Customs, Excise and Gold Tribunal - Tamil Nadu
Eureka Forbes Ltd. vs Commissioner Of Central Excise on 5 June, 2000
Equivalent citations: 2000(72)ECC161, 2001(138)ELT1124(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. This appeal arises from Order-in-Original No. C. No. V/84/15/142/97 Cx. Adj. in Order S. No. 4/98 dated 7.4.98 passed by Commissioner of Central Excise, Coimbatore confirming duty demand of Rs. 10,94,697 as BED and another sum of Rs. 20,035 as SED under Rule 9(2) of Central Excise Rules, 1944 and Section 11A(2) of Central Excise Act, 1944 read with proviso to Section 11A(1) besides interest charged under Section 11AB of the Central Excise Act. A penalty of Rs. 11,14,732 under Rule 9(2) read with Rule 173Q of Central Excise Rules and Section 11AC of the Act has been imposed.
2. The charge against the appellants was that they were bringing together all parts of water filter and packing the same in printed cartons and presenting the complete unit called "Aqua Guard ST-2000" in its completeness amounted to process of manufacture attracting Central Excise duty. It was found by the investigating officers that the appellants had not obtained central excise registration from the department and had not paid duty on the complete product, thus manufactured and cleared by them, and hence duty demand was raised for the period Oct '92 to Jan '97 by invoking proviso to Section 11A of the Act. Detailed statements were taken from various parties and they were issued with show cause notice calling for explanation as to why the process carried out by them and affixing the brand name should not be considered as process of manufacture and to hold that complete product "Aqua Guard ST-2000" came into existence and duty should not be confirmed on them.
3. Appellants's basic objection was that such a process of packing did not amount to a process of manufacture and that they were merely affixing the brand name on manufactured product which did not result into a process of manufacture of new goods and all the parts had already suffered duty one as such question of paying duty over and again did not arise as they were already finished goods. They have taken the stand that all the items were purchased by them on payment of duty and merely assembly or repacking did not make it a process of manufacture. However, after a detailed consideration of their pleas, the Commissioner held that as per Section Note 6 of Section XVI of CET, conversion of an article which is incomplete or unfinished but having essential character of the complete or having articles into a complete articles amounts to process of manufacture and hence what they cleared was fresh goods in terms of said note and hence they are required to discharge duty. He has also taken the view that there was deliberate attempt to evade duty to suppress the facts and as a result larger period was invocable and that they were liable to be penalised and also interest also chargeable.
4. When the matter came up for hearing, Ld. Counsel submits that the issue in question was raised by appellants in other proceedings initiated by the Commissioner of Central Excise Mumbai VI on the same events that such removal of bought out items had already suffered duty and marketing in the like manner did not amount to process of manufacture. The appellants had taken the very stand as in the present case that such assembly did not result into a process of manufacture and no new goods arose. The Section Note 6 of Section XVI also was contested and it was pointed out that the same had no applicability to the facts of the case. However, the Commissioner of Central Excise, Mumbai VI did not agree with their contention and had confirmed the demands as in the present case. The matter was agitated before the West Zonal Bench of CEGAT, Mumbai and the stand taken herein was argued by the appellants before WZB. The Bench after detailed agreed with the appellants that such repacking on bought out items did not result into a process of manufacture of new goods and set aside the demands by Final Order No. CI/947/00 WZB dated 14.3.2000. Ld. Advocate produces the copy of the said order passed by WZB, Mumbai and contends that the issue being toto and pertains to the very same product and appellants are also themselves, would apply in all fours to the facts of the present case and as such demands are required to set aside in the present case as well.
5. Heard Ld. DR Shri S. Kannan who reiterates the submissions. He submits that he is not in a position to confirm as to whether the order of WZB has been accepted by Revenue and whether same is challenged before the Apex Court. However, he wishes to reiterates the stand taken by Revenue in the case.
6. On a careful consideration and on perusal of the final order of WZB, CEGAT, Mumbai noted above, in appellants, own case, on the same issue, we notice that the Bench has taken into consideration all the issues as raised in the present case also and has dealt with them in great detail. The Tribunal has held in paras 7 to 13 as extracted below:
7. The question is whether the activity undertaken by the appellant amounts to manufacture, that is to say, whether by applying the test laid down by the Supreme Court and other courts which has evolved over the period of years and is now universally accepted the activity of the appellant so changes the nature of the goods which the appellant receives that a new product having commercially distinct name, character and use emerges. The brochure of the appellant, and the technical reports of the two authorities that we have referred to in paragraph above indicate that the function of the pre-filter is to enhance or support the filtering function of the main unit. These reports show that the turbidity of the water is reduced to some extent when the pre filter is employed. They also show that the difference in turbidity of the resultant water with the pre-filter is employed and when it is not employed is not so significant, having regard to the total turbidity present as to conclude that, without the use of the pre-filter the turbidity is not reduced to any appreciable extent by the other unit. The difference amount to 15%, going by the report of the University of Agricultural Sciences, Bangalore and 10% going by the report of Central Food Technological Research Institute, Mysore. The conclusion, thus is that the utility of the pre-filter to the function of the unit as a whole cannot be anything other than marginal. Pre-filter in any case cannot be described as being crucial to the functioning of the other unit. In other words, in the manner in which the unit manufactured by APIC is itself capable of performing the function of both filtration and purification although its efficiency in performing the function of purification may perhaps be increased by use of the pre-filter.
8. In these circumstances, the provisions of Note 6 to Section XVI will not apply. That Note would apply in a situation where an incomplete or unfinished product is converted into a finished or complete product by a particular activity which would then be manufacture. As we have concluded, the Aquaguard itself is not incomplete, for the purpose of classification, in the manner in which it is received from APIC. This appliance so received is classifiable under heading 8421.10 of the tariff. So, as a matter of fact, is the pre-filter received by the appellant.
9. For the purpose of classification in the tariff, therefore, the activity undertaken by the appellant does not amount to manufacture. This is the sole basis that the notice and the order of the Commissioner have proceeded upon, that by the addition of the pre filter the nature of function of the unit is drastically revised and that therefore it has assumed the characteristic of a new commercially distinct article. As we have noted they say that the commodity which earlier carried out the function of water purifier has changed into a commodity which is a water filtration and purification apparatus. For this charge to sustain, it will have to be shown that claim that it acts as a filter is wrong, and that the activated carbon performs some function other than filtration. There is no such charge in the notice. On the basis upon which the notice proceeds therefore, it has to be held that there is no manufacture.
10. The Supreme Court's judgment in AP Industrial Component Ltd. v. CCE, Hyderabad 2000 (36) RLT 68 does not come to the department's help. The question before that Court was whether the benefit of a notification exempting filtering apparatus of a specified capacity from duty would be available to the Aquaguard cleared by AP Industrial Component Ltd. The Court confirmed the view of the Tribunal that the benefit of the notification would not be available to these goods for the reason that they both filtered and purified water. If at all, this judgment would show that the Tribunal had noted that Aquaguard cleared by AP Industrial Corporation (which as we have seen did not incorporate the pre-filter) carried out both filteration and purification otherwise than by filtration. This in fact runs directly counter to the Commissioner's view that the nature of the appliance is changed by use of the pre-filter to a filtration and purification apparatus, and this supports the appellant's case.
11. It is difficult to see as to how the Tribunal's decision in Jay Engineering v. Union of India supports the department's case. The view of the Court was that since the affixation of the name plates to electric fans confers upon them the marketability which they did not otherwise possess the act constitutes manufacture. In this case apart from the fact that a small proportion of the Aquaguard is sold to the user without the pre-filter the Aquaguard manufactured by APIC is sold to the appellant. The addition of the pre-filter hence does not confer on it a marketability that it did not earlier possess.
12. In the light of this finding, we have not considered it necessary to record out submissions on the arguments which were addressed on the availability to the department of the extended period of limitation (cited in the notice) contained the proviso under Section 11A(1) of the Act.
13. Appeal allowed. Impugned order set aside.
7. We notice that the above findings would apply squarely to the facts of the present case, and applying the ratio of the above decision, the impugned order is set aside and appeal allowed.