Full Judgment Text
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CASE NO.:
Appeal (civil) 1477 of 1998
PETITIONER:
M/S Tecumseh Products India Ltd.
RESPONDENT:
Commissioner of Central Excise, Hyderabad
DATE OF JUDGMENT: 05/05/2004
BENCH:
CJI & G.P. MATHUR.
JUDGMENT:
J U D G M E N T
(WITH C.A. No. 1513/1998)
RAJENDRA BABU, CJI:
The question raised for our consideration in these
appeals is whether while repairing the defective
compressors any part such as stators replaced by the
appellant involves manufacturing activity attracting
duty under the Central Excise Act. The appellant in the
process of repairing scraps some components which
cannot be repaired and one such component is stators.
The stators were earlier manufactured in the factory of
the appellants for repairing of the compressors. Later,
the materials required for replacing the scrapped
components are received on payment of duty from the
factory of the appellant. The Service Centre sends
these materials to outside job workers for making the
stators. Thereafter the appellant undertook the
shaping, varnishing and baking of such stator to fit
such stators into the compressor housing. The
Collector having felt that the activity of shaping,
varnishing and baking done by the appellant on receipt
of the stator from the job workers results in
manufacture and initiated proceedings for adjudication
of tax.
The appellant contended that the job workers are
manufacturers of stators and not the appellant as
stators are received from the job workers in complete
technically functional state. The activities undertaken
by the appellants are only to use the stator and not
manufacture the stators. The appellants also
challenged the invocation of the longer period of
limitation, which was available to the appellants only in
case of suppression of fraud, coalition or willful
statement or contravention of rules to the payment of
duty.
The Adjudicating Authority held that the job
workers is the manufacturer of the stator and not the
appellants and that the extended period of limitation
cannot be invoked. On appeal to the Appellate
Tribunal, it was held that the appellants are
manufacturers of the stators and not the job workers
because they undertook the process of shaping,
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varnishing and baking and then only the marketable
goods came into existence and it also held that the
extended period of limitation was invokable. Hence
this appeal.
Somewhat similar questions had arisen for
consideration in Shriram Refrigeration Industries
Ltd. v. Collector of Central Excise, Hyderabad,
1986 (26) E.L.T. 353 and in CCE, New Delhi V. Karna
Industries, 1992 (42) ECR 522. It appears that the
appeal filed against the order made in the Shriram
Refrigeration case (supra) to this Court stood dismissed
by this Court in Civil Appeal Nos.1029 of 1987 and
connected matters on merits. In that case the meaning
of ’repairs’ as differentiated from the term
’manufacturer’ had been examined thoroughly by the
Tribunal and, therefore, took the view that the repair,
recondition or remake in the process of repair
employed would not amount to manufacture. Similarly,
in the case of ’Karna’, the Tribunal took the view that
the defective compressors received if repaired by
putting in the necessary parts which had worn out or
scrapped then there is no manufacturing activity
involved.
It is clear that the Tribunal, however, in the order
under appeal took the view that while the job workers
carried out the job work of winding of the stator, but
such stator would not be ready for use in the
compressor and would be subject to the processes of
pressing for shaping by hydraulic press. This would go
to show that the stator as such could not have been
fitted and used in the compressor for which purpose it
has been formed. Further, varnishing was to be done
by the appellants and the same was done to provide
necessary insulation and it became a finished product
only in the hands of the appellants. Therefore, the
activity carried on by the appellant was considered to
be one of manufacturer because they were carrying out
the full range of processes for bringing into existence
the ’stator’ and this range of process carried out by
them was exactly the same are the ones which are
carried out for the stators which were manufactured
out of new stack of laminations.
The situation that is considered and examined
either in the ’Shriram Refregeration’ or ’Karna
Industries’ was entirely different. In the present case,
what was looked into examined and found was the
several steps taken in respect of the stator and so far
as the stators were concerned, it has been rightly held
by the Tribunal that separate activities were carried on
by the appellants which were identical to the ones that
was carried out in respect of new stator and, therefore,
to the extent of the stator being made ready for the
purpose of using in the repairing of compressor must
be held to be an activity of manufacture and the
Tribunal has confirmed the demand only in respect of
"Stators".
But, insofar as the application of extended period
of limitation provided under Section 11A is concerned,
we do not think that the Tribunal is justified because it
was not clear as to whether if any part is used for the
purpose of repairing a machinery would amount to
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manufacture. In fact, the Tribunal on a detailed
analysis and after going into several processes carried
out by the appellant, came to the conclusion that the
stators which were used in the repairing of the
compressors involved manufacturing activity. This
circumstance itself shows that there was bona fide
dispute between the parties in regard to the question
whether stators made ready for the purpose of use of
compressors involved any manufacturing activity or
not. Therefore, to the extent the authorities invoked
Section 11A of the Act and imposed penal interests and
other penalities shall stand set aside and the order
made by the Tribunal stands modified to that extent.
These appeals are partly allowed accordingly.