2017 (2) TMI 665 - AT - Central Excise

Assembling Computer Components Not Manufacturing for Excise Duty

The Tribunal allowed the appeals filed by the assessee and the Director, setting aside the impugned order. It was held that the activity of assembling ... Manufacture or second sale - The appellant-assessee was engaged in procuring various parts of computers such as CPU, monitor, hard-disk drive, mouse, etc., from different suppliers. These parts were being assembled by the assessee by interconnecting the various components resulting in the emergence of computer systems - whether the process amounts to manufacture and is liable to duty or is only a second sale transaction and is not liable to excise duty? Held that: - all units of an ADP are designed to be interconnected to enable the ADP system to be formed to carry out its function. It cannot be said that the assembly of various units into a working system has brought about any new goods which have a distinct name, character or use different from that of the units of computer system. The Revenue has already clarified vide their Circular No.497/63/99-CX dt. 30/11/1999 that the activity of creating a computer network from duty paid computers and peripherals would not amount to manufacture, since the network does not bring into existence goods with a distinct new name, character and use. Appeal allowed - decided in favor of assessee. Issues Involved:1. Whether the activity of assembling various computer components amounts to manufacture and attracts excise duty.2. Non-supply of documents relied upon in the show-cause notice.3. Applicability of the extended period of limitation for issuing the show-cause notice.Detailed Analysis:1. Whether the activity of assembling various computer components amounts to manufacture and attracts excise duty:The central issue in this case is whether the activity of assembling various computer components such as CPU, monitor, hard disk, etc., into a working computer system constitutes 'manufacture' under the Central Excise Act, thereby attracting excise duty. The department contended that the assembly of these components results in the emergence of a new product, i.e., a computer system, which should be subject to excise duty. The appellant-assessee argued that they were merely trading in computer components and that the assembly did not result in the manufacture of a new product.The Tribunal examined the description of Automatic Data Processing (ADP) machines under Chapter 84.71 and the relevant chapter notes. It was noted that each component of the computer (CPU, hard disk, monitor, etc.) is classified under 84.71 as a separate unit. When these units are interconnected to form a system, they perform the function of an ADP machine but do not result in a new product with a distinct name, character, or use. The Tribunal referred to the Supreme Court's decision in the DCM case, which laid down the test for manufacture, and concluded that the assembly of these components did not amount to manufacture. Consequently, the demand for excise duty was not justified.2. Non-supply of documents relied upon in the show-cause notice:The appellant-assessee argued that the department failed to furnish copies of several documents relied upon in the show-cause notice, which were crucial for their defense. The department admitted that these documents were not traceable. The Tribunal noted that the non-supply of these documents could have prejudiced the assessee's defense, but since the primary issue of whether the activity amounted to manufacture was decided in favor of the assessee, a detailed discussion on this aspect was deemed unnecessary.3. Applicability of the extended period of limitation for issuing the show-cause notice:The appellant-assessee contended that the demand was hit by limitation as the show-cause notice was issued beyond the normal period of limitation. The department argued that the extended period of limitation was applicable due to the assessee's suppression of facts. The Tribunal, having concluded that the activity did not amount to manufacture, found it unnecessary to delve into the issue of limitation in detail.Conclusion:The Tribunal allowed the appeals filed by the assessee and the Director, setting aside the impugned order. It was held that the activity of assembling various computer components into a working system did not amount to manufacture and, therefore, no excise duty was payable. The issue of non-supply of documents and the applicability of the extended period of limitation were not discussed in detail as they were rendered moot by the primary finding.