Manufacture-based excise liability upheld for bus bodies; captive use did not defeat duty, while exemption claims failed.

Bus bodies fabricated on duty-paid chassis were held dutiable under Heading 87.07 because excise liability arises on manufacture, and captive use by the manufacturer does not exclude the activity from the charging provision. The claimed exemption notifications and small-scale industry benefit were rejected as inapplicable to goods under that heading and because clearances exceeded the prescribed limit during the relevant period. The penalty was considered excessive in relation to one duty demand and was reduced to a nominal amount, while the duty demands were otherwise sustained, subject to admissible Modvat credit.

---

---

Issues: (i) Whether bus bodies fabricated on duty-paid chassis and used by the appellant for its own operations were liable to central excise duty; (ii) whether the appellant was entitled to exemption under the claimed notifications and small-scale industry benefit; and (iii) whether the penalty required reduction.

Issue (i): Whether bus bodies fabricated on duty-paid chassis and used by the appellant for its own operations were liable to central excise duty.

Analysis: The fabrication of bodies on purchased duty-paid chassis was not in dispute. Goods emerging from such body-building activity were treated as classifiable under Heading 87.07 and liable to central excise duty. Liability arose from manufacture, and use of the buses by the appellant itself did not take the activity out of the charging provision. Captive consumption did not defeat excisability.

Conclusion: The body-building activity was dutiable, and the demand of duty was sustainable, subject to Modvat credit on eligible inputs.

Issue (ii): Whether the appellant was entitled to exemption under the claimed notifications and small-scale industry benefit.

Analysis: The claimed notifications were found inapplicable to goods falling under Heading 87.07. The small-scale exemption claim also failed because the clearances exceeded the prescribed exemption limit during the relevant period. The duplication objection in respect of some buses had already been examined in the impugned order and did not justify interference.

Conclusion: The exemption claims were rejected and the duty demand was maintained.

Issue (iii): Whether the penalty required reduction.

Analysis: A penalty equal to duty was considered harsh in relation to the duty demand involved in one of the orders. The penalty was therefore scaled down to a nominal amount.

Conclusion: The penalty was reduced to Rs. 1,000/- in the relevant order.

Final Conclusion: The duty demands were upheld, the exemption claims failed, and only the penalty was granted limited relief by reduction.

Ratio Decidendi: Excise duty is attracted on manufacture even where the goods are captively consumed by the manufacturer, and exemption notifications must be applied strictly according to the tariff heading and their expressed scope.

---