Customs, Excise and Gold Tribunal - Delhi
East India Transformer And Switch Gears ... vs Collector Of Central Excise on 22 March, 1989
Equivalent citations: 1990(29)ECC182
ORDER
Harish Chander, Member
1. M/s. East India Transformer & Switch Gears Pvt. Ltd. has filed an appeal being aggrieved from the order passed by the Collector of Central Excise (Appeals), New Delhi.
2. The appellant is engaged in the manufacture of transformers falling under tariff item 68 of the Central Excise Tariff. They also undertake repair of old and damaged transformers received by them from Uttar Pradesh State Electricity Board (UPSEB). The issue involved is whether the repair work undertaken by the appellant amounts to a process of "manufacture" and liable to fresh duty as transformers or is merely a repairing of old transformers and does not amount to "manufacture" and, therefore, not liable to duty. The learned Assistant Collector had rejected the contentions of the appellant that the repair work undertaken by them does not amount to "manufacture" on the ground that the repair involved replacement of important parts of complete transformers and repairing work undertaken by the appellant amounted to "manufacture" and accordingly duty was leviable on the invoice value charged by the appellant in terms of notification No. 120/75 dated 30th April, 1975 which included the value of the parts and other ingredients and inputs together with the labour charges on the transformers. The learned Collector (Appeals) had confirmed the findings of the Assistant Collector and has rejected the appeal and the appellant has come in appeal before the Tribunal.
3. Shri D.N. Mehta the learned Advocate who has appeared on behalf of the appellant first requested for the admission of the additional evidence vide his application received in the Registry on 17th August, 1988. Shri D.N. Mehta the learned advocate pleaded that he wanted only the following six documents to be admitted as additional evidence and others he did not press the same:-
(i) Representation No. ETS/HMM/CE/79/4663 dated 13-6-1979 addressed to Assistant Collector of Central Excise, Division II, Ghaziabad (U.P.) which led to the passing of the order-in-original in the present case (Annexure-I)
(ii) Specimen copies of gate passes issued in respect of transformers cleared after repairs on payment of duty under protest (Annexure-II).
(iii) Specimen copies of RT-12 returns filed indicating inter alia clearance of repaired transformers (including HT coils and LT coils produced at the,appellant's factory and used captively for the rapair of transformer in question). (Appendix-Ill).
(iv) Copy of permission received from the central excise authorities for receiving duty paid transformers in the factory under Rule 51A of the Central Excise Rules for receiving damaged (duty paid transformers) into factory for repairs (Annexure IV).
(v) Copy of specimen D3 filed with the local central excise authorities under Rule 173H of the Central Excise Rules (Annexure V).
(vi) Extract copy of legal meaning of the term "Repairs of Machinery" as given at page 521 of the Law Lexicon Vol. 2 (1982) by TP Mukherjee (Publisher-Central Law Agency). (Annexure VI)
4. Shri J.N. Nigam, the learned SDR left if to the Bench as to the admission of the additional evidence in respect of Items at (i) to (vi). After hearing both the sides, we admit these documents as additional evidence, as the documents at (i) to (v) are already part of the record and the document at Sl. No. (vi) is an extract from "Law Lexicon".
5. On merits Shri Mehta, the learned advocate has argued that the repairing work undertaken by the appellant does not amount to "manufacture". In support of his arguments he has referred to the following judgrnents:-
Allenbury Engineers Pvt. Ltd. v. Shri Ram Krishna Dalmia and Ors.
The expression "manufacturing purposes" in Section 106 of the Transfer of Property Act (1882) is used in its popular and dictionary meaning, the Transfer of Property Act not having applied any dictionary of its own for that expression. The word "manufacture" implies a change, but a mere change in the material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use.
1982 ELT 794 (GOI) In re: Electric Equipment Factory Process of repairing transformers is not "manufacture" as envisaged by Section 2(f) of the Central Excise Act even if new components and fresh materials are used on which the appropriate amount of duty has been paid, the repaired transformer would not be liable to duty.
Raman Electricals, Mathura v. UOI and Anr.
Repair of transformers--repair distinct from manufacture--repaired transformers not exigible to duty under tariff item 68.
Shriram Refrigeration Industries Ltd v. CCE, Hyderabad Repairing/re-conditioning/re-making shall not amount to 'manufacture' Lalitha Industrial Suppliers Co. P. Ltd. v. CCE, Baroda (Sic) RE-rubbersing and re-conditioning of old and used rollers does not amount to manufacture both before and after 14th August, 1986 1980 ELT 538 (Guj.) Suhrid Geigy Ltd. Ahmedabad v. UOI and Ors.
If an Act imposes central excise duty on an all-India basis, the levy must be collected uniformly from all the manufacturers in the country - levying and collecting excise duty on 13 medicinal preparations only from the manufacturers of Gujrat State was. hit by Article 14 of the Constitution - Amounts to discrimination.
6. Shri Mehta, the learned Advocate has also referred to Notification No. 118/75 dated 30th April, 1975. Shri Mehta, the learned Advocate has further argued that no duty is to be paid on the bought-out items. He has pleaded for the acceptance of the appeal.
7. Shri J.N. Nigam, the learned SDR who has appeared on behalf of the Respondent states that if the transformers are repaired no duty is payable but in the present matter the "repair" is as good as manufacture as almost all the worn out parts are replaced and the old transformers are in the nature of skeletons. He has referred to page 34 of the paper book which relates to the technical specifications for repair and testing of damaged transformers and has laid particular emphasis on para numbers 4,8,12.1, 13.1 and 13.2. He has also referred to the order-in-appeal. He has also referred to Notification No. 120/75 dated 30th April, 1975. For the meaning of "repair" he has referred to TP Mukherjee's Law Lexicon Vol.2 (1982 Edn.) pages 521 to 523. Shri Nigam states that in the present matter repairing amounts to "manufacture". He has referred to a judgment of the CEGAT in the case of Shriram Pistons & Rings Ltd., Gaziabad v. CCE, Meerut where the Tribunal had discussed the distinction between re-making and re-manufacture. He has laid particular emphasis on para Nos. 16(c) and 16(e) of the said judgment where the Tribunal had taken the view that the process carried cut by the appellants did not come within the scope of Rule 173(H) inasmuch as it amounted to "manufacture" of pistons in question. He has referred to a judgment of the Calcutta High Court in the case of Aluminium Corporation of India Ltd v. Coal Board, He has laid special emphasis on para No. 17 of the said Judgment relevant extract of which is reproduced below:-
The word 'produced' appearing in entry No. 84 is used in juxtaposition with the word 'manufactured' and used in connection with a duty of excise and consequently it contemplates some expenditure of human skill and labour in bringing the goods concerned into the condition which would attract the duty. It is not required that the goods should be manufactured in the sense that raw material should be used to turn out something altogether different, but it is still required that they should be produced in the sense that some human activity should be spent on them and they should be subject to some processes in order that they may be brought to the state in which they may become fit for consumption. Coal has to be raised from the bowels of the earth, broken, sifted and graded before it can be offered to consumers. To speak of coal as produced in the sense to its being made a material of consumption by human skill and labour is thus entirely correct and has a sanction of approved usage.
8. Lastly Shri Nigam has referred to the Judgment of the Hon'ble Supreme Court in the case of Empire Industries Ltd. and Ors. v. UOI and Ors. and pleaded that in view of the Supreme Court judgment the activity undertaken by the appellant amounts to manufacture. He has referred to Notification Nos. 118/75, 119/75 and 120/75 and states that Notification No. 18/75 is not applicable in the present case. He has also referred to a decision of the Tribunal in the case of Daya Ram Metal Works P. Ltd. v. CCE, Baroda reported in 1985 ECR 1383 (CEGAT) where the Tribunal had held that value of the bought-out items is to be treated as cost of manufacture of the finished goods, and the simple fact that the appellant invoiced them separately would not make any difference. He has also argued that there is no discrimination to the appellant. In support of his argument he has referred to a judgment in a case of Lallubliai Amichand Ltd., Bombay v. CCE, Bombay , where the Tribunal had held that cutting of aluminium circles from aluminium sheets falling under the same Tariff Item constituted "manufacture". He has pleaded for the rejection of the appeal.
9. Shri D.N. Mehta, the learned Advocate, in reply, has again pleaded for the acceptance of the appeal.
10. We have heard both the sides and have gone through the facts and circumstances of the case. The facts are not disputed. The appeallant had undertaken the repair of transformers of the UPSEB and the repair was done by the appellant in terms of the specifications provided by the UPSEB. The appellant's case is fully covered by the judgment of the Hon'ble Allahabad High Court in the case of Raman Electricals, Mathura v. UOI and Anr. . Para numbers 2 and 3 of the said judgment are reproduced below:-
2. The petitioner, a factory engaged in the manufacture of electric transformers since 1972, started repairing of fused or defective transformers in 1975. Dispute is about payment of duty on value of parts produced in the a factory and replaced in course of repair of transformer. In July, the Government of India in case of Electric Equipment Factory which also carried on repair of transformers decided that In common parlance repair was clearly distinguishable from manufacture, therefore, the repaired transformer did not attract duty under tariff item No. 68. On 28th September, the petitioner relying on this decision applied for refund of duty paid on repair of transformers from April, 1983 to September, 1983. The application was allowed by the Assistant Collector on 30th October, 1984 as the transformers were received from various electricity divisions of U.P. State Electricity Board under repairing contract and their repair did not amount to manufacture as held by Government of India. In November, 1984 the petitioner made another application for refund of duty paid on repair of transformers between 29th September, 1979 to 14th April, 1983. Since no order was passed the the petitioner reiterated its claim by letters sent in February and October, 1985. But when no order was passed it invoked extraordinary jurisdiction of this Court in October, 1985. While entertaining the petition on 30th October, 1985 and inviting counter-affidavit the bench directed the Assistant Collector to dispose of the application for refund. But no orders were passed instead an order dated 18th December, 1985 was passed by Superintendent of Central Excise without giving any notice to petitioner to pay duty on manufacture of certain parts used in process of repairs including coils etc. The order was passed presumably because since 24th October 1983 the revised classification list showing that no duty was leviable on repaired transformer had been approved. On 5th February, 1986 this Court again directed opposite party to comply with its order dated 30th October, 1985. The Superintendent of Central Excise once again directed the petitioner on 4th March, 1986 to submit details of any pay (payment of) duty on old transformer after 24th September, 1983. On same day another notice was given Under Section 11A to petitioner to show cause as to why the amount of duty erroneously refunded for period 5th April, 1983 to 29th September, 1983 may not be recovered and on next day, that is, 5th March, 1986 the Assistant Collector issued a notice to show cause as to why the refund application of petitioner for the period 3rd October, 1979 to 5th April, 1983 may not be rejected as it failed, 'to prove that the new components and the fresh raw material used and replaced in the process of repairs (if excisable) has discharged the respective burden of duty'. The notice further required to show cause as to why should the claim be not rejected as barred by time. In reply it was stated, 'that in course of repair of damaged transformers, transformer oil or leg coils etc. are replaced and the invoice value represents the cost of these material plus painting and labour charges. All the materials and components used are purchased except the leg coils. Transformer oil, porcelain bushings, bushing metal parts and painting material etc. is purchased from the market and wire used in leg coils is also a purchased material' In respect of leg coils it was claimed that it did not amount to manufacture. But even if it was assumed, 'that we manufacture leg coils and used them in transformers they are wholly exempted from duty by Notification No. 118/75 dated 30th April, 1975'. The Assistant Collector however, by its order dated 30th May, 1986 rejected the claim as the petitioner in course of repair replaced certain parts such as magnetic steel core which formed 40 per cent cost of transformer and electric coils of different sizes and some other part manufactured in the unit on which duty had not been paid before, replacing it in transformer. The claim was held to be barred by time as well as it related to period between September, 1979 to April, 1983 and the claim was made in November, 1985.
3. Although the order of Assistant Collector is in teeth of the decision of Government of India on nearly identical facts it cannot be sustained even on merits. The order of Superintendent Central Excise on 18th December, 1985 and 4th March, 1985 gives an impression that they were passed to create ground for rejecting the application for refund. It is not necessary to comment any further as the order of Assistant Collector suffers not only from manifest error of law but is palpably erroneous as it introduced facts without any foundation or basis. The finding that magnetic steel core was used appears to be assumptive. On what material the Assistant Collector recorded this finding has not been disclosed. Even the averments in sub-paragraph(s), (t) and (u) of paragraph of the amendment application averring that petitioner never manufactured or replaced magnetic core as it is not subject to replacement nor did any of its customers which is the Electricity Board, only, ever required it replace it has been specifically denied in the counter-affidavit. What is astonishing is that the allegation that Electricity Board never asked the petitioner to replace magnetic core has been replied by saying that it is technical in nature. Refund is claimed of duty paid on parts used in repair. What were these parts, used to be disclosed in monthly returns. Even the classification list approved by department indicated that components which were manufactured and replaced in course of repair. In none of these magnetic core was mentioned. At least that is not the finding. And allegations in writ petition and amendment application have not even remotely been attempted to be explained. It has nowhere been mentioned that magnetic core was one of the items which was mentioned in monthly return or classification list. Even in reply to the show cause notice the petitioner had given out the parts which were used by it. The magnetic core was not mentioned in it. The finding of the Assistant Collector, therefore, appears to be based on no material. Normally this Court does not examine the correctness of findings recorded by the authorities. But if it appears to be arbitrary and added deliberately to distort the fact and law it has to be dealt with without any compunction. It appears the cue was taken from the argument raised before Government of India in Electric Equipment case that magnetic coils are not normally replaced. The Assistant Collector assumed from it that since magnetic coils was one of the items which could be used in repair of transformer it must have been used by petitioner. A novel way of recording finding of fact on assumption. There is no finding that any part purchased from outside and replaced in the transformer was not duty-paid. The controversy therefore, is narrowed down to if the petitioner was liable to pay duty on parts manufactured in its factory and replaced in course of repair. Even though it is claimed that electric coils the only part which was replaced were prepared by conforming to dimension, weight and design, therefore, it did not amount to manufacture it need not be examined as the government had in exercise of powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 exempted goods falling under item No. 68 of the First Schedule if it was manufacture in a factory and intended for use in the factory in which it was manufactured by Notification No. 118/75-CE dated 30-4-1975. It is reproduced below:-
Exemption to goods used in the factory of production or in any other factory of the same manufacturer-In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession in the M.F. (D.R. & I) No. 58/75-C.E., dated 1-3-1975 the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), manufactured in a factory and intended for the use in the factory in which they are manufactured, or in any other factory of the same manufacturer, from the whole of the duty of excise leviable thereon:
Provided that where such use is in a factory of a manufacturer, different from his factory where the goods have been manufactured, the exemption contained in this notification shall be allowable subject to the proper officer being satisfied that the goods are intended for such use: Provided further that nothing contained in this notification shall apply to complete machinery manufactured in a factory and meant for producing or processing any goods, even if the are intended for use in the same factory in which they are manufactured or in any other factory of the same manufacturer'.
Since the coils or other parts if any were produced or even manufactured for captive consumption, they were exempt from duty under aforesaid notification. The payment of duty therefore, on parts produced in the factory but used in course of repairs of transformers was not exigible to duty and payment was collected on it as duty of excise even though it was exempt.
11. Government of India in the case of Electric Equipment Factory 1982 ELT 794 (GOI) had held that in commercial parlance repair was clearly distinct from manufacture and even if new components and fresh materials are used on which the appropriate amount of duty has been paid. It was further held that the process of repairing of transformers was not "manufacture" as envisaged by Section 2(f) of the Central Excise Act even if new components and fresh materials are used on which appropriate amount of duty has been paid, the repaired transformer would not be liable to duty. The appellant in para No. 12.7 of the grounds of appeal has stated that duty is payable on the value of spare parts manufactured and used in the old transformer. Ground of appeal No. 12.7 is reproduced below:-
12.7: The appellants, therefore, submit that duty is not payable on the entire invoice value under law. At the most, the appellants concede that duty is payable on value of spare parts, manufactured and used in the old transformer. In other words, duty on bought-out parts; transformer oil (bought-out) and labour charges is not chargeable, as is also contemplated under Rule 173-H of Central Excise Rules, 1944. The fact of the matter is old transformers received by the appellants are already duty-paid and no duty can be charged again, except on the new parts manufactured and used in the repair work.
12. We observe that the process of repair of the transformer as set out in the Assistant Collector's order essentially consisted of replacement of the transformer oil and the H.T. leg coils and change of some minor parts. While holding the repair work done as manufacture, the Assistant Collector has merely stated that in the circumstances it amounts to manufacture rather than repair. The Collector (Appeals) in his order has rightly observed as under:-
I am of the view that the 'repairing' undertaken by the appellant amounts to process of 'manufacture' depends upon the detailed process undertaken.
However, he has not in this background discussed how in the context of the repairs undertaken the process of repair could be considered as manufacture. There is nothing on record to show that in any individual case as held by the learned Collector (Appeals), transformer loses its identity as such and all the essential parts required for working of the transformer were replaced. We, in the facts and circumstances of the case, are only taking note of the process of repair as set out in the Assistant Collector's order as mentioned above.
13. In view of the case law discussed above, we hold that the repair of transformers in the instant case does not amount to "manufacture". The appellant is liable to pay duty on the value of spare parts manufactured and used in the old transformers and no duty is chargeable on the labour charges.
14. In the result, we set aside the impugned order and allow the appeal in the aforementioned terms.