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2015 (5) TMI 28 - SUPREME COURT

2015 (5) TMI 28 - SUPREME COURT - 2015 (319) E.L.T. 406 (SC), 2015 (5) SCR 241, 2015 (9) SCC 109, 2015 (7) JT 493, 2015 (5) SCALE 653 - 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:- Transmis .....

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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-cause notice itself .....

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at the respondent bona fide believed that Transmission Assemblies were not dutiable. - Successive declarations made by the assessee 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 .....

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s no attempt to evade excise duty and in this case also the show cause notice being beyond the period of limitation of one year would have 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. .....

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vered by an exemption notification 162/1986. We are informed, however, that after 1.6.1998 this exemption has gone and even tractors of 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 suc .....

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uch. These admissions are set out hereinbelow: 16. It is submitted that transmission assemblies are in fact interchangeable. The Transmission 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 .....

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ts at Nagpur and Rudhrapur for manufacturing tractors. (b) It is submitted that this letter can at most lead to a conclusion that the transmission 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, e .....

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he notice. Noticee's plea that the impugned transmission assemblies are not goods as transmission assemblies do not have independent 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 .....

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on of Tractors is also incorrect. They are manufacturing transmission assemblies for their tractors as well as for ECEL. Of course transmission 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 identi .....

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edure as adopted by the noticee is basically assembly of various parts & components and of course all these parts and accessories which 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 pr .....

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such integrated assembly line production would be deemed to have been cleared for production and therefore liable to Central Excise duty. 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 re .....

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er Section 3 of the Central Excise Act, 1944. That impugned transmission assemblies have been used captively in production of Tractors cleared 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 att .....

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per the judgment of the Supreme Court in the case of Union of India vs. Delhi Cloth and General Mills, 1977 (1) ELT (J 199) "implies 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, .....

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ppellants. After assembly of various parts and components a new and different article known as transmission assembly emerges having a distinctive 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 (Farmtra .....

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Hyderabad, 1994 (70) ELT 3 (S.C.) has held that the marketability is essentially a question of fact to be decided in the facts of each 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 .....

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eable in the market. Also, not a single instance of sale in the market had ever taken place. In fact, the so-called Transmission Assembly 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 a .....

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titioner s was only 13,000 rupees per piece as opposed to the highly inflated figure of ₹ 53,790/-. If the figure of ₹ 13,000/- 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 wou .....

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completely irrelevant that no sale actually took place of any such Transmission Assembly. It is enough to show that the said goods were 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 suppre .....

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emp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included 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 a .....

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e one, it is clear that materials, commodities and articles spoken of in the definition take colour from one another. In order to be goods 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 charg .....

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eant by marketability in this context. In A.P. State Electricity Board v. Collector of Central Excise, Hyderabad, (1994) 2 SCC 428, this 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 com .....

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such cans would have to undergo various processes such as, trimming, threading and re-drawing. The Court also referred to Bhor Industries 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, na .....

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) 3 SCR 21 : AIR 1968 SC 922] or aluminium cans with rough uneven surface in Union Carbide [(1986) 2 SCC 547 : 1986 SCC (Tax) 443 : (1986) 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. .....

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re available for purchasers. Now, in the appeals before us, the fact that in Kerala these poles are manufactured by independent contractors 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. .....

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hat the provisions of the Act mandate that a finding that the goods are marketable is a prerequisite or sine qua non for the levy of duty. 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 l .....

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paragraph 17 thus: These definitions make it clear that to become goods an article must be something which can ordinarily come to the market 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 .....

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6 SCC (Tax) 443 : (1986) 24 ELT 169 : JT 1986 SC 453] (7) A.P. State Electricity Board v. CCE [(1994) 2 SCC 428 : JT (1994) 1 SC 545] . 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 esse .....

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ellip;. The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits 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 ha .....

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suitable for sale, we hold that the order of the Appellate Tribunal is infirm. It should be set aside and we hereby do so. We order a remit 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 e .....

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ion Bench of this Court while construing the word goods held as under: These definitions make it clear that to become goods an article must 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 .....

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etability. The plastic body is being manufactured to suit the requirements of the EMR of the respondents and is not available in the market 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 .....

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bought and sold or has no demand in the market would be irrelevant. The plastic body of EMR does not satisfy the aforementioned criteria. 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 .....

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nue, what was held in this judgment is that the product should not be known in the market with any commercial name. The moment a product 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 .....

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n intermediate product which is a distinct product commercially known to the market as such. On this ground therefore, the appellants are 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 p .....

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he dept. cannot allege any suppression or fraud on the part of Noticee. 20.4 However, that is not to say that there has been any contumacious 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 de .....

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or or dutiable tractor, Transmission Assembly as an item was not mentioned separately in the classification list. This shows their bona 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 .....

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Department knew that duty was not being paid on captively consumed Transmission Assemblies. Hence, extended period is not invocable. Thus, 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 .....

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ause Notice itself terms the issue of manufacture and captive consumption of transmission assemblies for tractors is the same as that for 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 o .....

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(43) E.L.T. 195, this Court held: 8. Shri V. Lakshmi Kumaran, learned counsel for the appellant drew our attention to the observations 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 t .....

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manufacturer knew otherwise, is required to be established before it is saddled with any liability beyond the period of six months. Whether 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 manufac .....

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was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that behalf, when there was no contrary 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 33 .....

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o evade payment of duty . Therefore, there cannot be suppression or misstatement of fact, which is not wilful and yet constitute a permissible 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 c .....

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plea was clearly taken. The factual scenario clearly goes to show that there was scope for entertaining doubt, and taking a particular stand 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) .....

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ment with the knowledge that the statement was not correct. 19. Judged by this test, it is clear that on facts in the present case there 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 d .....

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uty in the present case. We feel that the show cause notice needs to be quashed on this ground alone. Accordingly, the appeal is allowed, 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 .....

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actured and cleared by the assessee for use in the exempted tractors. 4. M/s. TAFE have manufactured the sub-assemblies as listed in the 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 .....

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han 1800cc which are exempted, except the sub-assemblies manufactured and used in the exempted tractors. Therefore, it appears that M/s 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 .....

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ght out, items, when assembled will form a sub-assembly has not been declared by them. M/s. TAFE have chosen not to declare the sub-assemblies 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 .....

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is that vide an order dated 30.4.2004 the authorities found in favour of the respondents on merits holding that there was neither manufacture 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 App .....

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mpugned judgment in this case by CESTAT merely follows the Escorts case i.e. Civil Appeal No.6561 of 2004, we hold that the finding of the 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 8 .....

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ly is not the chassis and since the noticee have failed to declare the transmission assembly/ chassis assembly, the suppression of fact 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 declari .....

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