TMI Blog2002 (7) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... is 1/88 to 6/93. 2. The facts of the case as narrated in the Order-in-Original No. 51/94, dated 15-6-1994 from Paras 2 to 16 are reproduced below : 2. M/s. ION Exchange (India) Ltd., Hosur (hereinafter referred to as ION ), are engaged in the manufacture of pressure vessels, pipe works and Industrial water treatment plants, classifiable under Chapter sub-heading Nos. 7308.00, 7309.00 and 8421.00 respectively of the Schedule to the Central Excise Tariff Act, 1985. 3. The Central Excise officers attached to Hosur II Dvn, on 10-7-1992, visited M/s. Pan Ven Industries, Hosur and verified the stock and accounts and noticed that the unit was fabricating various items of iron and steel such as pipe works, vessels, etc., on behalf of ION, out of the materials supplied by the latter as per the drawings specified. On completion of the work the goods are being sent to ION under delivery challans, and labour invoices raised for labour charges. The unit has not included the value of raw materials as per the provisions of Section 4 of the Central Excises and Salt Act, 1944. The officers detained the fabricated goods which were kept ready for removal. The goods were released unconditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o are directed to submit periodical reports for the stock and inventories. Insurance cover for the goods and materials at fabricators site are taken by ION. The components received by ION are cleared after grouping and packing in their premises and cleared in CKD condition, which appear liable to Central Excise duty. The job workers/fabricators are only hired labourers of ION, in the manufacture of water treatment plants. The pressure vessels, tanks and pipe works are manufactured by ION by hiring job workers for fabrication. But they cleared water treatment plants under the guise of bought out items, without Central Excise licence, without observing Central Excise procedures and without payment of duty. 10. In his statement dated 23-7-92 and 4-11-92, Shri S.S. Ranganathan, General Manager of ION, inter alia, deposed that : 10.1 there is a contract between them and fabricators with regard to manufacture/supply of components to suit their specifications for a specific period at a specific price within mutually agreed supply dates, as per Indian Contract Act and Sale of Goods Act. 10.2 depending upon vendors, labour charges are paid, they send raw materials for various compo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als and deduct the cost from the bills. ION, also exercise control over quality, supervise and inspect, they also have a general rate contract agreement with ION. 14. In his statement Shri K. Jayasankar, Managing Partner of M/s. Jas Engg. Hosur, inter alia, deposed that : 14.1 they are doing job work for and on behalf of ION, as per drawings, specifications, out of raw materials supplied by them as per direction. ION exercise control/inspection/supervision of the fabrication work undertaken and have general rate contract agreement with ION. 15. A show cause notice of even no. dated 13-1-1993, was issued to ION, Hosur, wherein they have been asked to show cause to the Collector of Central Excise, Coimbatore as to why : (i) the Central Excise duty of ₹ 4,87,68,512/- for water treatment plant and ₹ 92,91,352.41 for components such as pressure vessels and pipe works, manufactured and cleared by them during the period 1/88 to 10-7-92 should not be demanded from them under Rule 9(2) of Central Excise Rules, 1944 read with proviso to Section 11A of Central Excises and Salt Act, 1944. (ii) a penalty should not be imposed on them under Rules 9(2), 173Q and 226 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they entrusted the job of manufacturing parts of water treatment plants. Initially they were permitted to peruse the documents and take xerox copies before the Asstt. Collector, Hosur II Division. But, later on, the documents relied upon in the show cause notice were returned to the assessee in full on an undertaking from M/s. ION that they would not tamper with any records and would be producing the records returned, pending adjudication whenever called upon to do so, by the Central Excise department. As such their request to peruse the documents relied upon in the show cause notice has been fully complied with. Permission was granted to cross-examine the job workers and Shri C. Natarajan, the learned Advocate, on behalf of M/s. ION cross-examined the following job workers. (a) Sri E.A. Chandrasekaran, Proprietor, M/s. Alpha Fluid Systems, Hosur. (b) Sri K. Vahulabaranan, Partner, M/s. Pan Ven Industries, Hosur. (c) Sri K. Jayashankar, Managing Partner, M/s. Jas Engg. Works, Hosur. 31. In the cross examination; the Advocate tried to elicit from the deponents that the job-workers are independent SSI Industries; that they have their own investment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of goods and rejection of the goods found unfit which evidences that the product manufactured by the contractors belong to them. The loss on account of rejection of the goods will be to the account of the job worker. The price escalation in the contract indicate that the relationship between the two are at arms length. The contract further contains a clause that excise duty is extra if applicable. Clause 10 of the contract provides that the materials before despatch should be offered for inspection by the inspectorate of ION, and delivered in their works. The inspection clause in the contract is a clear evidence to prove that the job workers are the manufacturers, M/s. ION is the manufacturer of goods they would not have insisted on inspection of products. Clause 13 of the contract states that M/s. ION has the right to cancel any order in part or in full. 33. In this regard, I find that apart from the above averments of M/s. ION, the job workers in their cross-examination have deposed that they not only obtained steel from ION against debit notes whenever there is scarcity in the market, they also obtained steel from open market and they further deposed that they used to mix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords that the dealers place orders with M/s. ION for the supply of Industrial Water Treatment equipment. M/s. ION procure pumps, pressure valves, resins from the open market and pressure vessels and Frontal Pipe Works are obtained got manufactured through the independent job workers. The various parts and components so collected are brought to the factory of M/s. ION. The parts suitable for a particular type of water treatment equipment are packed in dealwood boxes and sent to the dealers/customers who placed orders for the equipment. The marketing pattern of water treatment equipments by M/s. ION is that the customer approach their dealer for the supply of their requirements and the dealer in turn place order with the company for the direct supply to the dealer. This pattern of sale is given in their letter dated 14-8-91, captioned Marketing plan for Standard Plant and Instruments . The invoices are raised on the dealer and appropriate sales tax for the sale of Standard or Package type water treatment plant to the dealers are paid. As such the fact that the Standard or Package type water treatment plant in question were sold to the dealers is evidenced from the invoices raised. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embling of components that make up the complete product has been so adopted as to escape duty liability that should have been discharged on the completion of each unit. The appellants arranged their affairs in such a way that they could present a case to the department that what they sold is not a manufactured by them but by someone else. The appellant cleverly set up a scheme to avoid tax and confuse the department. The arrangement for the sale of standard/package type water treatment plant is not as innocent as M/s. ION claim it. 41. The next argument of the company is that the water treatment equipment was brought into existence only at the site of the customer in a progressive manner on a platform solely constructed for the purpose and the water treatment plant in question is an immovable property. In this regard, I find from the printed photographs available in the pamphlets issued by M/s. ION that the water treatment equipment in question have been simply placed on an elevated concrete platform only to facilitate the flow of water. I also find from the photographs of the model Industrial Two Bed Upflow Deionisers printed in the pamphlet, that the concrete platform is int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lti point sales tax. While defending the dispute before the sales tax authorities a plea made by the dealer on the advise of M/s. ION is that what they supplied was only a machinery and not parts. 44 The pamphlets issued by the company indicate that the standard or package type of water treatment equipment are sold in dealwood cases in CKD condition, for convenience in transport. The mere fact that water treatment plant are supplied in disassembled condition does not mean that no excisable articles has come into existence. In this regard, I find the judgment of Patna High Court in. the case of Tata Iron Steel Co. Ltd. v. UOI and Others reported in 1988 (33) E.L.T. 297 (Patna) is very relevant. I, therefore, hold that the claim of the company that they only sold parts of water treatment plant and not water treatment plant as such is not factually correct and therefore not maintainable. 45. As regards their plea that because Asstt. Collector, Hosur II Divn in his letter dated 3-3-1987 has confirmed that there is no duty liability on the water treatment plant in question, I find from the letter dated 27-10-1986 of M/s. ION addressed to the Asstt. Collector of Central Excise, H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e item industrial water treatment plant after erection and installation gets fixed into the earth thereby becoming an .immovable property at site; and (ii) have suffered appropriate excise duty at the time of clearance from the respective factories. 48. A perusal of the above correspondence reveal that M/s. ION, when they sought clarification regarding dutiability of water treatment plants, they informed the department that they are engaged in the manufacture of only two types of water treatment plants, i.e. package type water-treatment plant and Industrial water treatment plants. But the fact remains that they are engaged in the manufacture of the following three types of water treatment plants. (i) Prototype water treatment plant. (ii) Standard type water treatment plant (also called package type) (iii) Large scale turnkey project water treatment plants. 49. Prototype water treatment plants are supplied in fully assembled condition and package/standard water treatment plants are supplied in the form of sub-assemblies in semi-knocked down condition. To mislead the department, they mis-represented the prototype as package type. For prot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50. The company filed appeal before the Collector (Appeals), Madras, against the order of the Asstt. Collector, Hosur. In the statement of fact enclosed to the Form EA1, the company categorically stated that the dispute relates to large scale industrial water treatment plant to be erected at the site of customers. They have further stated that each water treatment plant is specifically designed for the customers as per the blue print and the drawings. The entire water treatment plant is a functional system which came into existence at the site of the customer, and it is immovable. The Collector (Appeals) in his order No. 73 and 190/88, dated 27-7-1988 has observed that the facts incorporated in the grounds of appeal were not disputed by the Asstt. Collector and the Collector (Appeals) has therefore, held that under the given set of facts, when there is no manufacturing activity on the part of the appellants, but the bought out goods are erected at the site of the customers there being no manufacture in the premises of appellant, collection of duty is against the provisions of Section 3 of the Act. In this regard, I find that the Asstt. Collector, Hosur has in his letter dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect for consideration is whether there was wilful suppression of fact or wilful misstatement during the period Jan 88 to June 92 in respect of package type of water treatment plant cleared without payment of duty. In this regard, I find that during the material period the company treated package or standard type water-treatment plant as industrial water treatment plant erected as turnkey project and stopped payment of duty. The fact that they sold such water treatment plant through a net work of dealers as assembled or semi-assembled in SKD condition has not been denied but this material fact was suppressed. The company on their own presumed that package/standard type water treatment plants are also not excisable and cleared the same without payment of duty. They withheld the fact of sales of such package type of water treatment plant through dealers to the knowledge of the department. This apart, the company have created an impression before the departmental authority that the entire activity of M/s. ION relate to industrial water treatment plant being erected at the site of customer as a turnkey project. I find that they succeeded in their claim for refund through mis-repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -92 : ₹ 76,81,034.63 (4) 1988-89 : Not available. (C) Taxable turnover as per TNGST, Returns (1) 1989-90 : ₹ 5,94,09,311.10 (2) 1990-91 : ₹ 7,75,66,252.65 (3) 1991-92 : ₹ 9,10,53,850.00 (4) 1988-89 : ₹ 5,50,09,142.00 The mini water treatment plant cleared by them on payment of duty during the relevant period are also furnished. If the claim of the company that the figures furnished in the show cause notice is inclusive of the turnkey projects there is huge balance left over, for which the company have not adduced any reason whatsoever. In the circumstances I am unable to give any credence to their plea and hold that the value adopted in the show cause notice which has been furnished by them is correct. 54. As regards the proposal to confiscate the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that parts of standard/package type of water treatment plant obtained from job workers and brought in their factory and despatched in dealwood cases as a complete set would tantamount to manufacture. Despite this clear cut legal advise and understanding of the legal issues involved, the unit has continued to clear package/standard type water treatment plant without payment of duty. Their deliberate evasion of duty in respect of standard/package type of water treatment plant manifests selter disregard to the requirements of law and breach of trust deposed on them in the matter of excise clearances. The facts and evidences on records prove in ambiguous terms that there was suppression and wilful mis-statement of facts to evade payment of excise duty on package or standard type water treatment plant. This is not a case where it can be said that the manufacturer was so arranging his affairs as to avoid the duty payable by him. The theory that the citizen has the liability to so arrange his affairs that the tax attaching under the appropriate Acts would be less than it otherwise should be, itself undergoes a qualitative change on the basis of the trust and relevance placed on him for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny packing and other bought out items, if found fit, are redespatched in the existing packing condition and other miscellaneous items are put in boxes, only to facilitate easy transportation. (5) The appellant submit that what has been despatched are only components of industrial water treatment plant and invoice cannot be a basis to conclude that what is supplied is a water treatment plant and learned Collector failed to appreciate the fact on record before confirming the demand. (6) Having held that the supply of items is followed with an erection process wherein the appellant company either depute an engineer or a qualified person is sent by the dealer, the learned Collector erred in holding that what is supplied is water treatment plant, especially when the plant can emerge only upon installation. The erection requires supervision by a qualified engineer and execution of work by labourers. (7) Having held that there is a process of erection requiring supervision of a service engineer/qualified person to ensure proper assembly and trouble free operation, the learned Collector has contradicted in concluding that the equipment is easy to install by placing reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Collector refers to as two drums are in fact two pressure vessels which necessarily have to be anchored to the earth by means of concrete. All such equipment are to be anchored to the earth in specific positions with reference to other equipment forming the plant. It is therefore wrong to conclude that concrete platforms are intended solely to position equipment. The order is contrary to Para 37 which states that Service Engineers/qualified persons are required to ensure proper assembly and trouble free operations which finding concurs with the factual position. (14) The learned Collector ought to have examined the details and evidence on record as to the installation process and misled himself by placing reliance on trade literature/pamphlets especially when this aspect has been comprehensively answered in the reply to the show cause notice and also during the proceedings. The findings at Para 41 contradicts Para 37 and the order is vitiated. (15) When the appellants have specifically denied any packing operation, the learned Collector erred in concluding that each package created an impact on the customer of a complete water treatment equipment and not mere col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Iron Steel Company v. Union of India, 1988 (33) E.L.T. 297 is out of context since in the case before the Court there is actual manufacture of goods, assembly, disassembly and supply in a knocked down condition. No such fact exists in the impugned case and any conclusions flowing therefrom stating that what is sold is a plant and not parts is bound to be factually erroneous. (22) The appellants submit that all along since inception both the department and the appellants have consistently maintained supply of two sets of plants namely portable Deioniser (prototype) and industrial water treatment plant. In fact, even during the current enquiry, summons were issued on 18-7-92 seeking particulars for total supplies of the industrial water treatment plant and data has been furnished by the appellants for the total operations on 24-7-92. Department for the first time in the show cause notice has made distinction in the industrial water treatment plant by separating into two categories one as large scale industrial water treatment plant and the other as medium scale, and the notice dated 13-1-93 and order dt. 15-6-94 excluding large scale plants from the purview of the proceedings. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l it was decided in favour of the appellants through the order of the Collector (Appeals), dated 27-7-88. In the circumstances, the appellants state that the findings at Para 51 that the earlier issue related only to large scale water treatment plants as found in the order and the appellants Grounds of Appeal before Collector is opposed to facts. The Department kept confusing portable Deionisers with medium size plant and erred in holding at Para 50 that appellant misrepresented the issue before the authority. The appellants reiterate that there was no confusion. (28) The appellants submit that as rightly observed, duties were paid on all types of water treatment plant and after the order of Collector (Appeals) dated 27-7-88, duties were paid only on portable Deionisers which were manufactured and cleared on payment of duty. Duty was not discharged on trading activities. Therefore, the findings at Para 49 that the appellant presumed non-dutiability for the entire trading activities and clarifications were obtained only on large scale plant is contrary to facts and there is no such indication in the earlier proceedings. Even the summons dated 18-7-92 prove ample testimony about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he finding at Para 44. (34) The learned Collector erred in observing that the sale of package type of water treatment plant was withheld from the department. When duties were discharged on trading operations, the statutory records such as the classification list, price list, annual stock taking report would clearly indicate that these items were within the scope of levy, and department is thoroughly familiar and aware of the appellants operations. (35) The appellants submit the observations at Para 52 that the appellants succeeded in the refund application through a wrong impression and misrepresentation of facts is incorrect for reasons stated in the previous grounds. Department s reasoning in the show cause notice, is no ground to attribute misrepresentation on the part of the appellant especially when the department is aware of the activities. (36) The appellants state that the findings in Para 53 are in contradiction to Para 36 for having confirmed the demand on the entire trading operation. The appellants state that the show cause notice and the order has excluded large scale industrial plant, from the purview of the proceedings. Summons were originally issued on 18-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs is ex facie bad in law, especially when there are palpable contradictions in the order, patent errors, mis-calculations in figures non-examination and non-appreciation of contention and evidence on records. The order is therefore liable to be set aside. The appellant state that findings in Para 55 is factually incorrect and the order therefore is liable to be set aside. (41) The appellants submit that Rule 2A of the classification rules is subject to Sec. 3 of Central Excises and Salt Act, 1944. Therefore, in the absense of any manufacture or assembly, neither Sec. 3, nor Rule 2A of classification rules is applicable to the case. In the circumstances, the order of the learned Collector confirming manufacture or mere despatch of components/trading activities runs contrary to the provisions of the Act and the order therefore is not sustainable in law. (42) The appellants further state that there is contradiction as to the findings in the order of the learned Collector and the same also runs contrary to the allegations in the show cause notice. It was originally the case of the Department in the show cause notice that the procurement and despatch of components would amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 5. They have also submitted written submissions which were received in the Registry on 29-6-2001. These written submissions are repetition of the grounds of appeal. They have also submitted certain case laws in the Court on 3-7-2001 on the legal position as to whether packing of the goods would amount to manufacture. 6. Appearing on behalf of the appellants, S/Shri N. Venkataraman and M. Venkataraman learned Counsels submitted that show cause notice was issued on 13-1-1993 invoking the extended period of limitation which was for the period 1/88 to 6/93. They further submitted that they are engaged in the manufacture of pressure vessel, pipe works and industrial water treatment plant classifiable under sub-heading 7308.00, 7309.00 and 8421.00 respectively of the Schedule to the Central Excise Tariff Act, 1985. Water treatment plant is a fabricated item of pressure vesssel and pipe and tubes etc. and they use other items like cables etc. and they are using duty paid bought out items. Fabricated portion of the pressure pumps are sold to them by various vendors situated in Hosur. The allegation of the department is that job workers are dummy units and appellants are the real m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty and the trading activities they were trading for big industrial water treatment plant and also for the medium sized water treatment plant. The contention of the department is that what was adjudicated was for manufacture of big items and not for medium sized item. Since the appellants did not disclose the medium sized item, therefore, the department alleged that there was suppression of facts. They also invited our attention to page 356 of the paper book which contains the view of the ION Exchange Manager at Hosur under which it was stated as under : (a) Abandon the idea of a go-down - continue to operate from the factory. (b) As per consultant s advice, begin paying excise under protest from 1st May, 1988 - Our new financial year. A second expert opinion will help decide the course of action to be taken. The main question - if we operate from a separate go-down - are there not good chances for our now having to pay excise? The learned Counsels further submitted that the department has alleged that because of the expert opinion instead of paying excise duty they have started clearing the goods without payment of duty. They further submitted that from 16-6-88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y designed and made for industrial purposes, the appellants are not paying duty. The area of dispute is restricted package type also called standard type. (2) According to the Revenue, there is no difference between the prototype and the package type . Whatever may be the individual requirements, the water treatment plants supplied, as regards the package type and the standard type, are the same. To put it in other words, both the said types are standardized, irrespective of the user. (3) As regards the large scale plants required for industrial purposes, the design of such plant varies, according to the nature, and extent of the individual user. There is no specification of standardized design for each industry to suit its need and exclusive design is individually devised. Further, such large scale plants are constructed on the earth and at the site and as such being embedded to the land and thus an immovable property. (4) As regards the prototype and package type , the only difference is the size which is also not substantial. Excepting the size, there is no other area of difference. The prototype is assessed to duty and on a parity of reasoning, package type s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, the duty has been validly assessed and it is now settled law that the voluntary statements are to be given credence and in fact the Apex Court has ruled in 2000 (Cri.) Section 1275 that such statements have independent evidentiary value. (7) There is again a clinching circumstances, in proof of facts that invariably a single unit is sold and not the components thereof. Further, a study of the invoices raised by ION Exchange Ltd., and also other documents regarding payment of sales tax reveals that the goods cleared from their premises has been declared as a machinery and not as components. Therefore, if the sales tax is assessed as a single unit, it is not known as to how it could be different for the assessment of excise duty. Again, even as per the ION Exchange s showing a claim, they have introduced this prototype as a manufacturer of water plant. Further there is nothing evident to show that ION Exchange sold only components or parts for a single unit as a whole. A perusal of the invoices reveals that the price is charged only for the water treatment plant and not for parts and components as claimed by the manufacturers. Again as per their own showing, the balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as well as the statement of Shri K.V. Vagulabaranan. In fact the standardization of the product was perfected as a result of M/s. Ion Exchange (India) Ltd., Research and Development activity (R D) which speaks the fact that the standardized is a unique feature of their product and the activity of the assessee is not a trading one but a clear case of manufacturing. The said standardization is a privy to Ion Exchange India Ltd., only and as such it distinguishes from a regular trade and in the statement of Shri S.S. Ranganathan, the standardization is claimed as the company s brain child, and the Water Treatment plant as unique product of the individual skill gained from R D Unit belonging to them. 3. The contention of M/s. ION Exchange that they cannot be called manufacturers by claiming reliance on the decisions regarding cable jointing Kit and TI Diamond cannot be sustained. As regards cable jointing Kit, the person who supplies the individual components for Kits pay duty on that component and secondly the jointing Kit as such is useless and unless it is jointed by two cables to make it functional, it cannot work. But this water treatment plant, the plant itself is functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner for the first time only during the investigative process. 5. It was also found by the Commissioner that the standard type was also being sold in the guise of industrial plant for which alone the department earlier gave a clarification. In the circumstances, the misrepresentation and suppression by ION Exchange in respect of the package type or the standard type is clearly made out and established and as such, the dutiability is attracted. Further to take advantage of the extended period, as found in proviso to Sec. 11A of Central Excise Act, 1944 the initial burden is on the department to show that extended period of 5 years can be availed of and when once the initial burden is discharged by certain evidence, the burden shifts to the assessee and thereafter the provision relating to extended period of limitation itself, should be construed liberally as ruled by Apex Court in its judgment referred 1995/SCC (1) P. 50 since the fiscal legislation is to be given some laxity as per the law of the land. Respondent submits that the Apex Court clearly ruled the law that omission to state or declare a particular type of goods or products itself amount to suppression of a fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents submit that the appellant procures the components/parts from various job workers. Until the said components/parts reaches the premises of the appellant, they are known in the market only as parts of general nature like nipples, couples, pipes, etc. At the premises of the appellant, all the components/parts are tested either in assembled condition or without assembled condition. Later all the parts are in the predetermined, standardized pattern are placed in the carton. Such grouping standardization is claimed the proprietary right by the appellant. Only when the aforesaid process is carried out the goods which are until then recognised in their original name as nipples, pipes, couples, filters, etc., lose their original name and the standardized product gets new name. In other words, only when this process is carried out, the final product gets the new name as Industrial Water Treatment Plant . In this regard Apex Court judgment in Collector v. S.D. Fine Chemicals Ltd. - 1995 (77) E.L.T. 49 (Supreme Court) is relevant wherein it has been held that whether a process amounts to manufacture is a question of fact and one of the main tests is that after application of any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing different parts together to create a product that had not existed before - Pressure Cooker and Appliances Ltd. v. Collector 1987 (28) E.LT. 566 (Tribunal). 10. The respondent further submits that the appellants are paying excise duty for the prototype manufactured by them and for the standardized type they plead that there is no manufacture and they are only packaging and sending to buyers which is unacceptable in law and the difference between prototype and standardized type is only in the size and not in any other aspects. Further the standardized water treatment plant packaged and cleared from the appellant company is easily put in the use of the buyers and it is not as if the standardize type emerges as a final product only if it is put in use by the buyers. On the contrary the standardized type assumes its identity only from the appellants company and the buyer sees the standardized water treatment plant as a new product only from the appellants and by no stretch of imagination it can be assumed that the standardized type involves only packaging of various components and as such there is no manufacture at all. 11. The respondent submits that in fact the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits that the appellant though coming under the purview of self removal procedure (SRP) deliberately omitted to state the factum of production of standardized water treatment plant and there is wilful misstatement with intention to evade tax and in fact the clarification given by the Collector of Central Excise is only for giant water treatment plant or turnkey project and not for package/standard type water treatment plant and thus there is clear misrepresentation of facts with intention to evade tax and only in that aspect the extended period as provided under Section 11A of Central Excise Act is attracted and authority are legally correct in invoking the extended period as provided in Section 11A of Central Excise Act, it is also important commodity that the opinion given by the lawyer as relied upon documents also reveals the fact that the appellant is fully aware that he is liable to pay excise duty also for goods (package/standard type water treatment plant) and knowing the same with intention to evade tax the said manufacture of the product was omitted to be disclosed to the authority. ADDITIONAL WRITTEN SUBMISSION It is humbly submitted that this Hon ble Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the identical goods were assembled and then cleared in C.K.D. condition. It is also admitted that in respect of this product they have done a process of standardisation. (Page 42 answer to question 10). The packing done by the appellant is not done in the manner it is done by a dealer of grocery items - putting items like wheat, rice, sugar etc. in a carton box, in other words, they acquire the skill of standardization over the years (Page 42 answer to question no. 10). In support of their contention that the process of packing does not amount to manufacture, the appellants have submitted the following judgments :- (1) XI Telcom Ltd. v. Suptd. of C. Ex. Hyd., 1999 (105) E.L.T. 263 (AP). In this goods involved is cable jointing kit. It was held that in this case only there is a change in the name; no change in character and end use. It was also held that no process was involved. (2) Siechem v. Commissioner of C. Ex., 1999 (30) RLT 207 (T) (3) Yamuna Gases Chemicals Ltd. v. C.C.Ex. 2000 (40) RLT 656 (T) (4) C. C. Ex. v. TI Diamonds Ltd. Supreme Court Order in CA No. 396/2000 dismissing the Departmental appeal. (5) TI Diamond Chains v. C.C.Ex., 1999 (35) RL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without the process of standardisation, the process would not be complete. In other words, what is cleared is not merely the collection of parts, but the transfer of such technical know-how or technology which alone gives the life to the machinery to make it a complete machinery and such activity which transform the parts amount to manufacture. It is submitted that but for the transfer of this technology evolved out of standardisation, the product would not become complete and such facts have been admitted by the appellant. The various judgment cited by the appellants take the aforesaid fundamental facts only into consideration. In other words, in none of the aforesaid incidents, the concerned assessee have diverted a process of standardisation and evolve a drawing and that it would be packed in a particular pattern by them only. In all these cited cases the packing are done in a mechanical way only as it is done by a dealer of grocery shop, and the facts are quite distinct in the present case and a precedent is the one which binds the issue of law and not on facts. Apart from this the following corroborating evidences are also cited. 1. The appellants themselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration for the disputed goods, which is mandatory. Subsequently, as the assessee came forward to pay the duty suo motu, there arose no need for the Department to doubt their bona fides after all they are covered under SRP procedure where the department reposes trust on the assessee. The very fact that the appellant gives the guarantee for the impugned goods to the consumer makes it clear that the activity which has transformed the character and use as well as the marketability of the goods at the appellants premises. In this context it is again reiterated the impugned goods are only assembled at site and not erected at site to make them become the permanent structure in the customer s end. In this connection, the pamphlets of the respective goods are submitted as evidence. Besides it is also claimed by them that it is very easy for the customer to install it in a short time, in contrast to their earlier stand both in their letter under protest and to Commissioner (Appeals) that it is a cumbersome process involving a lot of work like civil work, foundation work etc. to make it become immovable property, that is to say it is not constructed like a building or like a pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the adjudicating authority to find out whether goods came into existence because of some activity undertaken by the assessee. In the instant case the Revenue has established the facts which was also not contested by the assessee that there is a definite activity done by the appellant (Not some activity) and on the reasoning and logic there is a new product due to the said definite activity and thus the issue was not finally decided by the Apex Court and hence this Hon ble Tribunal may be pleased to consider the distinct facts and render justice to the Revenue through its judge made laws. He has invited our attention to the clarification given by the Assistant Collector dated 3-3-87 which was for large scale water treatment plant on which no duty was leviable as it was erected at site piece by piece. It was clarified by the Assistant Collector that this item is an immovable property. As regards standard type water treatment plant is concerned, it is like portable plant and they had paid duty on that. He also invited our attention to Section 2(a) of the interpretative rules. He also submitted that the citations given by the appellants are distinguishable. 8. The matter was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le property. 9. In counter the learned Counsels for the appellants invited our attention to the letter dated 5-6-89 which is at page 623 of the paper book by which they had informed the Supdt. of Central Excise, Hosur II Range that they had licence to manufacture water treatment plant in their factory right from 1981 and that they have been manufacturing a category of water treatment plants commonly known as portable or packaged water treatment plants by assembling the same in their factory and on which they had been paying excise duty as applicable. They have also other activity whereby they procure components from outside from a variety of venders which they pack at their premises and despatch to their customers. These components had already suffered excise duty at the time of receipt at their factory. Department had accepted their contention that this activity does not amount to manufacture and hence no licensing formalities were required. They had also informed vide their above letter that from 1-6-89 they have segregated their factory premises into separate premises, one having activity of receiving components as they are from various customers without any operation on them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Supreme Court for attracting the levy are not satisfied as there is no change in the identity, character and use of the articles placed in the kit, they are known in the market as such and are marketable as such. The Hon ble High Court also observed that no process is also involved except that all the items are put together in one box. The learned Counsels also submitted that this case should not be remanded back for de novo consideration since all the relevant facts are before the Tribunal. In this connection he relied upon the decision of the Tribunal in the case of Metrosyle v. CCE, Patna reported in 1995 (77) E.L.T. 130. They also submitted that Rule 2(a) of the interpretative rules is not applicable to Central Excise cases and it is applicable to Customs cases only. In support of this plea, he relied upon the ruling in the case of Hindustan Motors Ltd. v. CCE, Calcutta-II reported in 1996 (87) E.L.T. 216 (Tribunal). He also invited our attention to the decision of the Tribunal in the case of Eureka Forbes Ltd. v. CCE reported in 2000 (125) E.L.T. 1195 (T) = 2000 (39) RLT 351 wherein it was held by the Tribunal that putting together of bought out water filter cum-purif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions as well as the oral submission made by both the sides. We find that the appellants are manufacturers of three types of Water Treatment Plants as under : (1) Prototype water treatment plant : This water treatment plant is a mini water treatment plant and is also known as portable type water treatment plant and the appellants are paying duty and there is no dispute about the same. (2) Large scale turn key project erected at Site : This water treatment plant is a Large Scale turnkey project in which each part is erected at site and is embedded to the earth. They are therefore not paying duty on this. The turn key project is a large scale water treatment plant as the same does not come within the category of goods and have been declared as immovable property and accepted by the department also as immovable property and no duty is either paid by the appellants or demanded by the Revenue. Therefore, show cause notice excluded from its purview the prototype category on which they are paying duty and the large scale turnkey plant specially made for industrial purpose as the same is treated as immovable property. Since large scale plants are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e water treatment plant. It is also observed from the records that dealers place orders with the appellants for installation of water treatment equipment. The appellants procure pumps, pressure valves and resin from the open market and pressure vessels and frontol pipes were got manufactured through independent job workers. Various parts and components so collected are brought to the factory of M/s. ION Exchange, the appellants and parts suitable for a particular type of water treatment plant are packed in dealwood boxes and sent to that dealers/customers who had placed orders for the equipment. Marketing pattern of water treatment plant by the appellants is that the customers approach through the dealers for the supply of their requirement and the dealer in turn place orders with the company (appellants) for the direct supply to the dealer. This pattern of sale is given in their letter dated 14-8-91 captioned Marketing plan for Standard Plant and Instruments . The invoices are raised on the dealer and proper appropriate sales tax for the sales of Standard or Package type water treatment plant to the dealers are paid. As such the fact that Std or packaged type water treatment plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latform solely constructed for the purpose and the water treatment plant in question is an immovable property, is not acceptable and not tenable inasmuch the printed photograph available in the pamphlet issued by the appellants shows that the Water treatment equipment in question have been simply placed on an elevated concrete platform only to facilitate the flow of water. We also observe that the photographs of the model Industrial Two Bed Upflow Deionisers printed in the pamphlet, shows that the concrete plant form is intended to place the two drums separately, one for inflow and another for outflow of water. The photograph in the pamphlet further indicates that the concrete platform is solely intended for positioning the equipment and not for any other purpose. The pamphlet issued by the appellants also clearly indicated that the standard type/package type unit supplied in knocked down condition can be easily installed at site. Further they have themselves admitted in their answer to question No. 8 (page No. 41 of the paper book) wherein Shri Ranganathan, GM has stated that there were occasions when the identical goods were assembled and then cleared in CKD condition. It is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which was nothing but was like Prototype, except the little difference in size, on which they were paying duty. Further, the standard/package type is exported fully assembled, knocked down and then despatched in respect of certain export orders where there was inspection by export agency. The appellants have also admitted to question No. 8 that on insistence of the export agency, certain components were also assembled in their presence before giving shipping clearance. The pamphlet issued by the appellants also clearly indicated that the unit was sent in knocked down condition and can be easily installed at site and hence the question of the goods being termed as an immovable property does not arise as it is clearly indicated in the pamphlet that the product can be easily installed by the customers themselves with the assistance of the trained persons of the appellants themselves and some times only with the assistance of the technician from the company. It is also observed that the unit of sale is the number of each equipments and not as individual parts. From the invoice also it is revealed that price charged is for the water treatment plant and not for parts. In this connecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with parts and components in SKD or CKD condition against specific orders and where some of the parts of such conveyors are manufactured in assessee s factory and some parts are purchased from the market does not mean that what is manufactured and cleared is parts and components and not entire system. In the present case also as admitted by the appellants in their letter dated 27-10-86 Std. type/package type water treatment plant is supplied in CKD and SKD condition at the site and is placed on an elevated concrete plant form, only to facilitate flow of water. At this juncture, it would be necessary to point out that neither they are paying duty on the large scale water treatment plant which is erected at site piece by piece nor the department has ever demanded any duty on such large scale water treatment plant which is a turnkey project. The department has asked duty only on Std/package type water treatment plant which is clearly tested in the factory of the manufacturer and then packed and cleared in CKD/SKD condition and this despatch is for the purpose of facility of handling and transportation in the knocked down condition, which can be easily installed at site. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assembly takes place smoothly and he is able to see the actual operation of such machinery in the presence of the dealer from whom the goods were bought. The goods in the present case viz. Standard/package type water treatment plant are therefore, as also admitted by them in their letter dated 27-10-86, are supplied in the fully assembled condition or in a semiknocked down condition. Since they were paying duty on the prototype water treatment plant, the clarification given by the Assistant Collector was only with regard to industrial water treatment plant erected at site and embedded into the earth at site which became immovable property, as is very clear from the clarification, ibid. Prior to this clarification, the appellants were paying duty on all the three types of water treatment plant. On receipt of clarification with regard to large scale water treatment plant, the appellants could have and should have sought further clarification about Std/package type water treatment plant, if they had any doubt to its duty liability. But instead of getting any doubt clarified and in spite of legal opinion given by their own legal department, that duty is to be paid on Standard/package ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. We, therefore, confirm the imposition of penalty of ₹ 50 lakhs (Rupees fifty lakhs) under Rule 9(2) and Rule 173Q of the Central Excise Rules, 1944. We order accordingly. Sd/- (Jeet Ram Kait) Member (T) Dated : 28-2-2002 15. [ Contra per : S.L. Peeran, Member (J) ]. - With due respect to my ld. brother, I could not persuade myself to agree to his findings and hence I am recording a separate contra order. My brother has already extracted extensively the charges levelled against the appellant, their reply, Commissioner s findings, appellants ground of appeal and the Counsel s argument. They are not repeated again for the sake of brevity. 16. Briefly the show cause notice dated 13-1-1993 raises demands for the period January 1988 and 10-7-92 and has proceeded on the premise that appellants had contravened the provisions of Rules 9(1), 52(A), 53, 173B, 173C, 173G and 226 of C. Ex. Rules inasmuch as they had manufactured, stored and cleared the pressure vessels, pipe works and industrial water treatment plant classifiable in Chapter sub-heading 7308.00, 7309.00 and 8421.00, respectively of the Schedule to the Central Excise Tariff Act, 1985 without obtainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax reveals that the goods cleared from their premises had been declared as a machinery and not as components and that they had declared the activities as mere trading activities . They had also introduced themselves to fresh customers as manufacturers of water treatment plant. The literature supplied by the appellant describing the goods to their buyers is also relied by the Department in the show cause notice to show that what was cleared by them was water treatment plant of medium sizes and had been cleared without declaring it in any manner to the Department and without payment of duty. The statement of the various job workers whom the Department described as hired labourers and the statement of the General Manager of the appellant firm also relied. 17. The General Manager s statement reveals that their activities consists of procuring bought out items such as valves, pumps, motors, etc., procuring fabricated items such as pressure vessels, tanks, pipes. It was stated that these items are thereafter packed depending on what are available in their stores as well as what is available at the premises of their suppliers. Subsequently these are despatched to the dealers/customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their instance some components were assembled in their presence before giving shipping clearance and it was emphasised that such activity applied to export orders only. It was explained that the bought out items were received with packing intact and that they re-despatch as such. When they found the packing may not with-stand their journey to their customer in such cases they re-packed them. It was also emphasised that pressure vessels do not even require packing before despatch. It was explained that over the years they had been supplying and had standardized their work, such that it becomes easy for the customer to install in a short time. They emphasised that the fact is that they despatch only components, which the customer puts it together with the help of drawing furnished by them. For the sake of convenience, they termed it as Water Treatment Plant as a heading, but in actual fact they send it as components as packed in same condition. He explained that in any business, a definite pattern or procedure is invariably followed. In the same way, trade names are also used because the company wishes to be associated with the trade name to differentiate it. He denied that the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and experts assistance it was installed and these facts had been accepted by the Commissioner in the impugned order. They had taken the approval of the portion and had shown the trading activity in the approved ground plan. (ii) They had filed a revised classification list deleting the item in question. However, they had paid duty in terms of the legal advise received from their advocate under protest. However, the Assistant Commissioner informed them vide his letter dated 3-3-87 that the item removed in packed condition were not dutiable and as such they had filed fresh classification list by showing only the goods manufactured in their premises and by deleting the items dealt in trading activity. (iii) They filed refund claim in January, 87 with regard to the duty paid on this very item in question. The Assistant Commissioner had issued a show cause notice calling upon them to explain as to why the duty paid under protest in respect of this item in question should not be rejected. Later he decided the case against them. They filed an appeal before the Commissioner (Appeals) who allowed their appeal and granted consequential relief. They were paid the amounts in terms of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... care designer feeder was held to be not a process of manufacture. Likewise, reliance was placed on the judgment in the case of TI Diamond Chain Ltd. v. CCE, Chennai as reported in 2000 (126) E.L.T. 790 (Tribunal) 1999 (35) RLT 517 wherein testing and packing of transmission kit comprising of rear wheel sprocket and gear box sprocket procured by appellants from outside was held to be not a process of manufacture. Likewise reliance has been placed on the Apex Court judgment rendered in the case of Union of India v. J.G. Glass Industries Ltd. as reported in 1998 (97) E.L.T. 5 (S.C.) wherein two-fold test pertaining to process amounting to manufacture has been laid down and appellants contend that the said test applies to the present case and therefore the trade activity in removal of a few packed parts in the same condition or in re-packed condition does not amount to process of manufacture and no new product as water treatment plant comes into existence. Reliance has also been placed in the judgment rendered in the case of Hitech Carbon Products v. CCE, New Delhi as reported in 1996 (81) E.L.T. 150 to plead that there is no suppression in the matter and demands cannot be confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scale turnkey water treatment plant They were paid duty in respect of items (i) and (iii). It is only in respect of present item there was a dispute. The Tribunal rendered judgment in the case of Hawkins Cookers holding the process of packing of parts to be a process of manufacture. Therefore they started paying duty on protest. However this judgment was reversed by the Apex Court. Hence, the Assistant Commissioner issued a letter asking them not to pay duty. They also filed a revised classification list and filed refund claims, which were adjudicated. Thus the issue of packing being not a process of manufacture to bring into existence new goods is a settled issue. The Hon ble High Court of Andhra Pradesh in the case of XI Telecom v. CCE (supra) have clearly held that putting together different duty paid goods in a packed condition does not amount to a process of manufacture. This judgment has since been confirmed by the Apex Court, this ruling has been applied in the case of Siachem v. CCE, Chennai (supra) by this Bench. Likewise, similar view was expressed in the citations referred to by the appellants as in the case of Yamuna Gases Chemicals Ltd. v. CCE, New Delhi (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Therefore that fact would not come into the way of the appellant s contention and hence the revenue plea on this ground is rejected. 22. In so far as the appellant s plea that the department is fully aware of all the facts, as the matter was under adjudication for long and the appellant had paid duty on this very product under protest and that it was full refund in 1987 has been established before us. The show cause notice had been issued calling upon the appellant to explain as to why the refund claim should not be rejected vide letter dated 30-12-87 after the Assistant Commissioner passing the order rejecting their claim on 4-3-88. Likewise, he had also issued show cause notice raising demands for the very item for the period 10-7-87 to 31-12-87 which was confirmed by his order dated 31-5-88. The appellant had filed appeal before the Commissioner (Appeals) against both the orders and succeeded in their pleas in Commissioner (Appeals) order-in-appeal Nos. 73 and 86, dated 27-7-88. This has not been challenged by the Department. Thereafter they filed a revised classification list in No. 303/88-89 deleting this very item from the list by their letter dated 29-11-88. They had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order is set aside and the demands and penalties are quashed. The appeals are allowed with consequential relief, if any. Sd/- (S.L. Peeran) Member (J) Dated : 13-3-2002 POINTS FOR DETERMINATION BY THE 3rd MEMBER In view of the difference of opinion between the Members the following questions are referred to the 3rd Member for deciding the difference of opinion. (i) Whether the demands and penalties as confirmed in the Order-in-Original No. 51/94, dated 15-6-94 by Commissioner of Central Excise is required to be confirmed by holding that appellants had clandestinely manufactured and cleared water treatment plant in CKD condition by invoking Rule 9 of the CE Rules read under proviso to Section 11A of the Act by confirming the duty and penalty as held by the ld. Member (T) Shri Jeet Ram Kait in his order Or (ii) That the appellant have not manufactured water treatment plant and have not cleared the same in CKD condition and that demands are not sustainable as the same being barred by time and limitation as held by ld. Member (J) Shri S.L. Peeran in his order and the appeals are to be allowed. Sd/- (Jeet Ram Kait) Member (T) Dated : 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had manufactured the twink simmermatic by affixing the heat control panel is unimportant and need not lead us away from the path . In fact, the Tribunal did not examine the correctness of the facts found and the conclusion reached by the Collector. The Tribunal held that the path taken by the Collector was not the path that should have been taken. The Tribunal disposed of the case proceeding on the assumption that nothing was done by the PCA except to gather the various tax paid articles and put them in a box themselves and in the facts and circumstances of the case that would constitute manufacture. The Tribunal s order is clearly erroneous. The Tribunal has not found whether a new product came into existence because of some activity undertaken by the appellant. Without this finding, it could not be held that a manufacturing process had been undertaken by the appellant and unless there is a finding of manufacture, excise duty is not attracted. Unfortunately, the Tribunal has not examined the correctness of the Collector s order at all. We are of the view that the order of the Tribunal is erroneous and must be set aside [paras 2 and 3] 29. The appellant s contention is that unl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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