2003 (8) TMI 101 - AT - Central Excise

Tribunal absolves company from duty liability as job workers performed essential manufacturing processes, stators subject to duty

The Tribunal allowed the appeals, determining that the essential manufacturing processes of shaping, varnishing, and baking were shifted to job workers, ... Manufacturer - Job work - Appeal to Appellate Tribunal - Evidence Issues Involved:1. Manufacture of stators at the Service Centre.2. Duty liability on stators manufactured at the Service Centre.3. Imposition of penalties under Central Excise Rules.4. Validity of Show Cause Notices issued for demanding duties and penalties.Issue-wise Detailed Analysis:1. Manufacture of stators at the Service Centre:The appellants, TPIL, are manufacturers of hermetically sealed compressors and also undertake repair of defective compressors at their Service Centre. The main issue is whether the processes of shaping, varnishing, and baking of stators at the Service Centre amount to 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The Tribunal previously held that these processes do amount to manufacture, making the stators excisable.2. Duty liability on stators manufactured at the Service Centre:The Collector concluded that the stators are only marketable after undergoing the processes of shaping, varnishing, and baking at the Service Centre. These processes are essential to make the stators fit for use in compressors. Therefore, the stators manufactured at the Service Centre are distinct from stator stacks and are subject to duty. However, TPIL argued that these processes were shifted to job workers from May 1992, which was supported by contemporaneous documents showing increased job work charges. The Tribunal found that the essential processes were indeed transferred to job workers, making the job workers the manufacturers responsible for duty.3. Imposition of penalties under Central Excise Rules:The Commissioner imposed a penalty under Rule 173Q of the Central Excise Rules, 1944, on TPIL for not discharging duty on stators. However, since the Tribunal concluded that the manufacture took place at the job workers' premises, TPIL was not liable for duty or penalties. Consequently, the penalty imposed was set aside.4. Validity of Show Cause Notices issued for demanding duties and penalties:Multiple Show Cause Notices were issued to TPIL for different periods, demanding duties and penalties. The Tribunal found that the demands were based on the assumption that each repaired compressor required a fresh dutiable stator, which lacked evidence. The Tribunal also noted that the Commissioner failed to conclusively determine where the processes were completed. Therefore, the demands in the Show Cause Notices were set aside.Conclusion:The Tribunal set aside the order and allowed the appeals, concluding that the essential processes of shaping, varnishing, and baking were transferred to job workers, making them the manufacturers responsible for duty. Consequently, TPIL was not liable for the duty demands or penalties imposed.