TMI Blog2018 (5) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, we hold that the activity undertaken by the appellant amounts to manufacture. The activity of inspection and alignment of the pumps, engines and base frame makes marketable as pump set, in that circumstances, the process undertaken by the appellant amounts to manufacture. In view of the majority decision that the activity undertaken by the appellant amount to manufacture, the appeal filed by the appellant is allowed. - E/1309/2008 - Final Order No. 61982/2018 - Dated:- 26-3-2018 - Mr. Ashok Jindal, Member (Judicial) and Mr. Devender Singh, Member (Technical) Shri. Narsimnahan Kumar, Ms. Krati Somani, Advocates - for the Appellant Shri. Tarun Kumar, Advocate - for the Respondent ORDER Per: Ashok Jindal The appellant is in appeal against the impugned order wherein the cenvat credit of engines/pump/frames has been denied to the appellants on the premises that the process undertaken by them does not amount to manufacture. 2. The facts of the case are that the appellant purchased engine/pump/base frames from the various suppliers. After procuring all these things, the appellant undertook inspection and testing in respect of the parts for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no proposal in the show cause notice to impose penalty under Rule 15(1) of the Cenvat Credit Rules, 2004, therefore, the adjudicating authority has gone beyond the scope of the show cause notice, therefore, the same is to be set aside. 4. On the other hand, the Ld. AR opposed the contention of the Id. Counsel and submits that as no process of manufacturing has taken place and no new product has come into existence, therefore, the activity undertaken by the appellant does not amounts to manufacture, consequently, they are not entitled to avail cenvat credit on the items in question. He further submits that in the show cause notice itself, there is a proposal of penalty under Rule 15(1) of the Cenvat Credit Rules, 2004, therefore, the adjudicating authority has rightly imposed penalty on the appellant. 5. Heard both the sides and considered the submissions. 6. We find that in this case the facts are not in dispute that the appellant are procuring engines, pumps and base frames from various suppliers. These items were inspected by the appellant for proper alignment of engine, pump and base frames and all these items are sold all together. As all these items are sold by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 275 (T)]] it was held that the activity of programming the pagers amounts to manufacture in terms of Note 6. In view of the above position, we agree with the appellant's contention that the appellants are eligible for the Cenvat credit in respect of these products and since Section Note 6 covers both chapter 84 85, appellant succeeds on merits. Accordingly appeals filed by the appellants are allowed with consequential relief to the appellants. 8. Further, the issue came up for examination in the case of Exide Industries Ltd. (Supra) wherein the facts and circumstances of the case as under: 2. The facts of the case are that the appellant are manufacturer of electric accumulators. The appellant procured semi finished and unformed batteries from their sister units and after receipt of these unformed/electrolytic accumulators they poured sulphuric acid in the batteries and charged upto specified gravity and cleared them as final product on payment of duty. The case of the Revenue is that the appellant is receiving batteries and selling them as batteries only. Therefore, the activity undertaken by the appellant does not amount to manufacture. Consequently, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed article. The appellant have relied on the following case laws: i) Western Refrigeration Pvt. Ltd. V. CCE - 2009 (245) ELT 485 (Tri. Ahmd.) ii) CCE V. Indo Asian Fuse Gear Ltd. - 1993 (68) ELT 207 (Tri.) iii) Xerox Modicorp Ltd. Vs. CCE - 2001 (130) ELT 219 (Tri. Del.) iv) Leo Circuit Boards Pvt. Ltd. V. CCE - 2015 (330) ELT 227 (Tri. Mum.) v) Exide Industries Ltd. Vs. CCE - 2016 (333) ELT 101 (Tri. Del.) vi) Quippo Energy Pvt. Ltd. Vs. CCE - 2016 (331) ELT 617 (Tri. Ahmd.) The appellant has also relied on the CBEC circular No.224/58/96-CX dated 26.06.1996 to argue that whether the engines and pumps are put or intended to be put on the common base frame, the pump comes into existence as a separate and distinct commercial commodity. 12. It was also argued that no penalty can be imposed on the appellant under Rule 15(1) of Cenvat Credit Rules, 2004, as there was no suppression of material facts on their part. The penalty under Rule 15 (1) has not even been proposed in the show cause notice and hence the Commissioner could not go beyond the proposal in the show cause notice. He relied on the case laws Prabhas Chandra Biswas V. CCE - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article (including 'blank', that is an article not read for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exception cases, for completion into a finished article or a part), into complete or finished article shall amount to 'manufacture'. The appellants have been procuring engine, pumps and frames from three different sources and all these components are packed in a single master carton. The contention of the appellant is that engines, pumps and frames are all incomplete or unfinished until the alignment is tested by the appellant and all three are put together in a master carton before clearing the same on payment of duty. I find that the Section Note 6 has not been correctly interpreted by the appellant because the article which is incomplete or unfinished should have the essential character of the complete or finished article. The contention that the engines, pumps and frames all have the essential character of the pump is clearly erroneous and hence no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d name of their company. In his statement dated 12.01.2017, Shri Lokesh Kaul stated that inspection is done in their unit by statistical method by the employees and that all the pump sets are not being inspected (emphasis supplied). In view of the foregoing, as it has rightly been pointed out by the Ld. Adjudicating Authority, in the case of Triveni Engineering Industries Limited Vs. CCE-2000 (120) ELT 273 (SC), the Hon'ble Supreme Court held that the process of fixing steam turbine and alternator took place at the site and not in factory of manufacturer. The situation is exactly similar in present case as P.D. pumps emerge only at the user/farmer's site as a result of labour or manipulation. 18. In view of the above, the activity of putting three components i.e. pumps, engines, frames in their original packing in one master carton after random checking/inspection does not amount to manufacture in the factory of the appellants. 19. The appellants have also relied upon the CBEC Circular NO.224/58/96-CX dated 26.06.1996 (Supra). The perusal of the circular shows that the said circular does not dealt with the question of manufacture and is only in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. Heard both the sides and perused the record. I find from para 11 of this order recorded by Brother Member (Technical) that the contention of the appellant is that after the inspection of engines, pumps and frames is carried out and they are checked for alignment, the pump set becomes complete. Whereas, Brother Member (Technical) in para 15 has recorded that the contention of the appellant is that engines, pumps and frames are all incomplete or unfinished until the alignment is tested by the appellant. The contention of the appellant as recorded by Brother Member (Technical) in two different paragraphs has been recorded in different manners. In para 15 his understanding is that the engines, pumps and frames are all incomplete whereas, he has recorded contention of the appellant in para 11 that until the engine, pump and frames are inspected and check for alignment the pump set is incomplete. Therefore, I do not agree with the Brother Member (Technical) in so far as his finding that the goods in question are not covered by Note 6 to Section XVI of the first schedule to Central Excise Tariff Act, 1985. I also find from statement of Shri. Lokesh Kaul who has stated on 12.01.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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