Full Judgment Text
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CASE NO.:
Appeal (civil) 5421 of 1999
PETITIONER:
Tata Iron and Steel Co. Ltd., Bihar
RESPONDENT:
Collector of Central Excise, Patna
DATE OF JUDGMENT: 02/03/2005
BENCH:
Arijit Pasayat & S.H. Kapadia
JUDGMENT:
JUDGMENT
ARIJIT PASAYAT, J.
These three appeals under Section 35L of the Central Excise Act, 1944 (in
short the ‘Act’) are directed against three separate orders passed by the
Customs, Excise and Gold (control) Appellate Tribunal, New Delhi (in short
the ‘CEGAT’).
Civil Appeal No. 5421/1999 relates to the issue whether the benefit of
Notification No. 281/86 dated 24.4.1986 is available to parts of loco wagon
and rolling stock manufactured by the assessee-appellant. It concerns show
cause notices issued in 1987 to Growth Shop at Adityapur, alleging breach
of the terms and conditions mentioned in the aforesaid Notification. The
notice relates to the consignor i.e. the Growth Shop. The CEGAT’s decision
which is impugned in the said appeal is also based on certain findings
recorded in the CEGAT’s order which forms the subject-matter of challenge
in C.A. No. 5836 of 1999. There also the issue related to the question of
eligibility for benefit of exemption of Notification No. 281/86 dated
24.4.1986 in respect of parts of rolling stock manufactured in the
appellant’s factory (Growth Shop) at Adityapur and brought to the main
steel works at Jamshedpur for use in repair and maintenance of transport
equipments used for moving the materials and products within the factory.
In the third appeal i.e. C.A. 5209 of 2001 the issue relates to the
confirmation of demand of central excise duty amounting to Rs.44,78,167.02
and imposition of penalty of rupees five lakhs. Here again, the show cause
notices proposing imposition of duty and penalty were on the basis that the
benefit of aforesaid Notification was not available to the assessee-
appellant. The dispute relates to adjudication for alleged contravention of
procedures contained in Chapter-X by the consignee, namely, the Main Plant
at Jamshedpur. Allegation was that consignee had failed to intimate the
actual use of goods received from the Growth Shop at Adityapur. The show
cause notice is dated 14.5.1991.
The assessee-appellant had applied for permission under Rule 192 of Central
Excise Rules, 1944 (in short the ‘Rules’) for getting parts of loco engine
and rolling stock falling in Chapter 86 of the Schedule from the growth
shop without payment of duty claiming the benefit of the aforesaid
Notification. Permission was refused, as according to the revenue, the
products were not found to be covered under the provisions of the
Notification. Show cause notices were issued requiring the appellant to
show cause as to why the duty should not be demanded under Rules 9(2) and
196(1) of the Rules read with proviso to Section 11(A)(1) of the Act.
Assessee’s stand was that it was fully covered under the Exemption
Notification. Revenue on the other hand was of the view that the crucial
word used in the Notification was ‘installed’. As the goods involved were
not relatable to machinery installed in the factory, the benefit was not
available.
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The Assistant Collector (hereinafter referred to as the ‘Adjudicating
Authority’), the Collector (Appeals) (hereinafter referred to as the ‘First
Appellate Authority’) as well as the CEGAT held that the Notification had
no application as the machinery for which the parts were meant had not been
installed in the factory. In the third appeal, the basic issue was whether
the show cause notices were issued beyond the prescribed period of
limitation. Though the show cause notice indicated that the same was issued
in terms of Section 11(A)(1) (proviso) of the Act, the CEGAT held that it
is not Section 11(A)(1) of the Act which is really relevant but Rule 196
and since no period of limitation is prescribed therein, the show cause
notices were issued within time.
Mr. A.K. Ganguli, learned senior counsel appearing for the appellant
submitted that the Notification No. 281/86 exempts the excisable products
used for repairs and maintenance of machinery. It does not distinguish
between locomotive and any other machineries and the trucks and other
transport equipments which undisputedly are covered by the expression
"machinery", were exclusively used within the factory for the purpose of
carrying raw materials, semi finished goods etc. Parts for maintenance of
such trucks and locomotives would definitely qualify for exemption. It was
submitted that there is no serious dispute raised by the revenue that the
trucks and other transport equipments were machinery. What the revenue has
tried to project is that they were not meant for machinery which was
installed. The term ‘installation’ does not mean that it should be embedded
to the earth only, but it is used in the sense of introduction or
induction. It in essence means to set up or fix in position for use or
service. It was further submitted that the CEGAT made out a new case
relating to applicability of Rule 196 for the purpose of limitation
ignoring the fact that the show cause notice and the orders of the
Adjudicating Authority and the First Appellate Authority proceeded on the
basis that the action in terms of Section 11A(1) (proviso) was being taken.
The assessee-appellant was, therefore, deprived of presenting its case. In
addition, to invoke the extended period of limitation something more than
alleging infraction is necessary. There must be an element of mens rea or
wilful disregard. In any event, Rule 196 and Section 11(A)(1) operate in
different fields which are to be harmonised. Even if it is accepted for the
sake of argument that no period of limitation is indicated in Rule 196, it
cannot be conceived that the Legislature permitted action after unusually
long period, thereby unsettling the settled position. There was no wilful
mis-statement and in fact the assessee-appellant had disclosed the factual
position in all relevant documents, applications and lists.
In response, learned counsel for the revenue submitted that the revenue
authorities as well as the CEGAT have clearly held that the parts were in
fact not used for repair or maintenance of machinery installed. Even in the
common parlance the word "installed" means embedded to the earth with no
possibility of movement from one place to another. Therefore, the
conclusions cannot be faulted.
So far as the question of limitation is concerned, it is submitted that
both Rule 196 and Section 11A(1) operate in different fields. The fact that
in Rule 196 there is no prescribed period of limitation goes to show that
the legislature never intended to restrict the period under which action
can be taken. There was clandestine removal and since the assessee availed
concession, it means that there is short payment or non-levy of the duty.
The factory i.e. Growth Shop at Adityapur is at a distance of about 8 K.Ms.
from the main steel works situated at Jamshedpur. That being so, there is
no question of any installation and, therefore, the CEGAT rightly denied
the benefit and imposed duty and penalty.
The Exemption Notification which is crucial for the first two appeals reads
as follows:
"Exemption to all excisable goods produced and used within the same factory
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or other factory of same manufacturer for repairs or maintenance of
machinery.
In exercise of the powers conferred by sub-rule (1) of Rule 8 of the
Central Excise Rules, 1944, the Central Government hereby exempts all
excisable goods manufactured in a workshop within a factory and intended
for use in the said factory or in any other factory of the same
manufacturer, for repair or maintenance of machinery installed therein from
the whole of the duty of excise leviable thereon which is specified in the
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986).
Provided that where such use is in a factory of a manufacturer, different
from his factory where the goods have been manufactured, the exemption
contained in this notification shall be allowable subject to the observance
of the procedure set out in Chapter X of the Central Excise Rules, 1944".
The said Notification has been issued in exercise of powers conferred by
sub-rule (1) of Rule 8 of the Rules. The Notification consists of two
parts. The first part relates to excisable goods manufactured in a workshop
within the factory and intended for use in the said factory. The second
part relates to use in any other factory of the same manufacturer for
repair or maintenance of machinery installed therein. The expression
‘therein’ obviously relates to the other factory of the manufacturer. It is
significant to note that heading of the Notification does not refer to
installation aspect while body of the Notification does it. In the instant
case, there is no dispute that the goods were intended to be used for the
purpose of repairs or maintenance of machinery in the other factory of the
assessee-appellant. The basic issue, therefore, is whether these
machineries were installed in the factory.
As per Black’s Law Dictionary (Fifth Edition), the word ‘install’ means
‘‘to place in a seat, give a place to; to set, place, or instate in an
office, rank, or order, etc. To set up or fix in position for use or
service.
As per T.P. Mukherjee’s Law Lexicon, Fifth Edition, the word ‘installed’
itself has not been statutorily defined. In view of the extended statutory
definition of the word ‘plant’ in section 10(5) of the Income Tax Act, 1922
it seems clear that the word ‘installed’ in relation to the machinery or
plant, must be construed to mean such installation as that plant is capable
of.
The meaning of the word ‘‘installed’’ as given in Webster’s New
International English Dictionary is ‘‘to set up or fix in position for use
or service as to install a heating or lighting system.’’ The Shorter Oxford
Dictionary in English gives as one of the meanings ‘‘to place an apparatus,
a system of lighting, heating, or the like in position for service or
use’’. Much the same meaning is given in Fund and Wagnall’s New Standard
Dictionary "to place in position for service or use as to install hot water
system".
In Commissioner of Income Tax v. Sri Rama Vilas Service (Pvt.) Ltd., (1960)
38 ITR 25 at 27 it was held, putting aside the examples given in the
dictionary meaning to explain the scope of the word "installed", that
"installed" would certainly mean "to place an apparatus in position for
service or use". A bus or a lorry is a plant within the meaning of Section
10(2) (vi-b) of the Income Tax Act, 1922. Whether, when a bus or a lorry is
purchased and is also put on the road in the course of the business that
the assessees carried on, it could be said that the requirement of
installation has been satisfied? That the bus or lorry has been set up for
use or service when it is put on the road seems clear and in that sense
buses or lorries were installed. The statutory test of installation was
satisfied by the assessee because such installation as the buses and
lorries were capable or was completed.
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The assumption that the expression ‘‘installed’’ must necessarily mean
"fixed in position" at the time when the plant is worked or used does not,
seem to be justified. The expression "installed" is also used in the sense
of ‘‘inducted or introduced’’, and if that be the sense in which that
expression is used, there is nothing inconsistent in the context in which
that word is used which will justify in holding that the word ‘‘plant’’ in
Section 10, sub-section (2), clause (vi-b) of the Income Tax Act, 1922 was
not intended to include vehicles. [(See Commissioner of Income Tax
(Central) Bombay v. Saraspur Mills Ltd., (1959) 36 ITR 580 at 581)].
As per P. Ramanatha Aiyar’s Law Lexicon, Second Edition 1997, the
expression ‘installed’ did not necessarily mean ‘fixed in position’, but
was also used in the sense of ‘intended or introduced’. As held in
Commissioner of Income Tax v. Mir Mohammad Ali, AIR (1964) SC (1693) at
(1697) = (1964) 53 ITR 165, installed would certainly mean ‘to place an
apparatus in position for service or use’. When an engine is fixed in a
vehicle it is installed within the meaning of the expression.
The said decision was rendered while interpreting Section 10(2) of the
Income Tax Act, 1922. The provisions involved were Section 10(2)(vi) and
(via). The issue involved in the said case was whether extra depreciation
is admissible under the provisions of Section 10(2)(vi) and Section 10(2)
(via) of the Act in respect of diesel oil engines fitted to the motor
vehicles in replacement of the existing engines. It was held that the
expression ‘installed’ did not necessarily means fix in position but was
also used in the sense of inducted or introduced. It was also held that
‘installed’ would necessarily mean to place an apparatus in position for
service or use. It was therefore held that when any engine is fixed in a
vehicle it is installed with the meaning of the expression in clauses (vi)
and (via) of Section 10(2) of IT Act 1922.
If the plant in combination with other appliances in the business
effectuates and perpetuates, the trade of commerce, then, in relation to
such plant, as defined in Income Tax Act, 1961 ‘‘installed’ means such
induction or introduction whereby the plant may be placed in a position for
service or use in the business. (See Sundaram Motors (P) Ltd. v. C.I.T.,
(1969) 71 ITR 587, 593 (Mad.).
The word ‘installation’ means the bringing of an entire piece of plant on
to a site and putting into position on the site. It does not mean that
putting together of parts, piece by piece, pipe by pipe, bolt by bolt,
weld by weld, until it gradually becomes one whole. (See Engineering
Industry Training Board v. Foster Wheeler John Brown Boild Ltd., [1970] 2
All ER 616, 619 (CA).
As per Corpus Juris Secundum, Vol. XLIV, the word ‘install’ means
‘generally, to place or set in a seat or give a place to; to set, place, or
instate in an office, rank, or order; to establish one in a place or
position.
In Builders’ terminology, to set in place, to connect up, and fix ready for
use; and, specifically applied to machinery, the word has a technical
meaning, which is to set up or fix in position for use or service; to place
machinery in that position where it will reasonably accomplish the purposes
for which it is set up; to set or fix for use or service, as to install a
lighting system.
As applied to machinery, the word has a technical meaning, and refers to
the whole of a system of machines, apparatus, and accessories set up and
arranged for working, as in electric lighting, transmission of power, etc.
In this sense ‘‘installations’’ may be synonymous with ‘‘appliances’’.
As per Words and Phrases, Permanent Edition, Vol. 21-A the word ‘install’
means to set up or fix. (See State v. Jones, 89 S.E.2d 129, 131, 242 N.C.
63).
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"Installed" means to set or fix, as a lighting system, for use or service.
(See Smith v. Kappas, 12 S.E.2d 693, 697, 218 N.C. 758).
The word ‘‘install’’ meant to set up or fix in position for use or service.
(See King v. Elliott, 147 S.E. 701, 704, 197 N.C. 93).
Where a contract for the sale of a cleaning attachment to a steam boiler
allowed the buyer 60 days after it was installed in which to make a trial
of its effectiveness, installation is held to have been complete when the
cleaner was affixed to the boiler, although by reason of the plant not
being operated no test of it was made until later. (See De Merritt v.
Forbes Milling Co., 216 P.1086, 114 Kan. 62).
Notwithstanding Civ. Code, pp.1645, 1654, 1656, providing that technical
words in contracts must be interpreted as understood by persons in the
business to which they relate, and that in cases of uncertainty a contract
must be interpreted most strongly against the party causing the uncertainty
to exist, and that all things necessary to carry a contract into effect are
implied therefrom, a lease, which required the lessee to ‘‘install a
sidewalk elevator from the basement to the sidewalk’’ in front of the
premises, does not require the lessor to prepare the premises for the
installation of the elevator; but the lessee must provide a suitable lift
with the usual accessories connecting the basement with the sidewalk; the
word ‘‘install’’ meaning to set up or fix in position for use or service.
(See Metzler v. Thye, 124 P.721, 722, 163 Cal.95).
As the words ‘install’ or ‘installed’ go to show, much would depend upon
the context in which the expression is used in a particular statute and no
generalisation can be done.
The benefit of the exemption is available under the exemption notification
if (1) excisable goods are manufactured in a workshop within the factory;
(2) goods are intended to use in the said factory or in any other factory
of the same manufacturer; (3) goods are intended for use for repairs or
maintenance of machinery installed in the other factory; and (4) Chapter X
procedure is followed if goods are used in the factory different from the
factory of production.
The CEGAT in the first two appeals was of the view that the machinery which
is installed has to be placed or put or fix in a position. A locomotive or
rolling stock wagon or bogies are not so placed in position. According to
the CEGAT the machines may have moved parts and they may move to make the
machine functional, but such machines themselves do not have to move. The
locomotives and other items involved are moving items and cannot be said to
have been installed in the factory. They must be used in the factory for
moving or carrying the materials. It was held that the Notification applied
to machinery installed in the factory and not to the machinery used in the
factory.
As noted above, the expression has to be read in the context of the statute
keeping in view the factual position. It was submitted by learned counsel
for the assessee-appellant that the wagon and the trucks which were quite
heavy are used in the factory premises on fixed rails and they are not
taken out of the factory premises. In that sense when they were placed on
rails they can be said to be placed in position. Merely because there is
some movement it does not dilute the position that they have been
installed. We feel some more factual details are necessary to be recorded
in this regard to come to a definite conclusion as to whether the
machineries were installed or not. Further, the Notification No. 281/86-CE
dated 24.4.1986 has a Head Note which has been quoted above. It indicates
exemption to excisable goods produced and used within the factory for
repairs and maintenance of machinery. It does not use the expression
‘‘machinery installed in the factory’’. This aspect has not been considered
by the CEGAT. Therefore, it would be appropriate for the CEGAT to hear the
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matter afresh and record a positive finding on the factual aspects, keeping
in view the decision in Mir Mohammad’s case (supra) and the definitions
noted above. It shall also consider the effect of the absence of words
‘‘installed in the factory’’ in the Head note of the Notification. We make
it clear that we have not expressed any opinion on the factual aspects of
the case.
The residual question is, even if it is held that the benefit under the
Exemption Notification is not available whether the notices issued can be
said to be within the period of limitation. Undisputedly, the Adjudicating
Authority and the First Appellate Authority proceeded on the basis as if
Section 11A(1) was applicable to the facts of the case. The CEGAT on the
other hand was of the view that there was no warrant to impose limitation
under Section 11A(1) of the Act for raising a demand under Rule 196. That
is the subject-matter of dispute in Civil Appeal No. 5209 of 2001.
This issue needs to be carefully considered. Rules 192, 196 and Section
11A(1) as they stood at the relevant point of time read as follows:
"Rule 192- Application for concession - Where the Central Government has,
by notification under rule 8, or section 5A of the Act, as the case may be,
sanctioned the remission of duty on excisable goods other than salt, used
in a specified industrial process, any person wishing to obtain remission
of duty on such goods, shall make application to the Commissioner in the
proper form stating the estimated annual quantity of the excisable goods
required and the purpose for and the manner in which it is intended to use
them and declaring that the goods will be used for such purpose and in such
manner. If the Commissioner is satisfied that the applicant is a person to
whom the concession can be granted without danger to the revenue, and if he
is satisfied, either by personal inspection or by that of an officer
subordinate to him that the premises are suitable and contain a secure
store room suitable for the storage of the goods, and if the applicant
agrees to bear the cost of such establishment as the Commissioner may
consider necessary for supervising operation in his premises for the
purposes of this Chapter, the Commissioner may grant the application, and
the applicant shall then enter into a bond in the proper form with such
surety or sufficient security in such amount and under such conditions as
the Commissioner approves. Where for this purpose, it is necessary for the
applicant to obtain an Excise registration certificate, he shall submit the
requisite application along with the proof for payment of registration fee
and shall then be granted a registration certificate in the proper form.
The concession shall unless renewed by the Commissioner cease on the expiry
of the registration certificate.
Provided that, in the event of death, insolvency or insufficiency
of the surety, or where the amount of the bond is inadequate, the
Commissioner may, in his discretion, demand a fresh bond; and may,
if the security furnished for a bond is not adequate, demand
additional security.
Rule 196- Duty leviable on excisable goods not duly accounted for-
(1) If any excisable goods obtained under Rule 192 are not duly
accounted for as having been used for the purpose and in the manner
in the application or are not shown to the satisfaction of the
proper officer to have been lost or destroyed by natural causes or
by unavoidable accident during transport from the place of
procurement to the applicant’s premises or during handling or
storage in the premises approved under rule 192, the applicant
shall, on demand by the proper officer, immediately pay the duty
leviable on such goods. The concession may at any time be withdrawn
by the Commissioner if a breach of these rules is committed by the
applicant, his agent or any person employed by him. In the event of
such a breach, the Commissioner may also order the forfeiture of
the security deposited under rule 192 and may also confiscate the
excisable goods, and all goods manufactured from such goods, in
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store at the factory.
(2) Where the duty becomes chargeable in terms of sub-rule (1)
on any excisable goods, the rate of duty and the tariff valuation,
if any, applicable to such goods shall be the rate and valuation in
force-
(i) in the case of actual removal of goods from the
premises, on the date of such removal;
(ii) in the case of loss of goods in transit during
transport from the place of procurement to the
applicant’s premises, on the date on which the
goods are received in the applicant’s premises;
(iii) in the case of goods while in storage or
during handling in the premises approved under rule
192, on the date on which such loss is discovered
by the proper officer or made known to him;
(iv) in all other cases, on the date on which the
notice for demand of duty is issued or on the date
on which duty is paid, whichever is earlier.
11A(1): Recovery of duties not levied or not paid or short-levied or short-
paid or erroneously refunded - (1) When any duty of excise has not been
levied or paid or has been short-levied or short-paid or erroneously
refunded, a Central Excise Officer may, within six months from the relevant
date, serve notice on the person chargeable with the duty which has not
been levied or paid or which has been short-levied or short-paid or to whom
the refund has erroneously been made, requiring him to show cause why he
should not pay the amount specified in the notice:
Provided that 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 willful mis-statement 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, by such person or his
agent, the provisions of this sub-section shall have effect, for the words
‘‘six months’’ the words ‘‘five years’’ were substituted.
Explanation - Where the service of the notice is stayed by an order of a
court, the period of such stay shall be excluded in computing the aforesaid
period of six months or five years, as the case may be.’’
As the heading of the Rule 196 itself goes to show it relates to duty
leviable on excisable goods not duly accounted for. Rule 192 speaks of
application for concession. Rule 196 provides that if any excisable goods
obtained under Rule 192 are not duly accounted for as having been used for
the purpose and in the manner stated in the application or are not shown to
the satisfaction of the proper officer to have been lost or destroyed by
natural causes or by unavoidable accident during transport from the place
of procurement to the applicant’s premises or during handling or storage in
the premises approved under Rule 192, the applicant shall on demand by the
proper officer immediately pay the duty leviable on such goods. It further
provides that the concession may be withdrawn if a breach of the rules is
committed by the applicant, his agent or any person employed by him. In the
event of such breach, power is given for forfeiture of the security
deposited under Rule 192 and for confiscation of the excisable goods and
all goods manufactured from such goods in store at the factory. In other
words, Rule 196 deals with a situation of withdrawal for a concession. If
any concession has been wrongly or illegally availed Rule 196 permits the
proper officer to demand payment of duty leviable on the concerned goods.
Section 11(A) on the other hand deals with recovery of dues not levied or
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not paid or short levied or short paid or erroneously refunded.
In the instant case, the authorities themselves proceeded on the basis that
the case is covered under Section 11A. The CEGAT introduced a new case of
Rule 196 without affording any opportunity to the assessee to have its say
on this score.
We find that the whole issue has been considered bypassing the real issue.
The show cause notice refers to adjudication for contravention of Chapter-X
procedure by the Main Plant at Jamshedpur (hereafter referred to as the
‘consignee’). According to the show cause notice, the said consignee had
failed to intimate the actual use of goods received from Growth Shop,
Adityapur.
It has to be noted that the show cause notices of 1987 dealt with breach of
Exemption Notification by the consignor whereas the show cause notice dated
14.5.1991 dealt with breach of terms and conditions of license issued in
favour of the said consignee who failed to intimate the actual use of the
inputs in question. Even if it is accepted for the sake of arguments that
Growth Shop was entitled to exemption under the above Notification, the
crucial question is whether the Department can proceed against the said
consignee for not following the procedure under Chapter-X if there was any
violation of the terms and conditions of Central Excise License No. 6
issued in favour of the Main Plant. This crucial issue has not been
considered in the proper perspective by CEGAT. The basic question is
whether the Main Plant, Jamshedpur failed to account for the goods received
from Growth Shop, Adityapur.
The matter is remanded to CEGAT for fresh adjudication keeping in view the
legal position indicated supra.
The appeals are disposed of accordingly with no order as to costs.