1997 (11) TMI 258 - AT - Central Excise

Tribunal rules spray systems not goods under Central Excise Act

The Tribunal ruled in favor of the appellants, M/s. Josts Engineering Co. Ltd. and Shri K.R. Prasad, in a case concerning excise duty on spray painting ... Dutiability Issues Involved:1. Demand of duty and penalties imposed on the appellants.2. Determination of whether the spray painting systems/booths are 'goods' and thus subject to excise duty.3. Marketability and movability of the spray painting systems/booths.4. Alleged suppression of facts and evasion of duty.5. Applicability of extended period for demand under Section 11A of the Central Excise Act.6. Levy of interest under Section 11AB of the Central Excise Act.Detailed Analysis:1. Demand of Duty and Penalties Imposed on the Appellants:The appeals were filed against the order confirming the demand of duty totaling Rs. 5,00,50,904/- and imposing equal penalties on M/s. Josts Engineering Co. Ltd. and an additional penalty of Rs. 53,00,000/- on Shri K.R. Prasad. The order also mandated the payment of 20% interest on delayed duty under Section 11AB of the Central Excise Act.2. Determination of Whether the Spray Painting Systems/Booths are 'Goods':The core issue was whether the spray painting systems/booths manufactured and installed by the appellants qualify as 'goods' under the Central Excise Act. The appellants argued that the systems, once installed, become immovable property and thus do not meet the definition of 'goods.' They cited Supreme Court judgments, including *Quality Steel Tubes v. C.C.E.* and *Mittal Engineering Works Pvt. Ltd. v. C.C.E.*, to support their claim that goods must be marketable and capable of being bought and sold in the market.3. Marketability and Movability of the Spray Painting Systems/Booths:The appellants contended that the systems were custom-designed, fabricated, and embedded into the earth, making them immovable and non-marketable. They provided detailed descriptions and photographs showing the systems' assembly and installation processes, emphasizing that they could not be moved without substantial damage. The department, however, argued that the systems were manufactured and assembled in a manner that allowed them to be transported and reassembled at the customers' sites, thus retaining their identity as 'goods.'4. Alleged Suppression of Facts and Evasion of Duty:The department issued show cause notices alleging that the appellants deliberately split their contracts into sub-contracts to suppress the value of the spray painting systems and evade duty. The appellants countered that there was no intention to defraud and that they had paid duty on the component parts manufactured in their factory.5. Applicability of Extended Period for Demand under Section 11A of the Central Excise Act:The appellants argued that the extended period for demand under Section 11A was not applicable as there was no conscious or deliberate withholding of information. They cited the Supreme Court judgment in *C.C.E. v. Chemphar* to support their claim.6. Levy of Interest under Section 11AB of the Central Excise Act:The appellants contested the levy of interest, citing a government clarification stating that the provisions of Section 11A would not apply to cases pending adjudication on the date of enactment of the Finance Act No. 2 Bill, 1996.Judgment Summary:The Tribunal considered the rival submissions and reviewed the evidence, including photographs and detailed descriptions of the spray painting systems. It concluded that the systems, once installed, became immovable property and could not be classified as 'goods' under the Central Excise Act. The Tribunal found that dismantling the systems would cause substantial damage, rendering them non-marketable.The Tribunal also noted that the appellants had arranged their affairs legally and that the department's charge of suppression was unfounded. The invocation of Section 11AC and the levy of interest under Section 11AB were deemed incorrect based on the government clarification.Conclusion:The Tribunal set aside the impugned order, allowing both appeals. The demand of duty, penalties, and interest imposed on M/s. Josts Engineering Co. Ltd. and Shri K.R. Prasad were annulled.