1995 (2) TMI 446 - AT - Central Excise

Imported CKD Machine Operations Not Manufacturing; Duty Demand Set Aside; Penalties on Directors Quashed

Walchand Nagar Industries Versus Collector of Central Excise, Pune

Walchand Nagar Industries Versus Collector of Central Excise, Pune - 1995 (79) E.L.T. 485 (Tribunal) Issues Involved:1. Whether the operations carried out on the imported CKD machines amounted to manufacture.2. Whether the demand for duty is time-barred.3. Whether the penalties imposed on the appellant company and its Managing Director and General Manager are sustainable.Issue 1: Whether the operations carried out on the imported CKD machines amounted to manufacture.The appellants imported 4 milling machines (2 Nos. HB 630 and 2 Nos. VA 50) in CKD condition under an approved Phased Manufacturing Programme (PMP) and sold them after assembly. The Department alleged that operations such as scraping, machining, and interfacing CNC controls amounted to manufacture, thus attracting excise duty. The appellants contended that these operations were merely assembly processes and did not result in the manufacture of a new product. The Tribunal held that the processes did not amount to manufacture as no new product with a different name, character, or use emerged. The Tribunal cited the cases of T.I. Cycles and BPL, concluding that assembly of parts does not constitute manufacture u/s 2(f) of the Central Excise Act, 1944. Consequently, the duty demand of Rs. 14,69,880/- was set aside.Issue 2: Whether the demand for duty is time-barred.The show cause notice was issued in October 1986 for the period August 1984 to January 1986. The Department invoked the extended period of limitation alleging suppression of facts by the appellants. The appellants argued that they had disclosed all relevant facts to the Department, including their bona fide belief based on the opinion of their Excise Consultant and the Assistant Collector's clarification. The Tribunal found that the appellants had indeed disclosed all necessary information and thus could not be held guilty of suppression. Therefore, the demand was held to be time-barred.Issue 3: Whether the penalties imposed on the appellant company and its Managing Director and General Manager are sustainable.Penalties of Rs. 5 lakhs on the appellant company, Rs. 10,000/- on the Managing Director, and Rs. 5,000/- on the General Manager were imposed. The appellants argued that no specific role was attributed to the Managing Director and General Manager in the alleged evasion of duty. The Tribunal agreed, citing the necessity of establishing a definite role in the alleged offense for imposing penalties. As such, the penalties on the Managing Director and General Manager were set aside.Conclusion:The Tribunal set aside the impugned order, allowing the appeals with consequential relief to the appellants. The operations carried out did not amount to manufacture, the demand was time-barred, and the penalties on the Managing Director and General Manager were not sustainable.