Customs, Excise and Gold Tribunal - Tamil Nadu
Executive Engineer, Kseb vs Commissioner Of C. Ex. on 14 November, 1996
Equivalent citations: 1997(92)ELT264(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. The issue in the appeal relates to demand of duty in respect of various items manufactured by the appellants in the workshop of the Kerala State Electricity Board (KSEB). The materials fabricated by them have been described as cross arms stay rods, street light fittings, clamps, earth pipes. Demand has been raised invoking the longer period of limitation. In the show cause notice it is alleged that the appellants have manufactured and cleared goods without Central Excise licence and without following the Central Excise formalities as required under the Central Excises & Salt Act, 1944. In the show cause notice it has been set out that the appellants had suppressed the fact in regard to manufacture and clearance of the goods with intent to evade payment of duty. The appellants replied to the show cause notice and among the various pleas taken on merits by them is that the appellants were under the bonafide belief that the items fabricated by them could not be considered as goods for the purpose of excise levy as no new product by reason of cutting, bending, drilling of holes came into existence. The appellants have also taken the plea that they are State Government Undertaking and the materials which were manufactured are for captive use only to facilitate the operation regarding supply of electricity to the transmission lines. The learned Counsel cited a number of judgments of the Hon'ble Supreme Court in support of the plea of the appellants that unless there was positive action on the part of the appellants to suppress any facts with intent to evade payment of duty, the longer period of limitation could not be invoked. The judgments cited in this connection are the following:
1989 (40) E.L.T. 276 - Chemphar Drugs & Liniments 1989 (40) E.L.T. 159 -ACC Ltd. v. CCE 1989 (40) E.L.T. 472 - Electrical Mfg. v. CCE 1989 (43) E.L.T. 195 SC - Padmini Products v. CCE 1991 (55) E.L.T. 130 - Tibrewal Industries v. CCE The learned Counsel for the appellants arguing on the merits of the case showed us samples of the items which have been fabricated by the appellants. Among the items shown are cross arms; this is only cut portion of an angle with holes drilled therein, earth pipe i.e. pipe cut in the required length and one end crimped i.e. narrowed. The stay rod is in the nature of thread at one end a bend portion at the other end. Street light fitting is a bend pipe with thread at one end with clamps attached to the other end. The clamp is a bend pipe strip, it is shaped at the two ends which are fitted on to the structure with a 'U' bend in between to hold the pipe etc. The learned Counsel explained that all these operations were in the nature of fabrication and the original items are only cut to size and shapes and they do not lose their original character and no new product emerged out of the same for the purpose of excise levy. He has further pleaded that even though some items may not be held to be answering to the original description of the raw materials out of which these have been fabricated, no mala fides can be attributed against the appellants in the facts and circumstances of the case. He has pleaded that there are number of decisions of the Tribunal under which it has been held that mere bending or drilling holes, punching etc. would not amount to manufacture. His plea is that what the appellants were doing was only cutting of angles and strips and pipes and in some cases bending for the purpose of use of the materials as line material for fitment on the poles etc. He has pleaded that in this background the appellants were under the bonafide impression that these operations would not amount to manufacture of goods and no mala fides therefore can be attributed against the appellants. He has further pleaded that the appellants are a State Government Undertaking and the officers who were incharge of the manufacturing operations had no motives to hold back any information nor is there any correspondence or record to show that the officers had entertained any doubt regarding excisability of goods and that the appellants were aware of the requirement of payment of duty, yet they did not take out licence and did not come before the Central Excise authorities to pay duty or sought clarification from them. He has further pleaded that the appellants in their reply to the show cause notice had taken the pleas as to how the charges of suppression with intent to evade payment of duty could not be sustained against the appellants. He has pleaded that the learned lower authority has not referred to any of the pleas urged by the appellants nor is there any finding entered in the impugned order that the appellants had suppressed any fact with intent to evade payment of duty. In his order, the learned Counsel pleaded, the lower authority has dealt with the following items:
(1) Street light fittings (5) CT Meter Box
(2) Stay rods (6) Various types of clamps
(3) Cross arms (7) Earth pipes
(4) Panel Boards
The learned Counsel referred us to the proceedings drawn by issue of the show cause culminating in the impugned [order] and pleaded and urged that CT Meter Box and panel boards are not subject matter of levy and yet the learned lower authority has proceeded to advert to these items which were not the subject matter of levy in the proceedings while at the same time the adjudicating authority has not referred to purlins, which was mentioned as one of the items for demand of duty. He has pleaded that the various items enumerated above have been fabricated by cutting, bending or holes drilling. He has pleaded that the Tribunal in a number of cases have held that drilling of holes etc. could not give rise to new product for the purpose of excise levy. In this connection he urged that longer period of limitation could not have been invoked against the appellants. He has further pleaded that the lower authority's order is clearly silent on this point as there is no specific finding to show that the appellants had suppressed any fact with intent to evade payment of duty. The learned Counsel further urged that without taking note of all these pleas of the appellants, the impugned order has been passed. He further urged that apparently the CCE, could not find fault with these pleas of the appellants and therefore without entering any finding he has confirmed the duty. In the above background he has urged that on ground of limitation alone the appeal has to be allowed.
2. Shri V. Thyagaraj, the learned SDR for the Department has pleaded that some of the items manufactured i.e. street light fittings, and clamps are items which have emerged as new product by reason of the fabrication work done by the appellants. Prima facie we are of the view that some of the items like clamps, light fittings may be chargeable to excise duty by reason of the form in which these have emerged as a result of the fabrication work done. The learned SDR for the Department has further urged that the appellants have full range of machinery to fabricate and manufacture various items and there was no reason why they did not come forward to declare their manufacturing operations before the authorities and why they did not take out a licence. He has further pleaded that since the appellants did not make the Central Excise authorities aware of their manufacturing activity their motive to evade payment of excise duty is clear. He in the circumstance pleaded that longer period of limitation would be invokable.
3. We have considered the pleas made by both the sides. We observe that the appellants are manufacturing a range of products. While some of the items cross arms which are merely cut to size to the required length with holes drilled as mentioned by the appellants, while others are in the nature of pipes which have been cut to length and crimped at either ends. There are other items, such as light fittings, panel boards, and clamps which prima facie appear to be items which can be taken to have acquired new name and character and use and by reason of which these can be considered as new product for the purpose of excise levy. Inasmuch as we propose to dispose of the appeal on ground of limitation, we are not entering any finding on the merits of the issue on ground of excisability of the goods. We observe that in the Annexure to the show cause notice, in the opening para, it has been set out as under:
"M/s. Kerala State Electricity Board is a statutory Board under the Government of Kerala charged with the responsibility of generation and distribution of electricity within the State of Kerala. In discharge of this duties, the Board constructs generating stations and sets up networks for distribution of electricity all over the State. Various items required for this purpose are partly purchased from outside sources and partly fabricated in their own yards. Central Mechanical Division, Pallom under the Board inter alia undertakes the fabrication of various items like street light fittings, panel boards, C.T. Meter Box, clamps, cross arms, stay rods, trusses, etc., in their fabrication section and workshop section at Pallom, Kottayam. Both the above units are situated in the same premises at Pallom, (Collectively mentioned as workshop hereunder)."
Again in the Annexure to the show cause notice at Para 19, the following has been set out:
"19. It also appears that M/s. KSEB have suppressed the fact of manufacture of the various items like street light fittings, stay rods, cross arms and their clearance without payment of duty and consequently there appears to be a fit case for invoking the extended time limit provisions under Section 11A of the Central Excises and Salt Act, 1944."
Thus there is attribution that the appellants have suppressed the fact of their production and clandestine removal of the goods and therefore for that reason longer period of limitation has been invoked in terms of Section 11A of CEA 1944. There is no discussion as to the facts and circumstances of the appellants' manufacturing activity and in the background of which the charges against the appellants can be taken to be sustainable in law. The appellants in their reply to the show cause notice in Para 8 have dealt with the entire details and have urged their pleas as to how longer period of limitation could not be invoked against them. This para is reproduced below for convenience of reference
8. The show cause notice also alleges that we have suppressed the production and clearance of excisable goods with intent to evade payment of duty and therefore the larger period under the proviso (1) to Section 11A of CE & Salt Act, 1944 is invokable. This allegation is not correct and sustainable. As already stated the KSE Board is constituted by the State of Kerala under the provisions of Sec. 5 of the "Electricity (Supply) Act, 1948. The Board is engaged in the generation and distribution of electricity to the needs of the public. The Board is neither a commercial Institution nor an Industrial concern. The Board is not manufacturing any commercial article for sale. So there was no reason or occasion for the Board to go into the details of the excise law. Without prejudice to our argument on the whole issue, we may submit to Collector's information that K.S.E. Board is having two major wings, namely Civil and Electrical wings. There is tight compartmentalisation in the various sections in each wing and so much so the activities of one Section may not be and need not be known to the other section. The pole casting work has been shifted to the Civil wing only on 1-4-1991 and prior to that the work was under the Electrical wing. So there had been no occasion or chance for the civil wing to look into the excisability of the processed articles. The duty on P.S.C. poles casted by job workers are reimbursed /advanced by us as they have been held as manufacturers by the Hon'ble Tribunal as per order reported in 1990 (47) E.L.T. (62). The present show cause notice is issued to the Executive Engineer, C.M. Division, Pallom. The officers who held charge of this Division had no chance, in the past, to examine the excisability of the materials as they were not well versed with excise formalities and procedure. Since the practice was continuing for long there had been no chance for the Executive Engineer to examine the excisability of the goods processed in the workshop under his charge. In these circumstances it is not correct to say that the Kerala State Electricity Board has acted wilfully with intention to evade duty. It is our bona fide belief that the articles processed in the Mechanical Division are not excisable. Further the K.S.E. Board is constituted by the Govt. of Kerala for the specific purpose of distribution of Electricity to the people of the State. This being so, there cannot be an intention on the part of K.S.E. Board to suppress any fact with intent to evade payment of duty. The activities employed by the K.S.E. Board are with good intention for the smooth and efficient functioning of generation and distribution of electricity. The processed articles are not offered for sale, rather used in connection with the distribution and supply of electricity. The processed articles have not been sold to anybody. The generating stations and transmission lines are the property of the K.S.E. Board and hence the Board, at no point, have parted with these articles. The various judgments and decisions cited at Para 6 above proves that the articles processed by us are not excisable as no process amounting to manufacture in terms of Sec. 2(f) of the Act has taken place and no new product with distinct name, character or use has emerged as a result of the processes. This being so, the Board was of the bona fide belief that the processed articles were not to be coming under the purview of Central Excise Act and rules. It is unbelievable to think that the Board, being a constituted Authority under the Govt. of Kerala and answerable to the A.G. of Kerala will even suppress any fact wilfully with intention to evade payment of duty. And by suppressing any fact the Board is not going to get any special advantage or profit out of it. It is the endeavour of the K.S.E. Board to supply electricity at a reasonable minimum tariff. It does not mean that the above object of the K.S.E. Board is to be achieved by evasion of duty. The Board were of the bona fide belief that the articles processed by them did not attract duty liability under the CE & Salt Act, 1944 as no new products have been manufactured by them as the processes employed by them did not change the characteristics of the raw material. Mere failure or negligence on the part of the manufacturer either not to take out a licence or not to pay duty in case where there was a scope for doubt as to the excisability of the article does not attract the extended limitation. In order to make a demand under Section 11A for a period beyond six months and upto a period of five years, something positive other than mere inaction or failure on the part of the manufacturer or conscious or deliberate withholding of information is required to be established. The alleged intention of the K.S.E. Board to evade payment of duty has not been proved by the Department. The K.S.E. Board being a constitutional creature under the Govt. of Kerala cannot commit and did not commit an act deliberately to evade payment of duty. The members, officers and employees of the Board shall be deemed to be public servants when acting or purporting to act in pursuance of any of the provision of the "Electricity (Supply) Act, 1948 as per Sec. 81 ibid. Therefore neither the Board nor the officers can perform any deliberate action amounting breach of law. Assuming, but without admitting, if any breach of law is involved, it is only an act of non-compliance out of ignorance, and such mistake may be viewed as a technical mistake and not a wilful action. Since the Board or its officers have not wilfully done any act with intent to evade payment of duty, it is submitted that the extended period of limitation under proviso (i) of Section 11A of the Act may not be invokable and in such circumstances only the normal period of 6 months under Section 11A alone will operate.
The following judgments and decisions are relied on in support of our defence.
(i) 1989 (40) E.L.T. 276 (SC) - Collector v. Chemphar Drugs & Liniments. In the above case, the Hon'ble Supreme Court held that "In order to make a demand under Section 11A for beyond a period of six months and upto a period of 5 years, something positive other than mere inaction or failure on the part of manufacturer or producer or conscious or deliberate withholding of information is required to be established. Where the manufacturer's action is based on their belief that they were required or not required to carry out such action or inaction, the period beyond six months cannot be made applicable".
(ii) 1989 (43) E.L.T. 195 (SC) - Padmini Products v. Collector of CE.
In that case the Hon'ble Supreme Court held that mere failure or negligence on the part of the manufacturer either not to take out a licence or not to pay duty in case where there was a scope for doubt, does not attract the extended limitation. Extended period is to be considered where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion, or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act/or of the rules made thereunder with intent to evade payment of duty. These ingredients postulate a positive act, therefore, failure to pay duty or take out a licence is not necessary due to fraud, collusion etc.
(iii) 1989 (40) E.L.T. 159 (Tribunal) - Associated Cement Company Ltd. v. Collector.
The Tribunal held in the case that there was no findings that the appellant had not complied with Central Excise formalities for clearance of goods with intent to evade payment of duty. Appellant was under the bonafide belief that there was no duty leviable on the goods. Hence there was no warrant for demanding duty beyond six months. The Tribunal has relied on the decision in the case of Singareni Collieries reported in 1988 (37) E.L.T. 361 (Tribunal).
(iv) 1989 (40) E.L.T. 472 (Tribunal) - Electrical Mfg. Co. Ltd. v. Collector.
In that case Tribunal held that to mount a deception with wrongful motives of evading duty, there must be a concealment of a fact or a material known only to the concealer, then only is he deceiving with motive to achieve unlawful and illegal profit thereby.
(v) 1991 (55) E.L.T. 130 (Tribunal) - Tibrewal Industries v. Collector.
The Tribunal in that case held that penalty not justified in the absence of mala fides for lapses to file declaration, obtain licence and pay duty. Manufacturing activity of the appellant is not clandestine and its failure to give declaration, obtain licence and pay duty not mala fide and not amounting to suppression. The Tribunal has relied on the decision of the Hon'ble Supreme Court in the case of Chemphar Drugs and Liniments reported in 1989 (40) E.L.T. 276.
The judgment and decisions quoted above suggest that mere inaction or negligence on the part of a manufacturer will not amount to suppression of facts with intention to evade payment of duty. Something positive other than inaction is required to establish suppression of facts. There is nothing on record to show that the K.S.E. Board has wilfully suppressed any facts with a motive to evade payment of duty. The articles processed in our workshop are not standard or conventional goods. These articles are of special designs and drawings and intended for a particular use. These items of articles are generally not available in market for purchase and sale. In that sense these articles are not "goods" to attract duty under the Central Excise Act and Rules. Marketability of an article is an essential ingredient to attract levy of duty. The Hon'ble Supreme Court in the case of Bhor Industries v. Collector of C.E., reported in 1989 (40) E.L.T. 280 held that in order to be "goods", it should be something which can ordinarily come to the market to be bought and sold. Thus the test of marketability is an essential ingredient for dutiability even if the goods are specified in the Tariff Schedule. It has also been held by the Hon'ble Supreme Court in the case of Bharat Forge & Press Industries v. Collector ofC.E. that merely because goods after processing become different commercial commodity or have a distinct name, does not change excise classification if they continue to be goods of the same species, hence they are not again dutiable.
From the aforementioned judgments and decision it follows that to attract Central Excise levy, the goods are to be known commercially, it shall be marketable and shall ordinarily be available for purchase and sale. The articles processed by us are not goods commercially known in the market. These items are not offered for purchase and sale. The articles are solely used for the transmission of electricity. The goods after processing is not losing its identity and the original characteristics of the articles are retained. In view of the above position and those discussed in the preceding paragraphs, it is our submission that we have not suppressed any fact with intent to evade payment of duty and hence the extended period of limitation under Sec. 11A(1) proviso of the Act if not applicable. It may also be emphasised here that the Board Members or its Officers can never have a conscious reason to deliberately suppress certain facts as they are individually or collectively not getting any unlawful benefit or gain out of such deliberate act. The Board being constituted under a statute and being a public utility agency for supply of electricity to the people of the State can never have a malicious motive to evade payment of duty. As already mentioned, if at all any failure or inaction on the part of the K.S.E. Board is involved it is purely out of ignorance of Excise law and procedure, which may not be viewed as a wilful act with intent to evade payment of duty.
The appellants have cited a number of case laws wherein they have urged that the Hon'ble Supreme Court has held in the circumstances of the manufacture of goods, unless something positive is shown that the appellants have withheld information with intent to evade payment of duty the longer period of limitation cannot be invoked. The learned lower authority has taken note of these pleas of the appellants and in spite of that there is no finding entered on the pleas made by the appellants in this regard. Therefore, a finding has to be entered by the adjudicating authority on what basis according to him the longer period of limitation would be invokable against the assessee. We observe that it is one thing to attribute something in the show cause notice but another thing to upheld the charge based on evidence. But in the present case there is no rinding to sustain the charge against the appellants. To sustain the charge what is required to be shown is that the basis which has been laid in the show cause notice should be substantiated after taking into consideration the pleas of the appellants in regard to that. In the present case the learned lower authority has not traversed the pleas made by the appellants and merely by ipse dixit stated that the demand against the appellants is sustainable. We would like to observe that in a number of decisions this Tribunal has held that operations like that cutting and punching in the case of angles etc. does not amount to manufacture. In our decision in the case of Tansi Engineering Works v. CCE, Coimbatore in our Order No. 1370/96, dated 22-8-1996, reported in 1996 (88) E.L.T. 407 (Tribunal) which was delivered by Justice U.L. Bhat, speaking for the Bench the following case laws were taken note of:
1. 1987 (28) E.L.T. 352 - CCE v. Dodsal. Pvt. Ltd.
2. 1990 (48) E.L.T. 539 - Pratap Steel Rolling v. CCE.
3. 1993 (64) E.L.T. 469 - RS Steel Works v. CCE.
4. 1993 (67) E.L.T. 138 - Dodsal Mfg. Pvt. Ltd. v. CCE.
After taking note of this judgment we have to see whether in the facts and circumstances of this case, some of the materials manufactured by the appellants in that case are similar to the ones manufactured in the case of the appellants herein and duty can be demanded in respect of those goods notwithstanding the fact that under Chapter Heading 7308 of the tariff for cut length etc. which were intended for use in structures shown to be chargeable under that item. The view taken in that case is that inasmuch as these operations cannot be considered as manufacture in the context of Section 2(f) of CEA, no duty can be demanded in respect of the same. Paras 7,8 & 9 of this judgment are reproduced below for convenience of reference.
7. The contention of the Department that angles are specifically included in the above tariff and channels would attract the description "shapes", and would at any" rate attract the expression "and the like" and therefore the appellant who has brought into existence angles and channels for use in structures of iron and steel must be held to have manufactured by the same. The question whether a product is of "manufactured" and whether the process adopted is a process which amounts to "manufacture" under Section 2(f) of the Act is a matter which has to be decided on its merits and not merely from the circumstances that a particular expression or name finds a place in the Tariff entry. It is only when a new commodity is brought into existence, which is movable, salable and marketable, can it be said that it is a product of "manufacturing" activity. Going by the definition, the consistent view taken by the Tribunal has been that subjecting angles and channels to cutting and punching would not amount to "manufacture". Of course conversion of steel materials into angles and channels may amount to "manufacture". The question is not whether such conversion amounts to "manufacture"; the question is whether subjecting such angles and channels to process which can be described as cutting and punching amounts to "manufacture". The clear and consistent view of the Tribunal has been in the negative.
8. In the circumstances, as observed by the Supreme Court in Paragraph 6 of the judgment in the case of Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad, reported in 1995 (76) E.L.T. 241 (SC) reference to a particular item in the Tariff Schedule is not decisive and it is always open to the assessee to prove that the particular item, in spite of being mentioned in the schedule would not be subject to duty either because it is not goods or it is not manufactured or it is not capable of being marketed.
9. The only other question which remains for consideration is whether the amendment brought about in the definition "manufacture" of Section 2(f) of the Act has an effect of changing the legal position. The amendment reads as under:
"manufacture" includes any process -
(i)...
(ii) which is specified in relation to any goods in the Section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture"
(Emphasis applied) The Legislature evidently realised that it would not be possible to provide an exhaustive list of various products. As and when contingency arises, there should be a methodology for easily declaring that a particular process amounted to manufacture, even though going by the normal meaning of the expression "manufacture" the process may fall short or may not amount to "manufacture". Therefore, the Legislature adopted the device of incorporating Clause (ii) of Section 2(f) whereby as and when contingency arises, the Legislature could specify in a Section or Chapter Note of the Tariff Schedule in relation to a particular goods that certain process amounts to "manufacture". In other words, the amendment to the definition empowers the Parliament to enlarge the scope of "manufacture" by roping in processes which may or may not strictly amount to manufacture or processes in regard to which there could be genuine doubt whether it amount to manufacture or not, by the simple device of specifying the particular process in the Section or Chapter Note of the Tariff Schedule, with reference to particular goods as amounting to manufacture. The language used in the amendment is cautious and circumspect. It requires specification not of goods but of process. It requires specification of process as amounting to manufacture. It also further requires that the specification must be in relation to any goods.
Taking into consideration the position as emerges above, we are persuaded in the view that the appellants bona fide believed that the operations carried out by them might not amount to manufacture. Even otherwise no circumstances have been brought on record by the learned lower authority to show that the appellants had suppressed the facts with intent to evade payment of duty. In view of the above discussion we hold that inasmuch as the learned lower authority has not laid any basis in his order for invoking the longer period of limitation nor was any material before him to come to such a conclusion, we are of the view that the appellants' plea on limitation has to be allowed. In the circumstances, we allow the appellants' plea in regard to suppression of fact and invocation of longer period of limitation. We therefore hold that the demand is barred by limitation.
4. So far as the merits of the case are concerned, the same are left open for consideration and we are not making any observation in this regard.