2001 (2) TMI 643 - AT - Central Excise

D.G. Sets Assembly Constitutes 'Manufacture' under Central Excise Act

The Tribunal held that assembling Diesel Generating Sets (D.G. Sets) at the customer's site constituted 'manufacture' under the Central Excise Act. ... Manufacture - excisable goods - assembly at site as manufacture - immovable property versus movable goods - limitation under Section 11A of the Central Excise Act, 1944 - bona fide belief based on Trade Notices and Board circularsManufacture - excisable goods - assembly at site as manufacture - immovable property versus movable goods - Whether assembling and installation of diesel generating sets at site by the appellants amounted to manufacture of excisable goods. - HELD THAT: - The Tribunal examined whether the process of supplying duty-paid components and subsequent assembly/installation at the customer's site produced a new marketable commodity liable to Central Excise. Although earlier Bench members and some Tribunals had held that on assembly distinct excisable goods may emerge, the Third Member applied the subsequent decision of the Supreme Court in Triveni Engineering Works to conclude that where the process does not result in a new marketable commodity excisable under the Central Excise law, the activity cannot be treated as manufacture. On the facts of this case and in view of the binding Apex Court precedent, the activities of the appellants do not constitute manufacture of a marketable commodity and therefore do not attract central excise duty. [Paras 21, 22, 23]Activities of the appellants do not constitute manufacture of any marketable commodity and thus are not excisable to duty.Limitation under Section 11A of the Central Excise Act, 1944 - bona fide belief based on Trade Notices and Board circulars - Whether the demands (issued beyond six months) were barred by limitation or otherwise sustainable by invoking extended period under the proviso to Section 11A. - HELD THAT: - The Technical Member had set aside the demands on the sole ground of limitation, finding a bona fide belief created by conflicting Board/Commissionerate trade notices and related materials. The Judicial Member, however, considered certain letters not produced earlier and remanded the limitation issue for fresh adjudication. The Third Member held that, in view of the Supreme Court's decision negating manufacture on these facts, the Department had no legal claim to levy duty; consequently the question of limitation became irrelevant. Where no duty is leviable because the core requirement of manufacture is not met, invoking extended limitation is immaterial. Thus the Tribunal did not entertain the extended-period contention once excisability was negatived. [Paras 21, 22, 23]Since no duty is leviable on the facts (no manufacture), the question of limitation under Section 11A is not germane; the demands cannot be sustained.Final Conclusion: The impugned order confirming duty and penalties is set aside; on the binding Supreme Court authority the appellants' activities did not amount to manufacture of an excisable marketable commodity and, accordingly, there is no sustainable demand of central excise duty (the limitation issue accordingly became immaterial). Issues Involved:1. Exigibility of Diesel Generating Sets (D.G. Sets) to central excise duty.2. Whether the appellants are considered manufacturers of the D.G. Sets.3. Applicability of the extended period of limitation u/s 11A of the Central Excise Act, 1944.Summary:1. Exigibility of Diesel Generating Sets to Central Excise Duty:The Tribunal examined whether the assembly and installation of D.G. Sets at the customer's site constituted 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The adjudicating authority had confirmed the duty demands based on the Supreme Court judgments in M/s. Narne Tulaman Manufacturers (P) Ltd. and M/s. Sirpur Paper Mills Ltd., which held that assembling components into a new product constitutes manufacture. The Tribunal upheld this view, stating that assembling D.G. Sets at the site amounts to the manufacture of excisable goods.2. Whether the Appellants are Considered Manufacturers:The appellants contended that they were merely traders of components and that the actual assembly was done by the customers. However, the Tribunal found sufficient evidence to substantiate the allegation that the appellants were involved in the manufacture of D.G. Sets at the site. Therefore, the appellants were considered manufacturers for the purpose of central excise duty.3. Applicability of the Extended Period of Limitation u/s 11A:The Tribunal noted that the Central Board of Excise and Customs had issued contradictory clarifications in 1986 and 1993 regarding the dutiability of D.G. Sets. Given this confusion, the Tribunal concluded that the appellants were under a bona fide belief that no duty was payable. Consequently, the larger period of limitation u/s 11A could not be invoked, making the demands time-barred. The majority order set aside the impugned order on the ground of limitation.Separate Judgment by Justice K. Sreedharan:Justice K. Sreedharan, as the third member, highlighted the Supreme Court's decision in Triveni Engineering Works, which clarified that assembling D.G. Sets does not constitute manufacturing a new marketable commodity. Thus, the appellants were not engaged in any manufacturing process, rendering the duty demands unsustainable. Consequently, the issue of limitation became irrelevant, and the appeals were allowed.Majority Order:The impugned order was set aside, and the appeals were allowed.