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

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 ... Manufacture or production for levy of central excise duty - captive consumption does not negate excise liability where goods are saleable and marketable - deeming of removal for consumption under the Explanations to Rule 9 and Rule 49 of the Central Excise Rules - invocation of extended period of limitation for suppression/non-disclosureManufacture or production for levy of central excise duty - The appellant had manufactured testing equipments which attracted central excise duty. - HELD THAT: - The Court relied on the appellant's own entries in Schedule 'Q' of the balance sheet and the Director's report which admitted addition to plant and machinery including testing equipments fabricated in the company by capitalisation of raw materials, stores and wages. The admission in the balance sheet and corroboration in the Director's report established that machines in the nature of testing equipments worth the stated amount were fabricated by the appellant. The Court held that the appellant cannot repudiate admissions made in its financial statements and that such fabrication amounted to manufacture or production for the purpose of levy of excise duty. [Paras 7, 8, 9]Demand of excise duty on the testing equipments fabricated by the appellant is sustained.Captive consumption does not negate excise liability where goods are saleable and marketable - Use of the testing equipments within factory premises for captive consumption did not extinguish excise liability because the goods were marketable and saleable. - HELD THAT: - The Court noted the appellant's admission that the testing equipments were developed to avoid import and to save foreign exchange, which confirmed their marketability. Since the equipments were saleable and marketable, their manufacture for captive use did not preclude levy of duty; captive use does not automatically exempt excisable goods that are marketable. [Paras 10]Exemption from duty could not be claimed merely because the equipments were used within the factory; duty was payable.Deeming of removal for consumption under the Explanations to Rule 9 and Rule 49 of the Central Excise Rules - The contention that duty could not be levied because the goods were not taken out of factory premises was rejected by applying the Explanations to Rule 9 and Rule 49. - HELD THAT: - The Court applied the Explanations to Rule 9 and 49 which deem excisable goods manufactured and consumed or utilised as such to have been removed from the premises immediately for such consumption or utilisation. On that basis the fact that the equipments were not physically removed did not defeat liability to excise duty. [Paras 11]The claim that absence of physical removal prevented levy of duty is unsustainable in view of the deeming provisions.Invocation of extended period of limitation for suppression/non-disclosure - The department rightly invoked the extended period of limitation because the appellant had not disclosed the manufacture and had not obtained the requisite licence, amounting to suppression of facts. - HELD THAT: - The Court found that the appellant had neither obtained an L-4 licence nor disclosed manufacture of the testing equipments to the department. The department's knowledge of the manufacture arose subsequently; non-disclosure and suppression of relevant facts justified invocation of the extended limitation period for assessment or demand. [Paras 12]Extended period of limitation was rightly invoked by the department.Final Conclusion: Appeal dismissed; demand of excise duty and imposition of penalty upheld, and invocation of extended limitation period affirmed. 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.