TMI Blog1998 (12) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... ve mentioned three items which are in the nature of material handling equipment to the following fabricators who fabricated the same in the appellants, premises : (1) M/s. Gupta Electronics Engg. Co. (2) M/s. Process Engineers; and (3) M/s. Yusuf Fabricators, Gurgaon. The appellants did not file any classification list or price list for these items nor did they maintain any statutory records for the same nor did they pay any Central Excise duty leviable thereon; hence a show cause notice dated 1-6-1994 was issued to them proposing recovery of a sum of Rs. 30,63,946/- under Rule 9(2) of the Central Excise Rules read with proviso to sub-section (1) of Section 11A of the Central Excise Act and proposing imposition of penalty for contravention of the Rules. 3. The appellants claim to the benefit of Notification No. 217/86, dated 2-4-1986 was denied by the Adjudicating authority for the reason inter alia that items of the category of material handling equipment were excluded under the Explanation to the Notification. The plea that the fabricators above named are the real manufacturers was rejected, holding that the fabricators were only in the nature of hired labourers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t both the Material handling equipment (inputs) falling under Chapters 73 and 94 and Motor Vehicle (final product) falling under Chapter 87 are covered by the Table annexed to Notification 217/86. The material handling equipment are undoubtedly used within the factory of production in or in relation to the manufacture of the final products i.e. Motor vehicles which are neither chargeable to nil rate of duty nor wholly exempt from duty but cleared only on payment of duty. The question arises when considering as to whether they are excluded by clause (1) of the Explanation to the Notification. The explanation reads as under : For the purpose of this Notification, inputs does not include : (I) machines, machinery, plant, equipment apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products. (II) ............................ (III) ........................... (IV) .......................... 5. The appellants rely upon the decision in the case of Tata Engineering Locomotive Company Ltd. v. Collector of Central Excise [1994 (70) E.L.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hindra Mahindra v. Collector of Central Excise reported in [1996 (87) E.L.T. 258], the contention of the Revenue that baskets and fixtures used for placing components in the oven do not bring about a change in the raw material nor do they produce the components by themselves and are, therefore, not used for producing or processing any goods or for causing any change in the substance for the manufacture of final products and are therefore, not covered by the definition of capital goods under Rule 57Q, was rejected by the Tribunal which held that fixture and baskets which were material handling equipment contributed to the processing of the components since without them, the oven cannot be effectively used for the purpose of change in the components. The Tribunal extended the benefit of Modvat to fixtures and baskets considering them to be covered by the definition of capital goods contained in explanation to Rule 57Q. 9. In the case of Collector of Central Excise v. M.M. Forgings reported in [1997 (89) E.L.T. 617], the Tribunal, relying upon the judgment of the Apex Court in the case of Collector of Central Excise v. Rajasthan Chemical Works (cited supra) held that the term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 217/86, is not tenable. The explanation to Rule 57A excludes machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or bringing about any change in any substance in or in relation to the manufacture of final products. These very items are covered by exclusion clause (1) contained in the explanation to Notification 217/86. On the other hand, capital goods have been defined in clause (1) (a) of the explanation to Rule 57Q to mean machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in substance for the manufacture of the final products . Therefore, what is excluded from the scope of Notification No. 217/86, is automatically covered by definition of capital goods under Rule 57Q. Viewed from this angle, we hold that the judgments in the context of Rule 57Q are directly applicable to the present case. Since it has been held in the above decisions that material handling equipment is used for processing goods in relation to the manufacture of the final product, such equipment are excluded from the scope and ambit of Notification N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions of work order dated 2-8-1986 of M/s. Process Engineers are as under : TERMS AND CONDITIONS : This work order is subject to the following terms and conditions : 1. All raw material like steel, wood etc. will be supplied by Maruti Udyog Ltd. (MUL). 2. Material preparation for manufacturing the above jobs is the responsibility of the party. 3. Electrical power, water, compressed air, oxygen, DA, fastners electrodes and paint etc. will be provided by MUL free of cost for the exclusive purpose of carrying out the work awarded under this contract. 4. The party is to make its own arrangement for the hacksaw machine, drilling machine for material preparation. 5. Also, the party will arrange its own gas cutting torch, nozzles, regulators and welding sets with proper safety equipments for welding hand tools like files, hammers etc. 6. The Keyway Milling machines will be made available by us to the party wherever slot milling is required for fabrication of the pallets. The party will arrange to operate the Slot Keyway Milling machine with their skilled workers for making the slots on the pallets if required. Any damage caused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion over the manufacture and hence held that the respondents were not the manufacturers of agarbati/dhoop etc. but that the household ladies were the manufacturers of the goods in question. In the case of Britannia Biscuit Company Ltd. reported in [1997 (89) E.L.T. 22 (S.C.) = 1997 (68) ECR 527], the Supreme Court held that the appellants who supplied metal for conversion into containers for packing of biscuits (manufactured by the appellants) could not be treated as the container manufacturers, having regard to the terms and conditions of the agreements entered into between them and the job workers to whom the metal was supplied by the appellants and the value of which was adjusted against the amounts that were required to be paid for the manufacture of the containers and having regard to the right of the appellants to reject the containers and having further regard to the fact that the four job workers had their own licence and employed their own workers. 15. In the present case, however, not only do the fabricators fabricate the disputed items in the factory premises of the appellants but the appellants also had total control and supervision over their manufacture. Hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o capital goods, the Tribunal has held that the use of material handling equipment is direct in the manufacturing process and such use is prohibited under Explanation 1 of Notification 217/86, the exemption is not available to the appellants with reference to the TELCO case. While it is true that in a series of decisions, the Tribunal has been extending the benefit under Rule 57Q for material handling equipment, treating them as capital goods [what is included under the definition of capital goods under clause (a) of the First Explanation to Rule 57Q corresponds to the items excluded from the benefit of Notification 217/86 under the proviso], this only highlights the fact that the question regarding availability of exemption under Notification 217/86 was a matter of considerable debate and opinion. Even the Excise Department was of the view that the benefit of Modvat credit under Rule 57A was available to material handling equipment, in the case of the appellants themselves, as seen from the letter dated 25-8-1994 issued to the appellants by the jurisdictional Superintendent of Central Excise. The letter is reproduced below : Copy of letter No. CE/57G/MUL/R-VI/94/533, dated 25-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1AB shall not apply to cases where the duty become payable before 28-9-1986. The expression duty become payable is significant. Under the Central Excise law, duty on manufactured goods becomes payable at the time of removal of goods and this is the scheme of the various provisions of the Rules such as Rules 9, 49,173F, 173G, etc. Further, Section 11A refers to duty short paid, not paid etc. from which it is clear that it is only when the duty is otherwise payable at an earlier point of time but was paid that proceedings under Section 11A for recovering such unpaid duty (which was otherwise payable) are initiated. It is settled law that the liability to tax is by virtue of a charging section and the tax becomes payable by virtue of the charging section. Assessment is only a method of calculation of the tax which is to be paid and it cannot partake of the nature of levy under the charging section. It only particularises the amount payable. 19. In the case of Neptune Assurance Company Ltd. v. LIC of India [AIR 1963 SC 900], the Apex Court was dealing with the question of entitlement of the appellants to refunds under the provisions of the Income-tax Act, 1922 which was resisted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictly and retrospective operation should not be attributed to the provisions for levy of interest, unless warranted by the expressed language of the section. (See the judgment of the Hon ble Supreme Court in the case of J.K. Synthetics Ltd. v. Commercial Tax-Officer [(1974) 94 STC 422] in which it has been held that when a Statute levies a tax, it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It therefore, provides the machinery for the assessment of the liability already fixed by the charging section and then provides the mode for the recovery and collection of the tax .... Ordinarily a charging section which fixes the liability is strictly construed ... . The Provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage, interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount . 22. We therefore, hold that the appellants are not liable to pay intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of duty evaded in the cases mentioned therein. The amount of mandatory penalty mentioned in Section 11AC is less than the amount of penalty which may be imposed under Rule 173Q of the Central Excise Rules, 1944. This gives rise to the impression that Section 11AC can also be applied to cases pending adjudication as on the date of enactment of Finance (No. 2) Bill, 1996. However, there is one more aspect of Section 11AC. The section has the effect of imposition of a mandatory penalty which is equal to the amount of duty evaded and there is no discretion to the adjudicating authority to impose penalty less than or more than the amount of duty evaded. It is obligatory upon him to impose the mandatory penalty, once the adjudicating authority comes to the conclusion that the duty has been evaded and he determines the amount of duty so evaded. These powers of imposition of mandatory penalty can be said to have been provided to the adjudicating authority only w.e.f. the date of enactment of Finance (No. 2) Bill, 1996. The Board is therefore, of the view that the provisions of Section 11AC shall not apply to cases pending adjudication on the date of enactment of Finance (No. 2) Bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the phraseology used in Section 11AB(2) appellants are not liable to pay interest. 27.4 Considering that penalty is imposed on account of commission of a wrongful act and it is the law operating on the date on which wrongful act was made which would determine penalty, I also agree that Section 11AC directing the mandatory penalty would not apply. 28. I, however, with respect to ld. Member (J), do not agree in regard to limitation, and imposition of penalty under Rule 173Q. Considering the terms of work orders, I find appellants have not succeeded in proving the ingredients of a bona fide belief to entitle them to the benefit of limitation. The terms of the work order as set out from Page 5 to 8 of the Order of Commissioner clearly make out that there could be no ground for entertaining any bona fide belief that the workers were not hired and the appellants were not manufacturers of the impugned goods. It is not that the appellants were not exposed to Excise Law. In fact, they have been dealing with excise law for years together and it would have been clear to them that the terms of work order clearly spell out a Master-servant relationship which made them the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in the case of TELCO reported in 1994 (70) E.L.T. 75 and that in this case, the Tribunal relied upon the decision of the Supreme Court in the case of J.K. Cotton Spinning Weaving Mills [1997 (91) E.L.T. 34 (S.C.) = AIR 1965 SC 1310] and in the case of Rajasthan Chemical Works [1991 (55) E.L.T. 444 (S.C.)]. 34. On these observations of ld. Member (J), ld. Member (T) observed that Considering the terms of work orders, I find appellants have not succeeded in proving the ingredients of a bona fide belief to entitle them to the benefit of limitation. 35. Shri V. Sridharan, ld. Counsel while reiterating the arguments adduced at the time of hearing the main appeal submitted that from the order proposed by the ld. Member (J), it would be seen that the order is detailed one and well reasoned whereas the observations of the ld. Member (T) are cryptic and bald which do not bring out any discussion to hold in the way which has been hold by the ld. Member (T). 36. Shri R.D. Negi, ld. SDR submitted that the observations of the ld. Member (T) are specific proof and well meaning and that the ld. Member (T) has clearly brought out that ingredients of bona fide belief are not proved. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment is dated 16-11-1993. Thus, this judgment cannot be a cause of genuine bona fide belief. It has also been observed in the order that Notification No. 217/86 was a matter of considerable debate and a letter dated 25-8-1994 has been taken into consideration. Needless to say that this letter dated 25-8-1994 is of a date much after the period for which the demand has been raised and even of a later date than the date of issue of show cause notice. 38. On careful consideration of various observations made in the proposed order as also the case law on the subject, I agree with the findings of the ld. Member (T) that the appellants have not succeeded in proving the ingredients of bona fide belief to entitle them to the benefit of limitation. I also agree with the findings of ld. Member (T) that considering the facts and circumstances of the case, I am of the view that the penalty of Rs. 5 lakhs would meet ends of justice. Reference is disposed of in the above terms. Sd/- (G.R. Sharma) Member (T) Dated : 14-12-1998 MAJORITY ORDER 39. In the light of the majority opinion, the duty demand is confirmed; but the penalty is reduced to Rs. 5 lakhs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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