Full Judgment Text
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CASE NO.:
Appeal (civil) 2243 of 1999
PETITIONER:
M/S. BPL INDIA LTD.
Vs.
RESPONDENT:
COCMOMCIHSISNI,ONER OF CENTRAL EXCISE,
DATE OF JUDGMENT: 07/05/2002
BENCH:
N. Santosh Hegde & Shivaraj V. Patil
JUDGMENT:
SHIVARAJ V. PATIL, J.
The appellant imported 100 kits of VTR with colour
monitors in disassembled condition. These items were
described in invoices and bills of entry as "sets of
assembly, sub-assembly and other hardware items for
assembly of complete VTR and colour monitors". The
said goods were subjected to countervailing duty @ 8%
ad valorem falling under tariff item No. 68. During
the period 2.12.1981 to 26.2.1982, the appellant
started assembling these goods into VTRs and colour
monitors at their factory at Palghat and cleared the
sets without payment of duty, without intimation and
without observing the Central Excise formalities.
The Superintendent of Central Excise, Range-II,
Palghat, while perusing advice notes of the factory
observed that certain VTRs and colour monitors were
manufactured and cleared by the appellant during the
period June, 1982 to August, 1982 and issued letter
dated 12.8.1982 asking the appellant to furnish details
of the sets cleared and to explain why duty should not
be demanded on such sets and why action should not be
taken for contravention of Central Excise rules.
However, the appellant did not furnish the required
information. Thereafter, the Superintendent issued a
show cause notice dated 6.12.1982 asking the appellant
why a duty of Rs. 5,58,000/- due on 56 sets of VTRs and
colour monitors should not be demanded under Section
11-A of the Act and another show cause notice dated
2.4.1983 was issued for Rs. 1,78,500/- due on 17 sets
of VTRs and colour monitors. The appellant in response
gave replies by letters dated 31.1.1983 and 11.2.1984
respectively.
On 9.6.1983, the Central Excise Officers searched
the factory of the appellant and on 14.6.1983 the
Offices of the Directorate of Anti-Evasion searched the
factory premises on 20, K.H. Road, Bangalore. 20 Nos.
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of VTRs were detained which were reported to have been
brought there from the factory of the appellant at
Palghat. The Manager was not able to produce any
document to show that the Central Excise Duty had been
paid on these sets. In subsequent investigations, it
was found that the appellants had manufactured and
cleared VTRs and colour monitors without disclosing
details thereof to the Department and without observing
the Central Excise formalities. Evidence to show
actual price at which VTRs and colour monitors were
sold to independent wholesale buyers was also collected
during the course of investigation. One more notice
was issued on 20.2.1986 by the Collector, Central
Excise, in continuation of show cause notices dated
6.12.1982 and 2.4.1983 issued earlier giving the
detailed facts asking the appellant why Central Excise
duty of Rs. 9,43,884.38 on 100 VTRs and 100 colour
monitors cleared without payment of duty should not be
demanded. In reply dated 7.4.1986 given on behalf of
the appellant, it was stated that two show cause
notices were already issued and replies were furnished
and request was made to dispose of the earlier show
cause notices before deciding the last one. A further
reply dated 14.7.1986 was furnished by the appellants.
The stand of the appellant was that assembly of
components imported in Semi Knocked Down (SKD)
condition into VTRs/colour monitors did not amount to
manufacture for the purpose of levy of excise duty.
According to them, the imported components in SKD
condition were only put together by using fasteners;
that no manufacturing activity or use of power was
involved in the process; the show cause notice dated
2.4.1983 was hit by limitation in respect of the
clearances effected prior to 3.10.1982. Extended
period of limitation under Section 11-A was not
available to the Revenue. The appellant also took up
the stand that the valuation adopted was not correct.
Further, without completing the proceedings pursuant to
the two earlier show cause notices issued, the
Collector could not have issued the third notice and
proceeded against the appellant in confirming the
demand for Rs. 9,43,884.38 and directing the appellant
to pay the said duty and imposing a penalty of Rs.
3,00,000/-.
The Collector, after considering all aspects, by
his detailed order dated 24.7.1987 rejected all the
contentions raised by the appellant and confirmed the
demand. The appeal filed by the appellant before the
Tribunal (CEGAT) challenging the said order of the
Collector dated 24.7.1987 was dismissed on 6.3.1997.
The application filed by the appellant under Section
35-F of the Act for reference was also rejected on
1.9.1998. Hence, this appeal.
Before us, Mr. Raju Ramachandran, learned senior
counsel urged that (1) fastening imported disassembled
VTRs with colour monitors did not amount to manufacture
within the meaning of Section 2(f) of Central Excise &
Salt Act, 1944; the fasteners had also been imported
alongwith disassembled VTRs and colour monitors; VTRs
with colour monitors were not liable for payment of
excise duty as the countervailing duty applicable to
the same at the time of import under tariff item had
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been paid; (2) the demand of duty was grossly barred by
limitation; the Commissioner and Assistant
Commissioner could not issue separate show cause
notices; the very fact of Assistant Collector issuing
notices earlier clearly shows that the Department was
fully aware of the import of the disassembled VTRs
alongwith the colour monitors and assembling of the
same and selling them; there is no averment in the
show cause notice of any willful suppression of any
material fact or fraud or misrepresentation. Hence,
the extended period of limitation could not be invoked.
Per contra, the learned Attorney General supported
the impugned order stating that the Collector as well
as the Tribunal have considered all aspects. In the
light of the contentions raised by the appellants, a
finding of fact is recorded looking to the process
involved that the appellant manufactured VTRs with
colour monitors and cleared them without intimation to
excise authorities and without payment of duty. He
pointed out that all was not well with the appellant in
replying to the show cause notices. They were trying
to avoid or delay in giving reply to show cause
notices; when they themselves did not intimate as to
when they manufactured the goods and when they cleared
without completing the Central Excise formalities, they
lacked bona fides. The third notice issued by the
Collector on 20.2.1986 was issued only in continuation
of the earlier two notices; merely because earlier
notices were issued by the Assistant Commissioner, it
could not be said that the Collector had no
jurisdiction to continue the proceedings and pass
adjudicatory order.
We have carefully considered the submissions made
by the learned counsel for the parties. According to
the appellant the imported kits of VTR and colour
monitors in SKD condition were only assembled by using
fasteners and as such no manufacturing activity was
involved in bringing out VTRs/colour monitors so as to
attract the excise duty as demanded. But the
contention of the Revenue is to the contrary.
This Court in Union of India vs. Delhi Cloth and
General Mills [1977 (1) ELT (J199)] defined manufacture
thus "The word ’Manufacture’ used as a verb is
generally understood to mean as ’bringing into
existence a new substance’ and does not mean merely ’to
produce some change in a substance’." Following
passage from an American Judgment, quoted in Permanent
Edition of Words and Phrases Vol. 26, reads thus: -
"Manufacture implies a change but
every change is not manufacture and yet
every change of an article is the result
of treatment, labour and manipulation.
But something more is necessary and
there must be transformation, a new and
different article must emerge having a
distinctive name, character or use."
It is well settled that a question as to when a
manufacture of product takes place within the meaning
of Section 2(f) of the Act is a mixed question of law
and fact. The nature and the extent of processes may
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vary from case to case. When a change takes place and
a new and distinct article comes into existence known
to the consumers and the commercial community as a
commercial product, which can be no longer regarded as
the original commodity, such a change constitutes a
process of manufacture.
It is not disputed that the imported kits of
components of VTRs and colour monitors in SKD condition
were items falling under Item 68 for levy of
countervailing duty. It is clear from the material
placed on record that by the process undertaken by the
appellant a change is brought about facilitating the
utility of the product for which they were meant. In
other words, pursuant to the process, a transformation
has taken place at the hands of the technical experts
or skilled persons and not by laymen, which made the
product to have a distinct character and use. Such
product of VTR/colour monitor as finished product was
classified under Item 37BB.
The Collector as well as the Tribunal recorded a
finding of fact based on the material placed on record
that the assembly of imported kits of components into
VTRs/colour monitors by using the fasteners constituted
the process of manufacture and rightly so in our
opinion. We have no good reason to take a contrary
view on this finding of fact. The Tribunal in the
impugned order has recorded thus: -
"It is seen that the appellant imported
component part in SKD condition and the
finished product was VCR with colour
monitor. The VCR and the colour monitor
were cleared together. Classifn. of the
VTR is u/i 68 of the erstwhile tariff.
But after undergoing the process of
manufacture for the assembly, the
product at the time of clearance from
the factory was classifiable u/i 37BB.
Therefore, a transformation in the
character of the imported goods took
place and the new product is emerged.
It is, therefore, seen that the product
kit of VCR at the time of import was
trailable and notionally was classified
u/i 68 of the erstwhile tariff and after
assembly and at the time of clearance
the resultant product was classified
u/item 37BB and the product therefore,
can be removed only on payment of duty.
Similarly the kits for colour monitor is
also classifiable under item 68 of the
erstwhile tariff whereas after assembly,
the product at the time of clearance was
classifiable u/i 33A or 37BB when sold
in combination with VCR. The invoices
of the appellant bearing 245s and 246
and 171 and 172 mentioned in the SCN
showed the basis of the value adopted in
the case of VCR and colour monitor."
The contention advanced on behalf of the
appellant, that once countervailing duty was paid by
them on the same items they were not liable to pay the
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duty again on the VTRs/colour monitors, was rejected by
the Tribunal relying on the decision of this Court in
M/s. Narne Tulaman Manufacturers (P) Ltd. Vs. CCE,
Hyderabad [1989 (2) ECR 129 (SC)]. Para 3 of the said
judgment reads: -
"3. The appellant’s contention
before the Tribunal was that it was only
preparing a part and that part is
dutiable as a separate part. The
appellant, however, did the work of
assembling. As a result of the work of
the appellant a new product known in the
market and known under the excise item
"weighbridge" comes into being. The
appellant will become a manufacturer of
that product and as such liable to duty.
That is precisely what the Tribunal
found on the facts of the case. The
appellant seems to have been obsessed by
the idea that as a part of machine is
liable to duty then the whole end
product should not be dutiable as
separate excise goods. That is mistake,
a part may be goods as known in the
excise laws and may be dutiable. The
appellant in this case claims to have
manufactured only the indicator system.
If the indicator system is a separate
part and a duty had been paid on it and
if the rules so provide then the
appellant may be entitled to abatement
under the rules. But if the end product
is a separate product which comes into
being as a result of the endeavour and
activity of the appellant then the
appellant must be held to have
manufactured the said item. When parts
and the end product are separately
dutiable both are taxable."
This being the position, in our view, the Tribunal
was right in its conclusion that the appellant was
liable to pay duty on the end product. The decisions
cited before us by the learned counsel for the
appellant in support of his stand were considered by
the Tribunal and rightly distinguished on facts. We do
not think it necessary to consider them again.
The Collector as well as the Tribunal on detailed
examination of facts and looking to the conduct of the
appellant in delaying to give reply to the show cause
notices and not giving necessary intimation to the
Department before clearing the products manufactured by
them, have held that the longer period of limitation
was available. In this regard the Collector in his
order, in para 11, has stated thus: -
"11. The stand taken by the assessee
vice their reply dated 11.2.84 in
response to the SCN dt. 2.4.83 was that
the clearances effected prior to 3.10.82
would be hit by time bar, and the basis
of value adopted by the Supdnt. was not
correct. I would have accepted the
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first objection provided M/s BPL had
produced any evidence to show that they
had declared to the dept. either by
letter or through the documents (CL
returns to be furnished by the assessee
every month (like RT 12/GP) the details
of manufacture/clearance. In this
connection, I want to make it clear
beyond any shadow of doubt that, an
intimation regarding the total no. of
kits imported by M/s. BPL could not be
deemed to be an intimation in this
regard as the liability to pay duty
arises only after the manufacture is
complete and clearance takes place.
Since M/s. BPL have not produced any
evidence to show that they had furnished
the details of removal to the Supdnt. in
time even in spite of specific request
made vide OC No. 2786/82 dt. 17.9.82,
M/s. BPL have no right to claim that the
demand notice dt. 2.4.83 is barred by
limitation."
Agreeing with the finding of the Collector on the
question of limitation the Tribunal also in para 13 of
the judgment recorded thus: -
"13. The next point of the appellant
is that longer period of limitation is
not invokable in this case. It is seen
that the appellant having manufactured
the product in question and removed the
same without any intimation to the dept.
which clearly goes to show that their
action was with intent to evade payment
of duty. There cannot be any bonafide
belief on the part of the appellant in
this regard. In these circumstances the
contention of the appellant that the
removal of the goods without payment of
duty was not with intent to evade
payment of duty cannot be accepted.
Therefore, the duty demanded by invoking
the longer period of limitation is in
accordance with law."
Under these circumstances the contention advanced
on behalf of the appellant on the question of
limitation is untenable having regard to facts and
circumstances of the case.
The contention, that the Collector could not have
issued one more notice on the same set of facts when
the proceeding initiated pursuant to the show cause
notices issued by the Superintendent earlier were not
completed, is equally untenable. The notice issued by
the Collector subsequent to the issuance of notices by
the Superintendent was only in continuation of the
earlier two notices, which fact is evident from the
notice itself. Further even issue of notice by the
Superintendent earlier could not take away the
jurisdiction and authority of the Collector in issuing
a notice and passing the order of adjudication. The
Tribunal was right in rejecting this contention also.
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Thus, we find no merit in this appeal. Hence it
is dismissed. No costs.
.......................J.
[N. Santosh Hegde]
.......................J.
[Shivaraj V. Patil]
May 7, 2002