Customs, Excise and Gold Tribunal - Delhi
M/S. Fedders Lloyd Corporation Ltd. vs Cce, Mumbai Ii on 30 April, 2001
Equivalent citations: 2001(135)ELT1331(TRI-DEL)
ORDER
V.K. Agrawal
1. The issue involved in this appeal filed by M/s. Fedders Lloyds Corporation and two others is whether they manufacture split air conditioners classifiable under Heading No. 84.15 of the Schedule to the Central Excise Tariff Act.
2. Briefly stated the facts are that M/s/ Fedders Llyod Corporation received condensing units, cleared from their unit at Kalkaji (New Delhi), at Mumbai; they purchased cooling units manufactured by local manufacturers and cleared the entire unit of split air-conditioners to the customs. They neither got registered as manufacturer of split air conditioners with the Central Excise Department nor paid the central excise duty. A show cause notice dated 3.4.96 was issued to them for demanding duty for the period from October, 1991 to April, 1996. The Commissioner, Central Excise, under the impugned Order No. 124/97 dated 30.12.1997, confirmed the demand of duty amounting to Rs. 56,14,293/- and imposed a penalty of equal amount on the Assessee Company. She also imposed a penalty of Rs. 25,000/- each on Shri B.R. Punj, Managing Director and Shri R.P. Sharma, Branch Head at Mumbai holding that the fact that the goods came into existence from two different units would not make a difference as items are for the sake of convenience supplied in CKD condition; that the duty earlier was charged on par with air-conditioner but not as air conditioner and the duty structure was laid down by the Government but not for classification.
3. Shri V. Lakshmikumaran, learned Advocate, submitted that M/s. Fedders Lloyds Corporation manufacture air conditioners, condensing units and cooling units for split air conditioners at their factories situated at Kalkaji (New Delhi) and Noida; that whenever condensing units with pipe kits and cooling units are cleared together, it is cleared as split air conditioners on payment of duty on the whole value; that whenever only condensing unit is cleared alongwith pipe kits, they pay duty on the value of condensing unit; that similarly where cooling unit along is cleared, the duty is paid on the value of cooling unit and as such the value of the split air conditioner is the sum-total of the value of condensing unit and cooling unit. He further mentioned that prior to 1.3.1994, the rate of duty on air conditioners was specific and with reference to the capacity of the air-conditioner; that as per Explanation to Notification 166/86-CE, dated 1.3.1986 the duty leviable on split unit air conditioner will be apportioned equally between cooling unit or room unit and the condensing unit of the said air conditioner. The learned Advocate, further, submitted that in other words in the case of split air conditioners, condensing unit and cooling unit were identified separately as such at the point of clearance from the factory and no duty was contemplated at the point of installation in customer's premises. He also said that they stock transferred some of the condensing units to their Mumbai Branch; that Mumbai branch procured cooling units from local manufacturers; that the condensing units and the cooling units were installed at the premises of the customers through M/s. Airserco P. Ltd., a contractor; that at no point of time, manufacture was contemplated at the point of installation of the condensing unit and the cooling unit in the premises of the customers to bring into existence 'split air conditioner': that the Department is asking them to pay excise duty twice; that there cannot be duty levy twice over; that there cannot be demand on the item not manufactured by them; that the concept of CKD does not apply to transit points; that Rule 2(a) of the Interpretative Rules is not applicable as it does not suggest that where the goods are manufactured by different manufacturers and are cleared from their respective units, it should be considered as supply in CKD condition; that the question of clearance in CKD condition by different manufacturers of an excisable goods is an incorrect inference; that the law does not provide for any such inference; that the question of an excisable item being manufactured by two different manufacturers and removed in CKD conditions cannot at all arise; that Note 6 to Section 8 of the Tariff is also not applicable as both the condensing units and cooling units are finished items and are not incomplete or unfinished; that they simply fit them in customers' premises; that split air conditioner is always assessed as fully manufactured item; that the Central Board Excise and Customs clarified vide Circular dated 12.7.1996 that units of split air conditioner cannot be treated as parts and when cleared separately will not be eligible for concessional rate of duty available to the parts of air conditioners under Notification No. 56/95 dated 16.3.95; that they have followed Note 4 to Section XVI as they had classified their product as air conditioner.
4. The learned Counsel also mentioned that they had no reason to believe that their was manufacture at the point of installation; that the manufacture which is alleged in the impugned Order is out of a strained interpretation and the suggestion of the Department that there is manufacture is not well founded and accordingly question of any suppression on their part does not arise. He said that a reference was specifically raised by M/s. Voltas Ltd. with the Chief Commissioner, Mumbai/Commissioner Excise, Mumbai III after the duty was made chargeable advalorem; that M/s. Voltas suggested that is duty is to be paid @ 40% on condensing unit and cooling unit and cooling unit, Notification No. 56/95 dated 16.3.95 may be amended to exclude the condensing unit and cooling units from the purview of Serial No. 11 of the Table appended to Notification under which 30% duty was prescribed for the parts and accessories of air conditioning appliances and machinery; that the Chief Commissioner, Mumbai recommended to the Board to make suitable amendment in Notification No. 56/95 as suggested by M/s. Voltas Ltd.; that the Chief Commissioner had ascertained the practice of assessment of the goods from the jurisdictional Commissioner according to which the assessees were paying duty on split air conditioner i.e. room unit and condensing unit as air conditioner when cleared separately. He contended that neither the Chief Commissioner nor the Board held that the condensing unit or cooling unit should be considered as parts of split air conditioners and they should be charged to duty accordingly and thereafter again at the point of installation it should be considered as manufacture of split air conditioner and charged to duty again.
5. The learned Advocate also contended that the impugned Order is not a reasoned one; that the Tribunal in the case of T.I. Diamond Chain Ltd. vs. CCE, Chennai, 1999 (35) RLT 517 (CEGAT) held that testing of rear wheel sprocket and gear box sprocket, procured from outside, and packing them with goods manufactured by the Appellants and labelled as transmission does not amount to manufacture of a new product; that appeal filed by the Revenue was dismissed by the Supreme Court on 3.3.2000 in Civil Appeal No. 396/2000 along with other appeals. He also referred to Board's Circular No. 479/45/99 CX dated 17.8.1999 wherein it has been clarified that the activity of fitting the parts and components of an air-conditioner in a car does not result into manufacture of a new excisable item and contended that similarly installation of condensing and cooling units at customers's premises does not result into manufacture of split air conditioners. Finally he submitted that if the duty is held to be payable by them, they will be eligible to avail of the Modvat credit of the duty paid in respect of condensing units and cooling units; that price has to be considered as cum duty price and assessable value has to be determined after deducting the duty element as held by the Larger Bench of the Tribunal in Srichakra Tyres case. Regarding imposition of penalty, in Srichakra Tyres case. Regarding imposition of penalty, the learned Advocate mentioned that Section 11AC came into effect only on 28.9.96 and the entire demand is prior to that date and as such penalty is not imposable as held in the case of Marcanday Prasad Radhakrishnan Prasad P.Ltd. vs. CCE, 1998 (102) ELT 705 (T) s and appeal has been dismissed against this decision by the Apex Court as reported in 1999 (107) ELT-A 121; that no penalty is imposable on two other appellants as the Commissioner has not discussed anything in the impugned Order nor given any finding therein.
6. Coutering the arguments, Shri R.K. Sharma, learned SDR submitted that only after the registration of a case against M/s/ New Gold Air Conditioners, a unit manufacturing 'Cooling unit', the Department came to know that the Appellants were manufacturing and supplying a complete set of split air conditioners to various customers in Maharashtra, Gujarat and Goa; that the Appellants, at their workshop/godown were carrying out certain checks for quality by filling gas; that brand name 'Fedders Lloyd' was also affixed on the cooling unit procured form New Gold Air Coditioners; that thereafter both 'Cooling unit' and 'condensing unit' were cleared alongwith pipe kits, electrical cord, remote control, etc., to various customers in whose premises the air-conditioners ware installed by M/s. Airserco who were paid the job charges by the Appellants. He, further, submitted that the orders were received for the split air-conditioners and the goods supplied by the Appellants were complete split-air conditioners; that they were giving warranty also for split air conditioner, and not for only 'condensing unit' manufactured by the Appellants at Delhi. The learned SDR also mentioned that as per declaration filed by M/s. New Gold Air Conditioner on 25.4.1996, they ware only manufacturing 'sheet metal body of air conditioners'; that thus it is evident that split air-conditioner came into existence only at the Godown/workshop premises of the Appellants. He finally mentioned that the activity of manufacturing of split air-conditioner was not disclosed to the Department by the Appellants; that letter of 1995 of M/s. Voltas Ltd. will not of any help to the Appellants as it does not reflect the practice indulged in by them; that as the fact of manufacture of split air-conditioners was suppressed from the Department, extended period of limitation for demanding duty is invokable. In reply, the learned Counsel for the Appellants - mentioned that filling of gas for testing leakage would not amount to manufacture of split air conditioners by them; that one cannot imagine that installation of split-air conditioners at premises of customers will amount to manufacture and as such question of their suppressing any fact or making of disclosure of their activity to the Department does not arise.
7. We have considered the submissions of both the sides. The Appellants are receiving 'condensing units' from their factory at New Delhi. They get 'cooling units' from M/s. New Gold Air Conditioners. After conducting certain checks and affixing their brand name, the entire unit consisting of 'condensing unit' and 'cooling unit', pipe kits, electrical cord, remote control, etc. were cleared by them to their customers' site. It is thus apparent that the split air-conditioner comes into existence in unassembled from at the premises of the Appellant. Applying Rule 2 (a) of the Rules for the Interpretation of the Schedule to the Central Excise Tariff Act, the goods at their premise shave the essential character of the complete or finished goods and as such excise duty on split air-conditioner becomes payable by the Appellants before its clearance becomes payable by the Appellants before its clearance to the customers' site. Shri Raghunath Prasad Gupta, Commercial Manager of the appellants at Mumbai, has mentioned in his statement that a complete unit of split air-conditioner was supplied to various customers in and around Mumbai. We also agree with the learned SDR that provisions of proviso to Section 11A(1) of the Central Excise Act for demanding duty for extended period are invokable in the present matter as the fact of manufacture of the split air-conditioner was suppressed from the Department by the Appellants. The letter dated 6.7.1995 from M/s. Voltas Ltd addressed to the Commissioner, Bombay-III and the Principal Commissioner, Central Excise, Bombay cannot be, by any stretch of imagination, treated as a disclosure of the activity of manufacture of split air-conditioner by the Appellants. The Board's Circular No. 479/45/99-Cx dated 17.8.1999 relates to the question whether fitting of duty paid parts and components of an air-conditioner in a car amounts to manufacture. The activity was not considered as amounting to manufacture as parts were fitted part by part in different places in a car engine and elsewhere in the car and at no point of time a car air-conditioner as a separate and distinct commodity came into existence. Such is not the situation in the present matter as a split air-conditioner comes into existence at the premises of the appellants.
8. We, however, agree with the learned Advocate that the Appellants would be eligible to avail of Modvat Credit of the duty paid on inputs as the product is now ordered to be liable to pay duty subject to the condition that they produce duty paying documents in respect of the inputs to the satisfaction of the jurisdictional Assistant Commissioner. The demand of duty in the present matter, pertains to the period upto April, 1996, that is before the provisions of Section 11AC of the Central Excise Act came into existence and as such penalty, imposed under Section 11aC of the Act, is set aside. Further, we find no mention of reasons in the impugned Order of imposing penalty on Shri B.R. Punj and Shri R.P. Sharma under Rule 209A of the Central Excise Rules and accordingly we set aside the penalties imposed on both of them. Finally, in terms of the decision of the Larger Bench of the Appellate Tribunal in Sri Chakra Tyres Ltd. vs. CCE (33) RLT 1, the price at which split-air conditioner was sold by the Appellants has to be treated as 'cum duty price' from which the assessable value has to be determined by the Adjudicating Authority. The matter is thus remanded to the Adjudicating Authority for recomputing the amount of duty.
9. All the three appeals are disposed of in the manner indicated above.