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2015 (11) TMI 322 - ALLAHABAD HIGH COURT

2015 (11) TMI 322 - ALLAHABAD HIGH COURT - 2016 (332) E.L.T. 222 (All.) - Manufacture - whether the bought out Pumps and own manufactured I.C. Engine put in single carton by the assessee would amount to manufacture of Power Driven Pumps - Admissibility of exemption claim - Held that:- Clause (b) of Section 35 L provides that an appeal shall lie to the Supreme court from any order passed by the Tribunal relating among other things, to the determination of any question having a relation to the rat .....

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passed by the Appellate Tribunal on the question of manufacture.

Finding recorded by the Tribunal in the impugned order that by putting together a Pump and Engine and a platform the assessee had produced a new item viz. "P.D. Pump" is wholly baseless and also without consideration to the findings of fact based on relevant material and evidences recorded by the Adjudicating Authority. Merely putting together one bought out item with own manufactured item in a carton does not involve .....

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ods in a unit container or lebelling or relebelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.

Mere addition in the value of a product would not amount to manufacture. To bring the process within the definition of manufacture, it must be shown that due to the process original identity of the product undergoes transformation and it becomes a distinct a .....

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Shukla, learned counsel for the appellant and Sri Tarun Gulati alongwith Sri Nishant Misra and Sri Anupam Misra, learned counsel for the respondent. Preliminary objection: 2. Learned counsel for the respondent has raised the preliminary objection on maintainability of the appeal as under: (a) The impugned order of the Tribunal is a common order passed in two appeals and as such the present single appeal against the orders passed in two appeals, is not maintainable. (b) The controversy involved .....

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to filing of separate appeal cannot be raised. With regard to the second preliminary objection, he submits that the issue involved in the present appeal is as to whether the bought out Pumps and own manufactured I.C. Engine put in single carton by the assessee would amount to manufacture of Power Driven Pumps (hereinafter referred to as the "PD Pumps"). Thus, the basic question involved is as to whether the aforesaid activity amounts to manufacture under Section 2(f) of the Act. If th .....

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on without paying duty for use in the manufacture of PD Pumps where both the PD Pumps and the prime mover have been developed and manufactured by the assessee themselves. Besides this they have also been removing I.C. Engine without payment of duty alongwith bought out PD pump by simply placing both the items in a single carton and clearing the same as PD pump set in terms that bought out PD Pumps have been developed and manufactured by M/s Mahendra Engineering Works, Coimbatore (for short " .....

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is not manufacture as defined in Section 2 (f) of the Act. He refers to various paragraphs of the order-in-original and the impugned order of the Tribunal and submits that under the facts and circumstances of the case the benefit of the Notification No.6/2002-CE dated 1.3.2002 was not available to the assessee in respect of I.C. Engine cleared with bought out pump and, therefore, the Adjudicating Authority rightly held that the assessee is liable to discharge duty liability on the I.C. Engine. S .....

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s of assessment), if the High Court is satisfied that the case involve a substantial question of law. An order in original no.01 dated 19.2.2004 was passed by the Commissioner of Central Excise Meerut - II for the period April 02 to February 03 creating a demand of ₹ 3,28,507/- with respect to I.C. Engine cleared with bought out Pumps as pump sets and another order in original no.9-11 dated 31.1.2006 for subsequent period creating the duty demand of 1,78,08,035/- under Section 11 A of the .....

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ants before this Court. 7. On merit he submits that the assessee has manufactured I.C. Engine and purchased Pumps from M/s MEW and placed the same inside single carton and marketed it as pump sets in unassembled condition. Thus, I.C. Engines were used in factory of production of the assessee and were consigned as a single commodity which amounts to manufacture under Section 2(f) of the Act. The assembly of the said article is required at the customer's end. In terms of Rule 2(a) of the Inter .....

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o refers to the provisions of Rule 2(a) of the interpretative Rules as well Chapter Note no.3 and 6 of Section XVI of the Central Excise Tariff Act, the Circular No.2 to 4/58/96-CX dated 26.6.1996 issued by the Central Board of Excise and Customs New Delhi and the law laid down in the cases of Royal Bank of Scotland N.V. Vs. Commissioner of Customs and Central Excise (2014) 35 STR 68 (Allahabad), Commissioner of S.T.,Bangalore Vs. Scoff Wilson Kirkpatrick (I) Pvt. Ltd. 2011(23) STR 321 (Karnatak .....

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. CCE Indore 2006(193) ELT 6(S.C.) and Mangalore Chemicals and Fertilizers Ltd. Vs. Deputy Commissioner 1991 (55) ELT 437 (S.C.). Discussion and Findings 8. We have, carefully, considered the submissions of learned counsel for the parties and perused the record. 9. With the consent of learned counsel for the parties the following questions of law have been formulated and they have been heard on it :- i. Whether under the facts and circumstances of the case, the High Court has jurisdiction to ent .....

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Act provides that an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law. Section 35 L provides that an appeal shall lie to the Supreme Court fro .....

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ment. Thus, the exclusion of power of the High Court to entertain an appeal under Section 35 G of the Act is limited to an order of the Tribunal relating, among other things to the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purposes of assessment. Thus Section 35 G of the Act does not exclude the power of the High Court to entertain an appeal against an order passed by the Appellate Tribunal on the question of manufacture. The b .....

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ble under Section 35 G of the Act . Question No.(ii) 11. It is undisputed that two orders in original were passed by the Commissioner of Central Excise against which the respondent assessee filed separate appeals before the Tribunal being appeal no. E/2619/04 and Appeal no.E/1786/06. 12. Thus two appeals were decided by the Tribunal by final order No.831/06 and 832/06 - EX dated 20.10.2006 which is a common order deciding both the appeals. Section 35 G provides that an appeal shall lie to the Hi .....

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l has been filed by the appellants. Thus the present appeal shall be treated as an appeal only against one final order of the Tribunal. Considering the facts and circumstances of the case the present appeal is treated to be an appeal filed against one Final Order. Consequently, the present appeal is entertained against the impugned final order of the Tribunal arising from order in Original No.9-11 dated 31.1.2006. Question No.(iii) 13. Before we proceed to examine the legal issue, it would be ex .....

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crete mixer, pumping power generation etc. They have been clearing I.C. Engine, as such, for sale in the open market on payment of duty. They have also been clearing I.C. Engine for captive consumption without payment of duty for use in the manufacture of PD Pumps where both the Pumps and the I.C. Engine have been developed and manufactured by the assessee. Apart from this the assessee has also been removing I.C. Engine without payment of duty alongwith bought out P.D. Pump by placing both the i .....

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1985, inasmuch as, the bought out Pump is complete in all respect at consignee's end and does not require any further process by the unit. It was also alleged in the show cause notice that the activity of placing bough out Pump by the assessee with their own manufactured I.C. Engine is not ''manufacture' as defined under Section 2(f) of the Act. The assessee submitted the reply. The Adjudicating Authority framed the following question for determination: "Whether the mere pla .....

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da I.C. Engine as well as the pump is developed, designed and manufactured by them. This Honda pump is a compact unit. (b) The other pump set is a combination of bought out Mahendra pump with Honda I.C. Engine packed in a single carton. The printed sheet to be affixed on such carton carried the description of Honda I.C. Engine as well as Mahindra bought out pump" 17. After considering the evidences on record the Adjudicating Authority recorded the following findings of fact in the order in .....

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al that the models of WSK and WMK series pertained to their "Mahendra" pumps. These are supplied with the Honda Engine Models GK-100, GK-200 & GK-300 in a single carton by M/s HSPPL for use in the manufacture of Pump Sets at dealer/ customer's end. The agreement between M/s MEW and M/s HSPPL clearly mentions that Mahendra' shall be embossed on the casing of Pump set and a name plate showing "Mahendra" shall also be affixed on the Pump itself. M/s HSPPL were also s .....

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espect of which no manufacturing activity was taken place at M/s HSPPL. Hence it can be said that no manufacturing was taking place in respect of Mahendra pump. And since there is no manufacturing involved, the benefit of condition No.58(ii)(b) of the Notfn. No.6/2002-CE dated 1.3.2002 is not available to M/s HSPPL for these products. Regarding the Board's circular dated 26.6.96, I find the same not being applicable as there is no dispute in classification of P.D. Pump sets. The present issu .....

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the Conveyer at site against the specific contract placed upon the party. Further the ratio of the judgment of Fedders Lloyd Corp. Ltd. V/s CCE, Mumbai-II is not applicable because the appellant were affixing their own brand before clearing the split Air Conditioner to the site of the customer. In the instant case the identity & the brand of Mahendra Pumps manufactured by M/s MEW is retained. Even on the packing of the combination of bought out Pumps and I.C. Engine to be cleared, the descri .....

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of M/s Punjab Recorders V/s CCE, Chandigarh, has also not relevance in the instant case because the subject issue relates to inclusion of value of Lead Acid Batteries (assembled out of cells by the appellant in his factory itself) in the value of UPS. In view of aforesaid it is apparent that no manufacturing process took place in respect of the PD Pumps sets with Mahendra Pumps in the factory of M/s HSPPL. As such the I.C. Engines were not used within the factory of production for the manufactu .....

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tribunal has not considered the findings of fact based on crucial evidences recorded by the Adjudicating Authority. It merely referred to the circular of the CBEC and observed in paragraphs 5,6,7 and 8 as under: 5. We have perused the record and heard both sides at length. Much case law has also been cited by both sides on the issue of manufacture. 6. As already noticed, the appellant was discharging duty at the time of clearance of the PD pump packages after classifying them under 8413. The app .....

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lar:- Subject:- CE-Classification and excisability of Power Driven Pump Sets for handling water- Regarding. I am directed to say that the Confederation of Indian Industry has pointed out about divergence in practice of classification of Power Driven Pump Sets for handling water. A P.D. Pump Set may be a pump having an inbuilt prime move designed and built as a complete unit, called a monoblock pump-set, or a pump and a prime mover being two separable units whether coupled or not put/intended to .....

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ted 2.2.94) has held that elector motors or rotors or stators are components parts P.D. Pumps. Following the same analogy, the prime mover, i.e., I.C. Engine may be treated as an integral part of P.D. Pumps. The board takes note of Note 3 of Section XVI of Central Excise Tariff which states that compromise machines consisting of two or more machines fitted together to from a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to b .....

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ble to the whole pump set. 7. The first para of the above circular notes industries stand on the item. It is clear therefrom that the industry recognized PD pump sets as two varieties, one monoblock and the other "having two separable units whether coupled or not put/intended to be put on a common platform". Thus, the industry recognition of power driven pump is as a pump put together or intended to be put together on a common platform. In the appellant's case also, the carton cont .....

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even incomplete products, having the essential characteristics of a manufactured item get treated as the fully manufactured item for the purpose of levy. 8. From the above noted factual situation, we are clear that the packets removed by the appellants were, in fact, power driven pump sets and that by putting together an appropriate pump, an engine and platform the appellant has produced a new item viz. power driven pump and the finding to the contrary is not sustainable. It is well settled tha .....

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necessary to go into the case law relied upon by both sides, since we have taken a view that in the facts of the case and the industry trade and taxation practice, there could be no dispute that power driven pump is a manufactured item. The Commissioner was, therefore, in error in holding that the clarification of the board was not relevant on the issue of manufacture. This is to presume that classification circulars are an academic exercise in a theoretical framework and has no application in .....

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act based on relevant material recorded by the Adjudicating Authority as reproduced in paragraph 18 as above. 21. In paragraph 8 of the impugned order the Tribunal also completely ignored the fact that the respondent assessee is manufacturing and clearing I.C. Engine being used for vibrator, concrete mixer, pumping, power generation etc. and have been clearing I.C. Engines, as such, for sale in the open market on payment of duty and also clearing for the captive consumption without payment of du .....

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wn I.C. Engine and other pertain to Mahindra Pumps purchased from M/s. MEW. These manuals separately provided the description and the functioning of I.C. Engine. The Mahindra Pump manufactured by M/s. MEW has been retained separately even on the printed sheet to be pasted on the packing box which bear the description "G.K. 200" with Mahindra WMK 2520 water pump". These facts clearly indicate that the I.C. Engines were not used by assessee within the factory of production for the m .....

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factured item in a carton does not involve any process amounting to manufacture under Section 2(f) of the Act. 23. In the case of Omar Salay Mohamed Sait Vs. Commissioner Income Tax, AIR 1959 SC 1238 (para 42), Hon'ble Supreme Court laid down the law as under: "We are aware that the Income-tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, how .....

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ere are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liabl .....

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nto the question placed before it by recording its finding of fact. 25. In the case of Commissioner of Central Excise Vs. Sri Commercial Agencies (2008) 232 ELT 577 SC (para 4), Hon'ble Supreme Court held that order of the Tribunal placing reliance on a judgment without analysing facts is not proper and consequently the matter was remanded. 26. In the case of Commissioner of Central Excise Commissioner Batore Vs. Matri plex pump private Ltd 2015(322) ELT 6 SC (para 3 and 4), Hon'ble Supr .....

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ESTAT for de novo consideration of the facts of the case after which a considered and reasoned decision shall be rendered by the Tribunal." 27. In view of the above discussion, we are of the view that the impugned order of the Tribunal can not be sustained and, consequently, deserve to be set aside and the case deserve to be remitted back to the Tribunal for de novo consideration of the facts of the case, the findings recorded by the Adjudicating Authority in the order in original and the e .....

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Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or (iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word "manufacturer" shall be construed accordingly and shall include not only .....

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irst schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture, or any process which, in relation to the goods satisfied in the third schedule involves packing or repacking of such goods in a unit container or lebelling or relebelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer. 30. Mere addition in the value of a product would not am .....

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, would not bring it within the definition of 'manufacture' unless its original identity also under goes transformation and it becomes a distinctive and new product." 32. In the case of XI Telecom Ltd. Vs. Superintendent of Central Excise Hyderabad (1999) 105 ELT 263 (AP) (para 11,12,13), the Andhra Pradesh High Court considered the law settled by Hon'ble Supreme Court on the question of 'manufacture' in the cases of Union of India Vs. Delhi Cloth General Mills AIR 1963 .....

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"to produce some change in a substance", however minor in consequence the change may be. While making the above observation relied on a passage quoted in Permanent Edition of Words and Phrases, Vol.26 from an American Judge which reads as follows : 'manufacture' implies a change, but every change is not manufacture and yet every,' change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new .....

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use." In Ujagar Prints v. Union of India, (supra) the Supreme Court reiterated the view expressed in DCM's case and observed that : "The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article th .....

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eme Court observed : '' Therefore, where the goods are specified in the schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied. The expression "produced or manufactured" has further been explained. By this Court to mean that the goods so produced must satisfy the test of marketability. Consequently, it is always open to an assessee to prove t .....

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was held : "Every change does not necessarily fall within the expression 'manufacture' unless it is shown that the process has brought into existence any new product having a distinct identity in the commercial world. In the absence of any evidence in that behalf which the Revenue ought to have laid, it is difficult to come to the conclusion that excisable goods came into existence by the treatment of cotton and nylon yarn into a muiltiford yarn." 12. What emerges from the abo .....

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ere is change, the change should result in bringing into existence a new and definite article having a distinctive name, character or use and the said article must be marketable and it should be known to the market as such. In the absence of any one of the ingredients referred to above, the provisions of the Act are not attracted and no excise duty is leviable. Even if the goods so produced were excisable goods mentioned in the schedule, they cannot be subjected to duty unless they are marketed .....

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n the kit. They are marketable as such. Further, no process is also involved except that all the articles are put together in one box. It is true that by placing alt these articles in one kit the kit has a distinct name known as 'cable jointing kit'. However, there is no change in character and use of the articles placed in the kit. In other words, except the test that the articles which are placed in the kit has a distinct name, the other tests have not been satisfied. Therefore, placin .....

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ecific size amounts to manufacture? After referring to large number of decisions of Hon'ble Supreme Court held that mere cutting or silting of steel sheet does not amount to manufacture because identity of the product remains unchanged and the steel remains steel even after cutting no new different and distinct article emerges having distinct name, character and use. The Special leave to appeal filed by the Union of India against the aforesaid judgment of Delhi High Court was dismissed by Ho .....

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ixed form has no shelf life. Therefore, it was necessary to pack both the aluminium paste and aluminium medium in specified quantity for ready use as aluminium paint. 35. The case of Rajasthan State Chemical Works (supra) is also of no help to the respondent assessee as evident from paragraph 11,12 and 16 of the judgment as under: "11. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Natural .....

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the commodity. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. 12. Manufacture thus involves series of processes. Process in manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected to change by differe .....

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