Customs, Excise and Gold Tribunal - Delhi
Escorts Ltd. vs Commissioner Of Central Excise on 27 May, 2004
Equivalent citations: 2004(172)ELT223(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in these three Appeals, filed by M/s. Escorts Ltd. and others, is whether the transmission assembly coming into existence during the manufacture of tractors, is exigible to Central Excise duty.
2.1 Shri V. Lakshmikumaran, learned Advocate submitted that the Appellants manufacture tractors since 1965; that the tractors having engine capacity of less than 1800 cc have always been exempt from payment of Central Excise duty; that other tractors of engine capacity of more than 1080 cc are dutiable; that they have been reversing the Modvat credit on the inputs used in the manufacture of exempted tractors; that after introduction of Rule 57CC of the Central Excise Rules, they have been, instead of reversing the credit, paying an amount equal to 8% of the price of the exempted Tractor; that the tractors are manufactured on the assembly line; that by progressive assembly, various components and sub-assemblies go on getting meshed up; that for instance, the gear box assembly gets meshed up with differential assembly and these assemblies get meshed up with hydraulic assembly and so on till identifiable and marketable tractors emerges; that apart from Tractor Division, they have a subsidiary company M/s. Escorts Construction Equipment Ltd. where material handling machines like cranes are manufactured; that one of the components namely transmission assembly required for manufacture of such material handling machine, is manufactured and supplied from the tractor division on payment of appropriate duty; that the transmission assembly required for manufacture of material handling machines is different from that of tractor and such assembly does not require other sub-assemblies like differential cover, PTO/System, operative lever and hydraulic assembly.
2.2 He mentioned that a show cause notice dated 31-1-2002 was issued for demanding duty in respect of transmission assemblies emerging in the assembly line of tractors for the period from January, 1996 to May, 1998; that the Commissioner has confirmed the demand of duty and has imposed penalties under the impugned order on the ground that the goods which are manufactured as intermediate products for captive use are themselves excisable and the transmission assemblies are marketable as the Appellants themselves clear the transmission assemblies to M/s. Escorts Constructions Equipment Ltd. (ECEL).
3. The learned Advocate submitted that the impugned transmission assembly is not goods; that it is not marketable and is not marketed; that transmission assembly comes into existence after assembling various parts like differential PTO/ gear box, axle housing and hydraulic lift; that in other words, what emerges after putting together these items is the tractor; that thus transmission assembly does not have an identifiable and independent existence commercially known in the market; that the impugned transmission assembly is unique to tractors manufactured by them and is as such not marketable; that the impugned transmission assembly emerging in such assembly line is only a cluster or meshed up assembly and as such is not an identifiable product and is not identified as goods in the market. He relied upon the decision in Union Carbide India Ltd. v. Union of India, 1986 (24) E.L.T. 169 (S.C.) and Bhor Industries Ltd. v. C.C.E., 1989 (40) E.L.T. 280 (S.C.) wherein it has been held by the SC that it is necessary to find out whether these are goods, that is to say, articles as known in the market as separate distinct identifiable commodities. He also contended that the impugned transmission assembly is not known to trade as goods bought and sold in the market. Reliance has been placed on the decision in the case of Union of India v. Sonic Electrochem (P) Ltd., 2002 (145) E.L.T. 274 (S.C.) wherein it has been held by the Supreme Court that "the essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold." He mentioned that the Supreme Court then observed that the plastic body of Electro Mosquito Repellant (EMR) manufactured by the assessee does not satisfy the criteria "There are some competing manufacturers of EMR. Each is having a different plastic body to suit its design and requirement. If one goes to the market to purchase plastic body of EMR of the Respondents either for replacement or otherwise, one can not get it in the market because at present it is not a commercially known Product." He mentioned that this decision squarely applies to the present matters inasmuch as the transmission assembly coming into existence is unique to the tractors of the Appellants and is not a commercially known product.
4. The learned Counsel also contended that the entire exercise is Revenue neutral; that the duty payable on the transmission assembly is available as Modvat Credit since they are clearing the exempted tractors manufactured out of the impugned transmission assembly on payment of an amount of 8% of the sale price of the exempt tractor as provided under Rule 57CC(1) of the Central Excise Rules; that thus the levy and collection of duty on the impugned transmission assembly is Revenue neutral; that, therefore, the question of evasion of duty by them does not arise as has been held by the Larger Bench of the Tribunal in Jay Yushin Ltd. v. C.C.E., New Delhi, 2000 (119) E.L.T. 718 (T.-LB); that the Larger Bench has held that "With particular reference to Modvat Scheme (which has occasioned this reference) it has to be shown that the Revenue Neutral situation comes about in relation to the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessee's manufactured goods." He mentioned that if any duty was liable to be paid on the impugned transmission assembly, the same would have been availed as credit since the impugned goods were used in the exempt tractor cleared after duly complying with Rule 57CC(1) of the Central Excise Rules, 1944. He has also relied on the decision in the case of Hindustan Copper Ltd. v. C.C.E., Indore-II, 2001 (135) E.L.T. 1342 (T). He also contended that the demand is barred by limitation and the extended period can not be invoked; that they have been manufacturing tractors right from 1965 and they bona fide believed that transmission assembly is not goods and is liable to duty which is evident from the fact that the tractor industry as a whole was not discharging duty on use of the transmission assembly in the exempt tractors : that they have been declaring certain sub-assemblies in their classification declaration from time to time; that in 1995, the Department sought to demand duty on the I.C. Engine going into the exempt tractors; that if the impugned transmission assembly is goods, the Department could have very well sought to levy the duty on them as sought to be demanded on I.C. Engines; that this is more so when removal of transmission assembly to ECEL is part of the statutory records and returns; that it has been held by the Tribunal in Shambhu Nath & Sons Ltd. v. C.C.E., Chandigarh, 1983 (12) E.L.T. 396 (T) that "when a fact, that is well known to industry remains unknown for 10 years to Central Excise, a department that administers a tariff of tax rates that are categorized goods by their scientific and technological properties, we are compelled to reflect upon the application of the officers. But the officers were ignorant of what was well-known to the industry they have only themselves to blame." Reliance has also been placed on the decision in Nayek Associates v. C.C.E., Calcutta, 1985 (21) E.L.T. 819 (T) where the Tribunal has held that the Central Excise officers should know elementary facts about excisable commodities and if they do not, they can not blame the assessee.
5. Countering the arguments, Shri V. Valte, learned Senior Departmental Representative, submitted that the scrutiny of the classification declaration revealed that they had classified the transmission assembly under Heading No. 87.08 of the Schedule to the Central Excise Tariff Act and were paying duty only for transmission assemblies supplied to M/s. ECEL and had not claimed exemption from payment of duty in respect of transmission assemblies used within the factory in the manufacture of tractors; that they had also not shown the production and captive use of the impugned goods in the statutory records and returns; that Shri K.K. Kachroo, Manager Excise and Authorised signatory of the appellants, in his statement dated 2-11-2000 and 3-11-2000 had deposed that they were assembling transmission assembly from different parts and one transmission assembly is used in one tractor; that the process of manufacture of the impugned goods is same for tractor as well as material handling; that M/s. Escorts Ltd. (Farmtrac Division) also manufacture tractors and have imported transmission assembly from abroad; that this has been admitted by the Sanjiv Puri in his statement dated 6-12-2000; that M/s. Tractors & Far Equipment Ltd. have in their letter dated 29-11-2000 mentioned that they manufacture transmission assembly and occasionally remove them to their Parts Department for free replacement against the warranty claims; that thus transmission assembly comes into existence as a result of manufacture and is distinct in name, character and use from the different assemblies which go into making and as such is an excisable goods which is capable of being marketed; that the Tribunal has held the intermediate product liable to duty in the case of Pratap Rajasthan Copper Foils & Laminates v. C.C.E., Jaipur, 1999 (109) E.L.T. 288 (T). Reliance has also been placed on the decision in Gujarat Insecticides Ltd. v. C.C.E., Vadodara, 2002 (147) E.L.T. 86 and Madras Petro Chem. Ltd. v. C.C.E., Madras, 1999 (108) E.L.T. 611 (S.C.) wherein extended period of limitation was held to be invocable as the assessee had not filed necessary classification list, entered production figures in RG I register and effected clearances without gate passes. He also emphasised that actual sale of the product is not necessary; that as the final product tractors were exempt from duty, the appellants are liable to discharge their duty liability on the impugned goods; that the benefit of Notification No. 67/95-C.E., dated 16-3-1995 will not be available to transmission assemblies used in the manufacture of tractors exempted from payment of duty; that payment of an amount equivalent to 8% of the price of exempted tractor does not amount to payment of duty on transmission assembly as it is only for the reason of using the modvatable inputs in the manufacture of exempted final product; that extended period of limitation is invocable as they had never disclosed the fact of captive use of the transmission assembly to the Department; that the Central Excise Officers are not required to know the detailed manufacturing process of each and every product.
6. We have considered the submissions of both the sides. The Central Excise duty is leviable on goods manufactured in India. "Manufacture" as per the judgment of the Supreme Court in the case of Union of India v. Delhi Cloth and General Mills, 1977 (1) E.L.T. (J 199) "implies a change........... and there must be transformation; a new and different article must emerge having a distinctive name, character or use." The Supreme Court, after referring to various judgments on the concept of the manufacture, has laid down a two fold test for deciding whether the process is that of "manufacture" in Union of India v. J.G. Glass, 1998 (97) E.L.T. 5 (S.C.) as follows, "First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said purpose." We find that this two fold tests laid down by the Supreme Court is satisfied in respect of the transmission assembly coming into existence during the course of manufacture of tractors by the Appellants. After assembly of various parts and components a new and different article known as transmission assembly emerges having a distinctive name, character and use and but for the manipulation undertaken by the Appellants, the parts and components would not have served the purpose which a transmission assembly performs. The impugned product is also marketable as the learned Senior Departmental Representative has mentioned the fact of its being imported by the Appellants themselves (Farmtrac Division), the clearance of the transmission assembly by the Appellants to their subsidiary company M/s. Escorts Construction Equipment Ltd. and the removal of transmission assembly by M/s. Tractors and Farm Equipment Ltd., The mere fact that the impugned product is meant only for the tractors manufactured by them will not mean that the impugned product is not capable of being brought to the market for being bought and sold. The Supreme Court in the case of A.P. State Electricity Board v. C.C.E., Hyderabad, 1994 (70) E.L.T. 3 (S.C.) has held that the marketability is essentially a question of fact to be decided in the facts of each case. The fact that the goods are not, in fact, marketed is of no relevance. So long the goods are marketable, they are goods for the purpose of Section 3 of the Central Excise Act. It is not necessary that the goods should be generally available in the market. We, therefore, uphold the finding in the impugned order that the transmission assembly is an excisable goods exigible to Central Excise duty.
7. The extended period of limitation for demanding duty is also invocable in the present matters as the appellants did not disclose the fact of captive use of transmission assembly in the manufacture of tractors. They have only declared the clearance of transmission assembly on payment of duty to their subsidiary company. In view of this, their plea of bona fide belief is also not acceptable. The Supreme Court in BPL India Ltd, v. C.C.E., Cochin, 2002 (143) E.L.T. 3 (S.C.) has upheld the decision of Tribunal by which extended period of limitation was to be invocable by the Tribunal as the assessee had manufactured the products and removed the same without any intimation to the Department and their intention to evade duty is proved. The decisions relied upon by the learned Advocate are not applicable to the facts of the present matters. In Shambhu Nath & Sons Ltd. case, the duty was demanded for the longer period on the ground that the Assessee had not submitted any classification list about battery grade acid. The Tribunal found that the assessee had described the nature of acid as iron free Sulphuric acid. Further, they had been describing the goods as battery grade acid in their gate passes which were available td the assessing officers. The Tribunal felt that description iron free Sulphuric acid was even better than the description battery grade acid. The observation of the Tribunal, relied upon by the learned Advocate was in this context.
8. The learned Counsel has also submitted that the entire exercise is Revenue neutral as the duty payable on transmission assembly is available as Modvat credit since they were clearing the tractors after introduction of Rule 57 CC in September 1996 on payment of an amount equal to 8% of the sale price of the exempted tractor and before that date they had reversed the inputs credit. The Commissioner has not considered this plea by observing in the impugned order that "the Modvat Scheme offers credit of duty paid on inputs, etc. when used in production of final dutiable goods only which is not the case here" and "the facility of availing credit in such case is barred as credit cannot be taken after six months of the date of issue of notice." We observe that once the impugned product is held to be leviable to Central Excise duty, the Appellants would be eligible to avail the Modvat credit of the duty paid on inputs which had been used in or in relation to the manufacture of these products and the credit which they had reversed shall be available to them subject to the satisfaction of the jurisdictional Adjudicating Authority. It is not clear from the pleadings made both by the Appellants and Revenue as to whether any modvatable inputs other than the inputs used in the transmission assembly meant for tractors exempted from payment of duty had been used in their manufacture which would cause the Appellants to pay an amount equal to 8% of the price of exempted tractor. The Appellants have to discharge duty liability on transmission assembly which go in the manufacture of the tractors exempted from payment of duty. They cannot take the credit of the duty paid on the impugned transmission assemblies' as these have been used in the manufacture of tractors which are exempted from payment of duty. The adjustments of amount already deposited as 8% of the price of exempt tractor towards duty now payable would depend on the answer to the point mentioned hereinabove and which is not clear. We, therefore remand the matter to the jurisdiction Adjudicating Authority to ascertain this aspect of the matter and recompute the amount of duty payable by, and the Modvat credit available to, the Appellant Co. We also leave the question of imposition of penalty on M/s. Escorts Ltd. open to be decided by the Adjudicating Authority. We, however, set aside the penalty on remaining two Appellants as they were merely employees of the Company,
9. All the appeals are disposed of in the above manner.