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M/s. Ashok Leyland Ltd. Versus CCE & ST, LTU, Chennai

2018 (2) TMI 916 - CESTAT CHENNAI

Receipt of motor vehicle chassis due to various defects - Revenue entertained a view that the processes undertaken by the appellant on such returned chassis will not amount to manufacture of any new item - applicability of rule 16 of CER - can there be a total dismantling and re-manufacture of such duty paid motor vehicle cleared in the form of chassis with all the requirements of engine, transmission system? - Held that: - there is no total dismantling and re-manufacture of the impugned goo .....

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16. Admittedly, the appellants did follow the procedure under Rule 16 in so far as re-credit availed upon return of defective goods. They did observe the procedure as per the Trade Notice 108/LTU dated November, 2008 issued by Commissioner, LTU. We are dealing with a part of provision of Rule 16 (2). Having held that the appellants did not undertake any processes amounting to manufacture, we note the said Rule will apply in full force. - Regarding the claim of the appellants that certain num .....

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of the provisions of Rule 16 - penalty not justified. - Appeal allowed in part - part matter on remand. - E/87 - 94/2011 - Final Order No. 40321-40328/2018 - Dated:- 31-1-2018 - Ms. Sulekha Beevi, Member (Judicial) And Shri B. Ravichandran, Member (Technical) Shri Raghavan R., Advocate, for the Appellant Shri A. Cletus, ADC (AR) for the Respondent ORDER Per: B. Ravichandran These eight appeals are on identical dispute and are accordingly taken up together for disposal. 2. The appellant is e .....

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e Rules, 2002 (in short CER 02) have taken the credit of duty paid at the time of initial clearance of the said returned chassis. Thereafter, the returned chassis were subjected to detailed examination and wherever found possible certain replacements and modifications have been carried out and were cleared thereafter. In such a situation, the appellants reversed the credit which was re-taken at the time of return of the said chassis. There is no dispute on this aspect. However, certain numbers o .....

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ny amount of repair or re-fixing or addition/replacement will not amount to manufacture and accordingly applying the provisions of Rule 16 the appellant is liable to reverse the re-credit taken on such returned chassis. On this basis various proceedings were initiated against the appellants. They have filed their defense opposing the proposal of the Revenue. The matter was adjudicated by the original authority who upheld the views of the Revenue in respect of such chassis which the appellants cl .....

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various functional/mechanical defects. These were examined by the appellants in their premises. Wherever feasible these were subjected to replacement of parts, re-fixing of mechanical defects and were cleared following the provisions of Rule 16 which mandates reversal of retaken credit. However, in respect of chassis with serious mechanical defects, the appellants undertook the processes of dismantling and re-fixed all the required parts like engines, transmission system, steering wheel, axles, .....

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on of the appellant regarding dismantling and re-assembling of chassis is accepted, still the processes of manufacture is not satisfied. This is factually incorrect as when full dismantling and re-assembling is undertaken the process shall amount to manufacture. Reference was made to the decision of the Tribunal in the case of Maruti Udyog Ltd. CCE, Delhi 2002 (146) ELT 427 (Tri.). c) With reference to factual evidences sought by the Bench regarding the processes undertaken by the appellants on .....

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in majority of cases the chassis had been assembled with new engine/steering system and consequently there have been model change on account off changes brought about in transmission. However, the affidavit concluded that the full details of dismantling, salvaging and re-assembling of new model chassis had been managed and accounted with ERP software system relevant during that time. Since the appellants have switched over to SAP system in April 2012 it is not immediately possible to give elabor .....

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arly, clearances were made to EOU and some were also exported. Here also no duty liability will arise irrespective of the finding on the above dispute. f) The Ld. Counsel strongly pleaded against imposition of penalties in the present appeals. It is his submission that this is of purely interpretation of the issue involved on application of Rule 16 read that Section 2 (F) of the Act. There is reason for the appellant to have a bonafide belief regarding the processes amounting to manufacture and .....

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ture of chassis. The products now under dispute are motor vehicle chassis. There is no evidence that these motor vehicle chassis were remanufactured. It is only various critical components like engine, gear box, steering wheel etc., found faulty were repaired or replaced depending upon requirement. The classification of the returned products as well as re-cleared products was the same. The in between process is only repair and restoration not amounting to manufacture. b) The claim of the appella .....

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ial clearance. Since there is no processes amounting to manufacture, the re-credit availed should be reversed in full and this is inbuilt in the said legal provisions itself. c) The appellant is a well established organization and there could be no interpretation difficulty claiming bonafide belief against imposition of penalties. 5. Heard both sides and perused the records. 6.1 On the first point, we note that the appellants received duty paid motor vehicle chassis due to various defects. Admit .....

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the scope of simple reversal of availed credit and make them as fresh clearances of re-manufactured items subjected to valuation and duty liability as relevant at the time of clearance. We note for this, it is necessary to have a detailed processes undertaken in such cases. We have noted the affidavit filed today by the appellants. Admittedly, the affidavit also clearly states that they have undertaken various replacements of the components. It is also admitted that the chassis frame remains the .....

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e premises of the appellants. There is no supporting evidence to that effect. In fact, we have all the indications to show that only replacement of various components, though critical has been undertaken. These are engine, gear box, steering system, axles etc. These are no doubt critical components of a motor vehicle. But replacement of such items will not amount to manufacture of motor vehicle. Hence, we are in agreement with the lower authority on this aspect regarding application of Rule 16 t .....

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T Credit Rules, 2002 and utilise this credit according to the said rules. (2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of th .....

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oods subsequently subject to such conditions as may be specified by the Commissioner. Provided that for the purposes of this rule, assessee shall include wire drawing unit, which has cleared he goods on payment of an amount equal to the duty at the rate applicable to drawn wire on the date of removal and on the value determined under relevant provisions of the Act and the rules there under: Provided further that the amount paid under the first proviso shall be allowed as Cenvat credit as if it w .....

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red. The sub-rule (2) further provides to say that if the goods returned were subjected to processes amounting to manufacture then the duty upon such removal shall be covered by the provisions of Section 3 or Section 4 or Section 4A of the CEA, 1994. On plain reading of these provisions, we find that there is no ambiguity regarding the procedure to be followed by an assessee under Rule 16. Admittedly, the appellants did follow the procedure under Rule 16 in so far as re-credit availed upon retur .....

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