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TMI Blog2009 (6) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... tarted even on 3-9-1986. The first Show Cause Notice 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zzle holder, which went into the manufacture 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n nozzle and nozzle holders 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 where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istics of the finished 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" wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors, the lower 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njection are achieved. Operation 6 : The assembly having all the required parameters of injectors is now subjected to visual inspection, pre-packing with protection caps and given for packing of injectors. It is also certified that the Process 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 B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp;From the above, it is seen that the nozzle holder is manufactured only after the manufactured injector is subjected to further processes as indicated. The point made and urged by the appellant is that no nozzle holder is manufactured 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the injectors are exempted, the claim for exemption for nozzle and nozzle holders under Notification 217/86 is not available. 5.7 In para 11.2 of the impugned order the Commissioner (Appeals) has examined the applicability of Notification No. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts component parts of diesel oil operated internal combustion engines, other than engine valves, gaskets, nozzles and nozzle holders, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the parts which go into the manufacture of component parts would also be entitled for exemption under notification No. 217/85. of course, an objection may be raised for this interpretation on the ground that the said notification excludes nozzles and nozzle holders. The exclusion is provided for the reason that when nozzles and nozzle holders are cleared, they had to discharge the duty liability. However, by virtue of the clarification 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 veh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period is subsequent to the introduction of CETA, 1985, he has stated that there is no need for examination of the classification of the goods for the earlier period. This is acceptable. Moreover, the appellants have not agitated this issue. 5.6 The next question is the availability of exemption under various notifications. The Commissioner (Appeals) and the Original Authority have not accepted the contention of the appellant that 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 nozz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nozzle is removed and what remains is the nozzle holder. When the nozzle holder is packed and sold in the spare market, duty is paid. However, the nozzle holder remains a part of the injector before it is manufactured for clearance to spare market. In these circumstances, it cannot be said that there is manufacture of use of nozzle holder in the manufacture of Injectors. On the contrary, it is the other way. The emergence of injector is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ministry of Finance (Department of Revenue) New Delhi Subject : Central Excise - Duty liability on component parts/sub-assemblies used in the manufacture of diesel operated Internal Combustion Engines under Notification No. 217/85-C.E., dated 8-10-1985 as amended. Attention is invited to the Notification No. 217/85-C.E., dated 8-10-1985 as amended which exempts from the whole of the duty of excise certain component parts like injection pumps, filters etc. of Diesel Oil operated Internal Combustion Engines if they are intended for use in the manufacture of diesel oil operated Internal Combustion Engines. In this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st November, 1982, the Central Government hereby exempts parts and accessories of motor vehicles, tractors (including agricultural tractors) and trailers, falling under Chapters 68, 73, 84, 85 or 87 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), and specified in the Table annexed hereto from the whole of the duty of excise leviable thereon under Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944). THE TABLE S. No. Description of goods (1) (2) 1. Brake linings; 2. Clutch facings; 3. Engine valves: 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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