2006 (10) TMI 39 - AT - Central Excise

Tribunal reclassifies hammer assembly, shifts manufacturing responsibility, upholds duty demand, penalties modified. Seized cash confiscated.

SPARR ENGINEERING Versus COMMISSIONER OF C. EX., BANGALORE-II

SPARR ENGINEERING Versus COMMISSIONER OF C. EX., BANGALORE-II - 2007 (207) E.L.T. 545 (Tri. - Bang.) , 207 (79) RLT 45 (CESTAT - Ban.) Issues Involved:1. Classification of the hammer assembly under Central Excise Tariff Heading.2. Determination of the manufacturer for excise duty purposes.3. Validity of multiple Show Cause Notices based on the same investigation.4. Duty demand on waste and scrap.5. Confiscation of seized cash.6. Imposition of penalties and interest.Issue-wise Detailed Analysis:1. Classification of the Hammer Assembly:The appellants argued that the hammer assembly should not be classified under Chapter Heading 82.07 of the Central Excise Tariff because, according to Note 1 to Chapter 82, the hammer assembly lacks a working edge, such as a bit containing tungsten carbide buttons essential for drilling. The Tribunal found merit in this argument, noting that the hammer assembly without the bit does not meet the requirements of Chapter Heading 82.07. Consequently, the value of the hammer assembly should be excluded from the total value of clearances.2. Determination of the Manufacturer:The appellants contended that the various parts of the hammer assembly were manufactured by job workers, not by them. The Tribunal agreed, based on the evidence from computer statements and documents (MTO and MTI) showing that the job workers performed the manufacturing operations. The Tribunal held that the job workers should be considered the manufacturers, and the duty liability rests with them. However, the appellants conceded some finishing operations were carried out by them, accepting duty liability for those parts.3. Validity of Multiple Show Cause Notices:The appellants challenged the issuance of a second Show Cause Notice dated 26-6-2002 based on the same investigation as the first notice dated 10-12-2001. The Tribunal found that the second notice, which invoked the proviso to Section 11A for duty demand, was justified as it was not for a subsequent period but related to the same investigation. The Tribunal did not apply the Supreme Court's decision in Nizam Sugars Ltd. v. CCE to this case.4. Duty Demand on Waste and Scrap:The Tribunal upheld the demand of Rs. 2,74,306/- for waste and scrap generated during the manufacturing process. The appellants failed to provide satisfactory evidence to counter the Commissioner's finding that there was no proof of the waste and scrap being returned or cleared on payment of duty.5. Confiscation of Seized Cash:The Tribunal upheld the confiscation of Rs. 1,15,400/- seized from the residence of the General Manager under Section 12 of the Central Excise Act, 1944 read with Section 121 of the Customs Act, 1962, due to overwhelming evidence of clearance of goods without payment of duty.6. Imposition of Penalties and Interest:- The penalty on the company under Section 11AC was reduced to Rs. 10,00,000/-, and the penalty under Rule 173Q was set aside.- Interest under Section 11AB was deemed recoverable on the duty liability.- The appropriation of Rs. 18,62,055/- voluntarily paid during the investigation was upheld.- Penalties under Rule 209A of the Central Excise Rules, 1944/Rule 26 of the Central Excise Rules, 2001 were justified due to overwhelming documentary evidence but were reduced to Rs. 80,000/- for Shri S. Ravichandra, Rs. 15,000/- for Shri P. Ramakrishna, and Rs. 15,000/- for Shri Samiulla Khan.Conclusion:The Tribunal provided a detailed analysis of each issue, resulting in a re-computation of the duty liability to Rs. 18,73,745/- after excluding the value of hammer assemblies and granting SSI exemption. The penalties and interest were modified accordingly, and the confiscation of seized cash was upheld.