TMI Blog1995 (2) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... ter referred to PMP) for the manufacture of machining centres in collaboration with M/s. Hitachi Seiki of Japan. Under Phase-1 of approved PMP, the appellants were permitted to import 10 machining centres (2 pieces each of 5 models proposed to be manufactured VA 40, VA 50, HB 630, HB 800 and VA 35) from Hitachi Seiki in CKD condition to give the appellants the opportunity of familiarising themselves with the assembly operations. 7 machining centres were imported in CKD condition in the form of 100% components under OGL on the basis of the lists attested by DGTD and assembly by the appellants and sold to end users/purchasers as imported machines manufactured by Hitachi Seiki. Clearance of all the first 3 machining centres (one VA 40, 2 HB 800) under OGL as 100% components was denied by the Customs authorities vide orders dated 28-6-1984 and 3-9-1984 on the ground that the complete machining centres in CKD condition i.e. capital goods had been imported in the form of 100% components. The appellants obtained a clarification dated 18-7-1984 from the DGTD that the import of the machining centres in CKD condition in the form of 100% components in Phase I of the PMP was permissible under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine. The Department invoked the extended period of limitation alleging that the appellants had suppressed the fact that they were carrying out manufacture on the imported components. A detailed reply was submitted on 19-1-1987 denying all the allegations contained therein and contending that all the imports were of complete machines in CKD form and that the assembly of the same by the processes No. 1 to 5 set out in the show cause notice did not amount to manufacture and that no new commercial product having a separate name, character and identity emerged as a result of the assembly operations, and on 27-1-1987 the Managing Director and General Manager of the appellant company also filed their respective replies. The personal hearing took place on 2-12-1987 and pursuant thereto, the appellants submitted detailed written submissions on 24-12-1987. Due to change in the adjudicating authority a fresh hearing was granted on 11-4-1991 and by letter dated 16-4-1991 fresh detailed written submissions were forwarded to the Collector of Central Excise, Pune, who passed the impugned order in respect of 4th to 7th consignments, holding that these were components from which machines were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between M/s. Hitachi Seiki and the appellants, such as the quotations, purchase order and confirmation, invoice, bill of entry, etc., in which the two types of machining centres have been clearly described as complete machines. He refers to the documents exchanged between the appellants and the end users/purchasers of the machines to establish that what was supplied in each case was an imported Hitachi Seiki machine in CKD form and that no excise duty had been charged on these machines which had discharged the incidence of countervailing duty under T.I. 68, as such machines had already been fully manufactured in Japan and were only assembled by the appellants. He further invites our attention to the order dated 28-6-1984 of the Additional Collector of Customs, holding that a complete machining centre had been imported in CKD condition thereby requiring a specific licence for capital goods, to the appellant s letter dated 16-7-1984 to the DGTD, DGTD clarification dated 18-7-1984, the Additional Collector s order dated 3-9-1984, holding that the imported HB 800 was a fully manufactured machine viz. horizontal machining centre of Japanese origin (Hitachi Seiki) and the CEGAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellants to various end users/purchasers. The test of manufacture has been satisfied in this case as a new commercial commodity having a different name, character and identity emerged as a result of the processes carried out by the appellants. Learned DR submits that the machining centre becomes marketable only on assembly and the item as imported was not in a marketable status. He submits that the DGTD clarification is only in respect of the components of sub-units in CKD condition as evident from the appellant s letter dated 16-7-1984 and the DGTD reply dated 18-7-1984 and that from the orders dated June 1984 and September 1984 of the Additional Collector of Customs and the Tribunal Orders (supra) it is clearly revealed that the appellants had consistently maintained that what they imported was components. He cites the following case law in support of his contention that the assembly of components by the appellants result in the manufacture of complete machines : 1988 (38) E.L.T. 566 (SC) - Narne Tulaman 1989 (40) E.L.T. 214 (SC) - Jayshree Engineering 1992 (57) E.L.T. 336 (T) - Richardson Cruddas 1992 (58) E.L.T. 48 (Bombay) - Koron Business Syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 18 and the Government by letter dated 26-2-1983 indicated certain modifications which were incorporated in the main agreement. Article 1.7 was modified to read as the net sales price shall mean the net ex-factory sale price of the machining centres exclusive of excise duties minus cost of the standard bought out components and the landed cost of imported components, irrespective of the source of procurement including ocean freight, insurance, customs duties etc. . 8. The two letters of the DGTD regarding attestation of list of components of machining centres are reproduced below : Letter No. DT-1/5(17)/83/163 dated 3rd February 1984 from the Development Officer, DGTD, New Delhi addressed to M/s. WIL, Pune Subject : Attestation of list of components of machining centres, in terms of Chapter 20, Para 219 of Import and Export Policy 1983-84. With reference to your letter No. HD/0961/AM 84/619, dated 6-1-1984 please find enclosed two lists of components of machining centres, duly attested in terms of provisions of Chapter 20, para 219 of Imports Export Policy 1983-84, for import under OGL. It may please be noted that import of components under OGL will be subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-3-1984 describes the machine as Horizontal Machining Centre - Model HB 630 - imported (page 93). The quotation of 30-3-1984 (page 98) shows Mahindra and Mahindra as the end users and describes the goods as component part such as assemblies/sub-assemblies for manufacture of Horizontal Machining Centre - Model HB 630 - 1 set . The same description is contained in the appellants purchase order dated 10-7-1984 and the invoice dated 25-10-1984 (pages 100 to 107). The bill of lading describes the item as Hitachi Seiki Model HB 630 Machining Centre (page 110); while the bill of entry describes them as component parts of Horizontal Machining Centre Type HB 630 (page 108-109). The same is in the case of the sale documents between the appellants and M/s. Larson and Toubro to whom the second HB 630 model was sold (pages 139-152 quotation dated 19-1-1984). The order acceptance dated 16-3-1985 (page 157). Larson Toubro invoice dated 31-8-1985, despatch advice dated 31-8-1985). The appellants have reiterated in their letter dated 16-8-1985 to M/s. Larson and Toubro Ltd. that the machine is completely imported in CKD condition and excise duty on the imported machine, accessories and tool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Industrial licence for the manufacture of Machining Centres and the same was duly endorsed on our industrial licence. However, subsequently, as per the liberalised policy announced by the Government the items machine tools has been categorised in the broad category of metal cutting machines and the manufacturer has the flexibility to take up the manufacture of any item covered in this broad category within the total licensed capacity. As per its phased manufacturing programme approved by the Government we will be manufacturing both horizontal and vertical five machining centres. We also explained to your goodself that as per the approval given by the first phase of our manufacturing programme will be importing two numbers of each model of machining centres and accordingly the order was released for the first 3 machines (one vertical and 2 horizontal). DGTD (Tool Directorate) was kind enough to test the list of goods as per Chapter 20 para 219 of Import and Export Policy 1983-84 for import under OGL vide their letter No. DT-1/5(17)83/163 dated 3rd February 1984. Two of the said list is enclosed for your ready perusal. It was explained to you that the customs authorities i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s notice was adjudicated by the Additional Collector of Customs, Bombay. By his order dated 9-10-1985 the importers had contended before the adjudicating authority that what they had imported was a complete machine but subsequently in view of the order of the Customs Department in respect of other models of machining centres, the DGTD treated the import as a component part and not as that of complete machines. The adjudication order proceeds on the basis that a complete machine in CKD condition was imported and this, in our view, strongly supports the appellants claim that what they had imported were complete machines in CKD condition. In the light of the documentary evidence discussed above we are satisfied that the 4 machining centres in dispute viz. 2 Nos. of HB 630 and 2 Nos. VA 50 imported by the appellants are complete machines in CKD condition. 12. The next aspect to be considered is whether the operations carried out on these machines in the appellants factory result in manufacture and consequent liability to duty. The appellants have submitted a technical write up on the process involved in the reassembly of the CKD machines which is as follows : 1. Scraping/Mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptimisation servo amplifier gain to machine dynamics. - Checking of all limit switches, proximity switches, push buttons, solenoids, contactors and motors for proper operation. - Checking of operation sequence of Auto Tool Changer, Auto Pallet Changer and other accessories for proper operation. - Checking of mechanical and electrical interlocks to ensure that all operations are done in correct sequence and any malfunction of electrical or mechanical items does not result in faulty operation. - Checking of safety conditions to avoid injury to operator - Calibration of the machine to suit the requirement. - Modifications of machine software to include additional functions required by the customer. The appellants stand all along, as reflected in the reply to the show cause notice and during the personal hearing before the adjudicating authority has been that what was imported were complete machines in CKD condition and what was sold after reassembly were the same imported machines and that the process of assembly did not change the character or use of the imported product. The categorical averment in paras 9, 10 and 11 of the appellants reply dated 19-1-1987 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against Entry No. 580 (35) Appendix V and video cassettes without tape against Entry 580(36) of Appendix V of the Import Policy for April 1981 - March 1982. According to the advice received and according to the additional list that was attached to the licence, the appellants had to import their requirements of video cassette tapes in a disassembled form i.e. video magnetic tape as one constituent and the video cassettes without tape being the other constituent respectively, falling under Entry 580 (35) and 580 (36) in Appendix V of the Import Policy April 1981 - March 1982. As the appellants were not engaged in the manufacture of video cassette tapes in pursuance of the licensing policy according to which the additional list attached to their licence, required import of video cassette tapes in two constituents in disassembled form, the appellants accordingly negotiated with the foreign suppliers for the supply of the requisite number of video cassette tapes after disassembly individual video cassette tapes into two constituents, one the Video magnetic tape as for an individual cassette and the other as the video cassette without tape i.e. the empty case, the requisite number of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actice was not established in the present case. We do not see how this would make any difference, as the test of manufacture has not been satisfied in this case. We fail to see how assembly of magnetic tape and plastic covers amounts to manufacture. The arguments advanced by the learned JCDR do not clinch the issue. 12.2 The case law cited by the learned DR is distinguishable on facts. In the case of Tata Iron and Steel Co. Ltd. v. Union of India reported in 1988 (33) E.L.T. 297 (Patna), the main issues for consideration before the Hon ble Patna High Court were (a) whether the crane was assembled and manufactured at Adityapur Unit of Tatas or was it manufactured in the factory of the petitioners and (b) whether the crane was utilised for maintenance of the existing plant of the petitioners or was it a part of the new plant in the modernisation project to augment for the purpose of excise duty. The contention of the assessee was that Adityapur Unit did not produce any crane but it only produced components and assemblies of crane and on that footing it was contended that only components and assemblies were liable to duty. The Court held that the petitioner ordered for complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aid of the respondents as the Court was seized of the issue whether assembling of duty paid components of weigh bridge amounts to manufacture when both the parts and the final product were separately and specifically dutiable, and answered this issue in the affirmative and the issue whether assembling of complete machine imported in CKD condition amounts to manufacture was never before the Supreme Court in that case. 12.4 The judgment of the Hon ble Bombay High Court in the case of Koron Business Systems Ltd. v. Union of India - 1992 (58) E.L.T. 48 (Bom.) is also distinguishable as what was decided by the Court was that the process of assembling of components for copier machine purchased from the market amounts to manufacture of copier machine. 12.5 The decision of the Hon ble Calcutta High Court in the case of HCL Ltd. v. Union of India - 1992 (59) E.L.T. 507 (Cal.) also does not advance the case of the Department - in that case, HCL had imported 1400 Photo Copying Machines in SKD condition minus the Selenium drum (a consumable part). The Court held that this was not a case of import of the whole machine although substantially all the parts were imported. The Court also n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such type of identical machines falling under TI of 68. The tentative date/period of arrival of this machine is the last week of March 1984. In response thereto, the Assistant Collector had replied on 21-5-1984, permission was not necessary as the appellants were bringing imported machine to which the Central Excise Rules were not applicable. From the reading of the above mentioned letters we are satisfied that there was a complete disclosure of all the facts to the Department and read together with the finding that what was imported were complete machines in CKD condition, the appellants cannot be held guilty of suppression so as to warrant the extended period of limitation being invoked by the Department. 14. We also agree with the learned Counsel for the appellants that, in the absence of any definite role assigned and established by the Department, as far as Managing Director and General Manager are concerned, the penalty imposed upon them is not sustainable and accordingly set aside the same. 15. In the light of the above discussion, we set aside the impugned order and allow the appeals with consequential relief to the appellants. - - TaxTMI - TMIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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