TMI Blog2009 (6) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... tice was issued on 3-9-1986. It was followed by a series of Show Cause Notices dated 4-11-1986, 15-1-1987, 21-4-1987, 26-10-1987 and 28-12-1987. The matter travelled upto the Hon ble Supreme Court. The Supreme Court remanded the matter to the Original Authority with the following directions. (i) To ascertain the construction of injectors; (ii) To ascertain whether the activity amounted to manufacture and to ascertain the marketability of Nozzle Nozzle holders used in the manufacture of Injectors; (iii) To decide classification of the goods in question under new Central Excise Tariff Act, 1985 (iv) To decide the availability of exemption under various Notifications. 3.2 Consequent to the Apex Court s remand order, the Assistant Commissioner, Nashik-I Division, passed the Order-in-Original dated 27-11-2006 demanding an amount of Rs. 2,61,84,268.20. The appellants were aggrieved by the above order. Therefore, they approached the Commissioner (Appeals). The Commissioner (Appeals), LTU, Bangalore, passed the Order-in-Appeal No. 37/2007 dated 31-12-2007, which is impugned. 3.3 The appellants are aggrieved over the impugned order. The following submissions were made :- (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture of Injectors . In compliance with the directions of the Supreme Court, the appellant has led in evidence such as Chartered Engineer s Certificate, Affidavits of dealers to substantiate their claim that the nozzle used in the manufacture of Injectors are not marketable. Two types of nozzles are manufactured. One is for the spare market and the other is for captive use. The nozzle for the spare market is subjected to the process of Korex dipping for ensuring longer life. The said item is cleared on payment of duty. However, the nozzle meant for captive use is not subjected to the process of Korex dipping and instead, is kept in the oil to prevent rust formation. Such oil dipped nozzles are used in the manufacture of Injectors. Hence, the condition in which the Nozzle is captively consumed in the manufacture of Injectors is not Korex dipped and, therefore, cannot be considered to be a marketable commodity in that condition and hence not marketable at all. Further, the Adjudicating Authority had not led in any evidence to show that the nozzle meant for captive consumption is marketable in the condition in which it is captively used in the manufacture of injectors. A similar item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used captively in the manufacture of injector. Hence, the demand of duty on nozzle and nozzle holders captively consumed is not sustainable. (vii) In the OIA No. 131/1991, dated 26-2-1991, the Commissioner (Appeals), while granting benefit of exemption for nozzle and nozzle holders used as parts and accessories of motor vehicles under Notification 75/86, dated 10-8-1986, had confirmed duty only in respect of non-vehicular applications. The grant of exemption was accepted by the department. The appeal to the Supreme Court was only in respect of confirmation of duty demands involved in the nozzle and nozzle holder used for non-vehicular applications. Thus, the entitlement of the appellants to exemption in respect of nozzle and nozzle holders under Notification 75/86 is clear from the terms of the Notification itself. When the Injector has been accepted for benefit under the Notification 75/86 then, the parts going into the manufacture of such injectors would also be entitled for the benefit of exemption on the principle that part of a part is part of the whole . Reliance was placed on Hyderabad Collectorate Trade Notice No. 196/87, dated 24-11-1987 wherein it was clarified that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed products and the same are identifiable as such in the market, even without korex dipping/encapsulation. 5. We have gone through the case records carefully. The directions of the Hon ble Apex Court while remanding the case to the Original Authority are reproduced below :- 4. This matter needs to be remanded to the adjudicating authority for the following reasons. Firstly, in this case, the case of the department in the show cause notice was that nozzles and nozzle holders were intermediate products used in the coupling or assembly of injectors (final product); and that, on completion of the process of coupling a new independent product emerged, namely, an injector. How is an injector constructed and what are its components has not been decided by any of the authorities below including the Tribunal. Secondly, the decision of the Tribunal in Motor Industries Co. Limited (supra) has no application. In that case, the question as to what is an injector was not in issue, it was matter of classification under the old Tariff under which Item 34A dealt with parts of motor vehicle and which parts were specifically described to include nozzle and nozzle holders whereas the residuar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er authorities have relied on the following :- (a) Statement of Shri Madhukar Vinayak Bapat, former Senior Officer at MICO, Nasik and presently Chartered Engineer. In the said statement, he has observed that nozzle is manufactured and inserted in nozzle holder body with additional parts and tested for performance. Now, injector is ready for packing/dispatch . (b) Shri Sudhir Govind Joshi, another employee of MICO, Nasik, has given a statement on 7th November, 2006 explaining the construction of Injectors as an assembly of number of components like shim, spring, distance piece, body, nozzle. Pictorial representations were submitted for understanding the manufacture of Injectors. (c) Shri Arun Wamanrao Aher, Materials Manager, in his statement dated 7-11-2006, has confirmed that they are storing nozzle, nozzle holders and injectors separately and are further clearing it on payment of appropriate duty to the market as spares. 5.3 The Original Authority as well as the Appellate Authority did not agree with the contention of the appellant that they do not manufacture nozzle holders. The Original Authority has further remarked that in a continuous process whether an injector giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess flow for manufacture of Nozzle holder is as under The Injectors manufactured as above at operation No. 5 are subjected to further process is as under :- The N.R. Nut of the Injector is untightened on a Machine. The Bare Nozzle is removed thereafter. The N.R. Nut is again tightened. The visual Inspection of Nozzle Holder is carried on. The Nozzle holder undergoes the process of pre-packing where the protection caps are fitted. Now the Nozzle holder is manufactured, and packed for the sale in Market. This is certified that the Nozzle Holder is manufactured in MICO only after the manufactured Injector is subjected to further process elaborated at A to F above. In other words, no Nozzle Holder is manufactured before the manufacture of injector. This is also certified that the manufacturing flow for Nozzles to be sold in after market is as under :- As regards the Bare Nozzle removed from the injector after removing the N.R. Nut, or a Bare Nozzle (pin + Body) manufactured in MICO, it has to be further processed to make it marketable as under : - The Nozzles are subjected to process of capsulation. In the past the Nozzles were undergoing dipping process b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the manufacture of injector. To put it differently, it is the contention of the appellant that after the injector is manufactured, the nozzle holder is manufactured by removal of the bare nozzle. Thereafter, the NR nut is tightened. One thing is clear from the above that both the nozzle and nozzle holders as such are identifiable goods. It is also seen that separately the nozzle and nozzle holders are cleared. On these cleared goods, duty is paid. The dispute is only with regard to the nozzle and nozzle holder captively consumed in the manufacture of Injectors. The point made by the appellant is the captively consumed nozzle is not subjected to korex processing. Only those nozzles, which undergo korex dipping/encapsulation are marketable. Hence, it is their contention that the nozzles captively consumed and which do not undergo the said korex processing cannot be considered as marketable. 5.5 As regards the classification of the project, the Commissioner (Appeals) has stated in para 10 of the impugned order that nozzle and nozzle holders being part of Injector, which is a part of internal combustion engine are squarely covered by Chapter Heading 84.09 of Schedule to Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 75/86, dated 10-2-1986. The Commissioner (Appeals) has upheld the order of the lower authority denying exemption to nozzle and nozzle holders used captively. He is of the view that only nozzles and nozzle holders cleared separately are entitled for exemption and not in union. Further, the Commissioner (Appeals) was not inclined to rely on the Trade Notice No. 196/87, dated 24-11-1987 cited by the appellant. The reason given is that no such Trade Notice issued from the jurisdictional Commissionerate was brought to his notice. The manufacturing process of injectors has already been outlined. 5.8 The Chartered Engineer has enumerated all the steps required in the construction of Injectors. Even though the nozzle and nozzle holders cleared by the appellants are distinct products, which discharged Central Excise duty, the issue at present is with regard to the nozzle and nozzle holders used captively in the manufacture of injectors. It has been submitted that the nozzle holder used captively in the manufacture of injector is not independently manufactured. That may be a fact in the light of the manufacturing process submitted by the appellants. The point made by the appellant is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pistons, piston rings, gudgeon pins, circlips and filter elements or inserts or cartridges and falling under Chapter 84 or 85 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and intended for use in the manufacture of diesel oil operated internal combustion engines, from the whole of the duty of excise leviable thereon under Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944): Provided that where such use is elsewhere than in the factory of production of such component parts, the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed. This Notification contains certain exclusions which are nozzle and nozzle holders. The exemption is meant for specified component parts of internal combustion engines. In the context of the said Notification, the Board has issued the following Circular, which is reproduced below : Component parts/sub-assemblies used in the manufacture of diesel operated internal combustion engines Exemption under Notification No. 217/85-C.E. Circular No. 14/88, dated 26-5-1988 [From F. No. 156/26/87-CX.4] Government of India Ministry of Finance (Department of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arification circular reproduced above, the parts which go into the component parts, which are exempted would also be exempted. In the present case, the fact that Notification 217/85 exempts injectors is not in doubt. Since nozzle and nozzle holders can be considered as parts of injectors, by virtue of the interpretation given in the Circular, nozzle and nozzle holders used in the manufacture of injectors would also be entitled for the said exemption. 5.12 As regards the entitlement of benefit under Notification 75/86, the position is as follows. The said exemption Notification is reproduced below :- EXEMPTION NOTIFICATIONS CH. 68 PARTS OF MOTOR VEHICLES, TRACTORS TRAILERS 75/86-C.E., dt. 10-2-1986 Specified parts and accessories of motor vehicles, tractors and trailers are wholly exempt from basic excise duty, subject to prescribed conditions. Motor vehicle parts In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 249/82-Central Excises, dated the 1st November, 1982, the Central Government her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the goods cleared under Chapter X Procedure would fall under remission of duty under Rule 192 and cannot be considered as exempted from duty or cleared at NIL rate of duty. Consequently, it was urged that the benefit of Notification No. 217/85 would be available to the nozzle and nozzle holders captively consumed. This also has not been accepted by the lower authorities. The Commissioner has observed that Chapter X Procedure is only a procedure set out to avail the exemption when the components are to be used elsewhere than in the factory of production. The procedure for remission of duty under Rule 192 for special industrial purpose is altogether a different matter. He has also stated that Notification 217/85-C.E. clearly excludes nozzles and nozzle holders from the purview of exemption duty. Nozzle, nozzle holders and injectors are all different items and identified accordingly. Therefore, according to the Commissioner, the appellant s contention that what is excluded is the union of nozzle and nozzle holders i.e. injectors is not acceptable. Further it is stated by the Commissioner (Appeals) that the Injectors are cleared availing exemption under the above said Notification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first. If the nozzle holder is needed, the nozzle is removed. Thus, the department has not proved that a nozzle holder emerges first and then used in the manufacture of Injectors. Under these circumstances, no duty can be demanded on the ground that the nozzle holder is captively consumed in the manufacture of Injectors. 5.9 As far as the marketability of the nozzle used in the manufacture of Injectors is concerned, it is seen that the same is not subjected to korex dipping, which is done in the case of nozzle for spare market. To put it differently, the nozzle meant for spare market is marketable and not the one used for captive consumption for the reason that it is not subjected to korex dipping and instead is kept in the oil to prevent rust formation. Only such oil dipped nozzles are used in the manufacture of injectors. In any case, the department has not discharged its burden of proving marketability in respect of the nozzle captively consumed in the manufacture of injectors. In the form in which it is captively consumed, the nozzle is not marketable. 5.10 Coming to the entitlement of exemption under Notification 217/85, the position is as follows. The said notification, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is context, doubt has arisen as to whether the exemption in terms of Notification 217/85-C.E., dated 8-10-1985 would also be available in respect of parts that are used in the manufacture of the sub-assemblies/component parts which ultimately go into the manufacture of diesel oil operated Internal Combustion Engines. 2. Earlier Board had an occasion to examine a similar issue regarding the scope of Notification No. 239/86-C.E., dated 3-4-1986 which exempts auto electrical components like starter-motor, dynamos etc. if used in the manufacture of tractors of power take off Horse Power not exceeding 25. In that case it was viewed by the Board that the sub-assemblies which go into the manufacture of auto electrical components would also be entitled to exemption in terms of Notification 239/86-C.E., dated 3-4-1986. 3. The issue has since been examined in the Board. In the light of the decision taken already with respect to Notification 239/86, dated 3-4-1986, the Board is of the view that the parts which go into the manufacture of component parts that are in turn used in the manufacture of diesel oil operated Internal Combustion Engines would also be entitled to exemption in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Gaskets; 5. Nozzles and nozzle holders; 6. Pistons; 7. Piston rings; 8. Gudgeon pins; 9. Circlips; 10. Shock absorbers; 11. Sparking plugs; 12. Thinwalled bearings; 13. Tie rod ends; 14. Electric horns; 15. Filter elements, inserts and cartridges. Provided that - (i) it is proved to the satisfaction of an officer not below the rank of an Assistant Collector of Central Excise that the said goods are intended to be used as original equipment parts in the manufacture of- (a) internal combustion engines falling under Chapter 84 of the said schedule; (b) motor vehicles, tractors (including agricultural tractors) and trailers falling under Chapter 87 of the said Schedule; or (c) parts and accessories of motor vehicles, tractors (including agricultural tractors) and trailers falling under the said schedule; and (ii) in respect of such use elsewhere than in the factory of production of the said goods, the procedure set out in Chapter X of the Central Excise Rules, 1944, is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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