2006 (3) TMI 23 - AT - Central Excise

Central Excise Installation of plant & machinery Spare parts of locomotive and rolling stock manufactured by appellant and used in repair and maintenance (2) Exemption (3) Licence (4) Demand (5) Limitation (6) Show cause notice (7) Meaning of Machinery installed and Locomotive

Summary

Issues Involved
1. Entitlement to benefit of Notification No. 281/86 for parts of locomotive and rolling stock.
2. Rejection of L-6 license for spare parts manufactured in the growth shop.
3. Demand of duty and penalty under Central Excise Rules for parts manufactured in the growth shop.

Detailed Analysis

Issue 1: Entitlement to Benefit of Notification No. 281/86
The core controversy revolves around whether the parts of locomotive and rolling stock manufactured by the appellant in its growth shop unit are eligible for the benefit of Notification No. 281/86, dated 24-4-1986. The notification exempts excisable goods manufactured in a workshop within a factory and intended for use in the same or another factory of the same manufacturer for repairs or maintenance of machinery installed therein. The Tribunal had earlier ruled that locomotive or rolling stock did not qualify as "machinery installed" within the meaning of the notification, as they were not fixed in a position. However, the Supreme Court remanded the matter, directing the Tribunal to re-examine the factual aspects and the legal position indicated in its judgment.

Upon re-examination, the Tribunal found that the locomotive and rolling stock can indeed be considered as "machinery installed" within the factory premises. The notification applies to machinery intended for use in repairs and maintenance, and the parts manufactured in the growth shop were intended for such use. The Tribunal held that the appellant is entitled to the benefit of the notification, reversing the earlier decision that denied this benefit.

Issue 2: Rejection of L-6 License
The second issue pertains to the rejection of the appellant's application for an L-6 license for receiving spare parts manufactured in the growth shop for use in locomotive and rolling stock. The Superintendent of Central Excise had rejected the application on the grounds that the parts were not intended for machinery classified under Chapters 84 or 85 of the Central Excise Tariff Act, but under Chapter 86, which pertains to vehicles and transport equipment. The appellate Commissioner upheld this decision, stating that locomotive and rolling stocks could not be treated as "machinery installed."

The Tribunal, upon re-evaluation, concluded that the locomotive and rolling stock installed in the factory premises qualify as "machinery installed." Consequently, the rejection of the L-6 license was unwarranted, and the appellant is entitled to the license. The Tribunal set aside the impugned orders, allowing the appeal with consequential relief.

Issue 3: Demand of Duty and Penalty
The third issue involves the demand of duty amounting to Rs. 44,78,167.02 and a penalty of Rs. 5 lakhs imposed by the Collector, Central Excise, under Rule 9(2) read with Rule 196(1) of the Central Excise Rules, 1944, and Section 11A(1) of the Act. The Collector had held that the benefit of the notification was inadmissible, as the goods were not classified as machinery under Chapter 87 of the schedule. The Tribunal had earlier upheld this view, but the Supreme Court remanded the matter for fresh adjudication.

Upon re-examination, the Tribunal found that the parts manufactured in the growth shop were indeed intended for use in the maintenance and repair of locomotive and rolling stock, which qualify as "machinery installed." Therefore, the demand of duty and penalty was unjustified. The Tribunal set aside the impugned order, allowing the appeal with consequential relief.

Conclusion
The Tribunal allowed all three appeals, setting aside the impugned orders and granting the appellant the benefit of Notification No. 281/86, the L-6 license, and relief from the duty demand and penalty. The Tribunal's decision aligns with the Supreme Court's directions and clarifies that locomotive and rolling stock qualify as "machinery installed" within the meaning of the notification.