Custom, Excise & Service Tax Tribunal
Shri Sunil Kumar vs Commissioner Of Central Excise, ... on 6 February, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/876 - 877/2003-DB [Arising out of Order-in-Original No. 5/2003 dated 30.6.2003 passed by Commissioner of Central Excise, BANGALORE-III.] M/s. Lampo Computers Pvt. Ltd. 22, ITI Layout, Ist Floor, New BEL Road, BANGALORE 560054 KARNATAKA Shri Sunil Kumar Director M/s. Lampo Computers Pvt. Ltd. 22, ITI Layout, Ist Floor, New BEL Road, BANGALORE 560054 KARNATAKA Appellant(s) Versus Commissioner of Central Excise, BANGALORE-III Commissionerate POST BOX NO 5400, CR BUILDINGS, BANGALORE 560 001. KARNATAKA Respondent(s)
Appearance:
Mr. M. S. Nagaraja, Advocate T. Rajeswara Sastry & Associates No.148, 11th Main, Banashankari 2nd Stage Bangalore 560 070.
For the appellant Mr. N. Jagadish, AR For the respondent Date of Hearing: 30/01/2017 Date of Decision: 06/02/2017 CORAM:
HON'BLE SHRI S.S GARG, JUDICIAL MEMBER HON'BLE SHRI V. PADMANABHAN , TECHNICAL MEMBER Final Order No. 20197 - 20198 / 2017 Per : V. PADMANABHAN The present appeals are directed against the Order-in-Original passed by the Commissioner of Central Excise, Bangalore dated 30.6.2003. In the impugned order, Central Excise duty amounting to Rs.21,12,555/- was demanded from the appellant-assessee along with interest. The appellant-assessee was also imposed penalty of an equal amount. In addition, Shri Sunil Kumar, Director was imposed a penalty of Rs.1,00,000/-. The appellant-assessee was engaged in procuring various parts of computers such as CPU, monitor, hard-disk drive, mouse, etc., from different suppliers. These parts were being assembled by the assessee by interconnecting the various components resulting in the emergence of computer systems. The department was of the view that assembling the various components of the computer results in emergence of new product i.e. Computers, on which excise duty was liable to be paid. The assessee, on the other hand, argued that they were engaged in procuring various components of computers and supplying these to various customers as per the configuration required by them. According to the arguments raised by the assessee, this amounts to second sale, on which no excise duty is liable to be paid.
2. On conclusions of investigations, show-cause notice dated 18.8.1999 was issued by the department, which was originally adjudicated vide the Order-in-Original dated 4.4.2000 confirming the demand of the excise duty. Aggrieved by this order, the assessee went in appeal before CEGAT and the CEGAT vide the Final order dated 12.2.2002 remanded the matter to the adjudicating authority to consider the plea made by the assessee that the principles of natural justice were not complied with since copies of several documents relied upon in the show-cause notice were not supplied to them even after repeated request. The adjudicating authority passed order in the remand proceedings vide impugned order dated 30.6.2003. The assessee challenged the impugned order before the CESTAT. In the previous round of litigation, in the Final Order dated 4.5.2005, which set aside the impugned order with the observation that the de novo order of the Commissioner also suffers from the vice of denial of principles of natural justice inasmuch as the department has failed to furnish copies of the documents relied upon in the show-cause notice even at the time of the de novo adjudication. The Revenue challenged the Final Order of the CESTAT before the Honble High Court of Karnataka and the Honble High Court passed the following order.
(a) (a) The Order dated 4th May 2005 passed by the CESTAT impugned in the present appeal is set aside and the Appeal Nos. E/876, 877/2003 and E/271/2004 are restored to file.
(b) The CESTAT shall consider the appeals on merits in accordance with law as expeditiously as possible, preferably within a period of six months from the date of receipt of this order.
(c) The CESTAT while considering the merits of the case shall examine the effect of non-supply of the documents relied upon by the Department in the show cause notice. The CESTAT shall also consider whether those documents have any bearing on the outcome of the case.
It is made clear that we are not making any observations on merits of the case and the CESTAT shall consider the case on merits in accordance with law within the stipulated time.
3. With the above background, we heard Shri M. S. Nagaraja, learned advocate for the appellant and Shri N. Jagadish, learned AR for the Revenue.
4. Learned advocate, in his arguments, emphasised the following points.
i. The appellants have purchased various components of computers like CPU, monitor, keyboard, etc., and have been selling them to their customers. The department has not produced any evidence to the effect that they were engaged in undertaking manufacture of automatic data processing machine. The activity engaged by them is in the form of trading which constitutes second sale for the purposes of sales tax/VAT.
ii. The various component parts of computers are duty paid separately and putting together these duty-paid components does not amount to manufacture attracting excise duty.
iii. The Department has failed to furnish copies of purchase documents for the period from 25.1.1996 to 31.3.1997 and 7 purchase bills for the year 1997-98 bearing No. 33, 123, 147 293, 593, 1468 and 5134. The above documents have been listed as relied upon documents in the show-cause notice but the Department has failed to supply the same. In the impugned order, the Commissioner has recorded that these documents are also not traceable with the Department. For failure to supply these documents, the demand should not be enforced upon them.
iv. On account of non-supply of above documents, the learned advocate contended as follows:
* The assessees contention is that they are engaged in the activity of trading. This can be demonstrated only by showing the details of purchase of various components and accessories, computers and further by showing that these have been sold on payment of sales tax to buyers as second sale. Further, the purchase bills would show the duty paid/bought-out nature of the components which are crucial for establishing their case of trading. v. The learned advocate argued that the demand is hit by limitation. The officers visited the premises of the appellant on 28.11.1996, however, the show-cause notice was issued only on 18.8.1999. He submitted that the department will not be entitled to issue a show-cause notice invoking the larger period of limitation and demanding duty for the period from 28.11.1996 to 31.5.1998 (the period after the date of visit of the departmental officers). vi. They were under the bona fide belief that the activity undertaken by them were not amounting to manufacture and consequently, the department cannot allege wilful suppression and invoke the larger period of limitation. vii. He also relied upon several case laws to support all the above arguments. In particular, he relied upon the following case laws:
* Kothari Filaments vs. CC (Port), Kolkata: 2009 (233) ELT 289 (SC) * CCE & C vs. Chandan Steel Ltd.: 2009 (238) ELT 716 (Guj.)
5. The learned DR supported the impugned order. He argued that the appellant hwas not engaged in the simple activity of trading. They have procured various components of computers, but while supplying to their customers, they have put together computer systems as per the configurations required by the customers. These configurations of components have also been put together and assembled to make them working computer systems. He relied upon the decision of the Honble Supreme court in the case of UOI vs. Delhi Cloth and General Mills Co. Ltd.: 1997 (1) ELT (J199) (SC) and argued that the activity of assembling various duty-paid components of computers brings into existence a working computer system under Chapter 8471 as an automatic data processing machine. The activity of assembling the various components of computers has brought into existence a new commodity which can be called as computer system and it will be liable to excise duty. He also relied upon several case laws to support the argument that this activity amounts to manufacture. In particular, Leo Circuit Boards Pvt. Ltd. vs. CCE, Belapur: 2015 (330) ELT 227 (Tri.-Mumbai); Sheth Computers Pvt. Ltd. vs. CCE, Bombay: 2000 (121) ELT 738 (Tribunal); and Computer Aid vs. CC, Allahabad: 2001 (130) ELT 68 (Tri.-Del.).
5.1 On the issue of non-submission of documents, he submitted that these documents which have been cited in the show-cause notice but not furnished by the department were originally submitted by the assessee himself. He further referred to the correspondences with the department had with the Deputy Commissioner of Commercial Taxes from which it emerges that purchase documents for the year 1996-97 and 1997-98 were already in possession of the assessee and have been used for filing the commercial tax returns. Accordingly, he submitted that the assessee cannot be said to have been prejudiced in their defence.
5.2 On the issue of limitation he submitted that the date of knowledge of the department is not of any significance in deciding the time limit. The show-cause notice has been issued within a period of 5 years from the date on which the alleged manufacture has taken place. Since the assessee has suppressed the fact of manufacture from the department, they will be entitled to invoke extended period of limitation. He relied upon the decisions of M/s. Mehta & Co.: 2011-TIOL-17-SC-CS and Neminath Fabrics Pvt. Ltd.: 2010 (256) ELT 369 (Guj.).
6. The allegation made by the Revenue after investigation into the affairs of the assessee is that they have procured various component parts of computer such as CPU, mother board, monitors, hard disk, mouse etc. and assembled them into working computers and supplied the same to various customers. By taking the view that the activity of assembling various components of computer into computer system amounts to manufacture, Central Excise duty has been demanded in the impugned order. The learned Commissioner has recorded that the customers of the assessee had placed orders for full assembled computers of various configurations. A perusal of the invoices issued by the assessee to its customers indicates the list of various components along with the quantities and indicating the same as second sales. However the investigation undertaken by the Department does not throw light as to how and where the assembly was done and who carried out the assembly. The assessee has also claimed that they have no factory premises for manufacture of such goods.
6.1 At the outset, we examine the question whether putting together various components of computers and assembling the same into a computer system, same amounts to manufacturer and whether excise duty is required to be paid. The description of Automatic Data Processing (ADP) machine under Chapter 84.71 at the relevant time is reproduced below for ready reference:-
Heading Sub-heading Description of goods Rate of duty 84.71 8471.00 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data on to data media in coded form and machines for processing such data, not elsewhere specified or included 16% Further the relevant chapter note to Chapter 84 dealing with the classification of goods under chapter 84.71 is also reproduced below:-
5(a) For the purpose of heading No.84.71, the expression automatic data processing machines means:-
(i) Digital machines, capable of (1) storing the processing programme or programmes and at least the data immediately necessary for the execution of the program; (2) being freely programmed in accordance with the requirements of the user; (3) performing arithmetical computations specified by the user; and (4) executing, without human intervention, a processing programme which requires them to modify their execution, by logical decision during the processing run;
(ii) Analogue machines capable of simulating mathematical models and comprising at least : analogue elements, control elements and programming elements;
(iii) Hybrid machines consisting of either a digital machine with analogue elements or an analogue machine with digital elements.
(b) Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (e) below, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions:
(i) It is of a kind solely or principally used in an automatic data processing system;
(ii) It is connectable to the central processing unit either directly or through one or more other units; and
(iii) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.
(c) Separately presented units of an automatic data processing machine are to be classified in heading 84.71.
(d) Printers, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraphs (b)(i) and (b)(ii) above, are in all cases to be classified as units of heading No.84.71.
(e) Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.
By reference to the above chapter notes, we note that each of the component parts such as CPU, hard disc, monitor etc. would form a separate unit of an ADP machine referred to in Chapter Note 5(b). Each of these units will also be classified under 84.71 and when the various units are connected together to perform the function of ADP machine, it will function in the form of a system which should have all the features of the machines referred to in Note 5(a)(i). Thus, we have the example of a lap top or a notebook computer which will be a ADP machine in which the various components are built in and functioning as a system. We also have the example of a desk top computer where the various components such as CPU, monitor, hard disc drive etc. each one being classifiable under 84.71 as a separate unit are connected together to form a system to carry out the function of an ADP machine. It is noteworthy that both the separate units as well as the system brought about by interconnection remain classified under 84.71.
6.3 With the above background, we examine the question whether any new product come into existence by assembly of various components to form the computer system. We note that all units of an ADP are designed to be interconnected to enable the ADP system to be formed to carry out its function. It cannot be said that the assembly of various units into a working system has brought about any new goods which have a distinct name, character or use different from that of the units of computer system. This has been laid down as the test for manufacture by the Apex Court in the DCM case. Further we note that each of the components bought out by the assessee is separately duty paid. Though the Revenue has not gathered specific evidence of assembly of various components into an ADP machine by the assesse, the thrust of the case is that the assessee has undertaken such activity which is claimed to be an act of manufacture.
6.4 The Revenue has already clarified vide their Circular No.497/63/99-CX dt. 30/11/1999 that the activity of creating a computer network from duty paid computers and peripherals would not amount to manufacture, since the network does not bring into existence goods with a distinct new name, character and use. We are of the view that the above clarification, though not strictly applicable to the present facts of the case, however, the analogy can be adopted. The Tribunal in the case of CCE, Ahmedabad Vs. Macro Tech P. Ltd. [2008(231) ELT 59 (Tri. Ahmd.)] has taken the view that buying various computer parts and installing the same by assembling will not amount to manufacture. This has been further followed in certain other judgments. On the other hand, Revenue has pointed out several decisions wherein the Tribunal has taken a contrary view. However, we find that those decisions are all prior to the 2008 decision of the Tribunal, except the decision of the Tribunal in the Leo Circuit Boards Pvt. Ltd. (supra) relied upon by the Revenue. This is reported in 2015. However, we find that the issue involved in the case is totally different and involves construction of a machine classified under 84.70 using ADP and other components. Since facts are not identical, we are of the view that the same is not applicable to the facts of the present case.
6.5 Since we are taking the view that the activity of assembling various computer components/units into a working system does not amount to manufacture, we are of the view that there is no necessity of detailed discussion on the plea of limitation raised by the assessee. Further for the same reason, we also choose not to discuss in detail, the prejudice if any, caused to the assessee by not furnishing of copies of certain documents shown as relied upon in the show-cause notice.
7. In view of the above discussions, the appeals filed by the assessee as well as the Director are allowed and the impugned order is set aside.
(Order is pronounced in Open Court on 06/02/2017.) V. PADMANABHAN TECHNICAL MEMBER S.S GARG JUDICIAL MEMBER rv/raja 15