2015 (5) TMI 28 - SC - Central Excise

Excise Duty Applicable to Transmission Assembly for Tractors

The Court held that excise duty is payable on the Transmission Assembly used in manufacturing tractors as it qualifies as a marketable commodity. The ... Marketability - manufacture - intermediate product / intermediate goods - captively consumed intermediate goods and exemption notification - extended period of limitation under Section 11 A - wilful suppression, fraud or collusion - deemed clearance under Rule 9 and Rule 49 - requirement that goods be known to the market as suchMarketability - manufacture - intermediate product / intermediate goods - requirement that goods be known to the market as such - Whether the Transmission Assembly emerging during the manufacture of tractors is an intermediate product known to the market and therefore exigible to Central Excise duty. - HELD THAT: - The Court applied settled tests derived from Union of India v. Delhi Cloth and subsequent authorities: manufacture requires emergence of a new and different article and, for excise, the article must be known to the market as such (marketability is a question of fact). On the material before it - admissions and documentary evidence showing transmission assemblies are identifiable, cleared to related units, imported/marketed by others and referred to in the trade - the Court held that a transmission assembly emerges during the assembly process as an identifiable intermediate product with a distinctive name, character and use. The Court accepted that actual sale is not necessary; it is sufficient that the article is capable of being sold or is known in the commercial market. The authorities relied on by the appellants where intermediate products were held non excisable were distinguished on their facts (e.g., unstable or non standardised products). Accordingly, on the merits the transmission assembly is an excisable intermediate good. [Paras 3, 6, 15]Transmission Assembly is a distinct intermediate product known to the market and, on the merits, is exigible to excise duty.Extended period of limitation under Section 11 A - wilful suppression, fraud or collusion - captively consumed intermediate goods and exemption notification - deemed clearance under Rule 9 and Rule 49 - Whether the Department could invoke the extended period of limitation by alleging suppression or wilful attempt to evade duty in respect of Transmission Assemblies for the relevant periods. - HELD THAT: - The Court examined the correspondence and replies in the show cause proceedings and relevant precedents constraining invocation of the extended period: suppression or misstatement must be wilful and proved with intent to evade duty. The appellants had continuously manufactured tractors since 1965, had earlier raised and replied to questions about intermediate products (IC engines) and had not sold transmission assemblies in the market; their classification declarations had, according to them, bona fide treated chassis/parts as covering the assemblies. On these facts the Court found no clear evidence of fraud, collusion or wilful suppression with intent to evade duty. Applying precedents (including Padmini Products and Continental Foundation), the Court held that mere failure to declare or uncertainty where there was scope for doubt does not justify extended limitation. Consequently the extended period could not be invoked and the show cause notices issued beyond the one year period were quashed. [Paras 16, 19, 23]Extended period of limitation under Section 11 A was not invocable; show cause notices beyond the basic limitation period were quashed for lack of proven wilful suppression or intent to evade duty.Final Conclusion: On the merits Transmission Assemblies used in tractor manufacture are intermediate goods known to the market and in principle exigible to excise duty; however, on the facts of these proceedings the Revenue could not establish wilful suppression or intent to evade duty and therefore could not invoke the extended limitation - the appeals are allowed on the limitation ground and the impugned show cause notices/orders (as to extended period) are set aside. Issues Involved:1. Whether excise duty is payable on the intermediate product, Transmission Assembly, used in the manufacture of tractors.2. Whether the Transmission Assembly is a marketable commodity.3. Whether the extended period of limitation for excise duty demand is applicable.Issue-wise Detailed Analysis:1. Excise Duty on Intermediate Product:The primary issue was whether excise duty is payable on the intermediate product, Transmission Assembly, used in the manufacture of tractors by the appellant for the period January 1996 to May 1998. The Department issued a show cause notice asserting that Transmission Assemblies were excisable goods known to the market. The appellant denied this, stating that no separate product known as Transmission Assemblies came into existence. The Commissioner held that Transmission Assemblies were identifiable commercial products and thus excisable. CESTAT upheld this decision, stating that a new and different article known as Transmission Assembly emerges during the manufacturing process, satisfying the test of manufacture and marketability.2. Marketability of Transmission Assembly:The appellant argued that the Transmission Assembly was not a separate marketable commodity but an aggregate of various items specific to their tractors, not sold in the market. The respondent countered that the Transmission Assembly was known to the market and capable of being sold, supported by evidence of similar products being marketed by other companies. The Supreme Court reiterated that marketability means the goods must be known to the market and capable of being sold, even if not actually sold. The Court found that Transmission Assemblies were commercially known products, fulfilling the criteria of marketability, thus making them excisable goods.3. Extended Period of Limitation:The appellant contended that the extended period of limitation was not applicable as there was no fraud or willful suppression of facts. They argued that the manufacturing process had been known to the Department since 1965, and there was no change in the process. The Court agreed with the appellant, citing previous judgments that mere failure or negligence does not attract the extended period unless there is deliberate withholding of information with intent to evade duty. The Court found no evidence of suppression or intent to evade duty, noting that the appellant had a bona fide belief that Transmission Assemblies were not dutiable. Consequently, the show cause notice was quashed on the ground of limitation.Separate Judgments:In Civil Appeal Nos. 9469-9470 of 2010, the Court found similar facts and quashed the show cause notice on the ground of limitation, despite setting aside the orders on merits. In C.A. No. 457 of 2006, the Court also quashed the show cause notice on the ground of limitation, noting that the appellant had declared the chassis and bona fide believed that Transmission Assemblies were not taxable goods. The appeal was allowed, and the impugned judgment was set aside on this ground alone.