CKD/SKD exemption for turbines denied where only parts left the factory and final assembly occurred at site.

Parts and sub-assemblies cleared from the factory were held insufficient to qualify as a complete turbine in CKD/SKD condition for exemption, because the record showed that substantial bought-out items were added and the turbine came into existence only at the customer's site. The clearance documents described only parts and sub-assemblies, so the claimed exemption was not available. The non-disclosure of the true nature of clearance was treated as suppression and misdeclaration, making the extended limitation period applicable and supporting duty demand and penalty, with related factual verification and recomputation remanded for further examination.

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Issues: (i) whether the turbines cleared from the factory were complete turbines in CKD/SKD condition or only parts and sub-assemblies, so as to qualify for exemption under the applicable notifications; (ii) whether the extended period of limitation and consequential duty demand and penalty were attracted on account of suppression and misdeclaration.

Issue (i): whether the turbines cleared from the factory were complete turbines in CKD/SKD condition or only parts and sub-assemblies, so as to qualify for exemption under the applicable notifications.

Analysis: The contracts, invoices and the factual record showed that the assessee manufactured only certain assemblies and sub-assemblies in its factory, while substantial bought-out items were taken directly to the customer's site and the turbine came into existence only at site. The clearance documents described the goods as parts and sub-assemblies, and the assessee did not establish that a complete turbine had been manufactured and cleared in knocked down form from the factory. On those facts, the goods could not be treated as a complete turbine in CKD/SKD condition for the purpose of the exemption notifications.

Conclusion: The assessee was not entitled to the exemption claimed on the footing that complete turbines were cleared in CKD/SKD condition.

Issue (ii): whether the extended period of limitation and consequential duty demand and penalty were attracted on account of suppression and misdeclaration.

Analysis: The classification declarations and clearance documents did not disclose that only parts of turbines were being cleared while the complete turbine was assembled only at site. The record indicated that the Department discovered the real nature of clearance only after investigation. In those circumstances, the Tribunal treated the conduct as suppression and misdeclaration with intent to evade duty, making the proviso to section 11A applicable. For the appeal arising from the appellate order, the matter required reconsideration of invoices and factual verification as to whether the parts formed a complete turbine in CKD/SKD condition.

Conclusion: The extended period of limitation applied, the duty demand could be pursued for the extended period, and the connected matter was remanded for fresh factual examination and recomputation of duty and penalty.

Final Conclusion: The assessee's appeal failed on exemption, the Revenue succeeded on limitation, and the remaining dispute was sent back for further factual verification.

Ratio Decidendi: Where only parts and sub-assemblies are cleared from the factory and the complete turbine comes into existence only at the customer's site, the clearance cannot be treated as a complete turbine in CKD/SKD condition for exemption purposes; deliberate non-disclosure of the true nature of clearance justifies invocation of the extended limitation period.

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