TaxTMI 
TaxTMI 
2015 (5) TMI 28
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....ption has gone and even tractors of an engine capacity of less than 1800 CC now have to bear excise duty. 2. By a show cause notice dated 31.1.2001, the Department for the period aforesaid relied upon evidence in the form of statements made by various officers of the appellant and other documentary evidence to show that Transmission Assemblies of tractors was a commodity known to the market as such and, therefore, came into the category of excisable goods. The respondent by their reply dated 1.10.2001 denied this stating that no separate product known as Transmission Assemblies came into existence which is known to the commercial community as such and, therefore, there was neither manufacture nor marketability of the same. In the reply, however, various statements were made which, in fact, amount to admissions, that Transmission Assembly of a tractor is, in fact, known to the market as such. These admissions are set out hereinbelow: "16. It is submitted that transmission assemblies are in fact interchangeable. The Transmission Assembly can be used in both dutiable as well as exempt tractors, for example in Model No.325 (exempt tractor) and Model No.335 (dutiable tractor). The....
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....FE, Chennai, International Tractors Ltd., Hoshiarpur, Mahindra & Mahindra all deal in transmission assemblies and further information regarding transmission assembly availability as such is also available on internet. 42. Noticee's submission that no identifiable transmission assembly emerges in their production of Tractors is also incorrect. They are manufacturing transmission assemblies for their tractors as well as for ECEL. Of course transmission assemblies meant for different models of machines/vehicles will be of slightly different specifications from each other but as a whole transmission assemblies are one identifiable commercial product as already discussed. I also note that the concerned persons of the noticee company themselves have admitted that transmission assemblies do emerge as identifiable goods. Statements of Sh. K.K. Kachroo, Manager Excise, Shri Vinod Ahuja, Plant Head, Sh. Ramesh Kumar Khurana, Chief Manager Production all admit this fact. Even otherwise manufacturing of the tractors in the noticee's factory cannot be accepted as such a continuous process in which raw materials are fed in the machine at one end and final product emerges at another. O....
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....bars such intermediate products used in production of exempt final products, from the duty exemption under the notification. As the final product i.e. Tractors were exempt, the impugned transmission assemblies did attract Central Excise duty. I hold that all the observations in the show cause notice regarding excisability of the impugned goods are correct. I also note that as far as the classification of the product is concerned, the same has not been challenged by the noticee." 4. By the impugned judgment dated 27.5.2004, CESTAT dismissed the appeal holding: "6. We have considered the submissions of both the sides. The Central Excise duty is leviable on goods manufactured in India. "Manufacture" as per the judgment of the Supreme Court in the case of Union of India vs. Delhi Cloth and General Mills, 1977 (1) ELT (J 199) "implies a change .... and there must be transformation; a new and different article must emerge having a distinctive name, character or use." The Supreme Court, after referring to various judgments on the concept of the manufacture, has laid down a two fold test for deciding whether the process is that of "manufacture" in Union of India vs. J. G. Glass, 1....
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....called Transmission Assembly was specifically designed for the appellant's tractor and was not saleable in the market. Also, not a single instance of sale in the market had ever taken place. In fact, the so-called Transmission Assembly was not something which came into existence at all but was part of a continuous process on the assembly line in the appellant's factory of manufacture at the end of which a complete tractor came into existence. He further submitted that post 1.6.1998 in any case, the appellant had been paying 8% under Rule 57 CC on the value of the said Transmission Assembly as required. It is only for the period upto August 1996 that would be in dispute. Even for this period, he contends that ultimately the figures would show that it was revenue neutral in that MODVAT credit reversed for this period would amount to 1.71 crores, the duty demand being approximately 2.43 crores out of a total of 9.66 crores for this period of 8 months. He also argued that the duty demand was absurd in that the Transmission Assembly of TAFE which is said to be the same as that of the petitioner's was only 13,000 rupees per piece as opposed to the highly inflated figure of Rs. 53,790/-. ....
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....nings hereby respectively assigned to them, that is to say- (12) "goods" includes all materials, commodities and articles;" 8. Each of these three expressions has been defined in the Shorter Oxford English Dictionary as follows:- "Materials" - the matter of which a thing is or may be made; the constituent parts of something. "Commodities" - a thing of use or value; a thing that is an object of trade; a thing one deals in or makes use of. "Articles" - a particular item of business. 9. Although the definition of "goods" is an inclusive one, it is clear that materials, commodities and articles spoken of in the definition take colour from one another. In order to be "goods" it is clear that they should be known to the market as materials, commodities and articles that are capable of being sold. 10. In the basic judgment which has been referred to in every excise case for conceptual clarity, namely, Union of India v. Delhi Cloth. & General Mills Co. Ltd., 1963 Suppl. 1 SCR 586, this Court held that for excise duty to be chargeable under the constitutional entry read with Section 3 of the Central Excise and Salt Act, two pre-requisites are necessary. First, there must b....
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....nium cans with rough uneven surface in Union Carbide [(1986) 2 SCC 547 : 1986 SCC (Tax) 443 : (1986) 2 SCR 162] or PVC films in Bhor Industries[(1989) 1 SCC 602 : 1989 SCC (Tax) 98 : (1989) 1 SCR 382] or hydrolysate in Ambalal Sarabhai [(1989) 4 SCC 112 : 1989 SCC (Tax) 584 : (1989) 3 SCR 784] the finding in each case on the basis of the material before the Court was that the articles in question were not marketable and were not known to the market as such. The 'marketability' is thus essentially a question of fact to be decided on the facts of each case. There can be no generalisation. The fact that the goods are not in fact marketed is of no relevance. So long as the goods are marketable, they are goods for the purposes of Section 3. It is also not necessary that the goods in question should be generally available in the market. Even if the goods are available from only one source or from a specified market, it makes no difference so long as they are available for purchasers. Now, in the appeals before us, the fact that in Kerala these poles are manufactured by independent contractors who sell them to Kerala State Electricity Board itself shows that such poles do have a market. E....
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.... [AIR 1968 SC 922 : (1968) 3 SCR 21] (3) Bhor Industries Ltd. v. CCE [(1989) 1 SCC 602 : 1989 SCC (Tax) 98] (4) Hindustan Polymers v. CCE [(1989) 4 SCC 323 : 1990 SCC (Tax) 118 : (1989) 43 ELT 165] (5) CCE v. Ambalal Sarabhai Enterprises (P) Ltd. [(1989) 4 SCC 112 : 1989 SCC (Tax) 584 : (1989) 43 ELT 214 : JT (1989) 3 SC 341] (6) Union Carbide India Ltd. v. Union of India [(1986) 2 SCC 547 : 1986 SCC (Tax) 443 : (1986) 24 ELT 169 : JT 1986 SC 453] (7) A.P. State Electricity Board v. CCE [(1994) 2 SCC 428 : JT (1994) 1 SC 545] . 13. In the latest decision in A.P. State Electricity Board v. CCE, Hyderabad [(1994) 2 SCC 428 : JT (1994) 1 SC 545] , one of us (B.P. Jeevan Reddy, J.) speaking for the Bench succinctly stated the law thus at pages 549 and 550: "Marketability is an essential ingredient in order to be dutiable under the Schedule to the Act .... The 'marketability' is thus essentially a question of fact to be decided in the facts of each case. There can be no generalisation. The fact that the goods are not in fact marketed is of no relevance. So long as the goods were marketable, they are goods for the purposes of Section 3. It is not also necessary that the goods in qu....
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....ily come to the market to be bought and sold." Therefore, any goods to attract excise duty must satisfy the test of marketability. The Tariff Schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold." 13. A large part of the arguments ranged around the decision in Union of India (UOI) & Ors. v. Sonic Electrochem (P) Ltd. & Anr., 2002 (145) E.L.T. 274. In this judgment the question that arose for decision was whether the plastic body of electro mosquito repellent was excisable goods. This Court held: "7.....The germane question is whether it has marketability. The plastic body is being manufactured to suit the requirements of the EMR of the respondents and is not available in the market for being bought and sold. It is not a standardised item or goods known and generally dealt with in the market. It is being manufactured by the respondents for its captive consumption. It is not a product known in the market with a....
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....en pointed out above. The fact that not a single sale of such Assembly has been made by the appellants is irrelevant. This being the case, we are of the view that the Transmission Assembly of the tractor on the facts before us is clearly an intermediate product which is a distinct product commercially known to the market as such. On this ground therefore, the appellants are not liable to succeed. 16. However, the appellants are on firm ground when they say that the extended period of limitation could not have been invoked in the present case. In their reply to the show cause notice, the appellants stated: "20.2 It is submitted that the noticees have been manufacturing tractors right from 1965 onwards till date. The manufacturing process undertaken by the noticees has been made known to the Department innumerable number of times. Consequent1y the proposal to invoke the extended period of limitation in the present case is incorrect and the same is liable to be set aside. 20.3 The Noticee points out that just like the department raised the issue with regard to the IC engines in the year 1994-95, similarly the department is raising the issue in regard to the transmission assem....
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....e shorter period of limitation under Section 11A. 21. The department Cll11Wl plead ignorance that they were not aware that in a tractor a transmission assembly arises at the intermediate stage. Thus, the noticee entertained a bona fide belief that since the transmission assembly formed a part of the integrated assembly line for manufacturing tractors, there was no removal or exigibility of Transmission Assembly. Nothing prevented the department from raising a similar issue as to dutiability of Transmission Assemblies as they raised in regard to I.C. Engines arising at the intermediate stage, which was done in 1995. 22. That in fact, the Show Cause Notice itself terms the issue of manufacture and captive consumption of transmission assemblies for tractors is the same as that for I.C. Engines. However, knowing fully well that Transmission Assembly comes into existence at the intermediate stage, the department never raised the issue. This implies that in the present proceedings, assuming without admitting duty is payable on the transmission assembly, the same was not being paid due to a bona fide error. The same belief was entertained on the part of the Noticees as well as the D....
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....e concept of handicrafts and as such were exempt. If there was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that behalf, when there was no contrary evidence that the producer or the manufacturer knew these were excisable or required to be licensed, would not attract the penal provisions of Section 11-A of the Act. If the facts are otherwise, then the position would be different." 18. Similarly in Continental Foundation Joint Venture Holding v. Collector of Central Excise, Chandigarh- I, (2007) 10 SCC 337, this Court held: "14. As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these very words. So far as misstatement or suppression of facts are concerned, they are clearly qualified by the word "wilful", preceding the words "misstatement or suppression of facts" which means with intent to evade duty.The next set of words "contravention of any of the provisions of this Act or Rules" are again qualified by the immediately following words "with intent to evade payment of duty". Therefore, there cannot be suppression or misstatement of fact, which is not wilful and yet constitute....
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....receiving a reply from the appellant, the department did not levy any excise duty on such Transmission Assemblies. The show-cause notice itself stated that the issue of manufacture and captive consumption of Transmission Assemblies for tractors is the same as that for IC engines. These facts, coupled with the fact that not a single Transmission Assembly of tractors manufactured by the appellant had been sold makes it clear that there was no suppression or any intent to evade excise duty in the present case. We feel that the show cause notice needs to be quashed on this ground alone. Accordingly, the appeal is allowed, and the judgment dated 27.5.2004 passed by CESTAT is set aside. Civil Appeal Nos.9469-9470 of 2010 20. This case has similar facts. We are concerned with the period 1.4.1997 to 31.5.1998. The show cause notice in this case was issued on 1.5.2002, in which the extended period of limitation was invoked as follows:- "M/s. TAFE have filed the declaration under Rule 173B of Central Excise Rules, 1944, during the year 2000-2001, for the manufacture of product viz., Transmission Assembly falling under Chapter Sub-heading No.8708.00, and cleared the said product on p....
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.... have chosen not to declare the sub-assemblies willfully in order to evade payment of duty." 21. In the reply to the show cause notice, the respondents stated that they had never sold transmission assemblies in the market and that their price list does not carry a list price for this item. The only removal ever made was during the warranty period of one tractor and this one removal does not justify the fact that transmission assemblies have a market. It was further stated that had the respondents known that transmission assemblies were excisable, they would have claimed exemption as the finished product was exempt. Further, Transmission Assembly is only recognized as an Assembly line intermediate product and not as a product in itself which is separately identifiable as in the case of other Assemblies such as axel shaft, engine, gear parts, instrument panels, etc. The difference in this case is that vide an order dated 30.4.2004 the authorities found in favour of the respondents on merits holding that there was neither manufacture nor marketability of the Transmission Assemblies in question. This was confirmed in appeal by CESTAT by the impugned judgment dated 12.11.2009. 22.....