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M/s. Escorts Ltd. Versus Commissioner Of Central Excise

2015 (5) TMI 28 - SUPREME COURT

Manufacture - Captive consumption - whether excise duty is payable on an intermediate product, namely, Transmission Assembly which comes into existence during the manufacture of tractors made by the appellant - Exemption claim under notification 162/1986 - Suppression of facts - Evasion of duty - Invocation of extended period of limitation - Held that:- Transmission Assemblies of tractors are commercially known products as has been pointed out above. The fact that not a single sale of such Assem .....

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cturing tractors from 1965 onwards. There has never been any change in the manufacturing process. In the year 1994-95, IC engines were stated by the department to contain Transmission Assemblies, which were dutiable. On receiving a reply from the appellant, the department did not levy any excise duty on such Transmission Assemblies. The show-cause notice itself stated that the issue of manufacture and captive consumption of Transmission Assemblies for tractors is the same as that for IC engines. .....

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in this case starting from 16.3.1995 the assessee had declared not merely the tractor but the chassis therefor. The assessee bonafide believed that the declaration of the chassis would suffice as according to them Transmission Assemblies were not taxable goods. The intention to evade duty is according to the Commissioner made out from a statement made by Shri P.C. Kale dated 12.4.2001. It is pointed out by learned counsel appearing on behalf of the appellant that in the memorandum of appeal fil .....

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ve to be quashed on this ground. - Decided in favour of assessee. - CIVIL APPEAL NO.6561 OF 2004, CIVIL APPEAL NO.457 OF 2006, CIVIL APPEAL NOS.9469-9470 OF 2010 - Dated:- 29-4-2015 - A.K. Sikri And R.F. Nariman JJ. For the Appellant : Mr. Rajesh Kumar,Adv., Ms. Meenakshi Arora,Sr.Adv., Mr. Rahul Narayan,Adv., Ms. Mala Narayan,Adv., Mr. Mohit Singh,Adv., Mr. B. Krishna Prasad,Adv. For Respondent : Mr. B. Krishna Prasad,Adv., M/s. Parekh & Co.,Adv.Judgment, R.F. Nariman, J. C.A. NO.6561 OF 20 .....

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an engine capacity of less than 1800 CC now have to bear excise duty. 2. By a show cause notice dated 31.1.2001, the Department for the period aforesaid relied upon evidence in the form of statements made by various officers of the appellant and other documentary evidence to show that Transmission Assemblies of tractors was a commodity known to the market as such and, therefore, came into the category of excisable goods. The respondent by their reply dated 1.10.2001 denied this stating that no s .....

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ssion Assembly can be used in both dutiable as well as exempt tractors, for example in Model No.325 (exempt tractor) and Model No.335 (dutiable tractor). Therefore, it serves as a common input for both tractors. Therefore, in terms of provisions of Rule 57CC MODVAT credit is admissible on the common inputs which form part of transmission assemblies in turn used in the manufacture of both types of Tractors. 47.1. The department has relied upon the case of M/s International Tractors Ltd., Hoshiarp .....

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ansmission assembly made by M & M is marketable. 50. The show cause notice has placed reliance on certain other web site to contend that the Hoovers on-line web site and Carraro web site shows that transmission assemblies are marketed and sold. It is submitted that while there might be mass production of transmission assemblies marketed by Hoovers Carraro, etc., the product specific transmission assemblies of the noticees never come to the market and have never been sold. Hence, there can be .....

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existence is without merit. Noticee in fact itself clears such goods on payment of duty to ECEL, Transmission assemblies are well known in the commercial world and are very much dealt with as a commercial commodity. The end use as put forth in the notice amply proves it. To reiterate transmission assemblies are cleared by the noticee to ECEL; noticee company's sister concern (Farmtrac Division) imported transmission assemblies from Carraro Spa of Italy and also purchased transmission assemb .....

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mission assemblies meant for different models of machines/vehicles will be of slightly different specifications from each other but as a whole transmission assemblies are one identifiable commercial product as already discussed. I also note that the concerned persons of the noticee company themselves have admitted that transmission assemblies do emerge as identifiable goods. Statements of Sh. K.K. Kachroo, Manager Excise, Shri Vinod Ahuja, Plant Head, Sh. Ramesh Kumar Khurana, Chief Manager Prod .....

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ich are manufactured by the noticee in their factory as identifiable goods are excisable themselves. Therefore, the emergence of I.C. Engines is excisable and so also the emergence of the transmission assembly is also excisable. In fact in the case of Pratap Rajashtan Copper Foils Vs. CCE -1999(109) ELT 288 (T) it was held that duty is payable on intermediate products even if some minor processes were not carried to make the product marketable. 43. I also find that the noticee in their reply has .....

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. Besides facts of the case are entirely different as has been stated by the noticee company's concerned persons in their statements. Assembly of a vehicle or machine on line or otherwise still remains assembly i.e. various parts and components are either manufactured first by the assessee himself or procured from outside and then assembled to produce the resulting machine. All excisable goods emerging during such assembly or production are themselves excisable as intermediate goods meant fo .....

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leared at Nil rate of duty is not denied by the noticee. The captive consumption exemption Notification No. 67/95-C E dated 16.3.95, as amended, debars such intermediate products used in production of exempt final products, from the duty exemption under the notification. As the final product i.e. Tractors were exempt, the impugned transmission assemblies did attract Central Excise duty. I hold that all the observations in the show cause notice regarding excisability of the impugned goods are cor .....

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s a change .... and there must be transformation; a new and different article must emerge having a distinctive name, character or use." The Supreme Court, after referring to various judgments on the concept of the manufacture, has laid down a two fold test for deciding whether the process is that of "manufacture" in Union of India vs. J. G. Glass, 1998 (97) ELT 5(S.C.) as follows, "First, whether by the said process a different commercial commodity comes into existence or whe .....

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stinctive name, character and use and but for the manipulation undertaken by the Appellants, the parts and components would not have served the purpose which a transmission assembly performs. The impugned product is also marketable as the learned Senior Departmental Representative has mentioned the fact of its being imported by the Appellants themselves (Farmtrac Division); the clearance of the transmission assembly by the Appellants to their subsidiary company M/s. Escorts Construction Equipmen .....

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case. The fact that the goods are not, in fact, marketed is of no relevance. So long the goods arc marketable, they are goods for the purpose of Section 3 of the Central Excise Act. It is not necessary that the goods should be generally available in the market. We, therefore, uphold the finding in the impugned order that the transmission assembly is an excisable goods exigible to Central Excise duty. 5. Shri Lakshmikumaran, learned advocate for the appellant argued that the tractors manufactured .....

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y was not something which came into existence at all but was part of a continuous process on the assembly line in the appellant s factory of manufacture at the end of which a complete tractor came into existence. He further submitted that post 1.6.1998 in any case, the appellant had been paying 8% under Rule 57 CC on the value of the said Transmission Assembly as required. It is only for the period upto August 1996 that would be in dispute. Even for this period, he contends that ultimately the f .....

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0/- is to be taken, it is clear that the reversal of MODVAT credit would amount to much more than the duty demand itself. He further argued that in any case since there was no fraud or willful suppression of facts, invoking the extended period of limitation was not in order and that in any case the show cause notice being beyond one year of the stated period would have to be quashed on this ground alone. 6. Shri Jaideep Gupta, learned senior counsel for the revenue contended that the Transmissio .....

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capable of being sold which, undoubtedly, they were. He very fairly stated that on valuation, if necessary, the matter could be remanded. He also stated that the extended period of limitation was available in the present case as the appellants on their own showing knew that the intermediate product of Transmission Assemblies was marketable as such and had suppressed this fact while claiming exemption of excise duty on the finished product, namely, the tractor. We have heard learned counsel for t .....

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in sub-paragraph (b) of this entry. 7. It is clear on a reading of this Entry that a duty of excise is only leviable on goods manufactured or produced in India. Goods has been defined under Article 366 (12) as follows: 366. Definitions.-In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say- (12) goods includes all materials, commodities and articles; 8. Each of these three expressions has bee .....

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ds it is clear that they should be known to the market as materials, commodities and articles that are capable of being sold. 10. In the basic judgment which has been referred to in every excise case for conceptual clarity, namely, Union of India v. Delhi Cloth. & General Mills Co. Ltd., 1963 Suppl. 1 SCR 586, this Court held that for excise duty to be chargeable under the constitutional entry read with Section 3 of the Central Excise and Salt Act, two pre-requisites are necessary. First, th .....

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Court referred to a large number of previous judgments. Firstly, it referred to Union v. Delhi Cloth and General Mills. It then referred to South Bihar Sugar Mills Limited V. Union of India, (1968) 3 SCR 21, in which kiln gas which was a mixture of gases generated during a process of burning limestone with coke in a lime kiln was held not to be a marketable commodity. Since it was a mixture of gases and not only carbon dioxide, it was clear that it was not known to the market as such. Carbon di .....

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es Ltd. v. Collector of Central Excise, Bombay, (1989) 1 SCC 602. In that case, it was held that crude PVC films manufactured as an intermediate product and used in captive consumption of other goods was not marketable, not being known to the market as such. The Court also referred to CCE v. Ambalal Sarabhai, (1989) 4 SCC 112 in which an intermediate product, namely, starch hydrolysate was not marketable in that it was highly unstable and fragmented quickly losing its character in a couple of da .....

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6) 2 SCR 162] or PVC films in Bhor Industries[(1989) 1 SCC 602 : 1989 SCC (Tax) 98 : (1989) 1 SCR 382] or hydrolysate in Ambalal Sarabhai [(1989) 4 SCC 112 : 1989 SCC (Tax) 584 : (1989) 3 SCR 784] the finding in each case on the basis of the material before the Court was that the articles in question were not marketable and were not known to the market as such. The marketability is thus essentially a question of fact to be decided on the facts of each case. There can be no generalisation. The fa .....

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ors who sell them to Kerala State Electricity Board itself shows that such poles do have a market. Even if there is only one purchaser of these articles, it must still be said that there is a market for these articles. The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits of this country. The appellant's own case before the excise authorities and the CEGAT was that these poles are manufactured by independent contracto .....

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y. Section 3 of the Act is the charging section: 3. Duties, specified in the Schedule to the Central Excise Tariff Act, 1985 to be levied.- There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the Schedule to the Central Excise Tariff Act, 1985 …. Section 2(d .....

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rket to be bought and sold. (emphasis supplied) 12. In a series of decisions, this Court has held that marketability is an essential ingredient, to hold that an article is dutiable or exigible to duty of excise. The important decisions of this Court which have laid down the law on this aspect are the following: (1) Union of India v. Delhi Cloth and General Mills Co. Ltd. [AIR 1963 SC 791 : 1963 Supp (1) SCR 586] (2) South Bihar Sugar Mills Ltd. v. Union of India [AIR 1968 SC 922 : (1968) 3 SCR 2 .....

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13. In the latest decision in A.P. State Electricity Board v. CCE, Hyderabad [(1994) 2 SCC 428 : JT (1994) 1 SC 545] , one of us (B.P. Jeevan Reddy, J.) speaking for the Bench succinctly stated the law thus at pages 549 and 550: Marketability is an essential ingredient in order to be dutiable under the Schedule to the Act …. The marketability is thus essentially a question of fact to be decided in the facts of each case. There can be no generalisation. The fact that the goods are not in f .....

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of this country. (emphasis supplied) Marketability is a decisive test for dutiability. It only means saleable , or suitable for sale . It need not be in fact marketed . The article should be capable of being sold or being sold, to consumers in the market, as it is - without anything more. The Appellate Tribunal has not adverted to the above vital aspects nor has it entered a finding that the PVC compound (granules)is a marketable product as understood in law. The Appellate Tribunal was swayed b .....

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mit of the matter to the Appellate Tribunal to consider the appeal afresh and dispose of the same in accordance with law. There shall be no order as to costs in this appeal. 12. In Moti Laminates (P) Ltd. v. Collector Central Excise, Ahmadabad, (1995) 3 SCC page 23, this Court held that an intermediate product, namely, resols, not being marketable would not be exigible to duty. After referring to several earlier judgments, this Court held: 11. Although the duty of excise is on manufacture or pro .....

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ust be something which can ordinarily come to the market to be bought and sold. Therefore, any goods to attract excise duty must satisfy the test of marketability. The Tariff Schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold. 13 .....

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ket for being bought and sold. It is not a standardised item or goods known and generally dealt with in the market. It is being manufactured by the respondents for its captive consumption. It is not a product known in the market with any commercial name. 9. It may be noticed that in the cases referred to in the passage, quoted above, the reasons for holding the articles 'not marketable' are different, however they are not exhaustive. It is difficult to lay down a precise test to determin .....

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. There are some competing manufacturers of EMR. Each is having a different plastic body to suit its design and requirement. If one goes to the market to purchase plastic body of EMR of the respondents either for replacement or otherwise one cannot get it in the market because at present it is not a commercially known product. For these reasons, the plastic body, which is a part of the EMR of the respondents, is not 'goods' so as to be liable to duty as parts of EMR under para 5(d) of th .....

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is commercially known in the sense of fulfilling the practical test of being known to persons in the market who buy and sell, the test is satisfied. The fact that the product is generally not bought or sold or has no demand in the market is irrelevant. It was held in the said judgment that the plastic body is not known as a commercially distinct product in the market and, therefore, if a manufacturer is asked to replace such body, it would not be replaceable not being a commercially known produ .....

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e not liable to succeed. 16. However, the appellants are on firm ground when they say that the extended period of limitation could not have been invoked in the present case. In their reply to the show cause notice, the appellants stated: 20.2 It is submitted that the noticees have been manufacturing tractors right from 1965 onwards till date. The manufacturing process undertaken by the noticees has been made known to the Department innumerable number of times. Consequent1y the proposal to invoke .....

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cious conduct or an intent to evade duty on the part of the noticees. In regard to the transmission assemblies which arise on the assembly line, if they are used in the dutiable tractors, they would be exempt under Captive Consumption Exemption Notification No.67/95-CE dated 16.3.95. 20.5 In regard to transmission assembly going into the exempted tractor, the department has now raised the issue that they are dutiable and there is no exemption notification for such transmission assemblies. Furthe .....

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fides and does not lead to an inference that there was non-mention of the transmission assemblies in the classification list with ulterior motive. 20.7 The Noticees submit that declarations of the term "Transmission" appearing under Heading No.87.08 showing that the rate of duty applicable is 15% and the department knowing fully well that tractors have been manufactured, should have raised the issue regarding the transmission assembly at the earliest and not by invoking the extended pe .....

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s, the department was fully aware that the tractors have been manufactured and a transmission assembly is made at the intermediate stage. Nothing prevented the department from raising demands within the permissible shorter period of limitation under Section 11A. 21. The department Cll11Wl plead ignorance that they were not aware that in a tractor a transmission assembly arises at the intermediate stage. Thus, the noticee entertained a bona fide belief that since the transmission assembly formed .....

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r I.C. Engines. However, knowing fully well that Transmission Assembly comes into existence at the intermediate stage, the department never raised the issue. This implies that in the present proceedings, assuming without admitting duty is payable on the transmission assembly, the same was not being paid due to a bona fide error. The same belief was entertained on the part of the Noticees as well as the Department during the relevant period that transmission assemblies going into the exempted tra .....

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of this Court in CCE v. Chemphar Drugs and Liniments, Hyderabad [(1989) 2 SCC 127 : 1989 SCC (Tax) 245] where at p. 131 of the report, this Court observed that in order to sustain an order of the Tribunal beyond a period of six months and up to a period of five years in view of the proviso to sub-section (1) of Section 11-A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or .....

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her in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. …….As mentioned hereinbefore, mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or whe .....

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rary evidence that the producer or the manufacturer knew these were excisable or required to be licensed, would not attract the penal provisions of Section 11-A of the Act. If the facts are otherwise, then the position would be different. 18. Similarly in Continental Foundation Joint Venture Holding v. Collector of Central Excise, Chandigarh- I, (2007) 10 SCC 337, this Court held: 14. As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these ver .....

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ssible ground for the purpose of the proviso to Section 11-A. Misstatement of fact must be wilful. 13. Factual position goes to show that the Revenue relied on the Circulars dated 23-5-1997 and 19-12-1997. The Circular dated 6-1-1998 is the one on which the appellant places reliance. Undisputedly, view expressed by CEGAT in Continental Foundation Joint Venture case [Continental Foundation Joint Venture v. CCE, (2002) 150 ELT 216 (Tri-Del)] was held to be not correct in a subsequent larger Bench .....

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tand which rules out application of Section 11-A of the Act. 12. The expression suppression has been used in the proviso to Section 11-A of the Act accompanied by very strong words as fraud or collusion and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop (sic evade) the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are .....

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was no suppression on the part of the appellants nor was there any willful attempt to evade duty. As stated by the appellant, the appellant has been manufacturing tractors from 1965 onwards. There has never been any change in the manufacturing process. In the year 1994-95, IC engines were stated by the department to contain Transmission Assemblies, which were dutiable. On receiving a reply from the appellant, the department did not levy any excise duty on such Transmission Assemblies. The show- .....

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, and the judgment dated 27.5.2004 passed by CESTAT is set aside. Civil Appeal Nos.9469-9470 of 2010 20. This case has similar facts. We are concerned with the period 1.4.1997 to 31.5.1998. The show cause notice in this case was issued on 1.5.2002, in which the extended period of limitation was invoked as follows:- M/s. TAFE have filed the declaration under Rule 173B of Central Excise Rules, 1944, during the year 2000-2001, for the manufacture of product viz., Transmission Assembly falling under .....

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Annexure-I and Annexure-II for the tractors Model No. TAFE 25 and TAFE 30 inside the factory for captive use in the production of tractors. The details of process of manufacture of such sub-assemblies are explained in Annexure-III. As per Clause (ii) to Notification No.67/95 dated 16-3-1995 all inputs specified in column 1 of the Table in the said Notification which also includes inputs falling under Chapter Heading 87 of Central Excise Tariff Act, 1985, manufactured in a factory and used withi .....

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TAFE are liable to pay duty on all the sub-assemblies manufactured (as per Annexure-I and II), and used in the Tractors which are exempt for the period from April, 1997 to May, 1998. 5. M/s. TAFE have not brought to the notice of the manufacture of sub-assemblies to the Department with the intention to evade payment of excise duty. They have willfully suppressed the fact of the manufacture of the sub-assemblies from the knowledge of the Department and cleared the same without payment of duty for .....

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mblies willfully in order to evade payment of duty. 21. In the reply to the show cause notice, the respondents stated that they had never sold transmission assemblies in the market and that their price list does not carry a list price for this item. The only removal ever made was during the warranty period of one tractor and this one removal does not justify the fact that transmission assemblies have a market. It was further stated that had the respondents known that transmission assemblies were .....

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cture nor marketability of the Transmission Assemblies in question. This was confirmed in appeal by CESTAT by the impugned judgment dated 12.11.2009. 22. In view of what is stated in Civil Appeal No.6561 of 2004, the part of the order in original and the CESTAT order on merits have to be set aside. However, for the self-same reasons as are contained in Civil Appeal No.6561 of 2004, we hold that the extended period of limitation is not available as we are satisfied that the reply extracted above .....

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he authorities on merits is correct. However, in this case also the extended period of limitation is not available to the revenue. 24. In the order dated 26.12.2001, the Commissioner stated:- In the present inquiry which was undertaken by the proper officer, it was found that the transmission assembly or chassis assembly which is classifiable under Sub-heading 87.08 of the 1st Schedule to the Central Excise Act was not declared by the noticee in the classification list. Therefore, their plea tha .....

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is clear. The intention to evade duty is clear from the statement of Shri P.C. Kale dated 12.04.2001 as the noticee was knowing that duty is required to be paid on the goods which go into the assembly of the tractor of engine capacity less than 1800 CC. As such tractors were exempt from duty during the relevant period. Knowing this fact very well and not declaring the transmission assembly or chassis assembly in the classification declaration and clearing such transmission assembly/ chassis asse .....

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