Custom, Excise & Service Tax Tribunal
M/S Xerox India Ltd vs Cce, Meerut-Ii on 29 July, 2010
`CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
Court No. I
Date of Hearing: 29.07.2010
Date of decision: 30.11.2010
For approval and signature:
Honble Shri Justice R.M.S. Khandeparkar, President
Honble Shri Rakesh Kumar, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982.
2
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether Their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
Excise Appeal No. 975 of 2009
[Arising out of order-in-original No. 57/2008.C.Ex. dated 28.11.2008 passed by the Commissioner of Customs and Central Excise, Meerut-II]
M/s Xerox India Ltd. Appellant
Vs.
CCE, Meerut-II Respondent
AND
Excise Appeal No. 976 of 2009
[Arising out of order-in-original No. 57/2008.C.Ex. dated 28.11.2008 passed by the Commissioner of Customs and Central Excise, Meerut-II]
Sh. A.K. Srivastava, Sr. Manager Appellant
Vs.
CCE, Meerut-II Respondent
AND
Excise Appeal No. 977 of 2009
[Arising out of order-in-original No. 57/2008.C.Ex. dated 28.11.2008 passed by the Commissioner of Customs and Central Excise, Meerut-II]
Sh. S.K. Gupta, Finance Controller Appellant
Vs.
CCE, Meerut-II Respondent
Present for the Appellant : Sh. V. Lakshmi Kumaran with
Sh. B.L. Narasimhan, Advocates
Present for the Respondent : Sh. B.K. Singh, Jt. CDR
Coram: Honble Sh. Justice R.M.S. Khandeparkar, President
Honble Sh. Rakesh Kumar, Member (Technical)
ORAL ORDER NO.____
Per: Shri Justice R.M.S. Khandeparkar:
These appeals arise from order dated 20th November, 2008 passed by the Commissioner, Meerut and involve common questions of law and facts, and hence were heard together and are being disposed of by this common order. By the impugned order, the Commissioner has confirmed the demand of excise duty to the tune of Rs.15,25,07,215/- as also Rs.37,24,324/-, alongwith interest payable thereon for the period from April 2001 to March 2006. Besides, penalty of equal amount has also been imposed. A sum of Rs.37,24,324/-, already paid by the appellants, has been appropriated. A penalty of Rs.2,00,000/- has been imposed against Shri S.K. Gupta, Financial Controller and that of Rs.1,00,000/- has been imposed against Shri A. K. Srivastava, Sr. Manager (Distribution) of the appellants.
2. We have heard at length the ld. Advocates for the appellants and the Jt. CDR for the respondent. We have perused the written submissions filed on behalf of the parties, as well as other materials placed on record.
3. The appellants are engaged in the manufacture of Photocopier and are also engaged in trading of Digital Multifunctional Printers, Copiers and Photocopiers-cum-Printers, and Photo Receptors-cum Printers. Pursuant to visit by the Preventive Wing personnel of the Central Excise Department, Meerut to the factory premises of the appellants on 17th August, 2005, certain documents were seized under a Panchnama. Simultaneously, the statements of Shri S.K. Gupta, Financial Controller, Shri Nitin Jagtap, Head Technical Support Shri Arvind Kumar Srivastava, Sr. Manager (Distribution), Shri Anil Kumar Gupta, Dy. General Manager (Imports) and Shri Prabhat Kumar Gupta, General Manager (Planning and Technical) were recorded under section 14 of the Central Excise Act, 1944. In the course of investigation and pursuant to the scrutiny of the said statements and documents, it was revealed to the Department that the appellants were engaged in the manufacturing activities of goods under the guise of trading and such goods were cleared without payment of duty. And thus, they were engaged in clandestine removal of such goods without payment of duty. On completion of the investigation, a show cause notice dated 18th of April, 2007 came to be issued to the appellants. The same was contested while contending that their activities were nothing but installation of Copiers-cum-Printers and no new product emerged from such activities. Even if the process was to be termed as manufacturing, the same was carried out beyond the territorial jurisdiction of the Commissioner of Meerut and in any case the demand was barred by limitation and there was no case for invoking of extended period of limitation. The Commissioner after hearing the parties passed the impugned order as stated above. Hence the present appeals.
4. The relevant facts are that the appellants were previously manufacturing complete machines at one place and used to supply the same to the customers. But later on, to reduce the cost of manufacture and for administrative purposes, they adopted a chain management system whereby various modules and parts of the machines were being manufactured at different parts of the world and supplied to different countries to be assembled alongwith locally manufactured essential parts and accessories to make the machines functional for supply to the customers. Unless the different modules and parts alongwith such locally procured parts and the accessories were properly assembled, the machines did not become functional.
5. Accordingly, during the period from April 2002 to November 2006, the appellants imported various parts/modules/accessories of Digital Multi Functional Printers, Copiers and Photo Copiers-cum Printers depending upon the purchase orders received from customers. The same were imported either in one consignment or in split packings comprising of various parts/modules/accessories and also procured some indigenously manufactured components. The same were stored in the approved warehouse at Rampur, where kitting activities were undertaken and such activities included assembling of all the components with the use of not only the imported parts/modules but also the indigenous components and accessories including pin-top, software, RAM, Stabilizers etc, as per the requirement and configuration given by the customers. On completion of kitting activities, the goods were dispatched to the customers site, where they were installed. The kitting activity was an essential function to make the machine operational, and the modules and parts were not of the nature which could render the function independently which a complete machine could perform on being assembled with necessary modules and parts.
6. The Commissioner in the impugned order has in detail analyzed the activities which were carried out by the appellants and has held that the same amounted to manufacture under section 2 (f) of the said Act read with Note 6 of Section XVI of the Central Excise Tariff Act.
7. The ld. Advocate for the appellants while assailing the impugned order submitted that the authority below has considered the activity as manufacturing activity essentially on the basis of Note 6 to Section XVI of the Tariff Act. He submitted that the Copier-cum-Printer was complete in itself and was cleared in modular form merely for ease of transportation and also because the goods were imported in such modular form. According to ld. Advocate, no activity was carried out by the appellants in the premises at Rampur which could amount to manufacture. The relevant bills of entry disclose that the Copier-cum-Printers were imported in Modules equal in number and the classification and assessment thereof had been done as Copier Printers only. Thus, the machines in modular form were complete machines and no process was carried out by the appellants to make machines complete, as they were already complete in all the respect. Reliance is placed in the decisions in the matter of Eureka Forbes Ltd. vs. CCE, Chandigarh, reported in 2000 (120) ELT 533, Indian Xerographic System Ltd. vs. Collector of Customs, Bombay reported in 1995 (80) ELT 337 read with 1997 (93) ELT 68, Eureka Forbes Ltd. vs. CCE reported in 2000 (125) ELT 1195 read with 2001 (131) ELT 85, British Physical Laboratories India Ltd. Vs. CCE reported in 1990 (50) ELT 567 and Walchand Nagar Industries vs. Collector of Central Excise, Pune reported in 1995 (79) ELT 485 in support of the contention that by the activity carried out by the appellants, there was no manufacturing process involved therein.
8. Referring to Rule 2(a) of the Rules of interpretation of the Central Excise Tariff Act, it is submitted that the same Rule refers to incomplete or unfinished articles even if presented in unassembled or disassembled form, whereas Note 6 refers to incomplete or unfinished goods including blanks and the phrase like presented unassembled/ disassembled is missing in the said Note. Therefore, in view of Rule 2(a) providing classification of goods under the same heading even if presented unassembled or disassembled suggests that no manufacture has taken place, note 6 in the absence of the phrase presented unassembled or disassembled cannot be brought in play to allege manufacture. Referring to the activity of kitting, it was sought to be contended that it is nothing but dispatch of various modules as per the requirements of the customers. Some customers require four or two punch hole finishers whereas some require regular stapling facility, besides voltage stabilizer or adapter is added to meet with the local power conditions. The process of arranging/sourcing all these requirements is called the kitting. Reliance is placed in the decision in the matter of Xi Telecom Ltd. vs. Superintendent of Central Excise, Hyderabad reported in 1999 (105) ELT 263 (A.P.) and Narang Latex and Dispersions Pvt. Ltd. Vs. Commissioner of Central Excise, Mumbai reported in 2001 (134) ELT 482 read with 2002 (139) ELT 302 (S.C.).
9. It is his further contention that there is no evidence about manufacturing activity produced on record by the Department. He further submitted that mere installation of the machines does not amount to manufacture. According to ld. Advocate, it involves very simple process and, therefore, no manufacturing activity was done. As regards, the domestic parts, it is sought to be contended that the appellants used to procure some local goods such as pin-top software upgradable kits/RAM Stabilizers, packing material, stand for some selected models and paper. Sometimes customers desired stabilizers due to fluctuations in the electric voltage supply. Pin tops are nothing but adapter for power supply to meet the local conditions. Packing material was used for the sake of proper transportation bearing in mind the road conditions. The stands for various articles like coolers, refrigerators, TV Trolleys etc. were supplied alongwith some models which were domestically procured. All these items cannot be the basis to hold that the appellants were involved in the manufacturing activities.
10. He further submitted that the appellants did not undertake any manufacturing activity at Jolly Godown due to lack of facilities such as optical alignment fixture which was required to align the mirror and lenses. Besides, some old serial numbers were given to the machines as old machines were showing the need of cannibalization for having new machines with cannibalized parts. Such activities were carried out at the factory and on the new product so manufactured, duty was duly paid. However, at the Jolly Godown, even if, it is assumed to have conducted manufacturing activity, the appellants would have credit far in excess of duty demanded as per the provisions of Rule XVI of Central Excise Rules. He further submitted that Cenvat Credit on the inputs used in or in relation to the goods for which the demand has been confirmed is liable to be abated to the extent of CV duty of Rs.11,80,60,202/-.
11. According to ld. Advocate, the appellants have not carried out any manufacturing activity and, therefore, the authority erred in confirming the demand. Attention is also drawn to the decision in the matter of Nugas Technologies India (P) Ltd. Vs Commissioner of C. Ex., New Delhi reported In 2005 (181) ELT 75.
12. On the other hand, it is the contention on behalf of the Department that the goods when imported were described as the parts and they originated from different countries. The specific statement in the show cause notice that the goods imported as such could not have been installed has not been denied. The investigation has revealed that in cases where complete machines had been procured by the appellants, the same were supplied to the customers as such and in those cases no kitting activity was carried out. Likewise, where only some of the parts/accessories were sold, no kitting was done. He further submitted that Shri S.K. Gupta and Shri Arvind Kumar Srivastava have clearly endorsed that some of the models of the machines were not received in assembled conditions and without adding required parts, those machines were not complete for the use for which they were meant for. Shri Prabhat Kumar Gupta, General Manager has also clarified about different consignments and the part imported by them which were necessary for assembly of the machines as per the requirements of the customers.
13. Referring to the statement of Shri Nitin Jagtap, it was sought to be contended that he had clearly admitted that the machines in the imported condition could not be installed as various parts were required to be assembled depending upon the requirements of the customers. Referring to Note 6 of Section XVI, it was sought to be contended on behalf of the Department that the same would apply to the activities carried out in the nature of making a machine ready for its functioning by assembling the parts. Besides, reference to unfinished or incomplete article has to be understood qua the requirements of the customers. Admittedly imported goods were not supplied to the customers in the same form in which they were imported and unless and until the same had undergone the process of kitting. By application of Rule 2 (a) of the Interpretation Rules read with Note 6 of section XVI such activities are to be assessed as amounting to manufacture. Attention is drawn to the decision in the matter of Commissioner of Central Excise, Delhi-III vs. BHP Engineers reported in 2000 (119) ELT 599 and Shrike Construction Equipments Pvt. Ltd. vs. CCE, Pune reported in 1997 (95) ELT 644.
14. It was also sought to be contended on behalf of the Department that the manner in which invoicing was done in relation to the goods supplied to the customers by the appellants is also of great relevancy. According to Jt. CDR, it was noticed that the description of the articles in the invoices issued by the foreign suppliers was totally different from the one in the invoices issued by the appellants to the customers. The invoices issued by suppliers speak of kits, whereas the invoices issued by the appellants refer to complete machines. If the goods cleared from the warehouse were invoiced differently, the only logical conclusion which can be drawn is that invoices issued for the goods cleared from the warehouse related to the goods imported under the bill of entry after having undergone further process of completion of the machine. It has also been argued that the parts imported and used in manufacture of machines cleared to various customers were incomplete when imported by the appellants. Reliance has also been placed in the decisions in the matter of Union of India vs. Delhi Cloth and General Mills Co. Ltd. reported in 1977 (1) ELT 199, Narne Tulaman Manufacturers Pvt. Ltd. vs. Collector of Central Excise reported in 1988 (38) ELT 566(S.C.), BPL India Ltd. vs. Commissioner of Central Excise, Cochin reported in 2002 (143) ELT 3, Majestic Auto Ltd. vs. Commissioner of Central Excise, Meerut reported in 2001 (130) ELT 551.
15. As regards the point of jurisdiction, it is the contention on behalf of the Department that the actual activity of manufacture which included kitting was undertaken at Rampur warehouse and the Commissioner being at Meerut had ample jurisdiction to take note thereof and take appropriate action.
16. As regards the goods manufactured at Jolly Godown by cannibalizing the old machines and recovering parts thereof, it is the departments contention that the investigation clearly revealed that the new machines termed as X-Mart were manufactured from those cannibalized parts alongwith new parts and this fact has been clearly established from the record.
17. As far as invocation of extended period of limitation is concerned, drawing our attention to the decision in appellants own case being Zerox Modicorp Ltd. vs. CCE, Meerut-II reported in 2001 (130) ELT 219, it is sought to be contended that the appellants were fully aware of the requirement of law and therefore, it cannot be said that there was no suppression of fact.
18. In rejoinder, The ld. Advocate for the appellants has drawn our attention to the decision of the Bangalore Bench of the Tribunal in appellants own case wherein similar activity carried out by the appellants at different unit has been held not amounting to manufacture. The decision was delivered on 9th November, 2009 in a Central Excise Appeal numbers E/591, 592 & 596 of 2009 under Final Order Nos. 1331-1333/09. In that regard, it has been contended on behalf of the Department that the decision does not disclose consideration of various points which are sought to be canvassed herein and particularly whether kitting and partial assembly can be considered as the process of manufacture and whether the final products were same as were imported were not dealt with by the Tribunal in the said case and the same is therefore distinguishable.
19. Considering the rival contentions canvassed in the matters, the following points arise for consideration:
(i) Whether the activity carried out by the appellants amounts to manufacture within the meaning of the said expression under Section 2(b) of the said Act read with the Note (6) to Section XVI of the Central Excise Tariff Act 1985?
(ii) Whether the Commissioner, Meerut lacked territorial jurisdiction to initiate the action and/or to deal with the matter in the facts and circumstances of the case?
(iii) Whether the facts and circumstances of the case justified invocation of extended period of limitation or whether the demand was barred by limitation?
(iv) Whether the decision of the Bangalore Bench of CESTAT under final Order No. 1331-1333/09 is a complete answer to the issues involved in the matter?
(v) Whether the demand in the matter in hand stands abated to the extent of Rs.11,80,60,202/-?
(vi) Whether the appellants are entitled for benefit of cenvat credit and, therefore, the major part of the demand is revenue neutral?
(vii) Whether in the facts and circumstances of the case, no penalty is imposable?
20. As already observed above, perusal of the impugned order discloses detail analyzes of the materials on record. It discloses that the Commissioner has considered in detail all the materials on record in relation to the activities carried out by the appellants vis-`-vis the goods imported and thereafter supplied to the customers and on the basis of such analysis has arrived at appropriate findings.
21. The Commissioner has considered whether the word assembly would be appropriate to define the activity which was carried out by the appellants to decide the same as manufacturing activity within the meaning of the said expression under the said Act and particularly under Section 2(f) thereof read with Note 6 of Section XVI of the Central Excise Tariff Act, 1985 and that therefore would attract the duty. The Commissioner also considered the scope of process of Kitting, whether the refurbishing activities which were undertaken by the appellants in respect of old and used machines at their Jolly godown could be termed as manufacture and whether the extended period of limitation was invokable for initiating the proceedings. All the points have been elaborately discussed and the well reasoned order has been passed.
22. While dealing with the point as to whether the word assembly is proper for defining the act of putting together various parts/modules/accessories of machines imported and locally procured by the appellants, the Commissioner, after taking note of the defence of the appellants and all the materials placed before it, has observed that the whole process after the receipt of the goods by the appellants involved the activity of physical verification of the goods vis-`-vis invoices and the bills of entry, unpacking of the goods, visual inspection and checking of documentation, storage of goods in the area demarcated for imported goods in the warehouse at Rampur, kitting of the goods, dispatch of machines directly to customers or through their branches under the cover of invoices/stock transfer document and ultimate installation of machine at customers site.
23. As regards the concept of kitting is concerned, it has been held that the process of kitting in respect of imported parts/modules/accessories was admittedly done in the factory/warehouse premises of the appellants and some indigenous accessories like pin top, software, RAM, Stabilizers, stands for some models and papers were also used in such process. At the same time admittedly no kitting process was undertaken in respect of the machines which were imported as complete machines and sold as such or where the parts/accessories were cleared/sold as such. This obviously discloses the process of kitting was an important process between the act of importation and the act of final supply of the machines to the customers as fully functional units. It has been further held that the process of kitting included selection of parts/modules and accessories of machines as per the customers requirement and putting them together, assembling and fixing of some parts/ accessories with main modules. Utilization of indigenous parts and accessories was to meet the specific requirements of the customers and assigning a new number for the purpose of accounting and identifying the product for the purpose of valuation and issuance of invoice to the customer. There is a clear finding that except the act of assembling and fixing of some parts with the main module (i.e. image out put terminal) all other aspects relating to the activities of the appellants on importation of the modules as parts of the machine noted above have been clearly admitted by the appellants. The finding in that regard has been recorded in para 19.2.1 of the impugned order. In the lengthy argument advanced by ld. Advocate for the appellants, at no point of time, this finding was ever challenged or anything was pointed out to us which could disclose any sort of impropriety or incorrectness in the said finding. It has also been held that process of kitting was something more than simply putting together different parts and that the same is revealed from the statements of the officers of the appellants. In this regard, suffice to refer to one of the question which was answered by Shri Prabhat Kumar, General Manager of the appellants, wherein he had stated that the parts DADF/SCF when required by the customers were fixed by the appellants in their factory itself, as the same could not be fixed by the Engineers at the site of installation. The impugned order also discloses a clear finding to the effect that the analysis of the records disclose that the weight of the machines dispatched for installation at customer site after completion of kitting process at the factory/ warehouse premises was in excess of that of the parts/ modules/ accessories required for completion of such machines. The same clearly disclosed utilization of additional accessories/ parts for completion of the manufacturing of the machines to make them to meet the requirements of customers on installation thereof.
24. On analysis of the process undertaken by the appellants in the name of kitting it has been held by the Commissioner that the same consisted of fixing /assembling of modules / parts /accessories and other required softwares, various installment kits, without being hazardous to the safety of machine during its transportation and only those parts which cannot be fixed into it for the reason of odd shape or safety during transportation were assembled at the customers place. The major activity of assembling of parts / modules / accessories of machines was performed at the warehouse / factory premises at Rampur and only the part which would not be fixed into the main machine for the reasons of odd shape of such part or for safety during the transportation were assembled at the place of customers in the course of installation. It has been further held that the activity of assembling various parts modules and accessories was ancillary process for manufacture of fully integrated machine. Taking into consideration the activities of assembling and documentary evidence in the form of purchase orders, storage tickets, invoices etc, it was held that the same resulted in conversion of imported modules/ parts with the assimilation of an indigenous parts and accessories and kittings transformed into a new product, with new name, character and use and that modules/ parts/ sub-assemblies and machine in SKD conditions were not able to perform the function what the newly formed machine would perform.
25. It has been held that admittedly the process of kitting is done in the factory/ warehouse premises of the appellants and various indigenous parts and accessories were purchased and included in kitting with those imported items. No kitting was done in respect of machines which were imported as complete machines and sold as such or even where parts were cleared or sold as such. It has, therefore, been observed that the kitting was an important process between the import of modules and parts and final clearance of the fully functional unit. Kitting has been held to include selection of modules /parts as per the customers orders and putting them together, fixing or assembling modules and parts with the help of parts and accessories in the form of the complete machine and thereafter configuring the same with indigenously procured items like the software stabilizer stand etc. and lastly assigning new assembly of imported parts /modules a new number for the purpose of accounting in their system. By such kitting activity of the modules and parts were arranged at one place and dispatched to the site of installation. The activity of kitting was absolutely necessary in order to arrange the modules and parts together so as to meet the requirements and configuration demanded by the customers. Kitting in that regard has been held more than mere putting together of different parts for the module and, therefore, amounts to assembly of machine. Even as regards the installation, it has been held that it was not a mere screw driver technology involved in the matter but it required elaborate facility and involved the process of assembling, aligning and testing. It has been further held that on the basis of purchase orders/ storage tickets/ invoices etc. the appellants converted imported modules, parts into machines. Thus, a completely new product with new name different character and use emerged on account of such activity.
26. Though the learned Advocate for the appellants has strenuously argued and tried to contend and also has submitted in the written submission that the main issue in the matter is whether the installation of the printer copier at the customers premises would amount to manufacture in terms of Section 2(f) of the said Act read with Note 6 of Section XVI of the Tariff Act, the gravaman of the story of the appellants is that the process of kitting of modules and parts alongwith the indigenously procured parts and accessories and on transformation of the product in disassembled form and installation of assembly thereof at the customers premises would not amount to manufacture either under Section 2(f) of the said Act or Rule 2(a) of the said Rules, read with Note 6 of Section XVI.
27. Though it is sought to be argued on behalf of the appellants that on importation of modules and parts of the machines they were merely installed at the premises of the customers alongwith indigenously procured parts and accessories and it involved no activity in the nature of manufacture, it is clearly established from the records that on importation of modules and parts, by themselves, either individually or even taken together, did not constitute complete machine or unit and in order to form a complete machine or unit, the same had to undergo the process of configuration alongwith some other indigenously procured parts and accessories without which the machine was incomplete and non functional. It has also been established from the record that kitting formed important activity prior to supply of the goods at the customers premises. This is also corroborated from the fact that in cases where complete machines were imported they were supplied to the customers without any kitting activity being involved but in case of machines required configuration of other indigenously procured parts and accessories to make the machine operative and functional and the activity of supply and installation of the machine was invariably preceded by the activity of kitting. Conjoint reading of the statements of Shri A.K. Gupta, DGM (Imports), Sh. S.K. Gupta, Finance Controller and Sh. A.K. Srivastava, Sr. Manager (Distribution) of the appellants clearly discloses that the product imported were combined alongwith the indigenous parts and accessories in unlimited numbers of configuration as per the requirements of the customers and the same was ascertained and determined on the basis of the orders received by the appellants at the time of kitting in the factory or the warehouse and the storage tickets and the numbers were given to such products on completion of the kitting and the same clearly established that the said activity essentially comprised of assembling various modules, parts and accessories to make the machine complete and ready to be functional. Once the kitting process was completed, only those parts, fixation of which would create difficulty in transportation on account of odd shape or on account of safety reason, were sent without being fitted to the machine and the assembly of such part or parts with the remaining already assembled parts of the machine was completed at the time of installation, but before doing so, trial of fixation of those parts for proper functioning of the machine was taken in one factory and therefore such parts were again disassembled and sent to the place of installation of the machine. Admittedly, on kitting activity being completed, it was possible to do dekitting. There is a clear admission in that regard by Sh. A. K. Srivastava, Sr. Manager (Distribution). This clearly implies that kitting was a process of assembling including the process relating to alignment and testing, and it was possible to do de-assembling, rather it was done so in relation to the parts which were found difficult for transportation in the assembled form on account of either odd shape or for safety reason. It is, therefore, difficult to accept the contention that no assembling was done in relation to the products imported as well as procured indigenously. It is also further established that the kitting process was done in the factory or warehouse at Rampur. This is also revealed from the statements of the said persons.
28. The Apex Court in CCE, Delhi vs. Insulation Electrical (P) Ltd. reported in 2008 (224) ELT 512 (SC) while reiterating its earlier view in the matter of Pragati Silicons Pvt. Ltd. vs. Commissioner of Central Excise, Delhi reported in 2007 (211) ELT 534 held that there is difference between the parts and accessories. It was further held that a part is an essential component of the whole without which the whole cannot function, whereas an accessory is something supplementary or subordinate in nature and need not be essential for actual functioning of the product.
29. Admittedly, in order to make the modules and parts imported by the appellants to be functional or to put to intended use, it was necessary for the appellants to assemble the said modules and parts alongwith other parts and accessories procured indigenously and such assembling was done with proper alignment and testing by engineers. Very fact that some parts were procured indigenously and they were fitted alongwith the imported modules and parts to make the machine functional, the activity undergone clearly resulted in bringing out a new product amounting to manufacture of a product, new in character and use, and commercially known as such. The activity obviously amounted to manufacturing within the meaning of said Section 2(f) read with Note 6 of Section XVI of the Tariff Act.
30. Note 6 of Section XVI of the Central Excise Tariff read thus:-
6. In respect of goods covered by this Section, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished articles (including blank, that is an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into a finished article or a part), into complete or finished article shall amount to manufacture.
31. Before understanding the scope of Note 6 quoted above, it has to be borne in mind that the Apex Court in Empire Industries Ltd. vs. Union of India reported in 1985 (20) ELT 179 (SC) had clearly held that whatever may be the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes such a process which will be part of manufacture. Moment there is a transformation into a new commodity, commercially known as distinct and a separate commodity, having its own character, use and name, whether be it the result of one process or several processes, manufacture takes place. Any process or processes creating something else having distinct name, character and use could be a process of manufacture. The question whether a particular process is a process of manufacture or not has to be determined having regard to the facts and circumstances of each case and having regard to the well known test laid down by the Honble Supreme Court. In other words, transformation of a product to the extent it becomes commercially different commodity is sufficient to constitute the same to have been manufactured and, therefore, sufficient to attract the levy of excise duty.
32. In South Bihar Sugar Mills Ltd. vs. Union of India reported in 1978 (2) ELT J336 (SC) the Apex Court had held that the Central Excise Act charges duty on manufacture of goods. The word manufacture implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinct name, character or use.
33. The Bombay High Court in New Shakti Dye Works Pvt. Ltd. & Mahalakshmi Dyeing & Printing Works & Others vs. UOI & Another reported in 1983 (14) ELT 1736 (Bom.) while dealing with the question as to whether the petitioners therein who were carrying on the business of bleaching, dyeing, printing and finishing cotton fabrics were liable to pay the excise duty as the manufacturers for the purpose of the Central Excise Act, 1944 after taking into consideration the decisions of the Apex Court in Union of India vs. Delhi Cloth and General Mills (A.I.R. 1963 S.C. 791) = 1977 ELT (J 199) and Allenbury Engineers vs. S.R. Dalmia (A.I.R. 1973 S.C. 425) held that the test to be applied must, therefore, be whether the processes in question have resulted into bringing into being a distinctively new article which is known to the market. Referring to the facts of the case, it was held by Bombay High Court that it is not in dispute that what is given to the processors is grey cloth which is unbleached. That grey cloth is undoubtedly the main product of the manufacturing processes. When this grey cloth is made available to the processors, it is first bleached and then dyed, printed and finished. Now, the argument of the learned Counsel for the petitioners is that after bleaching, dyeing, printing and finishing, the product continues to be cotton fabric and, therefore, since grey cloth was handed over to the processors, it continues to be cotton fabric even after it is subjected to the other processes. There was no process of manufacture, nor is the printed material product resulting from manufacturing processes. It is undoubtedly true that both printed material and grey cloth could generally be described as cotton fabric, but surely, the unbleached grey cloth is not the same cotton fabric as printed cotton fabric. It is difficult to accept the argument that a dyed and printed cotton fabric must be treated as the same article as commonly known as grey cloth. The use to which the bleached, dyed and printed and finished product could be put to is entirely different or in any case, in addition to the use to which grey cloth could be put. The printed material in its finished form is wholly different from the grey cloth and, in fact, the grey cloth could be treated as the basic material on which is subjected to different processes. The said decision of the Bombay High Court was approved by the Apex Court in Empire Industries case.
34. In fact, in Allenbury Engineers case, the Apex Court had held that the word manufacture, according to its dictionary meaning, is the making of articles or material (now on a large scale) by physical labour or mechanical power. In other words, if a new substance is brought into existence or a new or different article having a distinct name, character or use results from particular process or processes, then such process or processes would amount to manufacture.
35. The Apex Court, therefore, in clear terms has ruled that in order to constitute manufacture, it is not necessary that one should absolutely make out a new thing. It is the transformation of an article into something else, provided that the something else should be a different commercial commodity having its distinct character, use and name and commercially known as such. No doubt, the question whether a particular process is a process of manufacture or not has to be determined having regards to the facts and circumstances of the each case as well as well known tests laid down by the Honble Supreme Court.
36. Bearing in mind the above rulings, if we consider the facts of the matter in hand and apply thereto the law laid down under the said decisions, alongwith the provisions of Section 2(f) of the said Act and Note 6 of Section XVI of the Tariff Act, it would at once be clear that the activity of kitting which also involved assembling would constitute manufacture within the meaning of the said expression under the said provisions of law. Undoubtedly, the appellants imported modules and parts of such machine. They were thereafter assembled alongwith indigenously procured parts and accessories. The process also involved the one relating to alignment and meeting the required configuration as per the requirement of the customers. Further the process was undertaken with the help of engineers. The essential part of all such process was done in the factory or the warehouse. While transporting the machines so formed, some parts thereof, were de-assembled or packed separately alongwith the machine to be fitted at the time of installation on account of difficulty in transportation or from the point of view safety of such article or articles in the course of transportation. But in the absence of the said process being undergone, the machine did not become functional. As already seen above, an assembly of the parts itself would amount to manufacturing process as in the absence of the parts, machine does not become complete and/or functional. The fact that the parts and modules were imported by the appellants in de-assembled form is not in dispute. In fact, the case of the appellants is fully covered by the decision of the Tribunal in Xerox Modicorp Ltd. case.
37. The issue involved in Xerox Modicorp was whether the assembly of fax machine imported in knocked down condition amounted to manufacture. It was sought to be contended on behalf of the assessee that importation of facsimile machine in knock down condition and the assembly of those components did not bring a new product into existence. It was observed by the Tribunal that what was imported were the components parts of facsimile machine and not the facsimile machine itself. It was held:-
the process of assembly undertaken by them in their factory premises amounts to manufacture out of the components imported by them a distinct commercial product with a new name, character and use emerges. The fact is that what they imported were components of the fax machine and it was only the process of assembly undertaken by them which has brought into existence facsimile machine.
Referring to Note 6 of Section XVI on which the Revenue had relied upon in support of their contention that the activity of assembly amounted to manufacture, the Tribunal had observed that it is apparent from the wordings of this note that if a product which is incomplete or unfinished is completed or finished, the process for making it complete or finished will amount to manufacture. It was further held that the assessee were converting CKD kits into fax machine so that the components could be used as a fax machine. Only difference between the said case and that of the appellants case herein is that the appellants are converting the modules and parts imported, alongwith indigenous parts and accessories, into printer copiers instead of fax machines.
38. It is pertinent to note that it is not the case of the appellants that the modules or parts imported could themselves be used as complete machines either as copier or printer. It was only upon completion of process of kitting which comprised of assembly of the imported modules and parts alongwith indigenously procured parts and accessories that the machines become functional. In fact, in Xerox Modicorp decision, the Tribunal had also observed that it is not the case of the appellants that the components imported by them can be used as fax machine without the process of assembly undertaken by them. Only the process undertaken by them makes the component complete or finished product. Similarly, it is essentially the process of assembly that made the product to be complete or finished product.
39. The Apex Court in Gramophone Co. of India Ltd. vs. Collector of Customs, Calcutta reported in 1999 (114) ELT 770 (SC) was dealing with the question as to whether the activity of duplicating music recorded on audio cassette amounted to a process of manufacture or not and after taking into consideration its earlier decisions in the matter of Delhi Cloth Mills (supra), Empire Industries Ltd. (supra) Ujagar Prints vs. UOI reported in 1988 (38) ELT 536 (SC), Decorative Laminates (India) Pvt. Ltd. vs. Collector reported in 1996 (86) ELT 186 (SC), UOI vs. Parle Products Pvt. Ltd. reported in 1994 (74) ELT 492 (SC) and Laminated Packagings (P) Ltd. vs. Collector reported in 1990 (49) ELT 326 (SC) held that the moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name whether it be the result of one process or several processes, manufacture takes place; the transformation of the goods into a new and different article should be such that in the commercial world it is known as another and different article. Pre-recorded audio cassettes are certainly goods known in the market as distinct and different from blank audio cassettes. The two have different uses. The pre-recorded audio cassette is generally sold by reference to its name or title which is suggestive of the contents of the audio recording on the cassette. The appellant is indulging in a mass production of such pre-recorded audio cassettes. It is a manufacturing activity.
40. In Collector of C.E. vs. Jay Engineering Works Ltd. reported in 1989 (39) ELT 169 (SC) the Apex Court while dealing with the issue whether affixation of nameplates on the fans was essential for completion of the process of manufacture or not, taking into consideration the department instructions that every manufacturer had to affix nameplates on the fans held that the same disclosed that the nameplate was essential ingredient to complete the process of manufacture for marketable electric fans, though it is true that electric fan could perform its essential function without affixation of the nameplate, but that was not enough. Electric fans did not become marketable products without affixation of nameplates and therefore it was an essential ingredient for completion of the process of manufacture.
41. In case of appellants, the product unless it had gone through the process of kitting, the same did not become a product which could perform the function expected to perform and, therefore, marketable to the customers. Being so, kitting being one of the essential process for completion of the marketability aspect of the product, it was essential ingredient to complete the process of manufacture, as has been held by the Apex Court in Jay Engineering Works Ltd.
42. In Commissioner of Customs, Indore vs. Hindustan Motors Ltd. reported in 2003 (156) ELT 155 (Tri. Del.), the Tribunal was dealing with the matter wherein the assessee had imported components of diesel/ petrol engine from their collaborator and procured some parts locally. The assessee had imported components sets of the engines in unassembled condition which on assembly would have the essential character of the complete or finished article. No doubt the assessee were required to procure some local components to complete the assembly of engine. Having noted these facts, it was held that the fact that some of the components were locally required to be procured to complete the assembly of engine could not make Rule 2(a) in applicable as Rule 2(a) is there to be invoked in such cases only for the purpose of determining classification of the product. It was further held that as per Explanatory Notes of HSN, the first part of Rule 2(a) extends the scope of any heading which refers to a particular article to cover not only the complete but also that article, incomplete or unfinished, provided that, as presented, it has the essential character of the complete or finished article. The Explanatory Notes below Section XVI of H.S.N. explains the applicability of Rule 2(a) by providing that machines lacking only a fly wheel, a bed plate, calendar rolls, tool holders, etc. is classified in the same heading as the machine, and not in any separate heading provided for parts. Thus, it is apparent that some part of an article may not be there and may be procured separately. What is necessary for the application of Rule 2(a) is that an article, as presented, has the essential characteristic of the complete or finished article. This view is further strengthened by the decision of the Supreme Court in Sharp Business Machines Pvt. Ltd. vs. CC reported in 1990 (49) ELT 640 (SC). Undisputedly, in the case in hand the modules and the parts imported, on being assembled, were able to perform the function expected from a complete machine, and that the accessories and other parts locally procured are assembled and fitted to meet the requirements of the customers.
43. The appeal filed against the said decision of the Tribunal in Hindustan Motors Limited case was dismissed as withdrawn with liberty to file fresh appeal after rectification application was disposed of. (Vide: Hindustan Motors Ltd. vs. Commissioner, 2003 (158) ELT 281). The fresh appeal which was filed was also dismissed by the Apex Court with the following order:-
Delay condoned.
Heard the Joseph Vellapally, learned Senior Counsel at great length. In view of findings of the fact by the Tribunal, we see no reason to interfere.
The Civil Appeals are dismissed.
There shall be no order as to cost.
(Vide Hindustan Motors vs. Commissioner, 2005 (181) ELT 130).
Obviously, therefore, the view taken by the Tribunal in Hindustan Motors case on the point in issue was approved by the apex Court. Further, the Authority for Advance Rulings, New Delhi, IN RE: Bayerische Motoren Werke Aktiengesellschaft reported in 2006 (193) ELT 138 had held that in the light of Rule 2(a) of the Interpretative rules, the term motor car would include incomplete or unfinished motor cars provided they had essential character of the complete or finished motor cars inasmuch as that the cars, imported as CKD units without seats, have essential character of complete or finished motor cars. In other words, absence of seats would not cause obstacle for classifying the motor cars has having essential character of complete or finished motor cars and to refer to them as complete and finished article even when presented in unassembled or disassembled form.
44. In Narne Tulaman Manufacturers case the question for consideration before the Apex Court was that whether the assessee had manufactured weighbridge and as such was liable to duty under the said Act. It was held that if the end product is a separate product which comes into being as a result of an endeavour and activity of the assessee, then the appellant must be held to have manufactured such item.
45. In B.P.L. India Ltd. case the assessee had imported 100 kits of VTR with colour monitors in disassembled condition and they were described in invoices and the bills of entry as sets of assembly, sub-assembly and other hardware items for assembly of complete VTR and colour monitors. During the period from June, 1982 to August, 1982 such products were manufactured and cleared and on 12th August, 1982 the Superintendent of Central Excise under his letter asked the assessee to furnish details of sets cleared and to explain why duty should not be demanded on those sets? No information was furnished by the assessee and consequently, show-cause- notice dated 6th December, 1982 came to be issued. Analysing the facts of the case, the Apex Court observed that the imported kits of components of VTR and colour monitors in SKD conditions were the items falling under item 68 for levy of countervailing duty. By the process undertaken by the assessee a change is brought about facilitating the utility of the product for which they were meant. In other words, pursuant to the process, a transformation has taken place at the hands of the technical experts or skilled persons and not by laymen, which made the product to have a distinct character and use. Such product of VTR/colour monitor as finished product was classified under item 37BB.
46. In Mejestic Auto Ltd. case, the Apex Court while dealing with the issue as to whether the assembly of motor cycle parts imported in SKD conditions amounted to manufacture under section 2(f) of the said Act held that undoubtedly the entire motor cycle could be assembled out of the components imported by the assessee. However, what was imported comprised of components parts and not the motor cycle as such. The process of assembly undertaken by the assessee in their factory premises amounted to manufacture as out of the components imported by them a distinct commercial product with a new name, character and use emerged.
47. In Eureka Forbes Ltd., Chandigarh case the Larger Bench of the Tribunal while dealing with the issue as to whether in the facts and circumstances of the case before it, the activity undertaken by the assessee amounted to manufacture in view of Note 6 of Section XVI of the Schedule to the Central Excise Tariff Act, after taking into consideration the scope of the said Note 6 and the facts of the case held that in terms of the Note, the conversion of an incomplete or unfinished article into complete or finished article alone can amount to manufacture and considering the fact that the Aquaguard was already complete in itself, there was no question of applicability of said Note 6. The above finding was arrived at by the Larger Bench taking into consideration the facts of the case and the specific defence which was raised by the assessee therein that the water filter and purifier purchase from APIC was complete in itself and bought out items which were placed in the same carton were its accessories and not integral part of water filter and purifier. After going through Note (6) of Section XVI as well as the decision of the Tribunal in A.P. Industrial Components Ltd. Vs. Collector reported in 1993 (68) ELT 357 and the dismissal of the appeal therefrom by the Apex Court reported in A.P. Industrial Components Ltd. Vs. Commissioner reported in 2000 (115) ELT 33, it was noted that conversion of a incomplete or unfinished into complete or finished article can amount to manufacture. If the acquaguard was complete in itself then the said note 6 would not be attracted. It was finally held that the acquaguard which was cleared by APIC was a unit complete in itself which filtered and purified the water and, therefore, note 6 was not applicable. The decision therefore is clearly distinguishable on facts.
48. In Indian Xerographic Systems case, the Tribunal relying upon its earlier decision in the matter of M/s. Walchand Nagar Industries (supra) held that unassembled photocopier machines imported had correctly been assessed subject to additional duty of customs under item 33 D of the Central Excise Tariff as the goods answered the Tariff description. It was also held that the unassembled machines had discharged the duty liability under item 33 D on import, and therefore, the Department had no case for subjecting it again to the duty under the Central Excise Tariff Act. When the assessee clears the machines in assembled form, as no manufacturing activity had taken place. The finding about absence of manufacturing activity was essentially arrived at on the basis of decision in M/s.Walchand Nagar Industries.
49. In Walchand Nagar Industries case, the Tribunal accepting the argument of the assessee that, what was imported, were complete machines in CKD conditions and what was sold after re-assembly, were the same imported machines and the process of assembly did not change the character or use of the imported product, it was held that the process carried out by the assessee upon the complete machining centres imported in CKD condition did not amount to manufacture as no new product bearing a new or different character or use emerged as a result thereof.
50. In Walchand Nagar Industries case as well as in Indian Xerographic Systems case, the importation was of a complete machine in CKD/SKD form, and prior to such importation the machine underwent the process of assembling and de-assembling. That is not the case in the matter in hand. Importation was not of the complete machine in SKD/CKD form. On the contrary, some of the parts indigenously procured were assembled in the factory at Rampur alongwith the imported module and parts to make the machine complete and functional. Besides, both the above decisions are not in consonance with the decision of Apex Court in BPL Limited case, or even with the decision of the Tribunal in Hindustan Motor Ltd. case, which was approved by the Apex Court.
51. In the case of Eureka Forbes Ltd., Mumbai, the dispute was in relation to the Acquaguard with reference to Note 6 of Section XVI and the issue was whether the activity of the assessee amounted to manufacture within the meaning of the said expression under the said Note. Taking into consideration the facts of the case, it was held the Acquaguard itself was not incomplete and, therefore, the Note 6 was not attracted. The facts of the case revealed that the assessee marketed the product known as Acquaguard. The product consisted of two components. The First component consisted of water filter purifier. It comprised of a chamber containing articles of activated carbon and another chamber housed and ultra violate lamp whereas third chamber contained electronic controls and a spout for releasing water. The water first passed through the chamber contained the carbon where it was filtered to remove solid waste to deodorise item and to remove unwanted colours. It was then taken to the chamber containing ultraviolet lamp radiation and the lamp destroyed microscopic bacteria and viruses present. The water was then ready for removal. The unit was manufactured by wholly owned subsidiary of M/s. AP Industrial Company Ltd who used to send the unit to the assessees warehouse. The assessee thereafter used to pack that article and the second component i.e. pre-filter in one carton. The pre-filter was purchased from the market and it consisted of a bowl housing a polypropylene filter candle. It was not in dispute that the sales of that product were predominantly with the pre-filter and that it was not advertised that the purchase of the filter was optional; although it was contended that some small proportion of the sale was without pre-filter. It was also stated that the object of pre-filter was to remove the coarser particles contained in the water to be purified before it enters the chamber containing the activated carbon. The contention that the commodity which earlier carried out the function of water purifier had changed into a commodity which was a water filtration and purification apparatus was rejected as it was not established that the said commodity did not act as filter and that the activated carbon performed some function other than filtration. There were no such allegations in the show cause notice and, in those circumstances, the activity was not considered as amounting to manufacture.
52. In British Physical Laboratories case, the Tribunal was dealing with an issue as to whether an assembly of magnetic tapes and plastic cover amounted to manufacture within the meaning of section 2(f) of the Central Excise Act 1944. Considering the fact that the assembly of video cassette tapes takes place by merely putting the magnetic tape and the plastic case together and fixing the screws supplied by foreign supplier and neither of the items were manufactured by the assessee relying upon the ruling of the Apex Court in the matter of Union of India vs. Delhi Cloth and General Mills reported in 1997 (1) ELT 199 to the effect that the manufacture implies a change, but every change is not manufacture and something more is necessary and there must be transformation; a new and distinct article must emerge having a distinctive name, character and use, and considering the facts of the case, it was held that assembly of video magnetic tapes with plastic covers did not amount to manufacture.
53. In XI Telecom case, the Andhra Pradesh High Court held that the question was whether the activity of putting duty paid manufactured items and duty paid brought out items in one kit and packing them amounts to manufacture. Taking into consideration the facts of the case, it was observed that the identity of the items placed in kit is not changed. They are known in the market as such. There is no transformation in the articles which are placed in the kit. They are marketable as such. Further, no process is also involved except that all the articles are put together in one box. It was observed that by placing all those articles in one kit, the kit had a distinct name known as cable jointing kit. However, there was no change in the character and use of the articles placed in the kit. In other words, except the test that articles which were placed in the kit had a distinct name, other tests to qualify the activity to be the process of manufacture were not satisfied.
54. In Narang Latex & Dispersions case, it was held by the Tribunal that the activity of buying plastic and glass bottles and affixation of manufactured rubber nipples thereon and packing them in a printed corrugated boxes do not amount to an activity of manufacture under section 2(f) of the said Act. The Apex Court had dismissed the appeal against the said order.
55. In Nugas Technologies India (P) Ltd. case, the Tribunal was dealing with the case wherein the diesel run buses of Delhi were found to be highly polluting and in order to reduce pollution, those engines were converted into CNG engines. Some of those engines were already in use since 1992 while the conversion from diesel to CNG was carried out in the year 2001 and 2002. The Tribunal taking note of the fact that the assessees had merely made some modification in the already existing engines so as to make them capable of accepting another fuel and that the modification did not bring into existence new goods, applying the principle with alteration or modification already existing manufactured product would not amount to manufacture held that conversion of machine from diesel to CNG would not attract excise duty.
56. In the case of Sirpur Paper Mills Ltd. vs. Collector of Central Excise, Hyderabad reported in 1998 (97) ELT 3 (S.C.), while answering the dispute about leviability of excise duty on the paper making machine erected by the assessee by using duty paid components purchased from the market and also by fabricating certain parts of machinery in its factory, rejected the contention of the assessee that the paper making machine was not really manufactured by the assessee and various components and parts were purchased and few of the parts were fabricated at the factory and the assessee merely assembled various parts of the machines, while holding that the final product was distinct and apart from the components those had gone into its production. It was specifically held that what the assessee had erected in its factory was a paper making machine, it might have purchased various components to make machine, but nonetheless what had been produced was something quite different from the components those had been purchased. A new marketable commodity had emerged as a result of manufacturing activity of the assessee.
57. In the case of Titan Medical Systems Pvt. Ltd. vs. Collector of Customs, New Delhi reported in 2003 (151) ELT 254 (S.C.), after taking note of the decision in Narne Tulaman Manufacturers Ltd. and Empire Industries Ltd. while dealing with the scope and meaning of the expression substantial manufacturing in Duty Exemption Scheme held that the said expression indicate that there need not necessarily be manufacture, but that any activity including activities like assembling, which result in bringing out a new product, which is commercially a different product from what is imported, would be sufficient. And the said expression does not indicate in any manner that the substantial amount of components must also be manufactured.
58. In the case of Atlas Laminate Industries vs. Union of India reported in 1991 (51) ELT 251, the Gujarat High Court after taking into consideration various decisions of the Apex Court and while dealing with the issue as to whether in bonding of kraft papers with bitumen to covert it into bituminized water-proof paper amounts to manufacture or not, answered the same in affirmative while observing that the kraft paper is not water proof paper, while bituminized water-proof paper has the characteristic being water-proof paper. The kraft paper looses its identity after the manufacturing process is undergone. The price of the end product is also higher. The kraft paper is very thin. The very idea of bonding kraft papers together is to see that the thickness of the paper increases so that it can be used for packing purpose. Undoubtedly for certain articles kraft paper can also be used for packing purpose but on account of its thinness, it would not be durable and it could torn out immediately or even while packing an article. It is least durable while bituminished water-proof paper can be used for packing even heavy articles and it is durable. Moreover, the character is also changed as the name itself indicates. In commercial world, both the articles are known and marketed by different names.
59. In the case of Makson Pharmaceuticals (I) Ltd. vs. Commissioner of Central Excise, Rajkot reported in 2006 (202) ELT 129 (Tri. Mumbai), the Tribunal relying upon the decision of the Apex Court in the matter of Sirpur Paper Mills Ltd. (supra) and of the Larger Bench of the Tribunal in the matter of Mahindra and Mahindra Ltd. vs. Commissioner reported in 2005 (190) ELT 301 held that a water treatment plant could be fixed on a foundation, it was required to be assembled so that it could function as water treatment plant. It could not only be fixed on a foundation but could also be removed by retaining its character as a water treatment plant. When a marketable commodity such as water treatment plant comes into existence by assembling various components that go into its making, excisable goods come into existence and the mere fact that such goods are subsequently fixed on a foundation that will not remove them from the category of excisable goods in which they fell before being so fixed.
60. In BHP Engineers case, the Tribunal held that the explanatory notes of H.S.N. provides that for convenience of transport many machines and apparatus are transported in an unassembled set and in such cases although, in fact, the goods are then a collection of parts, they are classifiable as being a machine and not in any separate heading of parts.
61. In Shrike Construction Equipments case, the Tribunal was dealing with a matter wherein the assessee were engaged in manufacture of tower cranes, EOT Cranes falling under sub-heading No. 8426.00 and the parts thereof falling under sub-heading No. 8431.00 of the Central Excise Tariff Act, 1985. During the period from 1.3.1986 to 30.1.1987, the assessee had cleared the parts of the cranes from the factory on which they had paid duty at the rate prescribed for cranes. The facts of the case disclosed that the buyers had placed orders with the assessees for supply of complete cranes. For manufacture of cranes, the contract was entered into by the assessees and the buyers. The appellants had filed price list with the Revenue in respect of each of the purchase orders. The cranes were cleared under gate passes on payment of duty. The documents produced by the assessees were clearly showing that the orders were complete in respect of design manufacture and supply of complete crane and in fact, the assessees had cleared complete cranes. However, cranes being bulky machines, they were removed from the factory in unassembled or disassembled condition. In those circumstances, it was held that the assessees had in fact cleared complete cranes and not merely their parts.
62. The records undoubtedly establish that the appellants were importers and traders in certain machines including Multi functional printers, Copiers and Photocopiers-cum-printers etc. They were engaged in importation of different modules/ parts of such machines from various manufacturing units of the appellants in various countries. Some of the machines imported as such were sold in the same form whereas others were modified to suite to the requirements of the customers and in some cases even parts and accessories were sold. The main dispute relates to the activity in respect of the machines imported as per the requirement of the customers. While it is the case of the department that such supply is made after necessary manufacturing process as per the need and requirement of the customers, whereas it is the defence of the appellants that there was merely an assembly of module/ parts of the machines done by the appellants, and that too, at the site of installation as supply was in modules or parts. The assembling process described as kitting, involved configuration of the parts of the product as per the requirement of the customers and the same resulted in manufacture thereof.
63. The contention that the absence of the phrase presented in disassembled or unassembled form in Note 6 would justify its non applicability to the facts of the case is totally devoid of substance. Undoubtedly, the Note 6 speaks of a situation wherein there would be a deemed manufacture. It is relating to an activity which is deemed to be manufactured within the meaning of the said expression under the said Act. Rule 2(a) of the Interpretative Rules relates essentially to the classification aspect. Being so, it is bound to have expression like presented which need not find any place in a provision relating to the concept of deemed manufacture. Being so, mere absence of similar phraseology like in Rule 2(a) in Note 6 would not justify non applicability of the said note to the facts of the case.
64. The Tribunal in Modi Xerox Ltd. vs. Collector of Customs, New Delhi/ Bombay reported in 1998 (103) ELT 619 (Tribunal) held that the fax machines are a sophisticated electronic equipment and therefore could not be manufactured or assembled by simple fixing devices and the assemblies made from the components are done by the Engineers.
65. In Fedders Lloyd Corporation Ltd. vs. Commissioner of C. Ex. Mumbai reported in 2008 (221) ELT 3 (S.C.) the Supreme Court dealing with the issue as to whether the split air conditioner manufactured by the assessee was classifiable under tariff heading 84.15 of the Central Excise Tariff Act. Considering the facts of the matter, it was observed that the assessee at Mumbai had received condensing units cleared from their manufacturing unit at New Delhi on payment of appropriate central excise duty as the parts of the air-conditioners and procured cooling units manufactured locally at Mumbai. At their workshop-cum-godown, certain checks for quality were conducted by filling the gas and the brand name Fedders Lloyd was affixed on the cooling units and, thereafter, those units were cleared alongwith pipe kits, electrical cord, remote control etc. to various customers and the same were installed by the assessees sister concern M/s Air Serco Pvt. Ltd. on behalf of the said assessee. Considering these facts, the apex Court held that the same disclose that the complete split air-conditioner came into existence at the workshop in Mumbai. The contention sought to be advanced on behalf of the assessee that no change in the name, character and use of the product or transformation of the raw material into finished product came into existence at workship in Mumbai was rejected. It was observed that the cooling units or condensing units by themselves cannot function as air-conditioner. They have to be joined together with pipe kits, electrical cord and remote control, etc to function as a complete air conditioner unit. This process was carried at the factory-cum-godown of the assessee at Kunjurmarg, Mumbai. Taking into consideration the definition of the term manufacture under section 2(f) of the said Act and the dictionary meaning of the said word it was observed that condensing units were manufactured by the appellants at its factory at New Delhi and the cooling units were procured from the local market for which the electrical motors were supplied by the appellants. Neither the condensing unit nor the cooling unit by itself is a complete air conditioner. It is only when these two, i.e. condensing unit and cooling units are put together the complete unit of air conditioner fit for use came into existence at the Kanjumarg workshop. Air conditioner is a commercially new article than either the condensing unit or the cooling unit. Having so observed the contention of the assessee that there was no manufacture at Mumbai unit was rejected.
66. In A.P. Heavy Machinery & Engg. Ltd. vs. Commr. of C. Ex. Hyderabad reported in 2001 (128) ELT 155 (Tri. Chennai), the Tribunal was dealing with the case relating to conveyor system and taking into consideration the fact that the product being cleared by three licensed /registered manufacturing premises, although all the three manufacturing premises were owned by the same corporate entity, the clearance of the product was in three parts of the conveyor system which came into existence only at the buyers site where it was brought together and assembled. It was held that the conveyor system came into existence at the site where it was assembled.
67. In Wipro GE Medical Systems Ltd. vs. CC, Bangalore reported in 1999 (106) ELT 169 (Tribunal) it was held that where CAT scan system imported in CKD/SKD condition and the import consisting of five out of six essential components and installation was not merely screw driver technology but required process of assembly involving alignment and testing by trained personnel clearly amounted to manufacture when the components underwent the process of assembly alignment and testing.
68. The Tribunal in Dina International vs. Commissioner of Customs, ACC, Mumbai reported in 2003 (158) ELT 783 (Tri. Mumbai) after taking into consideration the facts of the case came to a conclusion that what was imported was in fact the components which were assembled into a machine and, therefore, the same amounted to manufacture.
69. In the purchase orders in favour of the appellants the description of the product used three types of suffixes. They were K.G., A.G. and M.G. It has been clarified by Shri Anil Kumar Gupta, Deputy General Manager of the appellants that A.G. stood for accessories, M.G. disclosed complete machine and K.G. referred to modules and kits.
70. It is an undisputed fact that whenever complete machines were imported as per the requirement of the customers they were supplied and installed by the appellants without undergoing any kitting process. However, in cases where the imported materials required certain variation or addition or even subtraction to meet the requirements of the customer, the necessary process in that regard was undertaken in the factory or the warehouse of the appellants which was called kitting. At the same time, Deputy General Manager has clearly stated in his statement that the process of kitting was required to complete the machine as per the configuration of machine required by the customer. Indeed, as rightly sought to be contended on behalf of the department, one fails to understand if the imported goods were fully manufactured machines what was the need of undergoing kitting process to make the machine complete as per the configuration of the machine required by the customer. In other words, kitting process essentially comprised of activity on the part of the appellants to make the machine suitable to meet the requirements of the customers. In the absence of such activity, in other words, the machine could not be said to be complete for supply to the customers. Shri S.K. Gupta, the Financial Controller as well as the Deputy General Manager have confirmed in their statements that some modules of the machine had not been received by their unit in assembled condition and without adding the required parts even those machines were not complete. Shri P.K. Gupta, General Manager on his part while giving details about the parts which were imported in different consignments also emphasised the need for the parts which were necessary for assembling of machines as per the requirement of the customers. The fact that the installation of machines in the same form in which they were imported was not possible unless it had undergone the process of kitting to make them suitable to meet the requirements of the customers was also confirmed by Shri Nitin Jagtap, Head Technical Support of the appellants. In other words, the kitting process involved not only mere assembling of products but making the machine complete to meet the requirements of the customers and therefore constituted the necessary manufacturing activity in that regard in relation to such machines.
71. It is also not in dispute that activity of assembling either in the process of kitting or in relation to installation of machine, the same involved highly technical job and needed skillful labour. It is not a matter of merely tightening of the nuts and bolts but fixation of different modules and parts in such a form that it could render the required services.
72. As rightly pointed out by DR, the conversion of an article, which is incomplete or unfinished but having the essential character of finished articles into complete or finished article would amount to manufacture and the same has necessarily to be understood qua the requirement of the customers. The fact that the imported goods were not supplied in the form in which those were imported but it was only after the process of kitting, different components being identified and assimilated as a kit, were supplied, and therefore, applying to Rule 2(a) of the Interpretative Rules read with Note 6 of Section XVI, the machine supplied to the customer by the appellants had to be classified under appropriate chapter and only because of convenience, as claimed by the appellants, such goods were not to be transported after necessary configuration and attaching each and every part together that would not mean that what was cleared from the warehouse or factory was not manufactured product. The contention sought to be raised in this regard on behalf of the department indeed cannot be found fault with. The activity which was carried out in the form of kitting was not mere modification to the already manufactured and existing product. It was not merely bringing together various parts of the machine, assembling of which did not require skillful labour. The activity was also not in the form of mere change of accessories like plugs or cables etc. And the kitting process was being done in the factory or warehouse which was situated within the territorial jurisdiction of the Commissionerate in question.
73. Though, it has been strenuously argued that no activity was being carried out by the appellants in their premises at Rampur which would amount to manufacture, the statements of the various officers of the appellants themselves speak to the contrary. The materials on record clearly disclose various activities which were carried out in the name of kitting. If the contention on behalf of the appellants that the machines in modular form were complete machines and no process was required to be carried out by the appellants to make the machines complete is to be accepted, then one fails to understand how the various officers have described the activity of kitting to include various acts on the part of the appellants to make the goods to undergo various changes as per the requirement of the customer, and that too, to make the machines functional.
74. The contention that no evidence has been brought on record by the department to prove the factum of manufacture is totally devoid of substance. Adducing evidence on record may be either in the form the department itself producing the evidence or it could be by placing reliance in the evidence produced by the assessee. In case the assessee volunteers to adduce evidence, which is sufficient to prove the case of the department, it cannot be contended that in the absence of specific evidence being not brought on record by the department, the later cannot rely upon the evidence produced by the assessee.
75. The point relating to difference in the description of the products in the invoices issued by the suppliers to the appellants and the one in the invoices issued by the appellants to their customers is certainly of great importance to ascertain whether there had been manufacturing process in relation to the goods in question or not after the import of the modules and components and before supply of machines to the customers by the appellants. Admittedly, the invoices issued by the suppliers of the goods to the appellants did not describe the product as machines but they specifically referred to the modules, components and parts. As against this, the invoices issued by the appellants to their customers specifically described the product as the machines. If the products imported were machines in unassembled conditions and that there was no requirement of any further processing certainly they would have been defined as the machines in those invoices also. There is no explanation forthcoming for the difference in description of the goods in such invoices.
76. The difference in weight with reference to the modules and components imported by the appellants and in that of the machine on its completion, after undergoing the process of assembly is also of vital importance while deciding the issue under consideration. It was sought to be contended that the additional weight was on account of accessories annexed to the machine depending upon the requirement of the customers. However, apart from mere argument in this regard, the appellants have not been able to point out any material on record to substantiate the said arguments. At the same time the factum of difference in weight is admitted. Admittedly, the weight of the machine after undergoing the process of assembly was more then that of modules and components imported for the purpose of assembling a machine. This aspect also lends support to the contentions sought to be canvassed on behalf of the department.
77. It is also pertinent to note that the Commissioner on detailed analysis of materials on record has arrived at various findings of facts. Neither in the memo of appeal nor in the course of the oral submissions and also in the written submissions, nothing is pointed out to us which would disclose any sought of perversity or incorrectness in the findings of facts arrived at by the Commissioner on relevant aspects of the matter.
78. In fact, the findings of facts stand corroborated by various statements of different executives of the appellants. The impugned order specifically refers to the relevant portion of the statements of such executives. It is not the case of the appellants that the said statements were either retracted or could be shown to be factually incorrect.
79. As already held above, the contention that in terms of the provisions of Rule 2(a), in the absence of the phrase presented unassembled or disassembled in Note 6 to Section XVI, the later cannot be brought into play to allege manufacturing activity is also devoid of substance. The expression as presented or presented in Rule 2(a) essentially refers to the condition in which the goods are presented for the purpose of classification. It essentially refers to the stage of clearance for the purpose of the classification. Under the guise of interpretation, the Tribunal cannot twist or distort the meaning of a statutory provision including that of rules of interpretation specifically provided for.
80. The decision of the Bangalore Bench of the CESTAT in appellants own case cannot be of any help to the appellants to drive home their argument in the matter in hand. In the said case, there was a finding that We find that elaborate arguments advanced to establish that a process of manufacture had been undertaken by the appellants before photocopier machines were cleared from the warehouse are entirely without any basis in facts. The Commissioner found that the appellants undertook assembly without making any verification whatsoever. We do not find any deposition by the executives stating that the modules were assembled in the warehouse. In other words, in the case before the Bangalore Bench of the CESTAT, the contention about process of manufacture being undergone in the warehouse was sought to be made good on the basis of arguments without any factual foundation. That is not the case in the matter in hand. As already referred above, the statements of the various executives of the appellants clearly bring out on record various activities which were carried out by the appellants in relation to the product supplied to the customers and that those various activities in respect of such product had undergone in their factory or warehouse.
81. There is also a finding in the said case that the components received in sets were cleared as such; no conversion of an incomplete machine into complete machine took place in the warehouse of the appellants. Assembly of components into photocopiers took place at the premises of the respective buyers. In view of this factual position the arguments advanced by the Revenue are totally irrelevant. That is not the case in the matter in hand. The records disclose that the various modules and parts imported by the appellants underwent required changes in the course of the assembling of the product to suite to the needs of the customers. In other words, admittedly, the machine imported were not supplied to the customers without having undergone required changes in the warehouse, and these facts have been clearly admitted by the executives of the appellants in their statements. Being so, the case in hand is clearly distinguishable from the case before the Bangalore Bench of the CESTAT.
82. In fact, it is also evident from the order passed by the Bangalore Bench itself and particularly in para 8 thereof wherein it has been stated thus:-
8. The ld. Spl. Counsel for Revenue relied on case laws to support the view that there was manufacture in the process described and cited (i) Xerox Modicrop. Ltd. vs. CCE, Meerut-II [2001 (130) ELT 219 (Tri.Del.)], (ii) Tanzeem Screenartsvs. CCE, Mumbai-I [2006 (196) ELT 209 (Tri. Mumbai)] and (iii) Commissioenr of C. Ex. Coimbatore vs. VXL Systems [2009 (235) ELT 109 (Tri. Chennai)]. In these cases there were components manufactured and /or components assembled by the assessee concerned to make complete machine. In the case on hand the parts found to have been fitted to the main module were not dealt with except for removing them in sets in their original packing. By grouping the parts of a complete copier with printer or without printer, assigning the parts in each set a unique number using a computer, we hold, does not amount to manufacture. There is no conversion of an incomplete machine into a complete machine in the warehouse to attract the Section Note 6 of Section ZVI.
(Emphasis supplied).
Therein it was a case of grouping and not of assembling.
83. As regards the activities undertaken by the appellants for XMart product referred as refurbishing activity at Jolly Godown Rampur, the adjudicating authority on the basis of analysis of the entire record has clearly described the activity as that the old machine after repairing were not merely cleared as such but they were cleared with a new frame/body. The cannibalized parts from old machine alongwith new ones procured from the appellants factory were assembled within a new frame/ body and thus a new machine came into existence with new identity as XMart. The product so manufactured was not same as no original commercial identity as a photocopier was retained and on the contrary, it acquired new commercial identity with use of new different parts in the process of manufacture thereof. It is also pertinent to note that after December 2003, the appellants shifted very same activities from their Jolly Godown to their factory premises and they have been paying duty on the machines so manufactured and cleared. Being so, we find no fault with the impugned order rejecting the contention that the refurbishing activities undertaken by the appellants in respect of their product XMart in their Jolly Godown did not amount to manufacture.
84. It is also sought to be contended that the appellants having acted under bonafide belief that no duty was payable on the subject goods on the ground that there was no activity amounting to manufacture, there was no justification for invocation of extended period of limitation. As regards the contention about absence of manufacturing activities, as already held above the activities carried out by the appellants in the premises at Rampur clearly disclosed that the same were in the nature of manufacturing activity. Being so, there was no occasion for the appellants to harbour any belief that such activity did not amount to manufacture. In fact, the situation was made clear in their own case and the decision in Xerox Modicorp Limited was very clear in that regard. Inspite of the above fact, the relevant information was suppressed from the department and they misdeclared their activity as trading activity and thereby willfully indulged in contravention of the provisions of the said Act and the Rules made thereunder with intent to evade the duty payable on those goods. Obviously, therefore, the authorities were justified in invoking extended period of limitation.
85. As regards the claim for cenvat credit, obviously, the assessee has to comply with the provisions of law for claiming such benefit. No material on record has been pointed out which would reveal entitlement for such benefit to the appellants at this stage. Submissions are required to be made on the basis of actual foundation which are very much lacking in the case in hand in relation to the said contention on behalf of the appellants. It would be for the assessee to establish that they had complied with the requirements of the provisions of the Cenvat Credit Rules, 2002 as amended by Cenvat Credit Rules, 2004 which clearly required maintenance of proper records regarding receipt of the inputs and utilization thereof, inventory of inputs, the credit utilized in terms of the provision of law etc. It would be obviously for the assessee to claim such benefit and to establish the same, by following the procedure in accordance with law.
86. Yet another ground which was sought to be canvassed, though half heartedly, in the course of oral submissions was about the absence of jurisdiction to the Commissioner at Meerut to deal with the matter, though no such ground is found to have been included in the memo of appeal or in the written submissions.
87. The Commissioner while dealing with the said issue regarding jurisdiction has held that the major activities of assembling of the machines were performed at warehouse/ factory premises at Rampur and mere installation was done at the site of customer and hence the activity of manufacturing was essentially undertaken at Rampur which fell within the jurisdiction of Commissioner at Meerut and therefore, the authority had the jurisdiction to deal with the matter. The Commissioner has applied the ratio of the order in the matter of Raltronics Limited vs. Union of India reported in 1994 (71) ELT 26 (Kar.) while holding that when the cause of action or part thereof arises within the territorial jurisdiction of a particular officer he is competent to investigate and /or adjudicate into the matter even in relation to the part of the cause of action arising out of his jurisdiction.
88. It is settled law that when a cause of action in relation to offendable incident or in relation to series of activities which are offendable or the violation of the provisions of law arises within the jurisdiction of different investigating officers or adjudicating officers, every such officer will have jurisdiction to investigate and or adjudicate upon such offence or violation arising in all such territories. Merely because installation was carried out beyond territorial jurisdiction of Meerut Commissionerate once it is established that the major activity of manufacturing in relation to such machines was carried out at Rampur which lies within the jurisdiction of Meerut Commissionerate, it cannot be said that Commissioner at Meerut had no jurisdiction to investigate and adjudicate upon the matter.
89. In Raltronics Limited case the Honble Karnataka High Court was dealing with the question as to whether the Collector could have collected materials by getting investigations conducted elsewhere which have a bearing on the alleged tax evasion at Bangalore. It was observed by the Honble High Court that the statement that the jurisdiction is territorial-cum -functional has to be understood as a jurisdiction related to the cause of action. The power of investigation and collecting materials which may lead to further enquiry or adjudication is part of the machinery created by the law to prevent tax evasion. The machinery provisions in a fiscal legislation are to be liberally construed so as to effectuate the purpose behind the said machinery provisions. When the cause of action arises within the territorial jurisdiction of a particular officer, he is competent to have the matter investigated even in an area outside his jurisdiction. It would not be a case of stretching the jurisdiction beyond his territory at all. The substance of the jurisdiction is to adjudicate on the question of taxability or tax evasion. This adjudication can be properly done in many cases by getting the investigation done elsewhere to gather the relevant material. The very purpose of investigation and adjudication would be lost if such a meaningful jurisdiction is not read into the jurisdiction of the authorities functioning under the taxing statue.
90. It is also to be noted that the Apex Court, in Pahwa Chemicals Pvt. Ltd. vs Commissioner of Central Excise, Delhi reported in 2005 (181) ELT 339 (S.C.) after considering the scheme of the Excise Act, the powers of the Board under the said Act as well as that of the excise officers, had held as under:
12. As noted above, the Legislature has omitted the word Collector from the proviso to Section 11A and?purposely replaced it with the words Central Excise Officer. It is the Act which confers jurisdiction on the concerned Officer/s. The Act permits any Central Excise Officer to issue the show cause notices even in cases where there are allegations of fraud, collusion, wilful misstatement and suppression of facts. The question therefore is : Can the Board override the provisions of the Act by issuing directions in the manner in which it is done and if the Board cannot do so then what is the effect of such Circulars?
13. In order to consider the powers of the needs to see certain provisions of the Act. Section 2(b) defines the?Board one Central Excise Officer and it is mentioned therein that any Officer of the Central Excise Department or any person who has been invested by the Board with any of the powers of the Central Excise Officer would be a Central Excise Officer. Thus, the Board has power to invest any Central Excise Officer or any other Officer with powers of Central Excise Officer. By virtue of Section 37B the Board can issue orders, instructions or directions to the Central Excise Officers and such Officers must follow such orders, instructions or directions of the Board. However, these directions can only be for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods. It is thus clear that the Board has no power to issue instructions or orders contrary to the provisions of the Act or in derogation of the provisions of the Act. The Board can only issue such direction as is necessary for the purpose of and in furtherance of the provisions of the Act. The instructions issued by the Board have to be within the four corners of the Act. If, therefore, the Act vests in the Central Excise Officers jurisdiction to issue show cause notices and to adjudicate, the Board has no power to cut down that jurisdiction. However, for the purposes of better administration of levy and collection of duty and for purpose of classification of goods the Board may issue directions allocating certain types of works to certain Officers or classes of Officers. The Circulars relied upon are, therefore, nothing more than administrative directions allocating various types of works to various classes of Officers. These administrative directions cannot take away jurisdiction vested in a Central Excise Officer under the Act. At the highest all that can be said is Central Excise Officers, as a matter of propriety, must follow the directions and only deal with the work which has been allotted to them by virtue of these Circulars. But if an Officer still issues a notice or adjudicates contrary to the Circulars it would not be a ground for holding that he had no jurisdiction to issue the show cause notice or to set aside the adjudication.
91. The issue in relation to the jurisdiction of the excise officer for conducting the investigation and adjudication proceedings has to be answered bearing in mind the law laid down by the Apex Court and Karnataka High Court in the above referred two decisions. Having understood the law accordingly, it is abundantly clear that in the facts and circumstances of the case, that there is no scope to content that the Commissioner at Meerut lacked jurisdiction to deal with the matter.
92. The contention about right to abatement of duty to the extent of Rs. 11,80,60,202/- is obviously based on the claim of cenvat credit. In case of claim of cenvat credit and abatement of duty on that count, nothing prevent the appellants from bringing this aspect to the notice of the concerned authority and justify the same in accordance with provisions of law at the appropriate stage and in appropriate proceedings, including in the proceedings for recovery of amount demanded under the impugned order. Certainly any point raised in this regard will have to be considered by the concerned authority in accordance with the provisions of law.
93. As regards the issue relating to penalty, the contention is that the ingredient of Section 11AC are missing as there was no suppression or fraud with intention to evade the duty. In fact, it is not necessary to deal with this issue elaborately as already observed above there was a clear case of suppression of material facts with intent to evade the duty and that itself justified the imposition of penalty. Bearing in mind the law laid down by the Apex Court in Dharmender Textile Processors case no fault can be found in relation to the imposition of penalty of equal amount of duty.
94. The appellants though in the process of oral argument or in written arguments have not referred to certain reported decisions, there is reference to such decisions in the memo of appeal and probably it would be appropriate to consider those decisions.
95. In Commissioner of Central Excise & Customs vs. Pilot Plastics reported in 2009 (234) ELT 471 (Tri. Ahmd.), the Tribunal had held that activity of putting various parts of water filter in a box and affixing brand name anchor does not amount to manufacture. Apparently, the decision was delivered on the basis of the Tribunals earlier decision in Eureka Forbes (supra) and Dalmia Industries Ltd. vs. Commissioner reported in 1999 (112) ELT 305 (Tribunal) which essentially related to the case of water filter purifier.
96. In Commissioner of Central Excise, New Delhi-I vs. S.R. Tissues Pvt. Ltd. (SC) reported in 2005 (186) ELT 385 (S.C.) the Apex Court was dealing with the issue as to whether the process of unbinding cutting and slitting to seizes of jumbo rolls of tissue paper would amount to manufacture on first principles or under Section 2(f) of the said Act and the same was answered in negative while holding that the characteristics of table napkin and facial tissues and toilet rolls in terms of texture, moisture, absorption capacity, feel etc. are the same as the tissue paper in the jumbo rolls The said jumbo rolls cannot be conveniently used for household or for sanitary purposes. Therefore, for the sake of convenience, the said jumbo rolls are required to be cut into various shapes and sizes so that it can be conveniently used as table napkins, facial tissues, toilet etc. However, the end-use of the tissue paper in the jumbo rolls and the end-use of the toilet rolls, the table napkins and the facial tissues remains the same, namely, for household or sanitary use. The predominant test in such a case is whether the characteristics of the tissue paper in the jumbo roll enumerated above is different from the characteristics of the tissue paper in the form of table napkin, toilet roll and facial tissue. Obviously, the modular and components of the printer copiers cannot perform the same function which a complete machine of photocopier printer can perform. In the said S.R. Tissues Pvt. Limited case, it was also held that value addition on account of transport charges, sales tax, distribution and selling expanses and trading margin cannot be a indecent to decide what is manufactured. However, the said ruling was in a case where it was clearly observed by the Apex Court that under the excise law, value addition based on a process is certainly a relevant criteria to decide as to what constitute manufacture. Such value addition should be on account of change in the nature and characteristics of the product. In the present case, as stated above, there is no change in the nature or characteristics of the tissues paper in the jumbo roll and the nature and the characteristics of the tissue paper in the table napkin, facial tissue etc. Therefore, without such change in the nature of the characteristics of the tissue paper, value addition on account of transport charges, sales tax, distribution and the selling expanses and trading margin cannot be a indecent to decide what is manufactured. That is not the case in the matter in hand, As already seen above, there is definite change in the nature, characteristics and the function of the complete machine pursuant to the assembly of module and parts and accessories in contradiction to the nature, characteristics and function of each of such components.
97. In REPL Engineering Ltd. vs. Commissioner of Central Excise, Mumbai-II reported in 2002 (147) ELT 156 (Tri. Mumbai), the Tribunal had held that putting together different duty paid items in a kit does not amount to manufacture. As already seen above, it is not a mere case of putting together different components for items. Being so, this decision is absolutely not applicable to the facts of the case.
98. Similar is the case in relation to Dalmia Industries Limited vs. Commissioner of C. Ex. Jaipur reported in 1999 (112) ELT 305 (Tribunal). Therein it was held that buying various articles and selling them in a combined pack under a brand name does not amount to manufacture.
99. Taking into consideration the facts and circumstances of the case and applying the law laid down as discussed above, we find no infirmity in the impugned order.
100. The fallout of the above discussion is that as far as Point No. 1 is concerned, the same is required to be answered in affirmative and is accordingly answered. As regards the Point No. 2, it is answered in negative and it is held that the Commissioner did not lack jurisdiction to deal with the matter. The third point is answered in favour of the department while holding that the facts and circumstances of the case clearly justified invocation of extended period of limitation. The fourth point is answered in negative while holding that the decision of the Bangalore Bench of CESTAT is not an answer to the issues involved in the matter in hand. As regards the fifth and sixth points are concerned, the same are left open to be considered at an appropriate stage in the appropriate proceedings in accordance with provisions of law. As regards the seventh point, the same is answered against the assessee and it is held that the facts and circumstances of the case do justify imposition of penalty.
101. The appeals are accordingly disposed of in the above terms.
(Justice R.M.S. Khandeparkar) (President) (Rakesh Kumar) Member (Technical) Pant ??
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