AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2002 (7) TMI 801
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....ule 9(2) and Rule 173Q of the C. Ex. Rules, 1944. The period involved is 1/88 to 6/93. 2. The facts of the case as narrated in the Order-in-Original No. 51/94, dated 15-6-1994 from Paras 2 to 16 are reproduced below : "2. M/s. ION Exchange (India) Ltd., Hosur (hereinafter referred to as 'ION'), are engaged in the manufacture of pressure vessels, pipe works and Industrial water treatment plants, classifiable under Chapter sub-heading Nos. 7308.00, 7309.00 and 8421.00 respectively of the Schedule to the Central Excise Tariff Act, 1985. 3. The Central Excise officers attached to Hosur II Dvn, on 10-7-1992, visited M/s. Pan Ven Industries, Hosur and verified the stock and accounts and noticed that the unit was fabricating various items of iron and steel such as pipe works, vessels, etc., on behalf of ION, out of the materials supplied by the latter as per the drawings specified. On completion of the work the goods are being sent to ION under delivery challans, and labour invoices raised for labour charges. The unit has not included the value of raw materials as per the provisions of Section 4 of the Central Excises and Salt Act, 1944. The officers de....
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....brand name 'INDION' and are giving test certificate to their clients for guarantee. 9. Inventory control of raw materials are being done by ION, at the so called vendor's premises who are directed to submit periodical reports for the stock and inventories. Insurance cover for the goods and materials at fabricators site are taken by ION. The components received by ION are cleared after grouping and packing in their premises and cleared in CKD condition, which appear liable to Central Excise duty. The job workers/fabricators are only hired labourers of ION, in the manufacture of water treatment plants. The pressure vessels, tanks and pipe works are manufactured by ION by hiring job workers for fabrication. But they cleared water treatment plants under the guise of bought out items, without Central Excise licence, without observing Central Excise procedures and without payment of duty. 10. In his statement dated 23-7-92 and 4-11-92, Shri S.S. Ranganathan, General Manager of ION, inter alia, deposed that : 10.1 there is a contract between them and fabricators with regard to manufacture/supply of components to suit their specifications for a spe....
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....n his statement dated 11-8-1992, Shri George D.C. Proprietor of M/s. Agnel Engg. Works, Hosur, has, inter alia, deposed that they do job work for ION, for the manufacture of pressure vessels, atmospheric tanks, etc., as per their drawings and specifications. ION supply the raw materials and deduct the cost from the bills. ION, also exercise control over quality, supervise and inspect, they also have a general rate contract agreement with ION. 14. In his statement Shri K. Jayasankar, Managing Partner of M/s. Jas Engg. Hosur, inter alia, deposed that : 14.1 they are doing job work for and on behalf of ION, as per drawings, specifications, out of raw materials supplied by them as per direction. ION exercise control/inspection/supervision of the fabrication work undertaken and have general rate contract agreement with ION. 15. A show cause notice of even no. dated 13-1-1993, was issued to ION, Hosur, wherein they have been asked to show cause to the Collector of Central Excise, Coimbatore as to why : (i) the Central Excise duty of Rs. 4,87,68,512/- for water treatment plant and Rs. 92,91,352.41 for components such as pressure vess....
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....e duty proposed to be demanded on this score is Rs. 4,87,68,512/-. The duty mentioned above viz Rs. 92,91,352/- and Rs. 4,87,68,512/- are proposed to be demanded under proviso to Section 11A of Central Excises and Salt Act, 1944. 30. M/s. ION wanted to peruse the documents relied upon in the show cause notice and they wanted to cross-examine the job workers to whom they entrusted the job of manufacturing parts of water treatment plants. Initially they were permitted to peruse the documents and take xerox copies before the Asstt. Collector, Hosur II Division. But, later on, the documents relied upon in the show cause notice were returned to the assessee in full on an undertaking from M/s. ION that they would not tamper with any records and would be producing the records returned, pending adjudication whenever called upon to do so, by the Central Excise department. As such their request to peruse the documents relied upon in the show cause notice has been fully complied with. Permission was granted to cross-examine the job workers and Shri C. Natarajan, the learned Advocate, on behalf of M/s. ION cross-examined the following job workers. (a) &n....
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....have certainly claimed excise duty from them as in the case of sales tax. There is a valid contract entered into between ION and the independent job worker. In view of the existence of the contract, the job workers cannot be termed as dummies or hired labour. Had they been dummies or hired labour, there was no necessity for contracts with many restrictive clauses. The contract provides for 50 days credit from the date of acceptance of the supply for passing their bill after inspection. The contract contains a clause regarding inspection of goods and rejection of the goods found unfit which evidences that the product manufactured by the contractors belong to them. The loss on account of rejection of the goods will be to the account of the job worker. The price escalation in the contract indicate that the relationship between the two are at arms length. The contract further contains a clause that excise duty is extra if applicable. Clause 10 of the contract provides that the materials before despatch should be offered for inspection by the inspectorate of ION, and delivered in their works. The inspection clause in the contract is a clear evidence to prove that the job workers are the....
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.... (also called package type) (iii) Large Sale Turnkey Project erected to earth. 36. In so far as the mini type is concerned, there is no dispute regarding excisability as M/s. ION has been discharging duty liability on this product. As regards 'Turnkey Type' M/s. ION are not paying duty on the project ground that they are immovable property. The show cause notice has excluded from its purview the first and third categories of water treatment plants. The dispute in the present adjudication proceedings is regarding the dutiability of standard or package type industrial water treatment plant sold through dealers. 37. I find from the case records that the dealers place orders with M/s. ION for the supply of Industrial Water Treatment equipment. M/s. ION procure pumps, pressure valves, resins from the open market and pressure vessels and Frontal Pipe Works are obtained got manufactured through the independent job workers. The various parts and components so collected are brought to the factory of M/s. ION. The parts suitable for a particular type of water treatment equipment are packed in dealwood boxes and sent to ....
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....the Hon'ble Tribunal in the case of Pressure Cooker and Appliances Ltd. v. Collector of Central Excise, Chandigarh reported in 1987 (28) E.L.T. 566. "The law of Central Excise does not define manufacture and this it seems for a very good reason which is that there are hundreds and thousands of ways by which goods can be presented brought out, created, made to appear. Some process of manufacture are complicated and some process of manufacture are very simple." 40. It is further observed that in the instant case various items received at the appellants depots were assembled and packed in such a way that a new commodity comes into existence that has not been there in the form and appearance earlier. The packing process and assembling of components that make up the complete product has been so adopted as to escape duty liability that should have been discharged on the completion of each unit. The appellants arranged their affairs in such a way that they could present a case to the department that what they sold is not a manufactured by them but by someone else. The appellant cleverly set up a scheme to avoid tax and confuse the department. The arrangement for the....
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....s that the price is charged only for the water treatment plant and not for parts and components as claimed by the manufacturer. 43. In this regard, I find that M/s. Mansel Equipment P. Ltd. (hereinafter referred to as 'M/s. MEPL') have sought certain clarifications as to whether the water treatment plant supplied by M/s. ION is a machinery or parts. M/s. ION in their letter dated 24-4-1992 have confirmed that what they had supplied is only a machinery and not parts. This correspondence provides absolute proof to show that the sale is that of water treatment plant and not parts. Another significant fact is that in the year 1993 a dispute arose between the sales tax department and M/s. MEPL as to whether the item supplied by them attracts single point sales tax or multi point sales tax. While defending the dispute before the sales tax authorities a plea made by the dealer on the advise of M/s. ION is that what they supplied was only a machinery and not parts. 44 The pamphlets issued by the company indicate that the standard or package type of water treatment equipment are sold in dealwood cases in CKD condition, for convenience in transport. The mere fact ....
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....wing three types of water treatment plant; (i) Prototype (ii) Standard/package type (iii) Large scale turnkey projects erected at site, they have mis-represented the facts to the Asstt. Collector that their water treatment plants can be classified into two categories. They have categorised proto type and standard type in one category and turnkey projects in another category. Their deliberate omission to mention proto type and categorization of two types of water treatment plant is a calculated act to suppress the vital fact of manufacture of standard type water treatment plant which is done evidently with an intent to evade payment of duty. 47. The Asstt. Collector, Hosur in his letter C. No. IV/16/458/86 T3, dated 3-3-1987 has categorically clarified that Industrial Water Treatment plants, need not suffer duty if the following two conditions are satisfied. (i) The item industrial water treatment plant after erection and installation gets fixed into the earth thereby becoming an .immovable property at site; and (ii)  ....
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....n their reply dated 8-1-1988 M/s. ION have pleaded that the item Industrial water treatment plants being erected and get fixed into the earth and thereby it became an immovable property. In his order No. 26/88, dated 4-3-1988, the Asstt. Collector has held that the parts if suitable for use solely or principally with a particular kind of machine or equipment are to be classified with the machine or equipment of that kind, and hence further held that the entire duty collected on the water treatment plant when they were cleared in CKD condition from the factory of the assessee is valid and proper. The Asstt. Collector, therefore, rejected the refund claim filed by the Company. In this regard, I find that the Company on account of their erroneous interpretation filed refund claim for Standard type water treatment plant also. The Asstt. Collector, Hosur while rejecting the claim for refund of duty paid on water treatment plants instead of rejecting the claim relating package type water treatment plant, entered into the aspect of classification of parts and rejected the refund claim in full, i.e. claim relating to industrial water treatment plant and package type water treatment plant. ....
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....tandard type water treatment plant and thoroughly mis-represented that the dispute relates to industrial water treatment plant i.e. turnkey projects. 51. M/s. ION cannot deny the fact that they were not aware of the dutiability of standard type of water treatment plant during the period Jan '88 to June '92 the period of demand covered in the show cause notice. Because, it is evident from their internal correspondence dated 12-3-1988 addressed to Shri A.N. Joshi by Shri Sridhar, the then works manager that legal opinion sought for by the company regarding the duty liability on standard type water treatment plant has been referred to. The correspondence further reveal that their Counsels and Consultants have given opinion that the standard type of water treatment plant are dutiable. Despite this clear legal opinion about the duty liability on package type of water treatment plant, M/s. ION have suppressed the fact of manufacture of clearance of standard/package type of water treatment plant through dealers and wilfully mis-represented before the departmental authorities that what they manufactured and cleared were only large industrial water treatment plants erected at ....
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....estigating officers and now the company questions the correctness of their own figures perhaps to divert or distract the adjudication proceedings. The particulars of turnover of water treatment plants furnished by the company in their balance sheet for the relevant years are as furnished below : 53.1 Turn-over of Water Treatment Plant of M/s. ION (A) 1989-90 : Rs. 27,29,59,443/- Refer Schedule 17 Note (7) in page 25, Balance sheet 1990-91. 1990-91 : Rs. 31,08,00,293/- 1991-92 : Rs. 35,61,01,059/- Refer Schedule 17 Note (11) in page 25, Balance sheet 1991-92 1988-89 : (B) Value of Water Treatment Plants (Portable) on which duty is paid (1) 1989-90 : Rs. 75,06,575.53 (2) 1990-91 : Rs. 78,92,345.70 (3) 1991-92 : Rs. 76,81,034.63 (4) 1988-89 : Not available. (C) Taxable turnover as per TNGST, Returns (1) 1989-90 : Rs. 5,94,09,311.10 (2) ....
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....edure and a lot of trust and confidence had been vested on the assessee in the matter of clearance, determination of duty liability and discharge of duty liability. The manufacturer is expected to act bona fide in the transaction relating to taxation as there is no departmental supervision on production and clearances. In this case, I find that they managed to clear package/standard type of water treatment plant without payment of duty through wilful misstatement. In this regard, I find that in one of the letter in their internal correspondence dated 12-3-1988 signed by Shri Sridhar, addressed to Shri Joshi and Shri S.S. Ranganathan, there is a clear reference to the advocate's legal opinion to the effect that parts of standard/package type of water treatment plant obtained from job workers and brought in their factory and despatched in dealwood cases as a complete set would tantamount to manufacture. Despite this clear cut legal advise and understanding of the legal issues involved, the unit has continued to clear package/standard type water treatment plant without payment of duty. Their deliberate evasion of duty in respect of standard/package type of water treatment plant manife....
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....ons not germane to the facts and circumstance of the case. (3) The learned Collector having held in Para 35 and Para 36 that the prototype plants and large scale turnkey plants are excluded from the purview of the show cause notice, erred in concluding liability in the order for both medium sized plants/trade literature plants and large scale turn key plants. (4) The learned Collector has erred in holding that parts suitable for particular type of water treatment equipment are packed in dealwood boxes and sent to dealers/customers. The order is contrary to facts and it has been repeatedly affirmed that there is no packing operations carried out in the appellant's premises. The pressure vessels, tanks and pipe fittings do not undergo any packing and other bought out items, if found fit, are redespatched in the existing packing condition and other miscellaneous items are put in boxes, only to facilitate easy transportation. (5) The appellant submit that what has been despatched are only components of industrial water treatment plant and invoice cannot be a basis to conclude that what is supplied is a water treatment plant and learned Collecto....
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....has wrongly concluded from the appellants' pamphlets that "equipment in question have been simply placed on an elevated concrete platform only to facilitate the flow of water". Also "that the concrete platform is intended to place the two drum separately that the concrete platform is solely intended for positioning the equipment and not for any other purpose". This finding is opposed to facts and shows lack of technical knowledge. The pamphlets referred to are used to describe industrial equipment which are operated under pressures starting at 3.5 kg/cm2 and going as high as 7.0 kg/cm2. Concrete platforms are always constructed to fix or anchor such equipment firmly to the earth so as to make them immovable. This is necessary to ensure there is no ruptures (explosion) of the equipment which would otherwise be hazardous to the life of plant operators. What the learned Collector refers to as "two drums" are in fact two pressure vessels which necessarily have to be anchored to the earth by means of concrete. All such equipment are to be anchored to the earth in specific positions with reference to other equipment forming the plant. It is therefore wrong to conclude that concrete platf....
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.... Hence reliance on letter dated 24-4-92 to M/s. Mansel Equipments Pvt. Ltd. has no relevance or significance since this clarification pertained to sales tax legislation where the scope of assessment and entries in schedule are differently worded and appellants were clearing portable unit as whole on payment of duty. The learned Collector erred in concluding removal of parts as plants on the basis of this letter. (20) The appellants state that the findings at Para 41 and Para 44 are clearly contradictory in nature. Having held in Para 44 that supplies have been made by the appellants in a disassembled condition, the learned Collector has contradicted this position in Para 41 by observing that each package creates an impact on the customer of a complete water treatment equipment and not a mere collection of disassembled components. (21) The appellants state that reliance on the judgment of Patna High Court in M/s. Tata Iron & Steel Company v. Union of India, 1988 (33) E.L.T. 297 is out of context since in the case before the Court there is actual manufacture of goods, assembly, disassembly and supply in a knocked down condition. No such fact exists in the ....
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....nnot be attributed as appellant's misrepresentation. (26) Learned Collector at Para 49 has clearly observed that the Assistant Collector in his order, dated 4-3-88 has clearly entered into a finding on the aspect of classification of parts. The specific findings as to removal in CKD condition was reversed by the order of the Collector of Central Excise (Appeals), dated 27-7-88 on the ground that there is no manufacturing operations. This finding of fact is not under dispute in the proceedings. The appellants therefore submit that when the issue has been dealt in detail, in the earlier proceedings, the impugned demand both on merits and on limitation is unsustainable in law and liable to be set aside. (27) As submitted, earlier the appellants state that it was specifically clarified through written submissions dated 13-12-93 that the earlier proceedings related to the entire range of trading operations comprising of medium and large size plants and issue was prosecuted as a whole till it was decided in favour of the appellants through the order of the Collector (Appeals), dated 27-7-88. In the circumstances, the appellants state that the findings at Para ....
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....relate to the period when the dutiability of trading operations were pending before the Department, and it was opined that issue is argueable in nature. Pursuant to the thinking, the appellants have in fact discharged duty under protest till a finality was reached through the order of the Collector (Appeals), dated 27-7-88 after which appellant stopped paying duty on trading activity. (32) The appellants state the findings at Para 51 are opposed to facts since the documents referred, relate to the trading activities as a whole and not specifically to standard type of plants as observed by the Collector in the order. (33) The appellants submitted that the findings at Para 52 is erroneous and contrary to facts. The observation that water treatment plant has been sold in assembled or semi-assembled CKD condition and the same has not been denied is clearly erroneous. The appellants reiterate when there is no assembly, manufacture or packing of the trading items, the question of removal in CKD does not arise. This finding is again in contradiction to the finding at Para 44. (34) The learned Collector erred in observing that the sale of package t....
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....of standard/package type plant is factually incorrect. The records would reveal that information sought was for all industrial plants. The total clearances and data supplied by the appellant again relate to all industrial plants and it is only in the show cause notice large scale industrial plants have been excluded from its purview. In the circumstances the conclusions are contrary to facts. (39) The appellants submit that the figures as relied in Para 53 tally with the books of account, since the balance sheet includes total turnover of all the appellant's units at Hosur, Bombay and Pune works. The figures relied in clause (3) at Para 53 also reconciles with the sales tax books and returns. In the circumstances there is no evasion or miscalculation and there is no huge turnover left over as presumed by the learned Collector. The Department has erred in addressing this aspect without appreciating the issue in the proper prospective. The findings arise out of misappreciation of facts, and out of context reference to facts and figures. (40) The appellants submit that the order confirming huge penalty of Rs. 50,00,000/- lakhs is ex facie bad in law, especi....
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....) The appellants submit that the order confirming the demand under the extended period of limitation is unsustainable and unjustified. The findings are incorrect and contradictory to the conclusions arrived by other earlier Assistant Collectors and Collector (Appeals), exercising quasi-judicial powers and functions. The order has substituted the earlier conclusions through own presumptions without any basis. Further, demand has been confirmed based on documents which are not part of show cause notice or adjudication proceedings. The inferences arise out of their own thinking and has surfaced for the first time and the appellants have been denied an opportunity to remit the same. The appellants reiterate there is enough evidence on record to show and substantiate that there is adequate disclosure and the Department is aware of appellants trading operations and the order is therefore ex facie bad and liable to be set aside. Therefore, it is just and necessary that in the facts and circumstances of the case, it is prayed before the Hon'ble Tribunal that the order of the Collector of Central Excise in Sl. No. 51/94, dated 15-6-94 may be set aside and grant consequential relief and....
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....er and till 1986 they have not paid any duty for the period from 1981 to 3-3-1987. It was after the introduction of the 1986 tariff with effect from 1-3-86 they filed classification list in respect of both trading activities and other activities, but have not given any proof as to how trading activities were allowed to be undertaken in the same premises and how the classification lists were allowed to be filed for water treatment plant for which trading activities were undertaken. They also invited our attention to proforma A, B and C and Part D and submitted that the appellants had manufactured only portable water treatment plant, and industrial water treatment plant were traded by them. The Supdt. of Central Excise had written to them that they should file revised classification list and they paid duty under protest. Since they have succeeded before the CCE (Appeals) they excluded the item again from the classification list. They have also filed ground plan both for the manufacturing area as well as for the area where trading activities were undertaken by them. The learned Counsels also submitted that the charge against the appellants was that the appellants knew that these tradi....
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....rein the Collector has used the words "assembled and packed" which is contradictory. There is no allegation of assembly of water treatment plant in Paras 41, 42, 43 and 44 in which it has been held that the scheme of packing is the Company's brain child to clear the goods without payment of duty and these words have been wrongly used and the appellants denied the same. They have also challenged the findings in Para 46 of the impugned order as there is no evidence to support the finding. They have also invited our attention to Paras 46, 47, 48 and 49 and after doing so, they also invited our attention to the various case laws submitted by them in defence of their case. 7. Shri K. Veeraraghavan, the learned ACGSC appearing on behalf of the department submitted written submission on 3-7-2001 and additional written submission on 6-7-2001, the relevant portion of which are reproduced below : "(1) There are certain admitted facts in this case. It is submitted that for the treatment of water, 3 types of plants are manufactured by the Appellant. They are namely-1. Prototype 2. Package type also called Standard type 3. Large Scale Plants on Turnkey basis. In the "proto....
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....er is charged as a whole for the entire plant and if any of the customer finds it difficult despite the instructions for assembling the technicians of the company assists in assembling the plant. Therefore what is sold by ION EXCHANGE (INDIA) LTD., is the whole of the plant tested and guaranteed but for the purpose of package and transport disassembled in parts. Eventhough this could be said to be factual difference between the 'prototype' and 'package type', this difference will not account for a difference in principle. Therefore this attracts duty as in the case of 'prototype' which is now beyond dispute. In fact the customer of the appellant identifies the standardized package type industrial water treatment plant as a whole system while purchasing from the appellant and not as a individual components of a system. It is also worth while to quote an example like purchase of ceiling fan in which a entire fan is sold in disassembled package and the buyer can easily assemble it for the usage. (6) The aforesaid facts are supported by the statement of Shri S.S. Ranganathan, General Manager, M/s. ION EXCHANGE (INDIA) LTD., given under Section 14 of Central Excise Act, 19....
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....the goods under dispute are marketable in assembled condition. Therefore, the goods pass the test of marketability a vital criteria for levy of excise duty." LEGAL CONTENTION 1. In finding out the assessment of the "prototype" plant in question, Rule 2(a) of the rules for interpretation of the First Schedule to the Excise Tariff is relevant and the said Interpretative Rule provides a complete answer to the issue on hand and the same is reproduced below. "(The First Schedule) - Excise Tariff (see section 2) Rules for the interpretation of this Schedule 2. (a) Any reference in a heading to goods shall be taken to include to reference to those goods incomplete or unfinished, provided that the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods, complete or finished or falling to be classified as complete or finished by virtue of this rule, removed, unassembled or disassembled." 2. The question is whether M/s. ION Exchange who claim to purchase the various components and sell the same cannot be called a manufacturer or no....
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....pe also called standard type water treatment plant was never disclosed to the department. The fact of such manufacturing package type and sale of package type -* standard type, came to be known to the department only when the officers visited the premises of the suppliers in other words the fact of package type was omitted to be disclosed with intention to evade tax. It was only then that the department came to know that this package of "standard type" was also being manufactured and marketed by ION Exchange Ltd. As already stated, the statements recorded in this behalf from S.S. Ranganathan, indicate that the scheme of packing is the company's brain child and that it is derived as a result of labour of R&D for the standardization for grouping and combination of products. Further, correspondence which came to light during the visit of the department officials also indicates that the opinion of Counsel of Ion Exchange to the effect that 'Package type' or the 'standard type' would also be a dutiable product. Therefore, the petitioner appears to have been posted with the up to date legal position on the issue. However, the history was that nevertheless, the petitioner preferred to rem....
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.... to the following :- (i) The issue decided in the Eureka Forbes Ltd. was whether or not aquaguard manufactured by the assessee and sold along with pre-filter and other accessories procured by the assessee would be complete without pre-filter and other accessories. In the present case the issue is not as to the inclusion of any part with the main item to determine its excisability. (ii) In the instant case, the appellant does seek to exclude the value of any part with the main machinery. (iii) Where as the issue addressed in the present case is whether in the particular facts and circumstances of the case and issue that the goods procured by the assessee, which are subjected to "standardization" and cleared in disassembled condition is excisable or not in terms of Rule 2(a) of interpretative rules of the Central Excise Tariff Act, 1985. 8. The respondent now submits thus the facts in the Eureka Forbes case are totally distinct and different from the facts of the present case and as such the decision given in the said Eureka Forbes case may not have any binding effect on the present controv....
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....the pamphlet of the water treatment plant along with the specified diagrams. Therefore it may be construed by way of appellant's own admission that in the form of pamphlets and write-ups the goods cleared sold by them are only water treatment plant and the same is also identified by the buyer as such. In the case of Shree Baidyanath Ayurvedic Bhavan v. Collector, 1996 (83) E.L.T. 492 (Supreme Court) it was held by the Hon'ble Supreme Court that the goods are to be classified according to the popular meaning attached to them by those using the product. In the instant case when the impugned goods are sold by the appellant those using the product identified the goods as Industrial Water Treatment Plant only and not as nipples, hose, couples, pipes, etc. As such it is a indisputable fact that the Industrial Water Treatment Plant has emerged in the appellant premises when the goods are cleared. It is also noteworthy to state that the invoices also shows that the buyer purchases goods only as a water treatment plant standardized package plant and not as pipes, nipples, hose etc., it is submitted, that the goods namely standardized water treatment plant has emerged in the appellant premis....
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....t process and by applying the said ratio decidendi, the appellant would be squarely come with in the manufacturing process. The respondent submits that it is true that a mere change in the substance may not be process but in the case of appellants the change is the result of treatment labour and manipulation and transformation of a new and different article emerges having distinct name, character or use. The respondents submits that the taxable event under the excise law is manufacture. The moment there is transformation into a new commodity commercially known as distinct and separate commodity having its character, use name, whether be it result of one process or several process manufacture take place and liability duty is attracted. The Respondents submit that the above position of law of the land is directly applicable in the case of appellants. The respondents submit that the standardized type water treatment plant attains its identity at the appellants place alone and it can never be construed as an incomplete system to acquire identity at the buyers place and by applying the marketability test the water treatment plant (standardized type) as such is in position to be taken to....
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....by them consists of 2 parts viz. pressure parts and bought out parts. The pressure parts viz. pressure vessels, pipes, tubes, etc., are procured from vendors. The bought out parts like pumps, motors, cables etc. are purchased from the market. Both the pressure parts and bought out parts are put in a packing and sold to customers/dealers as such without any operation. It is main plea of the appellants that mere packing of these goods would not amount to manufacture. In this regard it is submitted that the contention of the appellant that by selling the impugned water treatment plant to the consumer they are only indulging in trading activity is contrary to the fundamental principles of trading activity. If the appellant is indulging in an innocent trading activity they have ought to have purchased water treatment plants and would have sold to the consumer whereas here it is not so. Therefore the contention that there is an trading activity is nothing but a statement made with intention to evade tax. In the course of the proceedings, your Lordships also posed a question namely whether the disputed goods are assembled and later disassembled and cleared in th....
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....does not amount to manufacture. The principle underscored in all these judgments is that there should be some definite process. It was also stressed in the case of UOl v. J.G. Glass Ind. Ltd., such process undertaken by the assessee should result in a new product coming into existence and that the original product should cease to exist. With due respect, it is submitted before this Hon'ble Court, that all these cases the concerned assessees have only, mechanically put different goods in one packing and the concerned judgments have rightly held that mere mechanical packing of different goods in one packing alone will not make any goods excisable. In this context, it is submitted that the facts of this case clearly distinguishable from the facts of the aforesaid cases due to the following distinct reasons - (1) the appellants do not merely put all the goods in one packing. Before doing the packing they have done considerable research and evolved a process of standardisation, which is admitted by them in their statement. This point has not been controverted by them and as such the admitted facts need no proof. ....
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.... 4. Every set of products obtained from the vendors are tested (Page No. 28 answer last but one). 5. Their balance sheet also claim that they manufactured the plant as a whole only. 6. Guarantee is given for the product. If mere trading/packing is the only activity undertaken by the appellant, there need not be such an elaborate and Research and Development for the standardisation and systematic procurement of goods and predetermined and definite pattern of packing of the products procured. But in the instant case there is a definite activity taken by the appellant which transforms the character as well as usage of the components procured and sold by the appellant. The above said facts have been proved beyond any dispute by the categorical admission by the appellant. That the goods are invariably procured in the appellant's premises and then cleared from the appellant's premises only establishes the fact that the impugned goods are subjected to the process of testing and the clearance of the sam....
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....ion. Thus the assessee are culpable of misrepresenting, suppressing and omitting the facts with the intention to evade tax. It was contended by the appellants that Departmental officers conducted the stocktaking of the respective goods and as such they are aware of the process manufacture of the goods. In this connection, it is submitted that the very name 'Annual Stocktaking' indicates that the purpose of visit of the concerned officer is not to ensure the process of manufacture of the goods but only to count the finished goods available in the EB4 room where the finished goods are ready for despatch and which are recorded in the Statutory Registers. It is not the terms of reference of the stocktaking officer to examine the process of manufacture of any product at all. Nor were there any compelling circumstances for the Stocktaking officers to doubt the bona fides of the assessee, nor the concerned officer visited the unit to have study and investigation. The concerned work is done only by the Preventive Wing of the Department. In the instant case, it is fact on record that only the Preventive Wing of the Department unearthed the fact. Therefore, reliance placed ....
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....ed to 6-7-2001. On 6-7-2001 the learned ACGSC continued his arguments and submitted that since they had sought clarification from the Assistant Collector in regard to liability to duty in respect of plants which are installed at site, the clarification was given by the Assistant Collector in respect of that item only. He also submitted that the appellants are manufacturing three types of water treatments plants. They are (1) Prototype Water Treatment Plant (2) Medium sized Water Treatment Plant. (3) Large sized Water Treatment Plant. He further submitted that they are paying duty on prototype water treatment plant. The large sized water treatment plant being immovable property being erected at site and not duty paid. They were earlier also paying duty on medium sized water treatment plant. He further submitted that the plea of trading activity is not tenable inasmuch as standardisation cannot be done by persons doing only trading activity. Since they were manufacturing standardized medium sized water treatment plant, duty was required to be paid by them. He also submitted that the appellants did not have any permission under Rule 51A to do trading activity in the premises of manufa....
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....heir factory and manufactured as portable water treatment plant and packaged to customers on payment of excise duty after following the Central Excise procedure prescribed. They also submitted a revised ground plan showing segregation of these two premises distinctively marked as licenced premises for manufacturing activity of portable plant and they had requested that it may be approved along with licence duly endorsed. They therefore, submitted that there was no suppression of any facts. The learned Counsels also invited our attention to the statement dated 4-1-92 of Shri S.S. Ranganathan, General Manger of the Company to question Nos. 7 and 8 on page No. 41 of the paper book and question No. 17 and answer thereto which are page 46 of the paper book. In question No. 8 it was asked that various items were despatched to the customers in CKD condition as it has been mentioned in the trade literature that these are despatched in CKD (knocked down) condition and to this question the answer given by Shri S.S. Ranganathan was "the tact still remains that they despatch components and which the customer puts together. This is often referred to as knocked down condition. He had therefore, ....
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....manufacture as no new commodity comes into being having different character and use within the meaning of Section 2(f) of the C. Ex. Act, 1944. Since West Zonal Bench and the North Regional Bench of CEGAT, in respect of the same appellants had taken contrary view, the question was referred to the Hon'ble President for resolving the difference of opinion, etc. They also submitted that Note 6 of Section XVI does not apply to complete equipment. 10. We also find from the records that a miscellaneous order No. 559/2000 was passed by the Bench comprising of learned Member (J) Shri S.L. Peeran and learned Member (T) Shri S.S. Sekhon wherein it is recorded that when the matter was heard the decision in the case of Eureka Forbes Ltd. reported in 2000 (122) E.L.T. 550 was brought to the notice of the Bench and it was found that since Court 2 of CEGAT, New Delhi and the West Regional Bench have taken divergent views on a similar matter, the matter was referred to Larger Bench and the question referred was "Whether in the facts and circumstances, the activity undertaken by M/s. Eureka Forbes Ltd. amounts to manufacture in view of Note 6 of Section XVI of the Schedule to the tariff". T....
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....eated as immovable property. Since large scale plants are required for industrial purposes the design of such plants varies according to nature and acceptance of the user. There is no specification or standard design for each industry to suit its need and exclusive design. Further such large scale plant are constructed on the earth at the site and being embedded to the land are therefore immovable property. (3) Standard type (also called as package type) : The area of dispute is restricted to the standard type (also called as package type). There is no difference between prototype and the Standard type (package type) except the small difference in size and both are similar and are standardized irrespective of the user. Excepting the same, there is no other area of dispute. Prototype can be purchased across the counter whereas the standard/package type is delivered in CKD condition after having affixed the patent registration brand INDION along with test certificate to the customer for guarantee purposes and such guarantee is for the entire equipment (water treatment plant). When the customer purchases the....
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....rd or Package type water treatment plant to the dealers are paid. As such the fact that Std or packaged type water treatment plant in question were sold to the dealers is evidenced from the invoices raised. 12. The issue for consideration in this appeal is as to whether there is manufacture of water treatment plant by the appellants. Fabrication of pressure vessels and pipe fittings through independent contractors is solely intended for the supply to the dealers of water treatment plant. Procurement of other components i.e. pumps, motor valve, etc., is also for the above purposes. The above noted parts and components are brought to the factory of the appellants and packed in dealwood cases. It was also found by the Collector and as discussed by him in the impugned order that the name plates have been procured from M/s. Swastic Processors and they are affixed on the Water treatment plants. The name plate indicates the particular type of water treatment plant, the serial number etc. to identify that the products have been supplied with the brand name INDION of M/s. ION. The name plate is also placed in the dealwood cases along with component parts. The invoice raised for the ....
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....ri Ranganathan, GM has stated that there were occasions when the identical goods were assembled and then cleared in CKD condition. It is also an admitted fact that for this product i.e. Std/packaged type water treatment plant they have done the process of standardisation (page No. 42 of the paper book answer to question No. 10) wherein it is stated that they have done considerable research and they have done a process of standardisation over the years. This point has not been controverted by them. The scale of standardisation was acquired by them over years and this standardisation ultimately culminated in the designing of the impugned goods viz. Std/packaged water treatment plant which is an activity or process by which the goods have been transformed. It is also an admitted fact that there is a specific diagram enclosed with the package and installation is made to be simple. What is cleared by the appellants is not merely collection of parts but a unit of water treatment plant in CKD condition. The appellants also transfer all such technical know-how or technology which alone gives life to the machinery to make it complete machinery and such activity which transforms the parts, a....
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....ividual parts. From the invoice also it is revealed that price charged is for the water treatment plant and not for parts. In this connection it is pertinent to point out that clarification was sought by one of the dealers viz. M/s. Mansel Equipment P. Ltd., as to whether the water treatment plant supplied by the appellants is a machinery or parts. It was replied by the appellant vide their letter dated 24-4-1992 that what is supplied is only machinery and not parts. This correspondence provides ample proof that what is sold was water treatment plant and not parts as claimed by the appellants. Another significant factor is that in 1993, a dispute arose between the Sales Tax department and the appellants as to whether the item supplied by them attracts single point sale tax or multi point sales tax and while defending the dispute before the ST authorities, the plea taken by the dealer on the advice of the appellants was that what has been supplied by the appellants were only machinery and not parts. The above points proves beyond doubt that water treatment plant as such is despatched in CKD condition as a complete machinery and assembled at site by mounting it on a concrete platform....
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....or the purpose of facility of handling and transportation in the knocked down condition, which can be easily installed at site. Therefore, we are of the considered opinion that Std type/package type water treatment cleared by them is liable to duty as an identifiable commercial item. 14. As regards their plea, that because the Assistant Collector, Hosur II Division in his letter dated 3-3-87 has confirmed, that there is no duty liability on the water treatment plant in question is concerned, we are unable to accept this plea. The appellants by their letter dated 27-10-86 (filed at page No. 441 of the paper book) addressed to the Assistant Collector, had admitted the fact that the package type water treatment plants are cleared in fully assembled or semi-assembled CKD condition, whereas they were actually manufacturing water treatment plant of three types viz. (1) Prototype (2) Standard/package type (3) Large scale turnkey project erected at site. They have also stated in the said letter that water treatment plants not assembled by them before despatch, amount to trading activities only. In other words trading activities were only in respect of large scale plant. A perusal o....
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....But instead of getting any doubt clarified and in spite of legal opinion given by their own legal department, that duty is to be paid on Standard/package type, the assessee-appellants interpreted the clarification given by the Assistant Collector in their own way and chose not to pay duty even on the Std/package type on which they had been paying duty earlier. The learned original authority has recorded a reasoned finding in regard to suppression of facts in Para 52 of his order as to how the larger period is invocable. Therefore, we are of the considered opinion that the proviso to Section 11A(1) has been correctly invoked. The Larger Bench of the Tribunal in the case of Nizam Sugar Mills v. CCE reported in 2000 (123) E.L.T. 647 has clearly held that in the case of suppression or fresh facts coming to light, the larger period can be invoked and show cause notice can be issued within a period of five years from the date of occurrence of such evasion under Section 11A(1) ibid. The above law was also applied by this Bench in the case of Flow Line Engineering Pvt Ltd. v. CCE, 2001 (137) E.L.T. 1423 (T) vide Final Order No. 621 and 622/2001, dated 4-5-2001 and the contention of the app....
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....eatment plant classifiable in Chapter sub-heading 7308.00, 7309.00 and 8421.00, respectively of the Schedule to the Central Excise Tariff Act, 1985 without obtaining C. Ex. licence without accounting in statutory records and removed the same without the payment of duty and hence a demand was raised for Rs. 4,87,68,512/- in respect of water treatment plant and Rs. 92,91,352/- in respect of components for pressure vessels and pipe works as per Annexure I. The department made inquiries with the various job workers of the appellant and recorded their statement and alleged in the show cause notice that they were carrying out all the work on the basis of the raw materials such as M.S. Sheets, M.S. Flats, etc., supplied by the appellant, on their instruction and as per their drawings and designs and returned the same without discharging the duty. Therefore the show cause notice alleged that they were hired labourers of the appellant and that the appellant had hired them for fabrication under the guise of bought out items of the appellant for manufacture of water treatment plant without a valid licence and without observing the various central excise procedures. Para 10 of the show cause n....
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.... on what are available in their stores as well as what is available at the premises of their suppliers. Subsequently these are despatched to the dealers/customers. It was emphasised that this activity had remained constant since they started the operation in Hosur and the Department was thoroughly aware of the same. Shri Ranganathan further explained that the activity of manufacture is not taking place at their premise and they only procured already manufactured items and supplied them as such to dealers/clients. He explained that the items shown in Annexure II referred to a combination of bought out components as well as fabricated components grouped together in various combinations. For convenience such grouping were given model numbers/designations. It is such components that they purchased/procured as is noted from the various records seized by the Department. He also explained that the grouping in terms of model/designation in Annexure II is strictly for the sake of convenience so as to avoid having to mention number of vessels, pipings, bought out components, etc., each time. He also explained that they discontinued to receive the bought out items in their factory premises fo....
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.... followed. In the same way, trade names are also used because the company wishes to be associated with the trade name to differentiate it. He denied that the manufacture of any product was carried out by them. He explained that they maintained a register which is basically to keep track of what has been packed and despatched by giving a name. The naming of such a register does not decide the nature of activity. As regards sales tax, he explained that they were following a particular practice ever since the inspection of their company and followed the said procedure till date. He explained that their dealers with them ranged from 3 to 15 years and all their dealers happened to be organisations, employing people with technical qualifications and they have complete knowledge of their product and its service. Their dealers are also experienced and qualified enough to order them for components with specifications and descriptions different from their standard with technical calculations to prove that such variations also function. He clarified that it is they who decided the quantity, size, description of components that come under the each group for which they gave a model number/desig....
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....ed. Later he decided the case against them. They filed an appeal before the Commissioner (Appeals) who allowed their appeal and granted consequential relief. They were paid the amounts in terms of this order. (iv) It is further contended that the Assistant Commissioner again for the previous period had issued show cause notice raising demands and had confirmed the same. However, the Commissioner (Appeals) allowed their plea by setting aside the same in respect of the very item. It is, therefore, contended that in view of these facts there was no suppression of facts and the department being fully aware of the manufacture and clearance of this very item on payment of duty and later the same was not paid on account of Assistant Commissioner's letter and the refund claim being adjudicated in their favour and the demands raised were set aside; therefore they contended that there was no suppression in the matter in respect of the fact and hence the demands raised in the present show cause notice was clearly barred by time. (v) In the impugned order the Commissioner had accepted their plea that the suppliers are not hired workers but they are independent manuf....
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....as also been placed in the judgment rendered in the case of Hitech Carbon Products v. CCE, New Delhi as reported in 1996 (81) E.L.T. 150 to plead that there is no suppression in the matter and demands cannot be confirmed as all the facts were available with the department. They contend that Department had raised proceedings on this very product and that the Commissioner (Appeals) had decided the case in their favour and hence the demands including penalty should be set aside. 19. On my careful consideration of these submission and the facts and the findings recorded by the Commissioner I notice that all these facts are on record and are not disputed. The facts are controverted by any rebuttal evidence by the department. The Commissioner has clearly upheld their contention that they were not getting the components manufactured from the hired labourers or dummy units. He has held that those units were independent manufacturers carrying on the activity as job workers. Therefore, the question now is as to (i) whether the appellant's activity of clearing these parts in packed condition and some of which were re-packed and sent to the customers, who in turn set up the water treat....
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....as since been confirmed by the Apex Court, this ruling has been applied in the case of Siachem v. CCE, Chennai (supra) by this Bench. Likewise, similar view was expressed in the citations referred to by the appellants as in the case of Yamuna Gases & Chemicals Ltd. v. CCE, New Delhi (supra), Dalmia Industries v. CCE, Jaipur (supra), TI Diamond Chain Ltd. v. CCE (supra) and J.G. Glass Industries (supra) which clearly applies to the facts of the present case. The appellants have also not cleared all the required parts and components to bring into existence the water treatment plant but have cleared only a few of the parts in same packed condition and they have not manufactured themselves but by their separate job workers. The water treatment plant came into existence at the customer's place. The plant came into existence on the appellant's customer's carrying out the activity of assembly piece by piece with civil work and what emerged was an immovable condition. The plant has come into existence after the erection and not before. Therefore the Apex Court judgment rendered in the case of Sirpur Paper Mills v. CCE as reported in 1998 (97) E.L.T. 3 (S.C.) is clearly distinguishable. In ....
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....s and succeeded in their pleas in Commissioner (Appeals) order-in-appeal Nos. 73 and 86, dated 27-7-88. This has not been challenged by the Department. Thereafter they filed a revised classification list in No. 303/88-89 deleting this very item from the list by their letter dated 29-11-88. They had sent a letter to the Superintendent of Central Excise dated 5-6-89 enclosing revised ground plan showing the segregation of the licensed premises for manufacturing activity of portable plates and trading activity of industrial water treatment plant. Further, correspondence took place between the Department and the assessee in 17-8-89 to 3-4-91. All the details were furnished to the Department in reply to the show cause notice in support of their contention that all the facts were known to the Department. Therefore the allegation that there was clandestine removal without taking out license is not correct and not established. 23. On a further consideration of the matter and perusal of the entire records, I notice that these facts are available on the records and the appellant have proved that the Department was aware of the appellant clearing the item in a packed condition initial....
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....p; That the appellant have not manufactured water treatment plant and have not cleared the same in CKD condition and that demands are not sustainable as the same being barred by time and limitation as held by ld. Member (J) Shri S.L. Peeran in his order and the appeals are to be allowed. Sd/- (Jeet Ram Kait) Member (T) Dated : 22-4-2003 Sd/- (S.L. Peeran) Member (J) Dated : 13-3-2002 25. [Order per : Shri C.N.B. Nair, Member (T)]. - I have perused the records and orders proposed by my ld. brothers. I have also heard both sides. 26. The dispute is whether the appellant is manufacturing Industrial Water Treatment Plants. The appellants submission is that the industrial water treatment plants comes into existence only upon erection at site. The appellants have developed designs for such plants of varied capacity. They also get the various parts and equipment required for the assembly of such water treatment plants manufactured to specifications by job works. Upon receipt of orders from industrial plants, they pack various parts required for the assembly and erection and send them to the buyers who gets the water trea....
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....not be held that a manufacturing process had been undertaken by the appellant and unless there is a finding of manufacture, excise duty is not attracted. Unfortunately, the Tribunal has not examined the correctness of the Collector's order at all. We are of the view that the order of the Tribunal is erroneous and must be set aside" [paras 2 and 3] 29. The appellant's contention is that unless some manufacturing process brings into existence a new product, the dutiable event does not take place. As against this, the Revenue has contended that if some process is carried out which brings into existence a new product, duty is attracted. According to them it is not relevant whether the process is a manufacturing process or not. 30. It is well settled that excise being a duty on manufacture or production, the levy is dependent on the manufacture of new goods. In the present case, the evidence in the SCN only reveals that the appellant gets the parts manufactured, they pack and send those parts either fully from their factory or send some of the parts directly from the manufacturer's premises to the buyers premises and other parts from the factory. However, other than desi....