REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.6561 OF 2004
M/S. ESCORTS LTD. …APPELLANT
VERSUS
COMMISSIONER OF CENTRAL
EXCISE, FARIDABAD ...RESPONDENT
WITH
CIVIL APPEAL NO.457 OF 2006
WITH
CIVIL APPEAL NOS.9469-9470 OF 2010
J U D G M E N T
R.F. Nariman, J.
C.A. NO.6561 OF 2004
1. The present case raises an interesting question as to whether
excise duty is payable on an intermediate product, namely,
Transmission Assembly which comes into existence during the
manufacture of tractors made by the appellant. The period involved is
January 1996 to May 1998. The tractors that are manufactured have
engines that are below 1800 CC and are covered by an exemption
notification 162/1986. We are informed, however, that after 1.6.1998
this exemption 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).
Therefore, it serves as a common input for both tractors.
Therefore, in terms of provisions of Rule 57CC MODVAT credit is
admissible on the common inputs which form part of transmission
assemblies in turn used in the manufacture of both types of
Tractors.
47.1. The department has relied upon the case of M/s
International Tractors Ltd., Hoshiarpur who are supplying
transmission assemblies.
(a) The Notice contends that M/s. Mahindra & Mahindra
have not purchased any transmission assemblies for use in
tractors from any other unit. Further, they have not supplied
or transferred any transmission assemblies to any other person.
However, they have been supplying the transmission assembly to
their own units at Nagpur and Rudhrapur for manufacturing
tractors.
(b) It is submitted that this letter can at most lead to
a conclusion that the transmission assembly made by M & M is
marketable.
50. The show cause notice has placed reliance on certain other
web site to contend that the Hoovers on-line web site and
Carraro web site shows that transmission assemblies are marketed
and sold. It is submitted that while there might be mass
production of transmission assemblies marketed by Hoovers
Carraro, etc., the product specific transmission assemblies of
the noticees never come to the market and have never been sold.
Hence, there can be no question of demanding duty on the
transmission assemblies made on the assembly line and used for
assembling the tractors in the noticees factory. These are
not marketable and hence, are not goods and there is no removal
under Rule 9 and 49.”
3. The Commissioner by an order dated 4.10.2002 held as follows:-
“41. I find that the issue has been well examined in the notice.
Noticee's plea that the impugned transmission assemblies are not
goods as transmission assemblies do not have independent
existence is without merit. Noticee in fact itself clears such
goods on payment of duty to ECEL, Transmission assemblies are
well known in the commercial world and are very much dealt with
as a commercial commodity. The end use as put forth in the
notice amply proves it. To reiterate transmission assemblies are
cleared by the noticee to ECEL; noticee company's sister
concern (Farmtrac Division) imported transmission assemblies
from Carraro Spa of Italy and also purchased transmission
assemblies from Carraro India Limited, Pune; M/s TAFE, 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. Only in
such a case, can it be believed that there is no independent
identifiable intermediate stage of goods. The procedure as
adopted by the noticee is basically assembly of various parts &
components and of course all these parts and accessories which
are manufactured by the noticee in their factory as identifiable
goods are excisable themselves. Therefore, the emergence of I.C.
Engines is excisable and so also the ?emergence of the
transmission assembly is also excisable. In fact in the case of
Pratap Rajashtan Copper Foils Vs. CCE -1999(109) ELT 288 (T) it
was held that duty is payable on intermediate products even if
some minor processes were not carried to make the product
marketable.
43. I also find that the noticee in their reply has laid great
emphasis on their argument that their tractors are manufactured
as a result of integrated manufacturing process on the assembly
line and therefore there is no removal of intermediate goods, if
any, in terms of Rule 9 or Rule 49. I have to reiterate that
noticee's plea is inadmissible. In terms of Rule 9 and 49,
intermediate goods emerging during such integrated assembly line
production would be deemed to have been cleared for production
and therefore liable to Central Excise duty. Besides facts of
the case are entirely different as has been stated by the
noticee company's concerned persons in their statements.
Assembly of a vehicle or machine on line or otherwise still
remains assembly i.e. various parts and components are either
manufactured first by the assessee himself or procured from
outside and then assembled to produce the resulting machine. All
excisable goods emerging during such assembly or production are
themselves excisable as intermediate goods meant for captive
consumption unless or until specifically exempt. Transmission
assembly is one such excisable intermediate product and
therefore its duty liability ?is obvious. Therefore, I hold that
these are independent, identifiable, commercial goods capable of
being bought and sold in the market and, therefore, are
excisable goods leviable to Central Excise duty under Section 3
of the Central Excise Act, 1944. That impugned transmission
assemblies have been used captively in production of Tractors
cleared at Nil rate of duty is not denied by the noticee. The
captive consumption exemption Notification No. 67/95-C E dated
16.3.95, as amended, debars 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, 1998 (97) ELT 5(S.C.) as follows,
"First, whether by the said process a different commercial
commodity comes into existence or whether the identity of the
original commodity ceases to exist; secondly, whether the
commodity which was already in existence will serve no purpose
but for the said purpose.” We find that this two fold tests
laid down by the Supreme Court is satisfied in respect of the
transmission assembly coming into existence during the course of
manufacture of tractors by the Appellants. After assembly of
various parts and components a new and different article known
as transmission assembly emerges having a distinctive name,
character and use and but for the manipulation undertaken by
the Appellants, the parts and components would not have served
the purpose which a transmission assembly performs. The
impugned product is also marketable as the learned Senior
Departmental Representative has mentioned the fact of its being
imported by the Appellants themselves (Farmtrac Division); the
clearance of the transmission assembly by the Appellants to
their subsidiary company M/s. Escorts Construction Equipment
Ltd. and the removal of transmission assembly by M/s. Tractors
and Farm Equipment Ltd. The mere fact that the impugned product
is meant only for the tractors manufactured by them will not
mean that the impugned product is not capable of being brought
to the market for being bought and sold. The Supreme Court in
the case of A.P. State Electricity Board vs. CCE, Hyderabad,
1994 (70) ELT 3 (S.C.) has held that the marketability is
essentially a question of fact to be decided in the facts of
each case. The fact that the goods are not, in fact, marketed is
of no relevance. So long the goods arc marketable, they are
goods for the purpose of Section 3 of the Central Excise Act. It
is not necessary that the goods should be generally available in
the market. We, therefore, uphold the finding in the impugned
order that the transmission assembly is an excisable goods
exigible to Central Excise duty.”
5. Shri Lakshmikumaran, learned advocate for the appellant argued
that the tractors manufactured by the appellant (having engines of a
capacity of less than 1800 CC) had no such thing as a Transmission
Assembly. The so-called Transmission Assembly was only an aggregate of
various items which connected the engine of the tractor with its
wheels. Further, the so-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/-. If the figure of Rs.13,000/- is to be taken, it is clear
that the reversal of MODVAT credit would amount to much more than the
duty demand itself. He further argued that in any case since there
was no fraud or willful suppression of facts, invoking the extended
period of limitation was not in order and that in any case the show
cause notice being beyond one year of the stated period would have to
be quashed on this ground alone.
6. Shri Jaideep Gupta, learned senior counsel for the revenue
contended that the Transmission Assembly was very much excisable goods
known to the market as such from the statements of the appellants
themselves. Further, the revenue had discharged its burden by oral
and documentary evidence which showed beyond doubt that Transmission
Assembly of tractors were excisable goods in that a new commodity came
into existence known to the market as such. It is completely
irrelevant that no sale actually took place of any such Transmission
Assembly. It is enough to show that the said goods were capable of
being sold which, undoubtedly, they were. He very fairly stated that
on valuation, if necessary, the matter could be remanded. He also
stated that the extended period of limitation was available in the
present case as the appellants on their own showing knew that the
intermediate product of Transmission Assemblies was marketable as such
and had suppressed this fact while claiming exemption of excise duty
on the finished product, namely, the tractor.
We have heard learned counsel for the parties. It is important
in matters like this to begin at the beginning. Entry 84 List I of the
7th Schedule of the Constitution of India reads as follows:
“SEVENTH SCHEDULE
[Article 246]
List I — Union List
84. Duties of excise on tobacco and other goods manufactured or
produced in India except—
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics,
but including medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) of this
entry.”
7. It is clear on a reading of this Entry that a duty of excise is
only leviable on “goods” manufactured or produced in India. “Goods”
has been defined under Article 366 (12) as follows:
“366. Definitions.—In this Constitution, unless the context
otherwise requires, the following expressions have the meanings
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 be “manufacture” which is understood
to mean the bringing into existence of a new substance. And secondly,
the word “goods” necessarily means that such manufacture must bring
into existence a new substance known to the market as such which
brings in the concept of marketability in addition to manufacture. A
large number of judgments have explained what is meant by
marketability in this context. In A.P. State Electricity Board v.
Collector of Central Excise, Hyderabad, (1994) 2 SCC 428, this Court
referred to a large number of previous judgments. Firstly, it
referred to Union v. Delhi Cloth and General Mills. It then referred
to South Bihar Sugar Mills Limited V. Union of India, (1968) 3 SCR 21,
in which kiln gas which was a mixture of gases generated during a
process of burning limestone with coke in a lime kiln was held not to
be a marketable commodity. Since it was a mixture of gases and not
only carbon dioxide, it was clear that it was not known to the market
as such. Carbon dioxide was only a component of kiln gas, the content
of which ranged from 27 to 36.5%. The Court also referred to the
decision in Union Carbide India Limited v. the Union of India, (1986)
2 SCC 547, in which aluminum cans in crude form used as a torch bodies
were held to be not capable of sale to a consumer in their crude and
unfinished form. To be made saleable, such cans would have to undergo
various processes such as, trimming, threading and re-drawing. The
Court also referred to Bhor Industries Ltd. v. Collector of Central
Excise, Bombay, (1989) 1 SCC 602. In that case, it was held that
crude PVC films manufactured as an intermediate product and used in
captive consumption of other goods was not marketable, not being known
to the market as such. The Court also referred to CCE v. Ambalal
Sarabhai, (1989) 4 SCC 112 in which an intermediate product, namely,
starch hydrolysate was not marketable in that it was highly unstable
and fragmented quickly losing its character in a couple of days.
After referring to all these judgments, the Court held:
“10. It would be evident from the facts and ratio of the above
decisions that the goods in each case were found to be not
marketable. Whether it is refined oil (non-deodorised) concerned
in Delhi Cloth and General Mills [1963 Supp 1 SCR 586 : AIR 1963
SC 791] or kiln gas in South Bihar Sugar Mills [(1968) 3 SCR 21
: AIR 1968 SC 922] or aluminium 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. Even if there is only one purchaser of these articles,
it must still be said that there is a market for these articles.
The marketability of articles does not depend upon the number of
purchasers nor is the market confined to the territorial limits
of this country. The appellant's own case before the excise
authorities and the CEGAT was that these poles are manufactured
by independent contractors from whom it purchased them. This
plea itself — though not pressed before us — is adequate to
demolish the case of the appellant. In our opinion, therefore,
the conclusion arrived at by the Tribunal is unobjectionable.”
11. In Indian Cable Co. Ltd. v. Collector of Central Excise,
Calcutta & Ors., (1994) 6 SCC 610, this Court held:-
“10. We are of the view that the provisions of the Act mandate
that a finding that the goods are marketable is a prerequisite
or sine qua non for the levy of duty. Section 3 of the Act is
the charging section:
“3. Duties, specified in the Schedule to the Central Excise
Tariff Act, 1985 to be levied.— There shall be levied and
collected in such manner as may be prescribed duties of excise
on all excisable goods other than salt which are produced or
manufactured in India and a duty on salt manufactured in, or
imported by land into, any part of India as, and at the rates,
set forth in the Schedule to the Central Excise Tariff Act, 1985
….”
Section 2(d) defines “excisable goods”. We have quoted the
definition in para 5 supra. The word ‘goods’ is not defined in
the Act.
11. After adverting to the aforesaid definition of “excisable
goods” and the meaning of the word ‘goods’, a Constitution Bench
of the Supreme Court in Union of India v.Delhi Cloth and General
Mills [AIR 1963 SC 791 : 1963 Supp (1) SCR 586] stated in
paragraph 17 thus:
“These definitions make it clear that to become ‘goods’ an
article must be something which can ordinarily come to the
market to be bought and sold.”
(emphasis supplied)
12. In a series of decisions, this Court has held that
‘marketability’ is an essential ingredient, to hold that an
article is dutiable or exigible to duty of excise. The important
decisions of this Court which have laid down the law on this
aspect are the following: (1) Union of India v. Delhi Cloth and
General Mills Co. Ltd. [AIR 1963 SC 791 : 1963 Supp (1) SCR 586]
(2) South Bihar Sugar Mills Ltd. v. Union of India [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 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…. The marketability of articles does not depend upon
the number of purchasers nor is the market confined to the
territorial limits of this country.”
(emphasis supplied)
‘Marketability’ is a decisive test for dutiability. It only
means ‘saleable’, or “suitable for sale”. It need not be in fact
‘marketed’. The article should be capable of being sold or being
sold, to consumers in the market, as it is — without anything
more. The Appellate Tribunal has not adverted to the above vital
aspects nor has it entered a finding that the PVC compound
(granules)is a “marketable product” as understood in law. The
Appellate Tribunal was swayed by the fact that the conversion of
PVC resin into PVC compound by the process employed by the
appellants amounts to ‘manufacture’ within the meaning of
Section 2(f) of the Act and that by itself will justify the levy
of duty. In our view, this is a palpable error committed by the
Tribunal. In the absence of a finding, that the goods are
‘marketable’ i.e. saleable or suitable for sale, we hold that
the order of the Appellate Tribunal is infirm. It should be set
aside and we hereby do so. We order a remit of the matter to the
Appellate Tribunal to consider the appeal afresh and dispose of
the same in accordance with law. There shall be no order as to
costs in this appeal.”
12. In Moti Laminates (P) Ltd. v. Collector Central Excise,
Ahmadabad, (1995) 3 SCC page 23, this Court held that an intermediate
product, namely, resols, not being marketable would not be exigible to
duty. After referring to several earlier judgments, this Court held:
“11. Although the duty of excise is on manufacture or production
of the goods, but the entire concept of bringing out new
commodity etc. is linked with marketability. An article does not
become goods in common parlance unless by production or
manufacture something new and different is brought out which can
be bought and sold. In Union of India v. Delhi Cloth & General
Mills Co. Ltd. [AIR 1963 SC 791] , a Constitution Bench of this
Court while construing the word ‘goods’ held as under:
“These definitions make it clear that to become ‘goods’ an
article must be something which can ordinarily 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 any commercial name.
9. It may be noticed that in the cases referred to in the
passage, quoted above, the reasons for holding the articles 'not
marketable' are different, however they are not exhaustive. It
is difficult to lay down a precise test to determine
marketability of articles. Marketability of goods has certain
attributes. The essence of marketability is neither in the form
nor in the shape or condition in which the manufactured articles
are to be found, it is the commercial identity of the articles
known to the market for being bought and sold. The fact that the
product in question is generally not being bought and sold or
has no demand in the market would be irrelevant. The plastic
body of EMR does not satisfy the aforementioned criteria. There
are some competing manufacturers of EMR. Each is having a
different plastic body to suit its design and requirement. If
one goes to the market to purchase plastic body of EMR of the
respondents either for replacement or otherwise one cannot get
it in the market because at present it is not a commercially
known product. For these reasons, the plastic body, which is a
part of the EMR of the respondents, is not 'goods' so as to be
liable to duty as parts of EMR under para 5(d) of the said
exemption notification.”
14. From this judgment, Shri Lakshmikumaran wished to emphasise
that, as in the said judgment, Transmission Assemblies were not
available in the market for being bought and sold, they were not
excisable goods not being marketable. As has correctly been pointed
out by Mr. Gupta, learned senior counsel appearing on behalf of the
Revenue, what was held in this judgment is that the product should not
be known in the market with any commercial name. The moment a product
is commercially known in the sense of fulfilling the practical test of
being known to persons in the market who buy and sell, the test is
satisfied. The fact that the product is generally not bought or sold
or has no demand in the market is irrelevant. It was held in the said
judgment that the plastic body is not known as a commercially distinct
product in the market and, therefore, if a manufacturer is asked to
replace such body, it would not be replaceable not being a
commercially known product.
15. The facts in the present case show that Transmission Assemblies
of tractors are commercially known products as has been 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 assembly by the present Show Cause Notice.
Therefore the dept. cannot allege any suppression or fraud on
the part of Noticee.
20.4 However, that is not to say that there has been any
contumacious conduct or an intent to evade duty on the part of
the noticees. In regard to the transmission assemblies which
arise on the assembly line, if they are used in the dutiable
tractors, they would be exempt under Captive Consumption
Exemption Notification No.67/95-CE dated 16.3.95.
20.5 In regard to transmission assembly going into the exempted
tractor, the department has now raised the issue that they are
dutiable and there is no exemption notification for such
transmission assemblies. Further, that the Noticee had not
claimed NIL rate of duty for transmission assemblies used within
the factory for manufacture of tractors.
20.6 The Noticee submits that they never entertained a belief
that the transmission assembly would be dutiable and
consequently, when such transmission assemblies arose on the
assembly line, whether they go into the exempted tractor or
dutiable tractor, Transmission ?Assembly as an item was not
mentioned separately in the classification list. This shows
their bona fides and does not lead to an inference that there
was non-mention of the transmission assemblies in the
classification list with ulterior motive.
20.7 The Noticees submit that declarations of the term
"Transmission" appearing under Heading No.87.08 showing that the
rate of duty applicable is 15% and the department knowing fully
well that tractors have been manufactured, should have raised
the issue regarding the transmission assembly at the earliest
and not by invoking the extended period as done in the present
Show Cause Notice. The number of Transmission cleared on payment
of duty to ECEL over the entire period from Jan.1996 to May,
1998 is very meagre as compared to the total number of tractors
(both dutiable and exempted) cleared during the period. It is
clear that only one Transmission Assembly is used in one
tractor. Consequently, the Department knew that duty was not
being paid on captively consumed Transmission Assemblies. Hence,
extended period is not invocable. Thus, the department was fully
aware that the tractors have been manufactured and a
transmission assembly is made at the intermediate stage. Nothing
prevented the department from raising demands within the
permissible 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 Department during the relevant period that
transmission assemblies going into the exempted tractor do not
attract duty.”
17. Added to this, the appellants have also clearly stated that not
a single Transmission Assembly has in fact been sold by them in the
market. On these facts, we are of the opinion that the appellants
would fall within the test laid down in two judgments of this Court.
In Padmini Products v. Collector of Central Excise, Bangalore, 1989
(43) E.L.T. 195, this Court held:
“8. Shri V. Lakshmi Kumaran, learned counsel for the appellant
drew our attention to the observations of this Court
in CCE v. Chemphar Drugs and Liniments, Hyderabad [(1989) 2 SCC
127 : 1989 SCC (Tax) 245] where at p. 131 of the report, this
Court observed that in order to sustain an order of the Tribunal
beyond a period of six months and up to a period of five years
in view of the proviso to sub-section (1) of Section 11-A of the
Act, it had to be established that the duty of excise had not
been levied or paid or short-levied or short-paid, or
erroneously refunded by reasons of either fraud or collusion or
willful misstatement or suppression of facts or contravention of
any provision of the Act or Rules made thereunder, with intent
to evade payment of duty. It was observed by this Court that
something positive other than mere inaction or failure on the
part of the manufacturer or producer of conscious or deliberate
withholding of information when the manufacturer knew otherwise,
is required to be established before it is saddled with any
liability beyond the period of six months. Whether in a
particular set of facts and circumstances there was any fraud or
collusion or wilful misstatement or suppression or contravention
of any provision of any Act, is a question of fact depending
upon the facts and circumstances of a particular case.
…….As mentioned hereinbefore, mere failure or negligence on the
part of the producer or manufacturer either not to take out a
licence in case where there was scope for doubt as to whether
licence was required to be taken out or where there was scope
for doubt whether goods were dutiable or not, would not attract
Section 11-A of the Act. In the facts and circumstances of this
case, there were materials, as indicated to suggest that there
was scope for confusion and the appellant believing that the
goods came within the purview of the 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 a permissible
ground for the purpose of the proviso to Section 11-A.
Misstatement of fact must be wilful.
13. Factual position goes to show that the Revenue relied on the
Circulars dated 23-5-1997 and 19-12-1997. The Circular dated 6-1-
1998 is the one on which the appellant places reliance.
Undisputedly, view expressed by cegat in Continental Foundation
Joint Venture case [Continental Foundation Joint Venture v. CCE,
(2002) 150 ELT 216 (Tri-Del)] was held to be not correct in a
subsequent larger Bench judgment. It is, therefore, clear that
there was scope for entertaining doubt about the view to be
taken. The Tribunal apparently has not considered these aspects
correctly. Contrary to the factual position, cegat has held that
no plea was taken about there being no intention to evade
payment of duty as the same was to be reimbursed by the buyer.
In fact such a plea was clearly taken. The factual scenario
clearly goes to show that there was scope for entertaining
doubt, and taking a particular stand which rules out application
of Section 11-A of the Act.
12. The expression “suppression” has been used in the proviso to
Section 11-A of the Act accompanied by very strong words as
“fraud” or “collusion” and, therefore, has to be construed
strictly. Mere omission to give correct information is not
suppression of facts unless it was deliberate to stop
(sic evade) the payment of duty. Suppression means failure to
disclose full information with the intent to evade payment of
duty. When the facts are known to both the parties, omission by
one party to do what he might have done would not render it
suppression. When the Revenue invokes the extended period of
limitation under Section 11-A the burden is cast upon it to
prove suppression of fact. An incorrect statement cannot be
equated with a wilful misstatement. The latter implies making of
an incorrect statement with the knowledge that the statement was
not correct.”
19. Judged by this test, it is clear that on facts in the present
case there was no suppression on the part of the appellants nor was
there any willful attempt to evade duty. As stated by the appellant,
the appellant has been manufacturing tractors from 1965 onwards.
There has never been any change in the manufacturing process. In the
year 1994-95, IC engines were stated by the department to contain
Transmission Assemblies, which were dutiable. On 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
payment of duty under Invoice No.1120969 dated 21.6.2000. Never
before in the past M/s. TAFE have declared this product along
with other factory finished products for which duty was paid by
them. Hence, necessary verification was conducted in order to
know whether any such sub-assemblies were manufactured and
cleared by the assessee for use in the exempted tractors.
4. M/s. TAFE have manufactured the sub-assemblies as listed
in the Annexure-I and Annexure-II for the tractors Model No.
TAFE 25 and TAFE 30 inside the factory for captive use in the
production of tractors. The details of process of manufacture
of such sub-assemblies are explained in Annexure-III. As per
Clause (ii) to Notification No.67/95 dated 16-3-1995 all inputs
specified in column 1 of the Table in the said Notification
which also includes inputs falling under Chapter Heading 87 of
Central Excise Tariff Act, 1985, manufactured in a factory and
used within the factory of production in or in relation to the
manufacture of the final products are exempt from the whole of
the excise duty due thereon, provided the final product is
chargeable to duty. As per this notification, M/s TAFE have
paid duty on all the goods falling under Chapter Sub-Heading
87.08, used in the manufacture of Tractors of engine capacity
less than 1800cc which are exempted, except the sub-assemblies
manufactured and used in the exempted tractors. Therefore, it
appears that M/s TAFE are liable to pay duty on all the sub-
assemblies manufactured (as per Annexure-I and II), and used in
the Tractors which are exempt for the period from April, 1997 to
May, 1998.
5. M/s. TAFE have not brought to the notice of the
manufacture of sub-assemblies to the Department with the
intention to evade payment of excise duty. They have willfully
suppressed the fact of the manufacture of the sub-assemblies
from the knowledge of the Department and cleared the same
without payment of duty for use in the manufacture of Tractors,
which are exempted. It can be seen from the process of
manufacture that the making of the independent, sub-assemblies
are inevitable in the Tractor build. But, M/s TAFE chose to
declare only the parts constituting these sub-assemblies as
factory finished items and not sub-assembly. Whether these
factory finished items and bought out, items, when assembled
will form a sub-assembly has not been declared by them. M/s.
TAFE 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. In view of what is stated in Civil Appeal No.6561 of 2004, the
part of the order in original and the CESTAT order on merits have to
be set aside. However, for the self-same reasons as are contained in
Civil Appeal No.6561 of 2004, we hold that the extended period of
limitation is not available as we are satisfied that the reply
extracted above of the respondent shows that the respondent bona fide
believed that Transmission Assemblies were not dutiable. In the
circumstances, the appeals of the revenue shall stand dismissed on
this ground.
C.A. No.457 of 2006
23. The facts in this appeal are as follows. The period involved is
April, 1996 to May, 1998 and the show cause notice is dated 1.5.2001.
As the impugned judgment in this case by CESTAT merely follows the
Escorts case i.e. Civil Appeal No.6561 of 2004, we hold that the
finding of the authorities on merits is correct. However, in this
case also the extended period of limitation is not available to the
revenue.
24. In the order dated 26.12.2001, the Commissioner stated:-
“In the present inquiry which was undertaken by the proper
officer, it was found that the transmission assembly or chassis
assembly which is classifiable under Sub-heading 87.08 of the
1st Schedule to the Central Excise Act was not declared by the
noticee in the classification list. Therefore, their plea that
they have declared the chassis thereof does not cover
transmission assembly or chassis assembly. They themselves in
their reply have admitted that the chassis is the main frame
that supports the body and the engine has to be so framed as to
receive, hold and fasten an engine and other components of the
tractors (Para 14 of the reply). Thus, transmission assembly is
not the chassis and since the noticee have failed to declare the
transmission assembly/ chassis assembly, the suppression of fact
is clear.
The intention to evade duty is clear from the statement of
Shri P.C. Kale dated 12.04.2001 as the noticee was knowing that
duty is required to be paid on the goods which go into the
assembly of the tractor of engine capacity less than 1800 CC.
As such tractors were exempt from duty during the relevant
period. Knowing this fact very well and not declaring the
transmission assembly or chassis assembly in the classification
declaration and clearing such transmission assembly/ chassis
assembly without payment of duty without recording their
production in the statutory records and without filing the RT-12
returns for the production and clearance of such transmission
assembly/ chassis assembly clearly established that this was
done with an intention to evade payment of duty.”
25. We find that in successive declarations made by the assessee in
this case starting from 16.3.1995 the assessee had declared not merely
the tractor but the chassis therefor. The assessee bonafide believed
that the declaration of the chassis would suffice as according to them
Transmission Assemblies were not taxable goods. The intention to
evade duty is according to the Commissioner made out from a statement
made by Shri P.C. Kale dated 12.4.2001. It is pointed out by learned
counsel appearing on behalf of the appellant that in the memorandum of
appeal filed against the order in original, Shri P.C. Kale was never
in the employment of the appellant during the relevant period as he
joined the appellant only in July, 2000. Apart from this, it is also
pointed out that the appellant is a public sector company governed by
a Board of Directors consisting of IAS Officers. Be that as it may,
we are satisfied that there was no attempt to evade excise duty and in
this case also the show cause notice being beyond the period of
limitation of one year would have to be quashed on this ground. On
this ground alone, therefore, the impugned judgment dated 3.10.2005 is
set aside. The appeal is allowed accordingly.
……………………….J.
(A.K. Sikri)
……………………….J.
(R.F. Nariman)
New Delhi;
April 29, 2015.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.6561 OF 2004
M/S. ESCORTS LTD. …APPELLANT
VERSUS
COMMISSIONER OF CENTRAL
EXCISE, FARIDABAD ...RESPONDENT
WITH
CIVIL APPEAL NO.457 OF 2006
WITH
CIVIL APPEAL NOS.9469-9470 OF 2010
J U D G M E N T
R.F. Nariman, J.
C.A. NO.6561 OF 2004
1. The present case raises an interesting question as to whether
excise duty is payable on an intermediate product, namely,
Transmission Assembly which comes into existence during the
manufacture of tractors made by the appellant. The period involved is
January 1996 to May 1998. The tractors that are manufactured have
engines that are below 1800 CC and are covered by an exemption
notification 162/1986. We are informed, however, that after 1.6.1998
this exemption 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).
Therefore, it serves as a common input for both tractors.
Therefore, in terms of provisions of Rule 57CC MODVAT credit is
admissible on the common inputs which form part of transmission
assemblies in turn used in the manufacture of both types of
Tractors.
47.1. The department has relied upon the case of M/s
International Tractors Ltd., Hoshiarpur who are supplying
transmission assemblies.
(a) The Notice contends that M/s. Mahindra & Mahindra
have not purchased any transmission assemblies for use in
tractors from any other unit. Further, they have not supplied
or transferred any transmission assemblies to any other person.
However, they have been supplying the transmission assembly to
their own units at Nagpur and Rudhrapur for manufacturing
tractors.
(b) It is submitted that this letter can at most lead to
a conclusion that the transmission assembly made by M & M is
marketable.
50. The show cause notice has placed reliance on certain other
web site to contend that the Hoovers on-line web site and
Carraro web site shows that transmission assemblies are marketed
and sold. It is submitted that while there might be mass
production of transmission assemblies marketed by Hoovers
Carraro, etc., the product specific transmission assemblies of
the noticees never come to the market and have never been sold.
Hence, there can be no question of demanding duty on the
transmission assemblies made on the assembly line and used for
assembling the tractors in the noticees factory. These are
not marketable and hence, are not goods and there is no removal
under Rule 9 and 49.”
3. The Commissioner by an order dated 4.10.2002 held as follows:-
“41. I find that the issue has been well examined in the notice.
Noticee's plea that the impugned transmission assemblies are not
goods as transmission assemblies do not have independent
existence is without merit. Noticee in fact itself clears such
goods on payment of duty to ECEL, Transmission assemblies are
well known in the commercial world and are very much dealt with
as a commercial commodity. The end use as put forth in the
notice amply proves it. To reiterate transmission assemblies are
cleared by the noticee to ECEL; noticee company's sister
concern (Farmtrac Division) imported transmission assemblies
from Carraro Spa of Italy and also purchased transmission
assemblies from Carraro India Limited, Pune; M/s TAFE, 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. Only in
such a case, can it be believed that there is no independent
identifiable intermediate stage of goods. The procedure as
adopted by the noticee is basically assembly of various parts &
components and of course all these parts and accessories which
are manufactured by the noticee in their factory as identifiable
goods are excisable themselves. Therefore, the emergence of I.C.
Engines is excisable and so also the ?emergence of the
transmission assembly is also excisable. In fact in the case of
Pratap Rajashtan Copper Foils Vs. CCE -1999(109) ELT 288 (T) it
was held that duty is payable on intermediate products even if
some minor processes were not carried to make the product
marketable.
43. I also find that the noticee in their reply has laid great
emphasis on their argument that their tractors are manufactured
as a result of integrated manufacturing process on the assembly
line and therefore there is no removal of intermediate goods, if
any, in terms of Rule 9 or Rule 49. I have to reiterate that
noticee's plea is inadmissible. In terms of Rule 9 and 49,
intermediate goods emerging during such integrated assembly line
production would be deemed to have been cleared for production
and therefore liable to Central Excise duty. Besides facts of
the case are entirely different as has been stated by the
noticee company's concerned persons in their statements.
Assembly of a vehicle or machine on line or otherwise still
remains assembly i.e. various parts and components are either
manufactured first by the assessee himself or procured from
outside and then assembled to produce the resulting machine. All
excisable goods emerging during such assembly or production are
themselves excisable as intermediate goods meant for captive
consumption unless or until specifically exempt. Transmission
assembly is one such excisable intermediate product and
therefore its duty liability ?is obvious. Therefore, I hold that
these are independent, identifiable, commercial goods capable of
being bought and sold in the market and, therefore, are
excisable goods leviable to Central Excise duty under Section 3
of the Central Excise Act, 1944. That impugned transmission
assemblies have been used captively in production of Tractors
cleared at Nil rate of duty is not denied by the noticee. The
captive consumption exemption Notification No. 67/95-C E dated
16.3.95, as amended, debars 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, 1998 (97) ELT 5(S.C.) as follows,
"First, whether by the said process a different commercial
commodity comes into existence or whether the identity of the
original commodity ceases to exist; secondly, whether the
commodity which was already in existence will serve no purpose
but for the said purpose.” We find that this two fold tests
laid down by the Supreme Court is satisfied in respect of the
transmission assembly coming into existence during the course of
manufacture of tractors by the Appellants. After assembly of
various parts and components a new and different article known
as transmission assembly emerges having a distinctive name,
character and use and but for the manipulation undertaken by
the Appellants, the parts and components would not have served
the purpose which a transmission assembly performs. The
impugned product is also marketable as the learned Senior
Departmental Representative has mentioned the fact of its being
imported by the Appellants themselves (Farmtrac Division); the
clearance of the transmission assembly by the Appellants to
their subsidiary company M/s. Escorts Construction Equipment
Ltd. and the removal of transmission assembly by M/s. Tractors
and Farm Equipment Ltd. The mere fact that the impugned product
is meant only for the tractors manufactured by them will not
mean that the impugned product is not capable of being brought
to the market for being bought and sold. The Supreme Court in
the case of A.P. State Electricity Board vs. CCE, Hyderabad,
1994 (70) ELT 3 (S.C.) has held that the marketability is
essentially a question of fact to be decided in the facts of
each case. The fact that the goods are not, in fact, marketed is
of no relevance. So long the goods arc marketable, they are
goods for the purpose of Section 3 of the Central Excise Act. It
is not necessary that the goods should be generally available in
the market. We, therefore, uphold the finding in the impugned
order that the transmission assembly is an excisable goods
exigible to Central Excise duty.”
5. Shri Lakshmikumaran, learned advocate for the appellant argued
that the tractors manufactured by the appellant (having engines of a
capacity of less than 1800 CC) had no such thing as a Transmission
Assembly. The so-called Transmission Assembly was only an aggregate of
various items which connected the engine of the tractor with its
wheels. Further, the so-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/-. If the figure of Rs.13,000/- is to be taken, it is clear
that the reversal of MODVAT credit would amount to much more than the
duty demand itself. He further argued that in any case since there
was no fraud or willful suppression of facts, invoking the extended
period of limitation was not in order and that in any case the show
cause notice being beyond one year of the stated period would have to
be quashed on this ground alone.
6. Shri Jaideep Gupta, learned senior counsel for the revenue
contended that the Transmission Assembly was very much excisable goods
known to the market as such from the statements of the appellants
themselves. Further, the revenue had discharged its burden by oral
and documentary evidence which showed beyond doubt that Transmission
Assembly of tractors were excisable goods in that a new commodity came
into existence known to the market as such. It is completely
irrelevant that no sale actually took place of any such Transmission
Assembly. It is enough to show that the said goods were capable of
being sold which, undoubtedly, they were. He very fairly stated that
on valuation, if necessary, the matter could be remanded. He also
stated that the extended period of limitation was available in the
present case as the appellants on their own showing knew that the
intermediate product of Transmission Assemblies was marketable as such
and had suppressed this fact while claiming exemption of excise duty
on the finished product, namely, the tractor.
We have heard learned counsel for the parties. It is important
in matters like this to begin at the beginning. Entry 84 List I of the
7th Schedule of the Constitution of India reads as follows:
“SEVENTH SCHEDULE
[Article 246]
List I — Union List
84. Duties of excise on tobacco and other goods manufactured or
produced in India except—
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics,
but including medicinal and toilet preparations containing
alcohol or any substance included in sub-paragraph (b) of this
entry.”
7. It is clear on a reading of this Entry that a duty of excise is
only leviable on “goods” manufactured or produced in India. “Goods”
has been defined under Article 366 (12) as follows:
“366. Definitions.—In this Constitution, unless the context
otherwise requires, the following expressions have the meanings
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 be “manufacture” which is understood
to mean the bringing into existence of a new substance. And secondly,
the word “goods” necessarily means that such manufacture must bring
into existence a new substance known to the market as such which
brings in the concept of marketability in addition to manufacture. A
large number of judgments have explained what is meant by
marketability in this context. In A.P. State Electricity Board v.
Collector of Central Excise, Hyderabad, (1994) 2 SCC 428, this Court
referred to a large number of previous judgments. Firstly, it
referred to Union v. Delhi Cloth and General Mills. It then referred
to South Bihar Sugar Mills Limited V. Union of India, (1968) 3 SCR 21,
in which kiln gas which was a mixture of gases generated during a
process of burning limestone with coke in a lime kiln was held not to
be a marketable commodity. Since it was a mixture of gases and not
only carbon dioxide, it was clear that it was not known to the market
as such. Carbon dioxide was only a component of kiln gas, the content
of which ranged from 27 to 36.5%. The Court also referred to the
decision in Union Carbide India Limited v. the Union of India, (1986)
2 SCC 547, in which aluminum cans in crude form used as a torch bodies
were held to be not capable of sale to a consumer in their crude and
unfinished form. To be made saleable, such cans would have to undergo
various processes such as, trimming, threading and re-drawing. The
Court also referred to Bhor Industries Ltd. v. Collector of Central
Excise, Bombay, (1989) 1 SCC 602. In that case, it was held that
crude PVC films manufactured as an intermediate product and used in
captive consumption of other goods was not marketable, not being known
to the market as such. The Court also referred to CCE v. Ambalal
Sarabhai, (1989) 4 SCC 112 in which an intermediate product, namely,
starch hydrolysate was not marketable in that it was highly unstable
and fragmented quickly losing its character in a couple of days.
After referring to all these judgments, the Court held:
“10. It would be evident from the facts and ratio of the above
decisions that the goods in each case were found to be not
marketable. Whether it is refined oil (non-deodorised) concerned
in Delhi Cloth and General Mills [1963 Supp 1 SCR 586 : AIR 1963
SC 791] or kiln gas in South Bihar Sugar Mills [(1968) 3 SCR 21
: AIR 1968 SC 922] or aluminium 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. Even if there is only one purchaser of these articles,
it must still be said that there is a market for these articles.
The marketability of articles does not depend upon the number of
purchasers nor is the market confined to the territorial limits
of this country. The appellant's own case before the excise
authorities and the CEGAT was that these poles are manufactured
by independent contractors from whom it purchased them. This
plea itself — though not pressed before us — is adequate to
demolish the case of the appellant. In our opinion, therefore,
the conclusion arrived at by the Tribunal is unobjectionable.”
11. In Indian Cable Co. Ltd. v. Collector of Central Excise,
Calcutta & Ors., (1994) 6 SCC 610, this Court held:-
“10. We are of the view that the provisions of the Act mandate
that a finding that the goods are marketable is a prerequisite
or sine qua non for the levy of duty. Section 3 of the Act is
the charging section:
“3. Duties, specified in the Schedule to the Central Excise
Tariff Act, 1985 to be levied.— There shall be levied and
collected in such manner as may be prescribed duties of excise
on all excisable goods other than salt which are produced or
manufactured in India and a duty on salt manufactured in, or
imported by land into, any part of India as, and at the rates,
set forth in the Schedule to the Central Excise Tariff Act, 1985
….”
Section 2(d) defines “excisable goods”. We have quoted the
definition in para 5 supra. The word ‘goods’ is not defined in
the Act.
11. After adverting to the aforesaid definition of “excisable
goods” and the meaning of the word ‘goods’, a Constitution Bench
of the Supreme Court in Union of India v.Delhi Cloth and General
Mills [AIR 1963 SC 791 : 1963 Supp (1) SCR 586] stated in
paragraph 17 thus:
“These definitions make it clear that to become ‘goods’ an
article must be something which can ordinarily come to the
market to be bought and sold.”
(emphasis supplied)
12. In a series of decisions, this Court has held that
‘marketability’ is an essential ingredient, to hold that an
article is dutiable or exigible to duty of excise. The important
decisions of this Court which have laid down the law on this
aspect are the following: (1) Union of India v. Delhi Cloth and
General Mills Co. Ltd. [AIR 1963 SC 791 : 1963 Supp (1) SCR 586]
(2) South Bihar Sugar Mills Ltd. v. Union of India [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 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…. The marketability of articles does not depend upon
the number of purchasers nor is the market confined to the
territorial limits of this country.”
(emphasis supplied)
‘Marketability’ is a decisive test for dutiability. It only
means ‘saleable’, or “suitable for sale”. It need not be in fact
‘marketed’. The article should be capable of being sold or being
sold, to consumers in the market, as it is — without anything
more. The Appellate Tribunal has not adverted to the above vital
aspects nor has it entered a finding that the PVC compound
(granules)is a “marketable product” as understood in law. The
Appellate Tribunal was swayed by the fact that the conversion of
PVC resin into PVC compound by the process employed by the
appellants amounts to ‘manufacture’ within the meaning of
Section 2(f) of the Act and that by itself will justify the levy
of duty. In our view, this is a palpable error committed by the
Tribunal. In the absence of a finding, that the goods are
‘marketable’ i.e. saleable or suitable for sale, we hold that
the order of the Appellate Tribunal is infirm. It should be set
aside and we hereby do so. We order a remit of the matter to the
Appellate Tribunal to consider the appeal afresh and dispose of
the same in accordance with law. There shall be no order as to
costs in this appeal.”
12. In Moti Laminates (P) Ltd. v. Collector Central Excise,
Ahmadabad, (1995) 3 SCC page 23, this Court held that an intermediate
product, namely, resols, not being marketable would not be exigible to
duty. After referring to several earlier judgments, this Court held:
“11. Although the duty of excise is on manufacture or production
of the goods, but the entire concept of bringing out new
commodity etc. is linked with marketability. An article does not
become goods in common parlance unless by production or
manufacture something new and different is brought out which can
be bought and sold. In Union of India v. Delhi Cloth & General
Mills Co. Ltd. [AIR 1963 SC 791] , a Constitution Bench of this
Court while construing the word ‘goods’ held as under:
“These definitions make it clear that to become ‘goods’ an
article must be something which can ordinarily 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 any commercial name.
9. It may be noticed that in the cases referred to in the
passage, quoted above, the reasons for holding the articles 'not
marketable' are different, however they are not exhaustive. It
is difficult to lay down a precise test to determine
marketability of articles. Marketability of goods has certain
attributes. The essence of marketability is neither in the form
nor in the shape or condition in which the manufactured articles
are to be found, it is the commercial identity of the articles
known to the market for being bought and sold. The fact that the
product in question is generally not being bought and sold or
has no demand in the market would be irrelevant. The plastic
body of EMR does not satisfy the aforementioned criteria. There
are some competing manufacturers of EMR. Each is having a
different plastic body to suit its design and requirement. If
one goes to the market to purchase plastic body of EMR of the
respondents either for replacement or otherwise one cannot get
it in the market because at present it is not a commercially
known product. For these reasons, the plastic body, which is a
part of the EMR of the respondents, is not 'goods' so as to be
liable to duty as parts of EMR under para 5(d) of the said
exemption notification.”
14. From this judgment, Shri Lakshmikumaran wished to emphasise
that, as in the said judgment, Transmission Assemblies were not
available in the market for being bought and sold, they were not
excisable goods not being marketable. As has correctly been pointed
out by Mr. Gupta, learned senior counsel appearing on behalf of the
Revenue, what was held in this judgment is that the product should not
be known in the market with any commercial name. The moment a product
is commercially known in the sense of fulfilling the practical test of
being known to persons in the market who buy and sell, the test is
satisfied. The fact that the product is generally not bought or sold
or has no demand in the market is irrelevant. It was held in the said
judgment that the plastic body is not known as a commercially distinct
product in the market and, therefore, if a manufacturer is asked to
replace such body, it would not be replaceable not being a
commercially known product.
15. The facts in the present case show that Transmission Assemblies
of tractors are commercially known products as has been 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 assembly by the present Show Cause Notice.
Therefore the dept. cannot allege any suppression or fraud on
the part of Noticee.
20.4 However, that is not to say that there has been any
contumacious conduct or an intent to evade duty on the part of
the noticees. In regard to the transmission assemblies which
arise on the assembly line, if they are used in the dutiable
tractors, they would be exempt under Captive Consumption
Exemption Notification No.67/95-CE dated 16.3.95.
20.5 In regard to transmission assembly going into the exempted
tractor, the department has now raised the issue that they are
dutiable and there is no exemption notification for such
transmission assemblies. Further, that the Noticee had not
claimed NIL rate of duty for transmission assemblies used within
the factory for manufacture of tractors.
20.6 The Noticee submits that they never entertained a belief
that the transmission assembly would be dutiable and
consequently, when such transmission assemblies arose on the
assembly line, whether they go into the exempted tractor or
dutiable tractor, Transmission ?Assembly as an item was not
mentioned separately in the classification list. This shows
their bona fides and does not lead to an inference that there
was non-mention of the transmission assemblies in the
classification list with ulterior motive.
20.7 The Noticees submit that declarations of the term
"Transmission" appearing under Heading No.87.08 showing that the
rate of duty applicable is 15% and the department knowing fully
well that tractors have been manufactured, should have raised
the issue regarding the transmission assembly at the earliest
and not by invoking the extended period as done in the present
Show Cause Notice. The number of Transmission cleared on payment
of duty to ECEL over the entire period from Jan.1996 to May,
1998 is very meagre as compared to the total number of tractors
(both dutiable and exempted) cleared during the period. It is
clear that only one Transmission Assembly is used in one
tractor. Consequently, the Department knew that duty was not
being paid on captively consumed Transmission Assemblies. Hence,
extended period is not invocable. Thus, the department was fully
aware that the tractors have been manufactured and a
transmission assembly is made at the intermediate stage. Nothing
prevented the department from raising demands within the
permissible 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 Department during the relevant period that
transmission assemblies going into the exempted tractor do not
attract duty.”
17. Added to this, the appellants have also clearly stated that not
a single Transmission Assembly has in fact been sold by them in the
market. On these facts, we are of the opinion that the appellants
would fall within the test laid down in two judgments of this Court.
In Padmini Products v. Collector of Central Excise, Bangalore, 1989
(43) E.L.T. 195, this Court held:
“8. Shri V. Lakshmi Kumaran, learned counsel for the appellant
drew our attention to the observations of this Court
in CCE v. Chemphar Drugs and Liniments, Hyderabad [(1989) 2 SCC
127 : 1989 SCC (Tax) 245] where at p. 131 of the report, this
Court observed that in order to sustain an order of the Tribunal
beyond a period of six months and up to a period of five years
in view of the proviso to sub-section (1) of Section 11-A of the
Act, it had to be established that the duty of excise had not
been levied or paid or short-levied or short-paid, or
erroneously refunded by reasons of either fraud or collusion or
willful misstatement or suppression of facts or contravention of
any provision of the Act or Rules made thereunder, with intent
to evade payment of duty. It was observed by this Court that
something positive other than mere inaction or failure on the
part of the manufacturer or producer of conscious or deliberate
withholding of information when the manufacturer knew otherwise,
is required to be established before it is saddled with any
liability beyond the period of six months. Whether in a
particular set of facts and circumstances there was any fraud or
collusion or wilful misstatement or suppression or contravention
of any provision of any Act, is a question of fact depending
upon the facts and circumstances of a particular case.
…….As mentioned hereinbefore, mere failure or negligence on the
part of the producer or manufacturer either not to take out a
licence in case where there was scope for doubt as to whether
licence was required to be taken out or where there was scope
for doubt whether goods were dutiable or not, would not attract
Section 11-A of the Act. In the facts and circumstances of this
case, there were materials, as indicated to suggest that there
was scope for confusion and the appellant believing that the
goods came within the purview of the 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 a permissible
ground for the purpose of the proviso to Section 11-A.
Misstatement of fact must be wilful.
13. Factual position goes to show that the Revenue relied on the
Circulars dated 23-5-1997 and 19-12-1997. The Circular dated 6-1-
1998 is the one on which the appellant places reliance.
Undisputedly, view expressed by cegat in Continental Foundation
Joint Venture case [Continental Foundation Joint Venture v. CCE,
(2002) 150 ELT 216 (Tri-Del)] was held to be not correct in a
subsequent larger Bench judgment. It is, therefore, clear that
there was scope for entertaining doubt about the view to be
taken. The Tribunal apparently has not considered these aspects
correctly. Contrary to the factual position, cegat has held that
no plea was taken about there being no intention to evade
payment of duty as the same was to be reimbursed by the buyer.
In fact such a plea was clearly taken. The factual scenario
clearly goes to show that there was scope for entertaining
doubt, and taking a particular stand which rules out application
of Section 11-A of the Act.
12. The expression “suppression” has been used in the proviso to
Section 11-A of the Act accompanied by very strong words as
“fraud” or “collusion” and, therefore, has to be construed
strictly. Mere omission to give correct information is not
suppression of facts unless it was deliberate to stop
(sic evade) the payment of duty. Suppression means failure to
disclose full information with the intent to evade payment of
duty. When the facts are known to both the parties, omission by
one party to do what he might have done would not render it
suppression. When the Revenue invokes the extended period of
limitation under Section 11-A the burden is cast upon it to
prove suppression of fact. An incorrect statement cannot be
equated with a wilful misstatement. The latter implies making of
an incorrect statement with the knowledge that the statement was
not correct.”
19. Judged by this test, it is clear that on facts in the present
case there was no suppression on the part of the appellants nor was
there any willful attempt to evade duty. As stated by the appellant,
the appellant has been manufacturing tractors from 1965 onwards.
There has never been any change in the manufacturing process. In the
year 1994-95, IC engines were stated by the department to contain
Transmission Assemblies, which were dutiable. On 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
payment of duty under Invoice No.1120969 dated 21.6.2000. Never
before in the past M/s. TAFE have declared this product along
with other factory finished products for which duty was paid by
them. Hence, necessary verification was conducted in order to
know whether any such sub-assemblies were manufactured and
cleared by the assessee for use in the exempted tractors.
4. M/s. TAFE have manufactured the sub-assemblies as listed
in the Annexure-I and Annexure-II for the tractors Model No.
TAFE 25 and TAFE 30 inside the factory for captive use in the
production of tractors. The details of process of manufacture
of such sub-assemblies are explained in Annexure-III. As per
Clause (ii) to Notification No.67/95 dated 16-3-1995 all inputs
specified in column 1 of the Table in the said Notification
which also includes inputs falling under Chapter Heading 87 of
Central Excise Tariff Act, 1985, manufactured in a factory and
used within the factory of production in or in relation to the
manufacture of the final products are exempt from the whole of
the excise duty due thereon, provided the final product is
chargeable to duty. As per this notification, M/s TAFE have
paid duty on all the goods falling under Chapter Sub-Heading
87.08, used in the manufacture of Tractors of engine capacity
less than 1800cc which are exempted, except the sub-assemblies
manufactured and used in the exempted tractors. Therefore, it
appears that M/s TAFE are liable to pay duty on all the sub-
assemblies manufactured (as per Annexure-I and II), and used in
the Tractors which are exempt for the period from April, 1997 to
May, 1998.
5. M/s. TAFE have not brought to the notice of the
manufacture of sub-assemblies to the Department with the
intention to evade payment of excise duty. They have willfully
suppressed the fact of the manufacture of the sub-assemblies
from the knowledge of the Department and cleared the same
without payment of duty for use in the manufacture of Tractors,
which are exempted. It can be seen from the process of
manufacture that the making of the independent, sub-assemblies
are inevitable in the Tractor build. But, M/s TAFE chose to
declare only the parts constituting these sub-assemblies as
factory finished items and not sub-assembly. Whether these
factory finished items and bought out, items, when assembled
will form a sub-assembly has not been declared by them. M/s.
TAFE 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. In view of what is stated in Civil Appeal No.6561 of 2004, the
part of the order in original and the CESTAT order on merits have to
be set aside. However, for the self-same reasons as are contained in
Civil Appeal No.6561 of 2004, we hold that the extended period of
limitation is not available as we are satisfied that the reply
extracted above of the respondent shows that the respondent bona fide
believed that Transmission Assemblies were not dutiable. In the
circumstances, the appeals of the revenue shall stand dismissed on
this ground.
C.A. No.457 of 2006
23. The facts in this appeal are as follows. The period involved is
April, 1996 to May, 1998 and the show cause notice is dated 1.5.2001.
As the impugned judgment in this case by CESTAT merely follows the
Escorts case i.e. Civil Appeal No.6561 of 2004, we hold that the
finding of the authorities on merits is correct. However, in this
case also the extended period of limitation is not available to the
revenue.
24. In the order dated 26.12.2001, the Commissioner stated:-
“In the present inquiry which was undertaken by the proper
officer, it was found that the transmission assembly or chassis
assembly which is classifiable under Sub-heading 87.08 of the
1st Schedule to the Central Excise Act was not declared by the
noticee in the classification list. Therefore, their plea that
they have declared the chassis thereof does not cover
transmission assembly or chassis assembly. They themselves in
their reply have admitted that the chassis is the main frame
that supports the body and the engine has to be so framed as to
receive, hold and fasten an engine and other components of the
tractors (Para 14 of the reply). Thus, transmission assembly is
not the chassis and since the noticee have failed to declare the
transmission assembly/ chassis assembly, the suppression of fact
is clear.
The intention to evade duty is clear from the statement of
Shri P.C. Kale dated 12.04.2001 as the noticee was knowing that
duty is required to be paid on the goods which go into the
assembly of the tractor of engine capacity less than 1800 CC.
As such tractors were exempt from duty during the relevant
period. Knowing this fact very well and not declaring the
transmission assembly or chassis assembly in the classification
declaration and clearing such transmission assembly/ chassis
assembly without payment of duty without recording their
production in the statutory records and without filing the RT-12
returns for the production and clearance of such transmission
assembly/ chassis assembly clearly established that this was
done with an intention to evade payment of duty.”
25. We find that in successive declarations made by the assessee in
this case starting from 16.3.1995 the assessee had declared not merely
the tractor but the chassis therefor. The assessee bonafide believed
that the declaration of the chassis would suffice as according to them
Transmission Assemblies were not taxable goods. The intention to
evade duty is according to the Commissioner made out from a statement
made by Shri P.C. Kale dated 12.4.2001. It is pointed out by learned
counsel appearing on behalf of the appellant that in the memorandum of
appeal filed against the order in original, Shri P.C. Kale was never
in the employment of the appellant during the relevant period as he
joined the appellant only in July, 2000. Apart from this, it is also
pointed out that the appellant is a public sector company governed by
a Board of Directors consisting of IAS Officers. Be that as it may,
we are satisfied that there was no attempt to evade excise duty and in
this case also the show cause notice being beyond the period of
limitation of one year would have to be quashed on this ground. On
this ground alone, therefore, the impugned judgment dated 3.10.2005 is
set aside. The appeal is allowed accordingly.
……………………….J.
(A.K. Sikri)
……………………….J.
(R.F. Nariman)
New Delhi;
April 29, 2015.
