AI Drafter 
TaxTMI 
TaxTMI 
1998 (12) TMI 332
X X X X Extracts X X X X
X X X X Extracts X X X X
....cture of the above mentioned three items which are in the nature of material handling equipment to the following fabricators who fabricated the same in the appellants, premises : (1) M/s. Gupta Electronics & Engg. Co. (2) M/s. Process Engineers; and (3) M/s. Yusuf Fabricators, Gurgaon. The appellants did not file any classification list or price list for these items nor did they maintain any statutory records for the same nor did they pay any Central Excise duty leviable thereon; hence a show cause notice dated 1-6-1994 was issued to them proposing recovery of a sum of Rs. 30,63,946/- under Rule 9(2) of the Central Excise Rules read with proviso to sub-section (1) of Section 11A of the Central Excise Act and proposing imposition of penalty for contravention of the Rules. 3. The appellants' claim to the benefit of Notification No. 217/86, dated 2-4-1986 was denied by the Adjudicating authority for the reason inter alia that items of the category of material handling equipment were excluded under the Explanation to the Notification. The plea that the fabricators above named are the real manufacturers was rejected, holding that the fabricators were o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... are exempt from whole of duty of excise leviable thereon or are chargeable to nil rate of duty. We find that it is not in dispute in the present case, that both the Material handling equipment (inputs) falling under Chapters 73 and 94 and Motor Vehicle (final product) falling under Chapter 87 are covered by the Table annexed to Notification 217/86. The material handling equipment are undoubtedly used within the factory of production in or in relation to the manufacture of the final products i.e. Motor vehicles which are neither chargeable to nil rate of duty nor wholly exempt from duty but cleared only on payment of duty. The question arises when considering as to whether they are excluded by clause (1) of the Explanation to the Notification. The explanation reads as under : For the purpose of this Notification, inputs does not include : (I) machines, machinery, plant, equipment apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products. (II) ............................ (III) &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court had held that process of handling/lifting, pumping/transfer; transportation of raw material is also a process in or in relation to manufacture if it is integrally connected with further operations leading to manufacture of goods. 8. In the case of Mahindra & Mahindra v. Collector of Central Excise reported in [1996 (87) E.L.T. 258], the contention of the Revenue that baskets and fixtures used for placing components in the oven do not bring about a change in the raw material nor do they produce the components by themselves and are, therefore, not used for producing or processing any goods or for causing any change in the substance for the manufacture of final products and are therefore, not covered by the definition of capital goods under Rule 57Q, was rejected by the Tribunal which held that fixture and baskets which were material handling equipment contributed to the processing of the components since without them, the oven cannot be effectively used for the purpose of change in the components. The Tribunal extended the benefit of Modvat to fixtures and baskets considering them to be covered by the definition of capital goods contained in explanation to Rule 57Q. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itute part of manufacturing process. The Tribunal relied upon the judgment of the Supreme Court in the case of Rajasthan Chemical Works. 12. The argument of the learned Counsel that the judgments rendered in the context of Rule 57Q are not relevant in the context of Notification 217/86, is not tenable. The explanation to Rule 57A excludes 'machines, machinery, plant, equipment, apparatus, tools or appliances' used for producing or processing of any goods or bringing about any change in any substance in or in relation to the manufacture of final products. These very items are covered by exclusion clause (1) contained in the explanation to Notification 217/86. On the other hand, capital goods have been defined in clause (1) (a) of the explanation to Rule 57Q to mean 'machines, machinery, plant, equipment, apparatus, tools or appliances' used for producing or processing of any goods or for bringing about any change in substance for the manufacture of the final products'. Therefore, what is excluded from the scope of Notification No. 217/86, is automatically covered by definition of capital goods under Rule 57Q. Viewed from this angle, we hold that the judgments in the context ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L); (b) All material preparations, painting, wood-fixing are the responsibilities of the party. (c) Electric power, water, compressed air, oxygen, D/A fastners, welding rods, paint, primer etc. will be supplied by MUL free of cost for the exclusive purpose of carrying out the entire work". The terms and conditions of work order dated 2-8-1986 of M/s. Process Engineers are as under : "TERMS AND CONDITIONS : This work order is subject to the following terms and conditions : 1. All raw material like steel, wood etc. will be supplied by Maruti Udyog Ltd. (MUL). 2. Material preparation for manufacturing the above jobs is the responsibility of the party. 3. Electrical power, water, compressed air, oxygen, DA, fastners electrodes and paint etc. will be provided by MUL free of cost for the exclusive purpose of carrying out the work awarded under this contract. 4. The party is to make its own arrangement for the hacksaw machine, drilling ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a fact that the appellant had no control over either the manufacturing process or the manufacturing apparatus and hence the Court set aside the finding of the Tribunal that oil driven pumps manufactured by the independent units on payment were manufactured on behalf of the appellants. In the case of Collector of Central Excise v. M.M. Khambhatwala reported in [1996 (84) E.L.T. 161 (S.C.) = 1996 (64) ECR 686], the Apex Court found that the respondents who are suppliers of raw materials for manufacture of agarbati/dhoop to household ladies at their house, outside the factory premises, had no supervision over the manufacture and hence held that the respondents were not the manufacturers of agarbati/dhoop etc. but that the household ladies were the manufacturers of the goods in question. In the case of Britannia Biscuit Company Ltd. reported in [1997 (89) E.L.T. 22 (S.C.) = 1997 (68) ECR 527], the Supreme Court held that the appellants who supplied metal for conversion into containers for packing of biscuits (manufactured by the appellants) could not be treated as the container manufacturers, having regard to the terms and conditions of the agreements entered into between them a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icted meaning was required to be adopted for exclusion in the context of the notification in the light of the judgment of the Supreme Court in the case of J.K. Cotton Spinning & Weaving Mills [1997 (91) E.L.T. 34 (S.C.) = AIR 1965 SC 1310], and Rajasthan State Chemical Works [1991 (55) E.L.T. 444 (S.C.)]. After dealing with the Supreme Court judgment, the benefit of notification was extended to the assessee. Thus the majority held that the exemption under Notification 217/86 was available for Material handling equipment. In the impugned order, the Collector has held that since in a number of Modvat cases relating to capital goods, the Tribunal has held that the use of material handling equipment is direct in the manufacturing process and such use is prohibited under Explanation 1 of Notification 217/86, the exemption is not available to the appellants with reference to the TELCO case. While it is true that in a series of decisions, the Tribunal has been extending the benefit under Rule 57Q for material handling equipment, treating them as capital goods [what is included under the definition of capital goods under clause (a) of the First Explanation to Rule 57Q corresponds to the it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rately withheld information regarding manufacture of material handling equipment from the department. The extended period of limitation is therefore held to be not available to the department and therefore the entire demand is barred by limitation. This issue is therefore, answered in the affirmative. 18. Issue No. IV. Section 11AB of the Central Excise Act, 1944 provides for levy of interest equal to the duty amount in cases where the duty became payable on clearances effected after this section was introduced in the Statute and such duty has not been paid. Section 11AB(2) states that the provisions of sub-section (1) of Section 11AB shall not apply to cases where the duty become payable before 28-9-1986. The expression 'duty become payable' is significant. Under the Central Excise law, duty on manufactured goods becomes payable at the time of removal of goods and this is the scheme of the various provisions of the Rules such as Rules 9, 49,173F, 173G, etc. Further, Section 11A refers to duty short paid, not paid etc. from which it is clear that it is only when the duty is otherwise payable at an earlier point of time but was paid that proceedings under Section 11A for recoveri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here is a clear cut distinction maintained between the expressions 'duty become payable' and 'date of determination'. The date of determination is as provided in Section 11A(2). Whereever the legislature wanted to refer example, Section 11A(2), Section 11AA(1). Even Section 11AB(1) maintains the above distinction. Therefore, when Section 11AB(2) uses the expression 'duty become payable', it is used in contra distinction to 'date of determination' under Section 11A(2). Interest is a substantive liability and it is settled principle of construction of fiscal Statutes, particularly those provisions relating to creation of levy, that they should be treated strictly and retrospective operation should not be attributed to the provisions for levy of interest, unless warranted by the expressed language of the section. (See the judgment of the Hon'ble Supreme Court in the case of J.K. Synthetics Ltd. v. Commercial Tax-Officer [(1974) 94 STC 422] in which it has been held that 'when a Statute levies a tax, it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It therefore, provides the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed to All Commissioners of Central Excise/All Commissioners of Customs)" "I am directed to refer to the provisions of Section 11AC of the Central Excise Act, 1962 (sic) and to say that information have been received from some Commissioners of Central Excise whether Section 11AC would be applicable even in those cases where show cause notices had been issued prior to the date of enactment of Finance (No. 2) Bill, 1996, on which date Section 11AC came into force, or it would apply only to cases where the show cause notices have been issued after that date. The matter has been examined. It is observed that Section 11AC provides for imposition of penalty equal to the amount of duty evaded in the cases mentioned therein. The amount of mandatory penalty mentioned in Section 11AC is less than the amount of penalty which may be imposed under Rule 173Q of the Central Excise Rules, 1944. This gives rise to the impression that Section 11AC can also be applied to cases pending adjudication as on the date of enactment of Finance (No. 2) Bill, 1996. However, there is one more aspect of Section 11AC. The section has the effect of imposition of a mandatory penalty which is equal to the amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp;[Order per : Shiben K. Dhar, Member (T)]. - With respect to ld. Member (J), I am writing separate order as under :- 27. I agree that the impugned goods are excluded from the scope and ambit of Notification 217/86 for the reasons mentioned by ld. Member (J). 27.2 I also agree with ld. Member (J) that terms of various work orders clearly spell out a Master-servant relationship between the appellants and the fabricators. The three fabricators, therefore, have to be held hired labour of the appellant and not independent manufacturers. The appellants in this case are the manufacturers of the impugned goods. 27.3 I also agree for the detailed reasons given by ld. Member (J) that considering the phraseology used in Section 11AB(2) appellants are not liable to pay interest. 27.4 Considering that penalty is imposed on account of commission of a wrongful act and it is the law operating on the date on which wrongful act was made which would determine penalty, I also agree that Section 11AC directing the mandatory penalty would not apply. 28. I, however, with respect to ld. Member (J), do not agree in regard to limitation, and imposition of penalty un....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The facts of the case have been set out in the order of ld. Member (J). Only point for determination is whether the extended period of limitation is applicable or not and if applicable whether the penalty of Rs. 5 lakhs is sustainable. 33. Ld. Member (J) in para 16 while discussing the applicability of the longer period observed that the show cause notice is beyond six months. Ld. Member (J) observed that the appellants' claim was that they were under a bona fide belief that the material handling equipment such as the goods on which the demand has been confirmed, were entitled to the benefit of exemption under Notification No. 217/86 and this bona fide belief has been further strengthened by the decision of the Tribunal in the case of TELCO reported in 1994 (70) E.L.T. 75 and that in this case, the Tribunal relied upon the decision of the Supreme Court in the case of J.K. Cotton Spinning & Weaving Mills [1997 (91) E.L.T. 34 (S.C.) = AIR 1965 SC 1310] and in the case of Rajasthan Chemical Works [1991 (55) E.L.T. 444 (S.C.)]. 34. On these observations of ld. Member (J), ld. Member (T) observed that "Considering the terms of work orders, I find appellants have no....