2011 (1) TMI 12 - SC - Central Excise

Excise duty upheld on in-factory testing equipment; assembly held manufacture under Rules 9 and 49 Central Excise Rules

M/s. Usha Rectifier Corpn. (I) Ltd. Versus Commissioner of Central Excise

SC upheld the levy of central excise duty on testing equipment assembled by the assessee from bought-out items, parts, and components, even when the ... Demand for payment of central excise duty - Manufacturing of testing equipment - assembly of bought out items, parts, components, etc - if it was not successful, the same was disassembled - Held that:- The fact that the equipments were marketable and saleable is also an admitted position as the appellant has admitted it in their reply to the show cause notice that they had undertaken such manufacturing process of the testing equipments to avoid importing of such equipments from the developed countries with a view to save foreign exchange. Such a statement confirms the position that such testing equipments were saleable and marketable. The provision of Explanations to Rule 9 and 49 of the Central Excise Rules are very clear as it provides that for the purpose of the said rules excisable goods manufactured and consumed or utilized as such would be deemed to have been removed from the premises immediately for such consumption or utilization. Therefore, the contention that no such duty could be levied unless it is shown that they were taken out from the factory premises is without any merit. Issues:- Whether central excise duty should be levied on the appellant for manufacturing plant and machinery including testing equipmentRs.- Whether the appellant's research and development activities constitute a manufacturing processRs.- Whether the extended period of limitation was rightly invoked by the departmentRs.Analysis:Issue 1:The appellant contested the demand for central excise duty on the grounds that the activities undertaken were for research and development purposes and did not amount to the manufacture of testing equipment. However, the authorities confirmed the duty demand based on documentary evidence, including the balance sheet, which indicated the manufacture of machinery and testing equipment. The appellate authorities upheld the duty demand, leading to the appeal before the Supreme Court.Issue 2:The appellant argued that their research and development activities, which involved assembling and disassembling various parts and components, did not constitute a manufacturing process. They claimed that the equipment was not taken out of the factory premises and, therefore, should not be subject to taxation. The court, after examining the records and submissions, found that the appellant's own admissions in the balance sheet and Director's report confirmed the manufacture of testing equipment worth a specified amount. The court held that even if the equipment was for captive consumption and within the factory premises, duty was payable as they were marketable and saleable.Issue 3:Regarding the invocation of the extended period of limitation by the department, the appellant contended that it was unjustified as they had not obtained a specific license or disclosed the manufacturing of goods to the department. However, the court found that the department acquired knowledge of the manufacturing activities later, leading to the invocation of the extended limitation period due to the appellant's non-disclosure and suppression of relevant facts.In conclusion, the Supreme Court dismissed the appeal, upholding the duty demand on the appellant for manufacturing testing equipment, considering them marketable and subject to excise duty. The court also found the invocation of the extended period of limitation justified due to the appellant's non-disclosure of manufacturing activities.