Assembly of computers as manufacture upheld, while penalty and confiscation failed for lack of conscious evasion.

Assembling computers from brought-out parts was treated as manufacture, so duty was upheld on that basis. The Tribunal applied its earlier view that assembling a data processing unit from duty-paid parts amounts to manufacture, and the assessee's challenge to duty failed. Penalty under Rule 209A against the director was not sustained because the record did not show mala fide intent or conscious involvement in evasion. Confiscation of the computer bought by the third appellant, and the related redemption fine, were also set aside because there was no material showing intent to evade duty. The result was partial relief for the appellants.

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Issues: (i) whether assembling computers from brought-out items amounted to manufacture and attracted duty; (ii) whether penalty under Rule 209A was sustainable against the director; and (iii) whether confiscation of the computer purchased by the third appellant and the consequential redemption fine were justified.

Issue (i): whether assembling computers from brought-out items amounted to manufacture and attracted duty.

Analysis: The appellants admitted that computers were assembled from brought-out items. The Tribunal applied its earlier view that assembling a data processing unit from duty-paid parts amounts to manufacture. On that basis, the process of assembling computers was treated as manufacture for duty purposes.

Conclusion: The challenge to the duty demand failed and the finding on manufacture was against the assessee.

Issue (ii): whether penalty under Rule 209A was sustainable against the director.

Analysis: The record did not show any mala fide intention on the part of the director to evade duty. In the absence of evidence of conscious involvement in evasion, the penalty could not be sustained.

Conclusion: The penalty under Rule 209A was set aside in favour of the assessee.

Issue (iii): whether confiscation of the computer purchased by the third appellant and the consequential redemption fine were justified.

Analysis: The purchaser claimed to have bought the computer without knowledge that it had been cleared without payment of duty. In the absence of material showing intent to evade duty, confiscation of the computer was not justified and the redemption fine could not survive.

Conclusion: The confiscation and redemption fine were set aside in favour of the assessee.

Final Conclusion: The appeal of the manufacturing assessee failed on the issue of manufacture and duty, while the penalty on the director and the confiscation and redemption fine against the purchaser were set aside, resulting in a partial success for the appellants.

Ratio Decidendi: Assembling computers from brought-out parts can amount to manufacture, but penalty and confiscation require evidence of mala fide intent or conscious evasion.

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