 2(a) of interpretative rules of the Central Excise Tariff Act, 1985.
8. The respondent now submits thus the facts in the Eureka Forbes case are totally distinct and different from the facts of the present case and as such the decision given in the said Eureka Forbes case may not have any binding effect on the present controversy for the consideration of this Hon'ble Tribunal. It is submitted that a binding precedent is one which binds the identical issue in controversy which is already decided in a different case and Eureka Forbes case would never be a binding precedent to bind the present controversy due to the distinctiveness of the facts, law and issues involved herein.
9. The respondents submit that the appellant procures the components/parts from various job workers. Until the said components/parts reaches the premises of the appellant, they are known in the market only as parts of general nature like nipples, couples, pipes, etc. At the premises of the appellant, all the components/parts are tested either in assembled condition or without assembled condition. Later all the parts are in the predetermined, standardized pattern are placed in the carton. Such grouping standardization is claimed the proprietary right by the appellant. Only when the aforesaid process is carried out the goods which are until then recognised in their original name as nipples, pipes, couples, filters, etc., lose their original name and the standardized product gets new name. In other words, only when this process is carried out, the final product gets the new name as 'Industrial Water Treatment Plant'. In this regard Apex Court judgment in Collector v. S.D. Fine Chemicals Ltd. - 1995 (77) E.L.T. 49 (Supreme Court) is relevant wherein it has been held that whether a process amounts to manufacture is a question of fact and one of the main tests is that after application of any particular process, the commodity is no longer regarded as the original commodity but is recognised as distinct and new article. The Hon'ble Supreme Court further reiterate that the definition of 'Manufacture' under Section 2(f) is an expansive definition; certain process which may not otherwise amount to manufacture are also included therein. On the same analogy it is stated the process of testing and the standardization, etc., undertaken by the assessee is a distinct ancillary process which brings into a new product in the name of Industrial Water Treatment Plant. It is not denied that the buyer identifies the product purchased from the appellant as Industrial Water Treatment Plant from the place of appellant. It is also stated that inside the carton box containing the plant, the assessee is putting, enclosing the pamphlet of the water treatment plant along with the specified diagrams. Therefore it may be construed by way of appellant's own admission that in the form of pamphlets and write-ups the goods cleared sold by them are only water treatment plant and the same is also identified by the buyer as such. In the case of Shree Baidyanath Ayurvedic Bhavan v. Collector, 1996 (83) E.L.T. 492 (Supreme Court) it was held by the Hon'ble Supreme Court that the goods are to be classified according to the popular meaning attached to them by those using the product. In the instant case when the impugned goods are sold by the appellant those using the product identified the goods as Industrial Water Treatment Plant only and not as nipples, hose, couples, pipes, etc. As such it is a indisputable fact that the Industrial Water Treatment Plant has emerged in the appellant premises when the goods are cleared. It is also noteworthy to state that the invoices also shows that the buyer purchases goods only as a water treatment plant standardized package plant and not as pipes, nipples, hose etc., it is submitted, that the goods namely standardized water treatment plant has emerged in the appellant premises is clear. The aforesaid ratio held and reiterated in various cases by Hon'ble Supreme Court and the CEGAT also held that mere bringing together different parts to create a new product would tantamount to manufacture because the collection brought into market or into vision of customer goods which had never been there before. The process of manufacture can be simple one of bringing different parts together to create a product that had not existed before - Pressure Cooker and Appliances Ltd. v. Collector - 1987 (28) E.LT. 566 (Tribunal).
10. The respondent further submits that the appellants are paying excise duty for the "prototype" manufactured by them and for the standardized type they plead that there is no manufacture and they are only packaging and sending to buyers which is unacceptable in law and the difference between prototype and standardized type is only in the size and not in any other aspects. Further the standardized water treatment plant packaged and cleared from the appellant company is easily put in the use of the buyers and it is not as if the standardize type emerges as a final product only if it is put in use by the buyers. On the contrary the standardized type assumes its identity only from the appellants company and the buyer sees the standardized water treatment plant as a new product only from the appellants and by no stretch of imagination it can be assumed that the standardized type involves only packaging of various components and as such there is no manufacture at all.
11. The respondent submits that in fact the Hon'ble Supreme Court repeatedly held that manufacture involves a process by which the original identification of goods or parts etc. are transformed into different goods and in such cases the process by which the parts etc. are transformed into goods would itself amount to a manufacturing process. In Union of India and Ors. v. J.G. Glass Industries Ltd. reported in 1998 (97) E.L.T. 5 (S.C.) = 1998 (II) SCC Page 32 the Supreme Court ruled that while determining the manufacturing aspect whether particular process amounts to manufacture are not is to determined by applying twofold test namely (i) whether by the process a different commercial commodity comes into existence or the identity of the original commodity ceases to exist (ii) whether the original commodity would no purpose but for that process and by applying the said ratio decidendi, the appellant would be squarely come with in the manufacturing process. The respondent submits that it is true that a mere change in the substance may not be process but in the case of appellants the change is the result of treatment labour and manipulation and transformation of a new and different article emerges having distinct name, character or use. The respondents submits that the taxable event under the excise law is manufacture. The moment there is transformation into a new commodity commercially known as distinct and separate commodity having its character, use name, whether be it result of one process or several process manufacture take place and liability duty is attracted. The Respondents submit that the above position of law of the land is directly applicable in the case of appellants. The respondents submit that the standardized type water treatment plant attains its identity at the appellants place alone and it can never be construed as an incomplete system to acquire identity at the buyers place and by applying the marketability test the water treatment plant (standardized type) as such is in position to be taken to the market and hence the excisability and durability is attracted.
12. The respondent submits that the statement recorded from the appellant company's executives and officers is a clinching self-speaking circumstance to accept the case of the respondent.
In this case, it is not denied by the assessee that the plant as sold by the assessee is not a complete machinery. The respondent submits that the appellant though coming under the purview of self removal procedure (SRP) deliberately omitted to state the factum of production of standardized water treatment plant and there is wilful misstatement with intention to evade tax and in fact the clarification given by the Collector of Central Excise is only for giant water treatment plant or turnkey project and not for package/standard type water treatment plant and thus there is clear misrepresentation of facts with intention to evade tax and only in that aspect the extended period as provided under Section 11A of Central Excise Act is attracted and authority are legally correct in invoking the extended period as provided in Section 11A of Central Excise Act, it is also important commodity that the opinion given by the lawyer as relied upon documents also reveals the fact that the appellant is fully aware that he is liable to pay excise duty also for goods (package/standard type water treatment plant) and knowing the same with intention to evade tax the said manufacture of the product was omitted to be disclosed to the authority.
ADDITIONAL WRITTEN SUBMISSION It is humbly submitted that this Hon'ble Tribunal was pleased to pose the following questions after hearing the Revenue Counsel.
1(a) Whether in the facts and circumstances of the case the goods cleared in packed and CKD condition would amount to manufacture and constitute a total machinery.
1(b) Whether any operation or activity is involved or undertaken by the appellant that would qualify the goods as manufactured goods.
(2) Whether the Department is justified involving the proviso to Section 11A in demanding duty beyond 6 months, in other words the issue is hit by the bar of limitation.
Both the aforesaid points are countered by the appellants.
By way of submissions it was contended by the appellants that the impugned goods or disputed goods cleared by them consists of 2 parts viz. pressure parts and bought out parts.
The pressure parts viz. pressure vessels, pipes, tubes, etc., are procured from vendors. The bought out parts like pumps, motors, cables etc. are purchased from the market. Both the pressure parts and bought out parts are put in a packing and sold to customers/dealers as such without any operation. It is main plea of the appellants that mere packing of these goods would not amount to manufacture.
In this regard it is submitted that the contention of the appellant that by selling the impugned water treatment plant to the consumer they are only indulging in trading activity is contrary to the fundamental principles of trading activity. If the appellant is indulging in an innocent trading activity they have ought to have purchased water treatment plants and would have sold to the consumer whereas here it is not so. Therefore the contention that there is an trading activity is nothing but a statement made with intention to evade tax.
In the course of the proceedings, your Lordships also posed a question namely whether the disputed goods are assembled and later disassembled and cleared in the knock-down condition.
In this connection it is submitted that though there are certain parameters applied on the question what amounts to manufacture it is a settled law that whenever any dispute arises as to what constitutes manufacture, it has to be decided on case to case basis. In the case of appellants, it cannot be contended that the goods are never cleared in assembled condition. The appellants himself admitted in their statement (Page 41 question No. 8) that there were occasions when the identical goods were assembled and then cleared in C.K.D. condition. It is also admitted that in respect of this product they have done a process of standardisation. (Page 42 answer to question 10).
The packing done by the appellant is not done in the manner it is done by a dealer of grocery items - putting items like wheat, rice, sugar etc. in a carton box, in other words, they acquire the skill of standardization over the years (Page 42 answer to question No. 10).
In support of their contention that the process of packing does not amount to manufacture, the appellants' have submitted the following judgments :-
(1) XI Telcom Ltd. v. Suptd. of C. Ex. Hyd., 1999 (105) E.L.T. 263 (AP). In this goods involved is cable jointing kit. It was held that in this case only there is a change in the name; no change in character and end use. It was also held that no process was involved.
(2) Siechem v. Commissioner of C. Ex., 1999 (30) RLT 207 (T) (3) Yamuna Gases & Chemicals Ltd. v. C.C.Ex. 2000 (40) RLT 656 (T) (4) C. C. Ex. v. TI Diamonds Ltd. Supreme Court Order in CA No. 396/2000 dismissing the Departmental appeal.
(5) TI Diamond Chains v. C.C.Ex., 1999 (35) RLT 517 (CEGAT). In this case the goods are wheel sprackets, gear sprackets, chain and link put in a packet and the resultant packing is called as transmission kit.
(6) Dalmia Ind. Ltd. v. C.C.Ex., Jaipur, 1999 (32) RLT 772 (T). In this case different articles of feeding bottle like, bottle, feeder nipples, lids, plastic parts and put in a packing and the packing is called as milk care designer feeder.
(7) Union of India v. J.G. Glass Ind. Ltd., 1998 (97) E.L.T. 5 (Supreme Court).
In all these cases except the last one, it was held that putting together different goods in a packing alone does not amount to manufacture. The principle underscored in all these judgments is that there should be some definite process. It was also stressed in the case of UOI v. J.G. Glass Ind. Ltd., such process undertaken by the assessee should result in a new product coming into existence and that the original product should cease to exist.
With due respect, it is submitted before this Hon'ble Court, that all these cases the concerned assessees have only, mechanically put different goods in one packing and the concerned judgments have rightly held that mere mechanical packing of different goods in one packing alone will not make any goods excisable.
In this context, it is submitted that the facts of this case clearly distinguishable from the facts of the aforesaid cases due to the following distinct reasons -
(1) the appellants do not merely put all the goods in one packing. Before doing the packing they have done considerable research and evolved a process of standardisation, which is admitted by them in their statement. This point has not been controverted by them and as such the admitted facts need no proof.
(2) The skill of standardisation was not acquired by them on a single day. It was acquired over the years, a fact which is admitted by the appellants themselves and unilateral statements also documentary proof to support the case of the Revenue.
(3) The standardisation they acquired ultimately culminated in the designing of a impugned water treatment plant which is an activity or a process by which the goods have been transformed and to support that point there is an admitted fact by the appellant that there is a specific diagram has been enclosed with the packages and the installation was made to be simple.
It is stated that without the process of standardisation, the process would not be complete. In other words, what is cleared is not merely the collection of parts, but the transfer of such technical know-how or technology which alone gives the life to the machinery to make it a complete machinery and such activity which transform the parts amount to manufacture. It is submitted that but for the transfer of this technology evolved out of standardisation, the product would not become complete and such facts have been admitted by the appellant.
The various judgment cited by the appellants take the aforesaid fundamental facts only into consideration. In other words, in none of the aforesaid incidents, the concerned assessee have diverted a process of standardisation and evolve a drawing and that it would be packed in a particular pattern by them only. In all these cited cases the packing are done in a mechanical way only as it is done by a dealer of grocery shop, and the facts are quite distinct in the present case and a precedent is the one which binds the issue of law and not on facts.
Apart from this the following corroborating evidences are also cited.
1. The appellants themselves claimed these goods in their invoices as water treatment plant.
2. The customer also understands accordingly and perceive this product as machinery.
3. The appellant also maintains production Register as applicable to a complete plant and not for individual parts.
4. Every set of products obtained from the vendors are tested (Page No. 28 answer last but one).
5. Their balance sheet also claim that they manufactured the plant as a whole only.
6. Guarantee is given for the product.
If mere trading/packing is the only activity undertaken by the appellant, there need not be such an elaborate and Research and Development for the standardisation and systematic procurement of goods and predetermined and definite pattern of packing of the products procured. But in the instant case there is a definite activity taken by the appellant which transforms the character as well as usage of the components procured and sold by the appellant. The above said facts have been proved beyond any dispute by the categorical admission by the appellant. That the goods are invariably procured in the appellant's premises and then cleared from the appellant's premises only establishes the fact that the impugned goods are subjected to the process of testing and the clearance of the same in a particular pattern along with the diagram.
In view of the above, the facts of the present case are clearly distinguishable from the facts of the cases cited by the appellants. It has been contended by the assessee that the department is aware of the fact that mere packing is done on these goods. In this connection the appellant lodges the letter of protest for payment of duty on the said goods. In his letter and all the correspondence with the department the assessee has contended that they are doing only packing but what the assessee did not inform the department is that they are doing the process of 'standardisation' (that the identical goods were also in the past assembled on some occasion and cleared (page No. 41 answer to question 8).
It is a fact that in 1986 consequent to the introduction of new Tariff Act, the assessee came forward to pay duty on the impugned goods, they filed classification list and price lists. But it is also a fact that the appellant did not file any process of manufacture along with the classification declaration for the disputed goods, which is mandatory. Subsequently, as the assessee came forward to pay the duty suo motu, there arose no need for the Department to doubt their bona fides after all they are covered under SRP procedure where the department reposes trust on the assessee.
The very fact that the appellant gives the guarantee for the impugned goods to the consumer makes it clear that the activity which has transformed the character and use as well as the marketability of the goods at the appellants premises.
In this context it is again reiterated the impugned goods are only assembled at site and not erected at site to make them become the permanent structure in the customer's end. In this connection, the pamphlets of the respective goods are submitted as evidence.
Besides it is also claimed by them that it is very easy for the customer to install it in a short time, in contrast to their earlier stand 'both in their letter' under protest and to Commissioner (Appeals) that it is a cumbersome process involving a lot of work like civil work, foundation work etc. to make it become immovable property, that is to say it is not constructed like a building or like a plant or tree. As all the facts have come to light, only after the investigation process was set in motion. Thus the assessee are culpable of misrepresenting, suppressing and omitting the facts with the intention to evade tax.
It was contended by the appellants that Departmental officers conducted the stocktaking of the respective goods and as such they are aware of the process manufacture of the goods.
In this connection, it is submitted that the very name 'Annual Stocktaking' indicates that the purpose of visit of the concerned officer is not to ensure the process of manufacture of the goods but only to count the finished goods available in the EB4 room where the finished goods are ready for despatch and which are recorded in the Statutory Registers. It is not the terms of reference of the stocktaking officer to examine the process of manufacture of any product at all. Nor were there any compelling circumstances for the Stocktaking officers to doubt the bona fides of the assessee, nor the concerned officer visited the unit to have study and investigation. The concerned work is done only by the Preventive Wing of the Department. In the instant case, it is fact on record that only the Preventive Wing of the Department unearthed the fact. Therefore, reliance placed by the appellants cannot be sustainable.
It is reiterated that the subject goods are identified by the customers as water treatment plant. In this connection the Supreme Court judgment in the case of Shri Baidyanath Ayurvede Bhavan Ltd. v. Collector of Central Excise, Nagpur, 1996 (83) E.L.T. 492 (S.C) has held that the goods are to be classified according to the popular meaning attached to them by those using the product. In the instant case, when the impugned goods are sold by the appellant those using the product identified the goods as industrial water treatment plant only and not as nipples, hose, couples, pipes, motors etc. and the invoices are the speaking documentary evidence for the above facts.
Finally it is submitted that only after a thorough investigation processes the Revenue was able to find out the genius method of evasion of duty and fortunately the assessee admits certain vital factors in support of the Revenue and as such the Revenue may be shown some more laxcity taking into Revenue interest and it is submitted in the Hawkins case the Apex Court has remanded the matter to the adjudicating authority to find out whether goods came into existence because of some activity undertaken by the assessee. In the instant case the Revenue has established the facts which was also not contested by the assessee that there is a definite activity done by the appellant (Not some activity) and on the reasoning and logic there is a new product due to the said definite activity and thus the issue was not finally decided by the Apex Court and hence this Hon'ble Tribunal may be pleased to consider the distinct facts and render justice to the Revenue through its judge made laws.
He has invited our attention to the clarification given by the Assistant Collector dated 3-3-87 which was for large scale water treatment plant on which no duty was leviable as it was erected at site piece by piece. It was clarified by the Assistant Collector that this item is an immovable property. As regards standard type water treatment plant is concerned, it is like portable plant and they had paid duty on that. He also invited our attention to Section 2(a) of the interpretative rules. He also submitted that the citations given by the appellants are distinguishable.
8. The matter was part-heard on 3-7-2001 for seeking various clarification and was adjourned to 6-7-2001. On 6-7-2001 the learned ACGSC continued his arguments and submitted that since they had sought clarification from the Assistant Collector in regard to liability to duty in respect of plants which are installed at site, the clarification was given by the Assistant Collector in respect of that item only. He also submitted that the appellants are manufacturing three types of water treatments plants. They are (1) Prototype Water Treatment Plant (2) Medium sized Water Treatment Plant. (3) Large sized Water Treatment Plant. He further submitted that they are paying duty on prototype water treatment plant. The large sized water treatment plant being immovable property being erected at site and not duty paid. They were earlier also paying duty on medium sized water treatment plant. He further submitted that the plea of trading activity is not tenable inasmuch as standardisation cannot be done by persons doing only trading activity. Since they were manufacturing standardized medium sized water treatment plant, duty was required to be paid by them. He also submitted that the appellants did not have any permission under Rule 51A to do trading activity in the premises of manufacture where similar goods could be manufactured/assembled as well as traded. He further submitted that since in standardization of water treatment plant they have perfected, even for medium sized plant while exporting the same, first they have assembled in their factory and then only they export the same outside the country. He also submitted that this proves that they were assembling medium seized water treatment plant and clearing the same without payment of duty and thus suppressed the facts from the department. He also took us to the meaning of the word 'Standardization' which means degree of excellence. He further submitted that the facts are similar to the facts in the case of Sirpur Paper Mills v. CCE reported in 1998 (97) E.L.T. 3 (S.C.). In that case the item which was considered was paper making machinery assembled and erected at site with mainly bought out components and it was held by the Hon'ble Apex Court that this was a marketable commodity and, therefore, excisable goods and that embedding of it in concrete base was only to ensure wobble free operation and this process did not make it an immovable property.
9. In counter the learned Counsels for the appellants invited our attention to the letter dated 5-6-89 which is at page 623 of the paper book by which they had informed the Supdt. of Central Excise, Hosur II Range that they had licence to manufacture water treatment plant in their factory right from 1981 and that they have been manufacturing a category of water treatment plants commonly known as portable or packaged water treatment plants by assembling the same in their factory and on which they had been paying excise duty as applicable. They have also other activity whereby they procure components from outside from a variety of venders which they pack at their premises and despatch to their customers. These components had already suffered excise duty at the time of receipt at their factory. Department had accepted their contention that this activity does not amount to manufacture and hence no licensing formalities were required. They had also informed vide their above letter that from 1-6-89 they have segregated their factory premises into separate premises, one having activity of receiving components as they are from various customers without any operation on them and the second category is that such components are assembled in their factory and manufactured as portable water treatment plant and packaged to customers on payment of excise duty after following the Central Excise procedure prescribed. They also submitted a revised ground plan showing segregation of these two premises distinctively marked as licenced premises for manufacturing activity of portable plant and they had requested that it may be approved along with licence duly endorsed. They therefore, submitted that there was no suppression of any facts. The learned Counsels also invited our attention to the statement dated 4-1-92 of Shri S.S. Ranganathan, General Manger of the Company to question Nos. 7 and 8 on page No. 41 of the paper book and question No. 17 and answer thereto which are page 46 of the paper book. In question No. 8 it was asked that various items were despatched to the customers in CKD condition as it has been mentioned in the trade literature that these are despatched in CKD (knocked down) condition and to this question the answer given by Shri S.S. Ranganathan was "the tact still remains that they despatch components and which the customer puts together. This is often referred to as knocked down condition. He had therefore, categorically stated that at no stage did they assemble these components and then "knocked down" for despatch. Similarly in reply to question No. 8 it was answered by Shri S.S. Ranganathan that the items were assembled, knocked down and then despatched in the case of certain export orders where there is inspection by export agency and that some times these agencies insist upon some components being assembled in their presence before giving shipping clearance and it was also stated that this applies only to certain export orders. He further stated that though invoice was for the full value of the water treatment plant, it does not mean that water treatment plant was manufactured by them. In this connection the learned Counsels invited our attention to the judgment of the Hon'ble High Court of Andhra Pradesh in the case of XI Telecom Ltd. reported in 1999 (105) E.L.T. 263 (A.P.) in which it was held that putting together duty paid items into a cable jointing kit does not amount to manufacture. The High Court also observed that except that the kit has a distinct name, the other tests laid down in the precedent judgments of the Supreme Court for attracting the levy are not satisfied as there is no change in the identity, character and use of the articles placed in the kit, they are known in the market as such and are marketable as such. The Hon'ble High Court also observed that no process is also involved except that all the items are put together in one box. The learned Counsels also submitted that this case should not be remanded back for de novo consideration since all the relevant facts are before the Tribunal. In this connection he relied upon the decision of the Tribunal in the case of Metrosyle v. CCE, Patna reported in 1995 (77) E.L.T. 130. They also submitted that Rule 2(a) of the interpretative rules is not applicable to Central Excise cases and it is applicable to Customs cases only. In support of this plea, he relied upon the ruling in the case of Hindustan Motors Ltd. v. CCE, Calcutta-11 reported in 1996 (87) E.L.T. 216 (Tribunal). He also invited our attention to the decision of the Tribunal in the case of Eureka Forbes Ltd. v. CCE reported in 2000 (125) E.L.T. 1195 (T) = 2000 (39) RLT 351 wherein it was held by the Tribunal that putting together of bought out water filter cum-purifier and pre-filter and marketed as "Acquaguard" does not amount to manufacture as no new commodity comes into being having different character and use within the meaning of Section 2(f) of the C. Ex. Act, 1944. Since West Zonal Bench and the North Regional Bench of CEGAT, in respect of the same appellants had taken contrary view, the question was referred to the Hon'ble President for resolving the difference of opinion, etc. They also submitted that Note 6 of Section XVI does not apply to complete equipment.
10. We also find from the records that a miscellaneous order No. 559/2000 was passed by the Bench comprising of learned Member (J) Shri S.L. Peeran and learned Member (T) Shri S.S. Sekhon wherein it is recorded that when the matter was heard the decision in the case of Eureka Forbes Ltd. reported in 2000 (122) E.L.T. 550 was brought to the notice of the Bench and it was found that since Court 2 of CEGAT, New Delhi and the West Regional Bench have taken divergent views on a similar matter, the matter was referred to Larger Bench and the question referred was "Whether in the facts and circumstances, the activity undertaken by M/s. Eureka Forbes Ltd. amounts to manufacture in view of Note 6 of Section XVI of the Schedule to the tariff". Therefore, both the sides wanted that since similar matter was under consideration of the Larger Bench, it would be in the interests of justice to await the decision of the Larger Bench. Therefore, the matter was kept pending. The decision of the Larger Bench was pronounced as reported in Eureka Forbes Ltd. v. Commissioner, 2000 (120) E.L.T. 533 (T-LB) = 2000 (39) RLT 1038 (CEGAT-LB) and a copy of the same was made available in the Court by the Counsel for the appellants on 27-9-2001. It is stated in the covering letter enclosing the copy of the Larger Bench decision that after going through the decision of the Larger Bench both the sides stated that the Larger Bench decision has no applicability to the facts of the present case. The learned ACGSC also in para 7 of the written submission has submitted that the said Larger Bench decision is distinguishable from the facts of the present case for the reasons mentioned in sub-paras (i) to (iii) of para 7. Therefore, both sides submitted that they are not relying on the judgment of the Larger Bench (supra).
11. We have carefully gone through the records and the written submissions as well as the oral submission made by both the sides. We find that the appellants are manufacturers of three types of Water Treatment Plants as under :
(1) Prototype water treatment plant :
This water treatment plant is a mini water treatment plant and is also known as portable type water treatment plant and the appellants are paying duty and there is no dispute about the same.
(2) Large scale turn key project erected at Site :
This water treatment plant is a Large Scale turnkey project in which each part is erected at site and is embedded to the earth. They are therefore not paying duty on this. The turn key project is a large scale water treatment plant as the same does not come within the category of goods and have been declared as immovable property and accepted by the department also as immovable property and no duty is either paid by the appellants or demanded by the Revenue. Therefore, show cause notice excluded from its purview the prototype category on which they are paying duty and the large scale turnkey plant specially made for industrial purpose as the same is treated as immovable property. Since large scale plants are required for industrial purposes the design of such plants varies according to nature and acceptance of the user. There is no specification or standard design for each industry to suit its need and exclusive design. Further such large scale plant are constructed on the earth at the site and being embedded to the land are therefore immovable property.
(3) Standard type (also called as package type) :
The area of dispute is restricted to the standard type (also called as package type). There is no difference between prototype and the Standard type (package type) except the small difference in size and both are similar and are standardized irrespective of the user. Excepting the same, there is no other area of dispute. Prototype can be purchased across the counter whereas the standard/package type is delivered in CKD condition after having affixed the patent registration brand INDION along with test certificate to the customer for guarantee purposes and such guarantee is for the entire equipment (water treatment plant). When the customer purchases the package type/standard type, he is given the equipment as a whole, of course in parts in CKD condition which is easy for transportation and also for the purpose of package and assembling. We are inclined to agree with the arguments advanced by Shri K. Veeraraghavan, learned ACGSC that clearing of the system i.e. Std/package type water treatment plant is on the pattern of sales of ceiling fan which is normally sold both in wholesale as well as in retail in unassembled condition as consignments of ceiling fan on sale does not identify the names of individual parts like blade, rods, motor, screws, etc., the goods sold in the present case are known in the market as a water treatment plant only. Further, in the instant case, the purchaser is charged as a whole for the entire plant and if any of the customers find it difficult, despite the instructions for assembling, the technician of the appellants assists in assembling the plant. Further, normally the technician of the dealers who are well trained by the company in installation of the Std type/prototype water treatment plant normally does the installation work. It is only in rare cases when the technician of the dealers is not able to install the Standard/Prototype, then only the technician from the appellants company helps in installing of the said package type water treatment plant. It is also observed from the records that dealers place orders with the appellants for installation of water treatment equipment. The appellants procure pumps, pressure valves and resin from the open market and pressure vessels and frontol pipes were got manufactured through independent job workers. Various parts and components so collected are brought to the factory of M/s. ION Exchange, the appellants and parts suitable for a particular type of water treatment plant are packed in dealwood boxes and sent to that dealers/customers who had placed orders for the equipment. Marketing pattern of water treatment plant by the appellants is that the customers approach through the dealers for the supply of their requirement and the dealer in turn place orders with the company (appellants) for the direct supply to the dealer. This pattern of sale is given in their letter dated 14-8-91 captioned "Marketing plan for Standard Plant and Instruments". The invoices are raised on the dealer and proper appropriate sales tax for the sales of Standard or Package type water treatment plant to the dealers are paid. As such the fact that Std or packaged type water treatment plant in question were sold to the dealers is evidenced from the invoices raised.
12. The issue for consideration in this appeal is as to whether there is manufacture of water treatment plant by the appellants. Fabrication of pressure vessels and pipe fittings through independent contractors is solely intended for the supply to the dealers of water treatment plant. Procurement of other components i.e. pumps, motor valve, etc., is also for the above purposes. The above noted parts and components are brought to the factory of the appellants and packed in dealwood cases. It was also found by the Collector and as discussed by him in the impugned order that the name plates have been procured from M/s. Swastic Processors and they are affixed on the Water treatment plants. The name plate indicates the particular type of water treatment plant, the serial number etc. to identify that the products have been supplied with the brand name INDION of M/s. ION. The name plate is also placed in the dealwood cases along with component parts. The invoice raised for the sales further indicate that dealers are passed commission at the rate of 12.5%. Detailed packing specifications is also prepared and enclosed to the invoices. The learned Collector in Para 40 of the impugned order has observed that in the instant case various items received at the appellants Depots were assembled and packed in such a way that a new commodity comes into existence that has not been there in the form and appearance earlier. Name plate, guarantee and brand name are available to their product. The packing process and assembling of components that make up the complete product has been so adopted as to evade duty liability that should have been discharged on the completion of each unit. He has also observed in the same para that the appellants arranged their affairs in such a way that they could present a case to the department that what they sold is not an item manufactured by them but some one else and they cleverly set up a scheme to evade tax and confuse the department. He has observed that the arrangements for the sale of standard/package type of water treatment plant is not as innocent as the appellants claim it to be.
13. The plea of the appellants-assessee that the Std/package type Water treatment plant was brought into existence only at the site of the customer in a progressive manner on a platform solely constructed for the purpose and the water treatment plant in question is an immovable property, is not acceptable and not tenable inasmuch the printed photograph available in the pamphlet issued by the appellants shows that the Water treatment equipment in question have been simply placed on an elevated concrete platform only to facilitate the flow of water. We also observe that the photographs of the model 'Industrial Two Bed Upflow Deionisers' printed in the pamphlet, shows that the concrete plant form is intended to place the two drums separately, one for inflow and another for outflow of water. The photograph in the pamphlet further indicates that the concrete platform is solely intended for positioning the equipment and not for any other purpose. The pamphlet issued by the appellants also clearly indicated that the standard type/package type unit supplied in knocked down condition can be easily installed at site. Further they have themselves admitted in their answer to question No. 8 (page No. 41 of the paper book) wherein Shri Ranganathan, GM has stated that there were occasions when the identical goods were assembled and then cleared in CKD condition. It is also an admitted fact that for this product i.e. Std/packaged type water treatment plant they have done the process of standardisation (page No. 42 of the paper book answer to question No. 10) wherein it is stated that they have done considerable research and they have done a process of standardisation over the years. This point has not been controverted by them. The scale of standardisation was acquired by them over years and this standardisation ultimately culminated in the designing of the impugned goods viz. Std/packaged water treatment plant which is an activity or process by which the goods have been transformed. It is also an admitted fact that there is a specific diagram enclosed with the package and installation is made to be simple. What is cleared by the appellants is not merely collection of parts but a unit of water treatment plant in CKD condition. The appellants also transfer all such technical know-how or technology which alone gives life to the machinery to make it complete machinery and such activity which transforms the parts, amount to manufacture and without the transfer of this technology evolved out of standardisation, the product would not be complete. These facts are admitted by the appellants themselves. The various parts have been despatched in CKD condition and are only assembled at site and are mounted on an elevated concrete platform to facilitate flow of water. They have cleared the goods on their invoice as water treatment plant, as is evidenced from the invoice issued by them towards sale of the goods. It was only after thorough investigation, the modus operandi which was adopted by them was found out by the Revenue that Standard/package type water treatment plant was also being cleared under the guise of large scale turnkey project (water treatment plant) because the department had given clarification by letter dated 3-3-1987. But this clarification was only with respect to large scale turnkey project (Water treatment plant) which was erected at site, piece by piece, of the customer and became immovable property, whereas the appellants knew that they were required to pay duty on the standard type/package type, as they had been paying duty earlier. They have also been guided by their legal department to pay duty. They have never sought any clarification from the department in respect of Standard/package type water treatment plant which was nothing but was like Prototype, except the little difference in size, on which they were paying duty. Further, the standard/package type is exported fully assembled, knocked down and then despatched in respect of certain export orders where there was inspection by export agency. The appellants have also admitted to question No. 8 that on insistence of the export agency, certain components were also assembled in their presence before giving shipping clearance. The pamphlet issued by the appellants also clearly indicated that the unit was sent in knocked down condition and can be easily installed at site and hence the question of the goods being termed as an immovable property does not arise as it is clearly indicated in the pamphlet that the product can be easily installed by the customers themselves with the assistance of the trained persons of the appellants themselves and some times only with the assistance of the technician from the company. It is also observed that the unit of sale is the number of each equipments and not as individual parts. From the invoice also it is revealed that price charged is for the water treatment plant and not for parts. In this connection it is pertinent to point out that clarification was sought by one of the dealers viz. M/s. Mansel Equipment P. Ltd., as to whether the water treatment plant supplied by the appellants is a machinery or parts. It was replied by the appellant vide their letter dated 24-4-1992 that what is supplied is only machinery and not parts. This correspondence provides ample proof that what is sold was water treatment plant and not parts as claimed by the appellants. Another significant factor is that in 1993, a dispute arose between the Sales Tax department and the appellants as to whether the item supplied by them attracts single point sale tax or multi point sales tax and while defending the dispute before the ST authorities, the plea taken by the dealer on the advice of the appellants was that what has been supplied by the appellants were only machinery and not parts. The above points proves beyond doubt that water treatment plant as such is despatched in CKD condition as a complete machinery and assembled at site by mounting it on a concrete platform. The judgment of the Hon'ble Supreme Court in the case of Sirpur Paper Mills v. CCE reported in 1998 (97) E.L.T. 3 is squarely applicable to the facts of this case. In that case it was held that paper making machinery assembled and erected at site mainly with the bought out items was marketable commodity and are excisable goods. It was also held by the Apex Court that embedding it on concrete base was only to ensure wobble free operation and operational efficiency and it did not make the paper machinery an immovable property. We also find that the Hon'ble High Court of Patna in the case of Tata Iron and Steel Co. Ltd. v. UOI and Ors. reported in 1988 (33) E.L.T. 297 (Patna) while dealing with dutiability of articles cleared in knocked down condition has held that cranes removed in CKD condition is dutiable under Sections 2(d) and 2(f) and 3 of the C. Ex. Act, 1944. It was also held that where the entire assembly cannot be transported, that can be done only in knocked down condition, the supply in that condition does not mean that no excisable article has come into existence. We also find from the decision of the Calcutta Bench of the CEGAT in the case of Vishwa Industrial Co. (P) Ltd. v. CCE, Calcutta-II reported in 1999 (107) E.L.T. 774 (Tribunal) that Conveyor system and mill rejects handling systems supplied along with parts and components in SKD or CKD condition against specific orders and where some of the parts of such conveyors are manufactured in assessee's factory and some parts are purchased from the market does not mean that what is manufactured and cleared is parts and components and not entire system. In the present case also as admitted by the appellants in their letter dated 27-10-86 Std. type/package type water treatment plant is supplied in CKD and SKD condition at the site and is placed on an elevated concrete plant form, only to facilitate flow of water. At this juncture, it would be necessary to point out that neither they are paying duty on the large scale water treatment plant which is erected at site piece by piece nor the department has ever demanded any duty on such large scale water treatment plant which is a turnkey project. The department has asked duty only on Std/package type water treatment plant which is clearly tested in the factory of the manufacturer and then packed and cleared in CKD/SKD condition and this despatch is for the purpose of facility of handling and transportation in the knocked down condition, which can be easily installed at site. Therefore, we are of the considered opinion that Std type/package type water treatment cleared by them is liable to duty as an identifiable commercial item.
14. As regards their plea, that because the Assistant Collector, Hosur II Division in his letter dated 3-3-87 has confirmed, that there is no duty liability on the water treatment plant in question is concerned, we are unable to accept this plea. The appellants by their letter dated 27-10-86 (filed at page No. 441 of the paper book) addressed to the Assistant Collector, had admitted the fact that the package type water treatment plants are cleared in fully assembled or semi-assembled CKD condition, whereas they were actually manufacturing water treatment plant of three types viz. (I) Prototype (2) Standard/package type (3) Large scale turnkey project erected at site. They have also stated in the said letter that water treatment plants not assembled by them before despatch, amount to trading activities only. In other words trading activities were only in respect of large scale plant. A perusal of the Assistant Collector's letter dated C./IV/16/458/86 T3, dated 3-3-87 in reply to their above letter reveals that the Assistant Collector has clarified that industrial water treatment need not suffer duty if the following two conditions are satisfied :
(a) The item industrial water treatment plant after erection and installation gets fixed into the earth thereby becoming an immovable property at site, and
(b) Have suffered appropriate excise duty at the time of its clearance from the respective factories.
The clarification by the Assistant Collector did not have any indication that Std/package type water treatment plant which was akin to Prototype water treatment plant would be erected at site and gets fixed into the earth. We observe that this clarification was pertaining to those water treatment plants which have suffered central excise duty and have become immovable property at the site. By no stretch of imagination the Std/package type water treatment plant which are tested as per the standard, in the factory of the appellants itself and then packed and despatched in CKD condition to be assembled at site, can be held to be an immovable property. It is common knowledge that in respect of any machinery, a customer likes to avail of the services of the dealer or manufacturer to ensure that the installation or assembly takes place smoothly and he is able to see the actual operation of such machinery in the presence of the dealer from whom the goods were bought. The goods in the present case viz. Standard/package type water treatment plant are therefore, as also admitted by them in their letter dated 27-10-86, are supplied in the fully assembled condition or in a semi-knocked down condition. Since they were paying duty on the prototype water treatment plant, the clarification given by the Assistant Collector was only with regard to industrial water treatment plant erected at site and embedded into the earth at site which became immovable property, as is very clear from the clarification, ibid. Prior to this clarification, the appellants were paying duty on all the three types of water treatment plant. On receipt of clarification with regard to large scale water treatment plant, the appellants could have and should have sought further clarification about Std/package type water treatment plant, if they had any doubt to its duty liability. But instead of getting any doubt clarified and in spite of legal opinion given by their own legal department, that duty is to be paid on Standard/package type, the assessee-appellants interpreted the clarification given by the Assistant Collector in their own way and chose not to pay duty even on the Std/package type on which they had been paying duty earlier. The learned original authority has recorded a reasoned finding in regard to suppression of facts in Para 52 of his order as to how the larger period is invocable. Therefore, we are of the considered opinion that the proviso to Section 11A(1) has been correctly invoked. The Larger Bench of the Tribunal in the case of Nizam Sugar Mills v. CCE reported in 2000 (123) E.L.T. 647 has clearly held that in the case of suppression or fresh facts coming to light, the larger period can be invoked and show cause notice can be issued within a period of five years from the date of occurrence of such evasion under Section 11A(1) ibid. The above law was also applied by this Bench in the case of Flow Line Engineering Pvt. Ltd. v. CCE, 2001 (137) E.L.T. 1423 (T) vide Final Order No. 621 and 622/2001, dated 4-5-2001 and the contention of the appellants with regard to longer period of limitation was rejected and the demands for extended period of five years were held to be legal and sustainable. We therefore, do not find any infirmity in the impugned order passed by the Collector confirming duty demand of Rs. 4,87,68,512 (Rupees four crores, eighty-seven lakhs, sixty-eight thousand, five hundred and twelve only) on package type water treatment plant cleared during the period January, 1988 to June, 1993 in terms of the proviso to Section 11(A) of the Central Excise Act, 1944. The assessee-appellants are doing self-assessment and clearing the goods without any supervision of the departmental officers and are debiting the duty payable in their PLA and are working under Self Removal Procedure (popularly known as SRP). The unit is not working under the physical control and supervision of the inspector of Central Excise and Inspector of Central Excise under the system of physical control was maintaining the PLA of the assessee and was debiting the duty payable in the PLA. The Revenue had placed lot of faith and confidence in the trade and the assessees are expected to discharge the obligations of duty liability at the appropriate rate before clearing the goods. We also find that the appellants have contravened the provisions of Rule 9(1) and are therefore, liable to penal action. We, therefore, confirm the imposition of penalty of Rs. 50 lakhs (Rupees fifty lakhs) under Rule 9(2) and Rule 173Q of the Central Excise Rules, 1944. We order accordingly.
Sd/-
(Jeet Ram Kait) Member (T) Dated : 28-2-2002
15. [Contra per : S.L. Peeran, Member (J)]. - With due respect to my ld. brother, I could not persuade myself to agree to his findings and hence I am recording a separate contra order. My brother has already extracted extensively the charges levelled against the appellant, their reply, Commissioner's findings, appellants ground of appeal and the Counsel's argument. They are not repeated again for the sake of brevity.
16. Briefly the show cause notice dated 13-1-1993 raises demands for the period January 1988 and 10-7-92 and has proceeded on the premise that appellants had contravened the provisions of Rules 9(1), 52(A), 53, 173B, 173C, 173G and 226 of C. Ex. Rules inasmuch as they had manufactured, stored and cleared the pressure vessels, pipe works and industrial water treatment plant classifiable in Chapter sub-heading 7308.00, 7309.00 and 8421.00, respectively of the Schedule to the Central Excise Tariff Act, 1985 without obtaining C. Ex. licence without accounting in statutory records and removed the same without the payment of duty and hence a demand was raised for Rs. 4,87,68,512/- in respect of water treatment plant and Rs. 92,91,352/- in respect of components for pressure vessels and pipe works as per Annexure I. The department made inquiries with the various job workers of the appellant and recorded their statement and alleged in the show cause notice that they were carrying out all the work on the basis of the raw materials such as M.S. Sheets, M.S. Flats, etc., supplied by the appellant, on their instruction and as per their drawings and designs and returned the same without discharging the duty. Therefore the show cause notice alleged that they were hired labourers of the appellant and that the appellant had hired them for fabrication under the guise of bought out items of the appellant for manufacture of water treatment plant without a valid licence and without observing the various central excise procedures. Para 10 of the show cause notice lists out the activities in respect of the units which carried out these work inasmuch as the appellant were engaged in (i) procurement of components (ii) systematic and organized packing of components so that they can function together at a single unit and (iii) despatch of these combined components to the dealers for sale as single entity. It was alleged that this was sold in this manner purely for the sake of evading excise duty since after procuring the necessary components the appellants re-grouped the various components and packed them in such a manner that the final product that emerges in an Industrial Type Water Treatment Plant" in completely knocked down (CKD) condition. In Para 11 it was alleged that such CKD goods are capable of being assembled with very little technology as also evidenced in many cases where they are actually assembled (say, for exports and for total testing for a few cases). It was alleged in Para 12 that the activity performed by the appellant amounts to manufacture inasmuch as the various inputs received into the premises are transformed into a new product (IT WTP) with a distinct name, character and use and is sold under their registered trade name "INDION" in CKD condition. It was also alleged that the study of the invoices raised by the appellant and their documents regarding payment of sales tax reveals that the goods cleared from their premises had been declared as a machinery and not as components and that they had declared the activities as "mere trading activities". They had also introduced themselves to fresh customers as manufacturers of water treatment plant. The literature supplied by the appellant describing the goods to their buyers is also relied by the Department in the show cause notice to show that what was cleared by them was water treatment plant of medium sizes and had been cleared without declaring it in any manner to the Department and without payment of duty. The statement of the various job workers whom the Department described as hired labourers and the statement of the General Manager of the appellant firm also relied.
17. The General Manager's statement reveals that their activities consists of procuring bought out items such as valves, pumps, motors, etc., procuring fabricated items such as pressure vessels, tanks, pipes. It was stated that these items are thereafter packed depending on what are available in their stores as well as what is available at the premises of their suppliers. Subsequently these are despatched to the dealers/customers. It was emphasised that this activity had remained constant since they started the operation in Hosur and the Department was thoroughly aware of the same. Shri Ranganathan further explained that the activity of manufacture is not taking place at their premise and they only procured already manufactured items and supplied them as such to dealers/clients. He explained that the items shown in Annexure II referred to a combination of bought out components as well as fabricated components grouped together in various combinations. For convenience such grouping were given model numbers/designations. It is such components that they purchased/procured as is noted from the various records seized by the Department. He also explained that the grouping in terms of model/designation in Annexure II is strictly for the sake of convenience so as to avoid having to mention number of vessels, pipings, bought out components, etc., each time. He also explained that they discontinued to receive the bought out items in their factory premises for despatch and they were despatching it directly to their various suppliers' premises. He further explained that for the purpose of sales tax, it is only for the sake of classification that the groupings are referred to as "Machinery and Parts"; as that appears to be the most relevant classification in comparison to all other heads under Sales Tax Act. Further, he emphasised that it does not change the fact that none of these items are manufactured by them. He further explained that it is a normal business practice to print literature/pamphlets so that clients get an idea of what will be supplied to them, which may be easier for their understanding as they were calling themselves as contracting or coordinating body responsible for procuring and supplying a variety of items which a client can ultimately put together for a specific purpose. He explained that the items are despatched in exactly the same condition in which they are supplied to them, after suitable packing, without there doing any further processing. They were despatching components which a customer puts together. This is often referred to as "knocked-down". At no stage, do they assembled these components and supplied to customers in "knocked-down" condition. He explained that certain export orders were tested for the purpose of inspection by an Export Inspection Agency and at their instance some components were assembled in their presence before giving shipping clearance and it was emphasised that such activity applied to export orders only. It was explained that the bought out items were received with packing intact and that they re-despatch as such. When they found the packing may not with-stand their journey to their customer in such cases they re-packed them. It was also emphasised that pressure vessels do not even require packing before despatch. It was explained that over the years they had been supplying and had standardized their work, such that it becomes easy for the customer to install in a short time. They emphasised that the fact is that they despatch only components, which the customer puts it together with the help of drawing furnished by them. For the sake of convenience, they termed it as "Water Treatment Plant" as a heading, but in actual fact they send it as components as packed in same condition. He explained that in any business, a definite pattern or procedure is invariably followed. In the same way, trade names are also used because the company wishes to be associated with the trade name to differentiate it. He denied that the manufacture of any product was carried out by them. He explained that they maintained a register which is basically to keep track of what has been packed and despatched by giving a name. The naming of such a register does not decide the nature of activity. As regards sales tax, he explained that they were following a particular practice ever since the inspection of their company and followed the said procedure till date. He explained that their dealers with them ranged from 3 to 15 years and all their dealers happened to be organisations, employing people with technical qualifications and they have complete knowledge of their product and its service. Their dealers are also experienced and qualified enough to order them for components with specifications and descriptions different from their standard with technical calculations to prove that such variations also function. He clarified that it is they who decided the quantity, size, description of components that come under the each group for which they gave a model number/designation for the sake of convenience and to keep track of supplies. It was also explained that schedule 17 of balance sheet under the heading Water Treatment Plant only referred to the number of customers to whom they had made supplies. The only manufacture that took place was at their factory located at Ambernath, Ankleshwar, Pattancheru where resins, chemicals, etc. were manufactured and on which duty was paid and cleared. He denied carrying out testing the equipments at their premises before despatch as it is not possible to do so. Individual components were inspected and tested, whenever they felt the need to do so. Occasionally, some customers visited their premises as well as those of their suppliers to inspect the materials that had to be supplied to them. They denied involvement in the installation as installation was undertaken by the customers with the aid of drawings furnished by them.
18. Further facts which are required for consideration are :
(i) The appellant had taken out license for manufacture to other types of items. In so far as the present item is concerned their contention is that they were only doing the trade activity in getting few of the parts packed for supply to their customers who were erecting the plant by digging a foundation and by purchasing other equipment and for such purpose with the technical advise and experts assistance it was installed and these facts had been accepted by the Commissioner in the impugned order. They had taken the approval of the portion and had shown the trading activity in the approved ground plan.
(ii) They had filed a revised classification list deleting the item in question. However, they had paid duty in terms of the legal advise received from their advocate under protest. However, the Assistant Commissioner informed them vide his letter dated 3-3-87 that the item removed in packed condition were not dutiable and as such they had filed fresh classification list by showing only the goods manufactured in their premises and by deleting the items dealt in trading activity.
(iii) They filed refund claim in January, 87 with regard to the duty paid on this very item in question. The Assistant Commissioner had issued a show cause notice calling upon them to explain as to why the duty paid under protest in respect of this item in question should not be rejected. Later he decided the case against them. They filed an appeal before the Commissioner (Appeals) who allowed their appeal and granted consequential relief. They were paid the amounts in terms of this order.
(iv) It is further contended that the Assistant Commissioner again for the previous period had issued show cause notice raising demands and had confirmed the same. However, the Commissioner (Appeals) allowed their plea by setting aside the same in respect of the very item. It is, therefore, contended that in view of these facts there was no suppression of facts and the department being fully aware of the manufacture and clearance of this very item on payment of duty and later the same was not paid on account of Assistant Commissioner's letter and the refund claim being adjudicated in their favour and the demands raised were set aside; therefore they contended that there was no suppression in the matter in respect of the fact and hence the demands raised in the present show cause notice was clearly barred by time.
(v) In the impugned order the Commissioner had accepted their plea that the suppliers are not hired workers but they are independent manufacturers. He has also noted that the appellant having discharged duty under protest on the receipt of legal advice in view of the Tribunal's ruling rendered in the case of Pressure Cookers and Appliances Ltd. v. CCE, Chandigarh as reported in 1987 (28) E.L.T. 566. However this judgment was set aside by the Apex Court in Hawkins Cookers Ltd. v. Collector as reported in 1997 (96) E.L.T. 507 (S.C.). Therefore their contention is that mere packing of few items among many required for setting up of water treatment plan does not amount to a process of manufacture. It is contended that such process of packing had been held to be not a process of manufacture by the Hon'ble High Court of Andhra Pradesh in the case of XI Telecom Ltd. v. Superintendent of Central Excise, Hyderabad which has been followed by this Tribunal in the case of Siachem v. CCE, Chennai as reported in 1999 (30) RLT 207. Further reference is made to the judgment of the Tribunal rendered in the case of Yamuna Gases & Chemicals Ltd. v. CCE, New Delhi as reported in 2001 (130) E.L.T. 854 (T) = 2000 (40) RLT 656 wherein packing of various components of assembled cable joint was held to be not a process of manufacture. Similar view was expressed by the Tribunal in the case of Dalmia Industries Ltd. v. CCE, Jaipur as reported in 1999 (112) E.L.T. 305 (Tribunal) = 1999 (32) RLT 772 wherein the sterilisation and packing of various parts of 'milk care designer feeder' was held to be not a process of manufacture. Likewise, reliance was placed on the judgment in the case of TI Diamond Chain Ltd. v. CCE, Chennai as reported in 2000 (126) E.L.T. 790 (Tribunal) 1999 (35) RLT 517 wherein testing and packing of transmission kit comprising of rear wheel sprocket and gear box sprocket procured by appellants from outside was held to be not a process of manufacture. Likewise reliance has been placed on the Apex Court judgment rendered in the case of Union of India v. J.G. Glass Industries Ltd. as reported in 1998 (97) E.L.T. 5 (S.C.) wherein two-fold test pertaining to process amounting to manufacture has been laid down and appellants contend that the said test applies to the present case and therefore the trade activity in removal of a few packed parts in the same condition or in re-packed condition does not amount to process of manufacture and no new product as water treatment plant comes into existence. Reliance has also been placed in the judgment rendered in the case of Hitech Carbon Products v. CCE, New Delhi as reported in 1996 (81) E.L.T. 150 to plead that there is no suppression in the matter and demands cannot be confirmed as all the facts were available with the department. They contend that Department had raised proceedings on this very product and that the Commissioner (Appeals) had decided the case in their favour and hence the demands including penalty should be set aside.
19. On my careful consideration of these submission and the facts and the findings recorded by the Commissioner I notice that all these facts are on record and are not disputed. The facts are controverted by any rebuttal evidence by the department. The Commissioner has clearly upheld their contention that they were not getting the components manufactured from the hired labourers or dummy units. He has held that those units were independent manufacturers carrying on the activity as job workers. Therefore, the question now is as to (i) whether the appellant's activity of clearing these parts in packed condition and some of which were re-packed and sent to the customers, who in turn set up the water treatment plant with civil construction that would bring into existence immovable commodity amounts to a process of manufacture (ii) whether the appellants were clearing goods as "Water Treatment Plant".
20. On a careful consideration, I notice that the appellants had only supplied the designs and it was the customer who was setting up the water treatment plant with the parts supplied and cleared by the appellant in packed condition received from their job workers. The Commissioner has clearly noted that for setting up the plant there is a need to have technical assistance and that the plant came into existence at the customer's site with the civil work. There is no such charge that all the parts were cleared by appellant. The fact is that only a few parts of water treatment plant were supplied as per specific requirement of the customer. There is a clear error in the understanding of these basic facts by the Commissioner. The show cause notice has proceeded on the ground that the appellant had suppressed the fact of manufacture and had clandestinely removed the water treatment plant in CKD condition. The show cause notice does not bring out all the correct and true facts of the case. The appellants are a registered unit and engaged in manufacture of 3 types of water treatment plants like :
(i) Prototype water treatment plant
(ii) Standard/package type water treatment plant
(iii) Large scale turnkey water treatment plant They were paid duty in respect of items (i) and (iii). It is only in respect of present item there was a dispute. The Tribunal rendered judgment in the case of Hawkins Cookers holding the process of packing of parts to be a process of manufacture. Therefore they started paying duty on protest. However this judgment was reversed by the Apex Court. Hence, the Assistant Commissioner issued a letter asking them not to pay duty. They also filed a revised classification list and filed refund claims, which were adjudicated. Thus the issue of packing being not a process of manufacture to bring into existence new goods is a settled issue. The Hon'ble High Court of Andhra Pradesh in the case of XI Telecom v. CC£ (supra) have clearly held that putting together different duty paid goods in a packed condition does not amount to a process of manufacture. This judgment has since been confirmed by the Apex Court, this ruling has been applied in the case of Siachem v. CCE, Chennai (supra) by this Bench. Likewise, similar view was expressed in the citations referred to by the appellants as in the case of Yamuna Gases & Chemicals Ltd. v. CCE, New Delhi (supra), Dalmia Industries v. CCE, Jaipur (supra), TI Diamond Chain Ltd. v. CCE (supra) and J.G. Glass Industries (supra) which clearly applies to the facts of the present case. The appellants have also not cleared all the required parts and components to bring into existence the water treatment plant but have cleared only a few of the parts in same packed condition and they have not manufactured themselves but by their separate job workers. The water treatment plant came into existence at the customer's place. The plant came into existence on the appellant's customer's carrying out the activity of assembly piece by piece with civil work and what emerged was an immovable condition. The plant has come into existence after the erection and not before. Therefore the Apex Court judgment rendered in the case of Sirpur Paper Mills v. CCE as reported in 1998 (97) E.L.T. 3 (S.C.) is clearly distinguishable. In the Sirpur Paper Mills case, the Apex Court held that the paper making machine had already come into existence as movable property and as goods before they were fixed to in the earth and hence held to be not an immovable property. While in the present case the water treatment plant which came into existence with civil work is an immovable property. The appellants had only supplied few of the parts of the machinery and the customer was utilising the services of the technical experts to bring into existence the water treatment plant with civil construction by digging a huge foundation and by adding several other parts required to bring the plant into existence. Therefore to hold that the appellant have cleared the entire plant in CKD condition is not based on any evidence. The Commissioner has totally mis-guided himself in coming to this conclusion while also accepting that only few parts were removed by the appellant in same packed condition and also that the customer was carrying out the work of setting up the plant by using other parts with the help of technical assistance from experts.
21. In that view of the matter, I hold that the appellant's contention that they have not removed full manufactured goods as "water treatment plant" in CKD condition is supported by enormous evidence on records. The revenue's contention that they had paid sales tax is totally irrelevant as the sales tax had been discharged under a different legislation, under its own classification. Therefore that fact would not come into the way of the appellant's contention and hence the revenue plea on this ground is rejected.
22. In so far as the appellant's plea that the department is fully aware of all the facts, as the matter was under adjudication for long and the appellant had paid duty on this very product under protest and that it was full refund in 1987 has been established before us. The show cause notice had been issued calling upon the appellant to explain as to why the refund claim should not be rejected vide letter dated 30-12-87 after the Assistant Commissioner passing the order rejecting their claim on 4-3-88. Likewise, he had also issued show cause notice raising demands for the very item for the period 10-7-87 to 31-12-87 which was confirmed by his order dated 31-5-88. The appellant had filed appeal before the Commissioner (Appeals) against both the orders and succeeded in their pleas in Commissioner (Appeals) order-in-appeal Nos. 73 and 86, dated 27-7-88. This has not been challenged by the Department. Thereafter they filed a revised classification list in No. 303/88-89 deleting this very item from the list by their letter dated 29-11-88. They had sent a letter to the Superintendent of Central Excise dated 5-6-89 enclosing revised ground plan showing the segregation of the licensed premises for manufacturing activity of portable plates and trading activity of industrial water treatment plant. Further, correspondence took place between the Department and the assessee in 17-8-89 to 3-4-91. All the details were furnished to the Department in reply to the show cause notice in support of their contention that all the facts were known to the Department. Therefore the allegation that there was clandestine removal without taking out license is not correct and not established.
23. On a further consideration of the matter and perusal of the entire records, I notice that these facts are available on the records and the appellant have proved that the Department was aware of the appellant clearing the item in a packed condition initially without payment of duty later they paid duty under protest and their claim for refund was rejected by the Assistant Commissioner and later Commissioner (Appeals) allowed their refund claim including setting aside the demands raised for the period on this very item. Thereafter the Department approved the revised classification list No. 303/88-89, dated 29-11-88 and Superintendent of Central Excise by letter dated 5-6-89 approved the ground plan showing the segregation or the license premises where manufacturing activity of portable plates and trading of industrial water treatment plant took place. Thereafter, there was enormous correspondence and therefore there was no suppression of any facts in the matter and the Department's claim that there was manufacture and clandestine removal is not correct and proved. It does not behow on the part of the Revenue to have not put all the facts correctly in the show cause notice and that the Revenue has presented incorrect facts just to confirm the duty to such a large extent by invoking larger period. The facts are clear and in appellants favour. The Department have come out with the show cause notice demanding duty again by alleging the appellant had suppressed clandestine removal which is not correct and unsustainable. Therefore the demands even otherwise are clearly time barred and not sustainable and it requires to be set aside on this ground alone.
24. Thus the appellants succeed both on merits as well as on limitation. The impugned order is set aside and the demands and penalties are quashed. The appeals are allowed with consequential relief, if any.
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(S.L. Peeran) Member (J) Dated : 13-3-2002 POINTS FOR DETERMINATION BY THE 3rd MEMBER In view of the difference of opinion between the Members the following questions are referred to the 3rd Member for deciding the difference of opinion.
(i) Whether the demands and penalties as confirmed in the Order-in-Original No. 51/94, dated 15-6-94 by Commissioner of Central Excise is required to be confirmed by holding that appellants had clandestinely manufactured and cleared water treatment plant in CKD condition by invoking Rule 9 of the CE Rules read under proviso to Section 11A of the Act by confirming the duty and penalty as held by the ld. Member (T) Shri Jeet Ram Kait in his order Or
(ii) That the appellant have not manufactured water treatment plant and have not cleared the same in CKD condition and that demands are not sustainable as the same being barred by time and limitation as held by ld. Member (J) Shri S.L. Peeran in his order and the appeals are to be allowed.
Sd/- Sd/- (Jeet Ram Kait) (S.L. Peeran) Member (T) Member (J) Dated : 22-4-2003 Dated : 13-3-2002
25. [Order per : Shri C.N.B. Nair, Member (T)]. - I have perused the records and orders proposed by my ld. brothers. I have also heard both sides.
26. The dispute is whether the appellant is manufacturing Industrial Water Treatment Plants. The appellants submission is that the industrial water treatment plants comes into existence only upon erection at site, The appellants have developed designs for such plants of varied capacity. They also get the various parts and equipment required for the assembly of such water treatment plants manufactured to specifications by job works. Upon receipt of orders from industrial plants, they pack various parts required for the assembly and erection and send them to the buyers who gets the water treatment plant assembled and erected at site. At times, some parts are also directly despatched from the place of manufacture to the place of assembly without being received in the appellant's premises. The appellants submission is that mere packing of the parts is not a process of manufacture attracting the levy of Central Excise duty.
27. As against this, the Revenue's contention is that the appellant has designed the plant, has got all the parts standardized and produced and is selling the goods against specific orders for plants. Further, the unit is easily assembled and does not require any foundation. Revenue therefore, holds that the product which is packed and sold by the appellant is a water treatment plant and the appellant can rightly be held as a manufacturer of such plants.
28. The appellant placed much reliance on the decision of the Supreme Court in the case of Hawkins Cookers, 1997 (96) E.L.T. 507 (S.C.), specific reference has been made to the following observations of the court:
"When the matter came to the Tribunal, the Tribunal proceeded on the assumption that the PCA only packed the different equipments/pieces and items that they bought from different people at their depot at Nangal Shama and that they do not manufacture the components. Dealing with PCA's submission is that they do nothing more than packing the equipments/items bought from different people in cartons and boxes was taken to be true. Yet it was held that this process amounted to manufacturing. The Tribunal observed that "even the collector's findings that they had manufactured the twink simmermatic by affixing the heat control panel is unimportant and need not lead us away from the path". In fact, the Tribunal did not examine the correctness of the facts found and the conclusion reached by the Collector. The Tribunal held that the path taken by the Collector was not the path that should have been taken. The Tribunal disposed of the case proceeding on the assumption that nothing was done by the PCA except to gather the various tax paid articles and put them in a box themselves and in the facts and circumstances of the case that would constitute manufacture. The Tribunal's order is clearly erroneous. The Tribunal has not found whether a new product came into existence because of some activity undertaken by the appellant. Without this finding, it could not be held that a manufacturing process had been undertaken by the appellant and unless there is a finding of manufacture, excise duty is not attracted. Unfortunately, the Tribunal has not examined the correctness of the Collector's order at all. We are of the view that the order of the Tribunal is erroneous and must be set aside" [paras 2 and 3]
29. The appellant's contention is that unless some manufacturing process brings into existence a new product, the dutiable event does not take place. As against this, the Revenue has contended that if some process is carried out which brings into existence a new product, duty is attracted. According to them it is not relevant whether the process is a manufacturing process or not.
30. It is well settled that excise being a duty on manufacture or production, the levy is dependent on the manufacture of new goods. In the present case, the evidence in the SCN only reveals that the appellant gets the parts manufactured, they pack and send those parts either fully from their factory or send some of the parts directly from the manufacturer's premises to the buyers premises and other parts from the factory. However, other than designing and packing, appellant is not carrying out any manufacturing activity. These activities are not in the nature of manufacturing process, which brings into existence the industrial plant in the appellant's factory.
31. I am in agreement with the view of the ld. Member (J) that the appellant was not manufacturing Industrial water treatment plants and that the demand are not sustainable. I am also in agreement with the view of the ld. Member (J) that the demand is time-barred inasmuch as the facts about the manufacture of the industrial water treatment plants was fully in the knowledge of the C.E. authorities. The assessee had written to the C.E. authorities on 27-10-86 about the dutiabiliry of industrial water treatment plants. This letter explained the full facts about the appellant's activity. The Asstt. Collector of C.E. had also clarified to the appellant vide his letter dt. 3-3-87, that industrial water treatment plants need not suffer excise duty. Thus, when the facts of the case were known to both sides, there is no substance in the allegation that relevant facts were wilfully suppressed by the appellant with the intention to evade payment of duty.
32. In view of what has been stated above, 1 am of the view that the appeal is required to be allowed.
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(C.N.B. Nair) Member (T) MAJORITY ORDER In terms of majority order, the impugned order is set aside and appeal is allowed both on merits as well as on time-bar with consequential relief, if any, as per law.
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(Jeet Ram Kait) (S.L. Peeran)
Member (T) Member (J)
Dated: 16-7-2002 Dated 16-7-2002