1984 (9) TMI 288 - AT - Central Excise

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

(i) Whether fully assembled windows, doors, shutters, and similar products removed from the factory in fully assembled condition are excisable goods liable to Central Excise duty and their proper classification and assessment.

(ii) Whether such products cleared from the factory in CKD (completely knocked down) or ready-to-assemble condition for subsequent assembly at the site constitute excisable goods and their classification and assessment.

(iii) Whether pieces of aluminum sections subjected to certain processes such as drilling, punching, revetting, etc., which appellants contend remain aluminum sections and not goods, should be held as excisable identifiable component parts of windows, doors, and similar items, and thus liable to duty.

(iv) Maintainability of appeal against orders of provisional assessment, particularly regarding directions to file price lists in a particular part of the proforma.

(v) Imposition of penalty under Central Excise Rules for breach of rules related to clearance of goods without payment of duty and improper accounting.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (iv): Maintainability of Appeal Against Provisional Assessment Orders

The Tribunal first addressed Appeal No. 2720/83-B concerning the maintainability of appeal against provisional assessment orders directing appellants to file price lists in part-II of the proforma. The appellants argued that the direction was impractical and not capable of compliance. The Department initially contended that such appeals were not maintainable but later conceded that the dispute was procedural and did not involve quantification of value for assessment.

The Tribunal allowed the appeal, setting aside the order directing filing in part-II and permitting filing in part-VI or any other appropriate form as agreed with the Assistant Collector of Central Excise (A.C.C.E.). This decision emphasized procedural flexibility and recognized the practical difficulties faced by appellants.

Issues (i) and (ii): Classification and Assessment of Fully Assembled and CKD/Ready-to-Assemble Products

The appellants' main contention was that their business activity was essentially a works contract involving the erection of false ceilings, doors, windows, partitions, etc., at customer sites. They purchased duty-paid aluminum sections and subjected them to processes such as cutting, drilling, punching, riveting, and screwing at their factory, but argued that these processed aluminum sections remained essentially aluminum sections, not new manufactured goods. They contended that the final articles (windows, doors, false ceilings) only came into existence after on-site assembly and installation, and thus, goods cleared from the factory were not excisable.

The appellants relied on precedents including decisions by the Tamil Nadu Sales Tax Appellate Tribunal holding their activity as a works contract, and several Supreme Court and other High Court decisions interpreting the meaning of manufacture and goods in the context of excise and sales tax laws.

The Department, represented by the learned Senior Departmental Representative (S.D.R.), argued that the processes performed on aluminum sections resulted in identifiable articles or component parts such as window frames, door frames, partitions, false ceilings, and others, which had distinct name, character, and use, and thus constituted excisable goods under Tariff Item (T.I.) 68 of the Central Excise Tariff. The Department relied on ISI specifications for aluminum doors, windows, and ventilators, emphasizing that even component parts were excisable.

The Tribunal examined the appellants' brochure and product range, which included standard-sized and tailor-made items such as sliding doors, window frames, curtain walling, and various architectural aluminum products. The Tribunal noted that while many products were tailor-made, some were standardized and had well-defined components and fittings.

After considering the submissions, the Tribunal formulated the following propositions for duty levy:

• Duty shall be levied on items only if, at the time of clearance from the factory, they are either (i) in fully assembled condition or (ii) in CKD packs or ready-to-assemble condition, with minor operations outside the factory disregarded.

The Tribunal found that the processes performed by the appellants on aluminum sections resulted in the manufacture of complete door frames, window frames, and similar items, or ready-to-assemble kits, which were excisable goods liable to duty under T.I. 68. This resolved issues (i) and (ii) in favor of the Department.

Issue (iii): Classification and Assessment of Processed Aluminum Sections Claimed as Non-Goods

The appellants contended that pieces of aluminum sections subjected only to processes such as drilling, punching, and riveting did not constitute manufacture or goods liable to excise duty. They argued that these pieces were not commercially identifiable articles and did not have distinct name, character, or use, and thus were not goods that ordinarily come to market for sale.

The Tribunal referred to authoritative Supreme Court decisions interpreting "manufacture" and "goods" for Central Excise purposes, including Union of India v. DCM and South Bihar Sugar Mills v. Union of India. These decisions held that manufacture involves a transformation resulting in a new and different article having a distinct name, character, and use, and that goods must be articles ordinarily coming to market to be bought and sold.

On the evidence, the Tribunal found that the appellants' submissions and the record did not clearly establish that the processed aluminum pieces had acquired such distinct identity or commercial character. The lower authorities' findings on these pieces were general and lacked specific evidence or clear basis for holding them as excisable goods. The Tribunal held that mere cutting, drilling, punching, and riveting did not constitute manufacture and that these pieces were not liable to excise duty.

The Tribunal noted that different considerations might apply to component parts of standardized frames versus tailor-made items, and that tailor-made items might only be replacements rather than component parts. It suggested that such distinctions should be kept in mind for future determinations of excisability.

Issue (v): Imposition of Penalty for Breach of Central Excise Rules

The appellants were penalized Rs. 250 for breach of Rule 173Q related to clearance of excisable goods without payment of duty and improper accounting. The Tribunal, considering the facts and circumstances, found the penalty not justified and set it aside.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is preserved in the following verbatim excerpts:

"Merely cutting aluminum sections to different sizes, punching, drilling and revetting would not constitute manufacture."

"Manufacture implies change but every change is not manufacture and yet every change of article is the result of the treatment labour and manipulation. But something more is necessary and there must be transformation and a new and different article must emerge having a distinct name, character and use."

"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."

"Duty shall be levied on these items only if at the time of clearance from the appellants' factory they are (i) in fully assembled condition, or (ii) in CKD packs or in ready-to-assemble condition. Minor operations outside the factory to be ignored."

"True, item is not available in the market as manufactured articles for sale/purchase or trade but it is not necessary that an item should be so available in the market to attract excise duty."

"The lower authorities should with respect to these pieces have given a clear cut finding based on evidence with respect to each class of pieces, whether there is manufacture and or whether they are goods. The basis for the findings should also have been clearly stated to justify levy of excise duty thereon. In absence of this, we hold that these are not liable to excise duty."

"Penalty imposed against the appellants in order appealed against relating to this appeal is set aside."

Core principles established include:

• The concept of manufacture for excise purposes requires transformation resulting in a new article with distinct name, character, and use.
• Goods liable to excise duty must be articles ordinarily capable of being bought and sold in the market, though actual marketability is not an absolute test.
• Partially processed materials that do not constitute new goods are not liable to excise duty.
• Fully assembled or ready-to-assemble products cleared from factory premises are excisable goods.
• Procedural directions, such as filing of price lists, should be practical and flexible.
• Penalties under Central Excise Rules should be imposed only when warranted by facts and circumstances.

Final determinations on each issue were:

• Appeal against provisional assessment order allowed to the extent of permitting flexible filing of price lists.
• Fully assembled and ready-to-assemble windows, doors, and similar products are excisable goods liable to duty under T.I. 68.
• Pieces subjected only to minor processes without transformation into identifiable goods are not liable to excise duty.
• Penalty imposed for breach of excise rules set aside.
• Lower authorities to rework excise duty payable in light of these findings.