2023 (5) TMI 298 - AT - Central Excise

Tribunal rules in favor of appellant on excisable product classification

M/s. Mak Controls and Systems (P) Ltd. Unit – I Versus Commissioner of GST & Central Excise, Coimbatore

The Tribunal ruled in favor of the appellant on all issues raised in the case. It found that the alternators manufactured at Unit I were not distinct ... Clandestine removal - product ‘alternators’ manufactured at Unit – I is a distinct excisable product or not - alternator in question is classifiable under CETH No. 8501 or 8803 / 8710 of the Schedule to CETA - Unit – I is eligible for the exemptions claimed by the appellant or not - method adopted for determining the assessable value is correct or not - Department’s contention is that manufacture of excisable goods i.e. complete ‘alternators’ was being done at Unit – I which was being cleared to Unit – II without payment of duty during the period May 2003 to February 2008 and July 2008 to March 2009 - suppression of facts or not - extended period of limitation. Whether alternators are finally manufactured excisable goods when cleared from Unit I to Unit II? - HELD THAT:- By invoking Rule 2(a) of the General Rules for Interpretation of the Schedule to the CETA, 1985, to determine the exigiblity of incomplete or unfinished goods even before deciding whether they are marketable, the learned Commissioner has put the cart before the horse. To determine whether the goods are exigible to Central Excise duties, it is first necessary to determine whether manufacture of ‘excisable goods’ as defined under Section 2(d) of Central Excise Act, 1944, has taken place. Thereafter assessment for duty purposes is to be done and not the other way round. The ‘General Rules’ come into play only if classification and assessment of ‘excisable goods’ are involved. ‘General Rules’ cannot cloth an activity as manufacture of goods on the lines contemplated by Section 2(f) of Central Excise Act, 1944. The said Rule would be of use in determining the classification of incomplete/ unfinished goods, for assessment purposes, when they satisfy the criteria for ‘excisable goods’ including the fact that they are also marketable in that condition - the lower authority has failed to demonstrate that a distinct marketable commodity known as ‘alternator’ has been manufactured and come into being at Unit I, to be exigible to Central Excise duties. Classification of goods - HELD THAT:- As regards the classification and rate of duty applicable on ‘alternators’ if they had been found manufactured at Unit I, it should not make any difference. The appellant states that they have established the sole and principal use of GPU is for servicing of aircrafts. The classification of GPU was decided under CETH 8803 by the Tribunal in the appellant’s own case MAK CONTROLS VERSUS COMMISSIONER OF CENTRAL EXCISE, COIMBATORE [1998 (6) TMI 563 - CESTAT CHENNAI] by relying on Note 3. The Revenue’s appeal in the case was also dismissed by the Hon’ble Supreme Court. Similarly, the sole and principal use of APU is in armored vehicles and the classification is CETH 8710. Therefore, alternators of APU are also classified under CETH 8710. Whether there are any Section/ Chapter Notes that would take it out of the said classification heading? - HELD THAT:- It is seen that Note 2 of Section XVI contains three rules, dealing with three different categories of parts. (a) Parts which are goods included in any of the headings of Chapter 84 or 85 (b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading and (c) All other parts. From the scheme of the said rules each of these rules has to be applied sequentially as it moves from a specific product to a general product. ‘Alternator’ gets covered by the first rule as ‘parts which are goods included in any of the headings of Chapter 84 or 85 and hence falls in the category of goods which ‘in all cases’ are to be classified in their respective headings - Having found a suitable classification, the other two rules of Note 2 of Section XVI, are not relevant in this case. Once the classification of ‘alternators’ has been discovered within a Chapter and it satisfies the Section/ Chapter Notes, it is not required to further look into Section/ Chapter notes of other Sections to find a probable classification elsewhere - the classification of ‘alternators’ if it had been found to be manufactured by Unit I would fall under CETH 8501.00 up to 27.2.2005 and under CETH 85016100 / 85016200 with effect from 28.2.2005, as decided in the impugned order and not under CETH 8803/ 8710 as claimed by the appellants. Whether the ‘alternators’ of Unit I were eligible for the exemption claimed by the appellant? - HELD THAT:- The impugned order has discussed the ineligibility of ‘alternators’ for exemption under notification 67/95 CE dated16/03/1995 which provides for duty exemption on inputs used within the factory of production in or in relation to the manufacture of the final products. The impugned order reject the claim for exemption on two grounds (a) the goods are not manufactured in the same unit. Unit I and Unit II have different premises and different Central Excise Registration Certificates and hence the ‘alternators’ are not consumed within the factory. (b) the second condition of the notification is that the final products should suffer duty, which is not so in this case - the appellant was not eligible for the said exemption on ‘alternators’ during the period covered by the SCN. Claim for exemption under notification 214/86 dated 25/03/1986 - HELD THAT:- This is a procedural issue and in the light of our finding that no manufacture was involved a sympathetic view can be taken and the matter be laid to rest without having to go into the issue in-depth. Value of ‘alternators’ - HELD THAT:- It is seen that the appellant are amenable to the valuation of alternators, when captively consumed in Unit II, if arrived at as per Rule 8 of the Central Excise Valuation Rules 2000. Their only contention was that if goods from Unit I are to be valued for the purpose of Central Excise duty assessment, then the value based on costing principles should be determined based on the data pertaining to Unit I and not that of Unit II. The same is agreed upon. Extended period of limitation - HELD THAT:- This question would have been relevant only if a demand for duty was involved. Further the question is not pertaining to the core issue of whether the impugned goods are exigible to duty and is also not related to their assessment. Hence the question loses relevance at this stage. Appeal disposed off. Issues Involved:1. Whether the product 'alternators' manufactured at Unit - I is a distinct excisable product.2. Whether the alternator in question is classifiable under CETH No. 8501 or 8803 / 8710 of the Schedule to CETA.3. Whether Unit - I is eligible for the exemptions claimed by the appellant.4. Whether the method adopted for determining the assessable value is correct.5. Whether the extended period for issue of show cause notice is invokable in this case.Summary of Judgment:Issue 1: Excisability of 'Alternators'The Tribunal found that the alternators manufactured at Unit I were not distinct excisable products. The alternators were considered semi-finished and not marketable until further processing and testing at Unit II. The Tribunal emphasized that Rule 2(a) of the General Rules for Interpretation of the Schedule to the CETA, 1985, should not be invoked before determining whether the goods are marketable. The appeal succeeded on this issue, and the monetary demands and penalties were set aside.Issue 2: Classification of AlternatorsThe Tribunal held that if the alternators were found to be manufactured at Unit I, they would fall under CETH 8501.00 up to 27.2.2005 and under CETH 85016100 / 85016200 with effect from 28.2.2005, as decided in the impugned order. The Tribunal rejected the appellant's claim for classification under CETH 8803/8710, stating that the classification should be based on the specific description in the tariff heading and not on the end use.Issue 3: Eligibility for ExemptionsThe Tribunal agreed with the impugned order that the appellant was not eligible for exemption under Notification 67/95-CE dated 16.3.1995, as the alternators were not consumed within the same factory and the final products did not suffer duty. The Tribunal also noted that the appellant had not followed the job-work procedure under Notification 214/86 dated 25.3.1986 but considered this a procedural issue and took a sympathetic view due to the finding that no manufacture was involved.Issue 4: Method for Determining Assessable ValueThe Tribunal agreed with the appellant that if the alternators were to be valued for Central Excise duty assessment, the value should be determined based on the data pertaining to Unit I and not Unit II, as per Rule 8 of the Central Excise Valuation Rules 2000.Issue 5: Extended Period for Show Cause NoticeThe Tribunal found that this issue would have been relevant only if a demand for duty was involved. Since the core issue of whether the alternators were exigible to duty was decided in favor of the appellant, the question of invoking the extended period for the show cause notice lost relevance.ConclusionThe impugned order was modified, and the appeal was allowed with consequential relief as per law. The Tribunal clarified that the discussions on other points were only for disposing of all issues raised in the appeal and would have been operational if the appellant had failed on the core issue of exigibility of alternators.