TMI Blog2002 (8) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicles; that if the damage/defect is repairable at the dealers' end, the vehicles are not brought back to the Appellants' factory but are repaired by the dealers; that other damaged vehicles are returned to the factory for repair; that the nature of damage is ascertained by a team of engineers and a report is prepared; that wherever the rectification of the damaged vehicle is possible, the same is sent to the repair shop; that wherever it is felt that the degree of damage is so extensive that no repair work could be undertaken, the vehicle is scrapped. Learned Advocate, further submitted that in the repair section Salvageable parts are taken out and wherever fresh parts have to be replaced, the same is done in the regular assembly line; that, however, in no case the engine assembly of the motor vehicle is changed; that in other words, before and after repair, the engine assembly of the returned motor vehicle remains the same; that the repaired vehicles are thereafter cleared under Rule 173H of the Central Excise Rules, 1944 without payment of Excise duty; that on the body shell replaced/captively consumed, they were paying the excise duty besides reversing the Modvat credit taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excise Act. He relied upon the decision of the Tribunal in the case of Shriram Refrigeration Industries Ltd. v. CCE Hyderabad - 1986 (26) E.L.T. 353 (Tri.) wherein the assessee brought back defective compressor, cut open the outer shell of the compressor, dismantled the inner components of the compressor piece by piece, damaged parts were replaced. bottom shells of the compressor were replaced and the repaired compressor were cleared without payment of duty; that the argument taken by the Revenue in that matter was that the repairing activity amounts to manufacture; that rejecting the contention of the Revenue, the Appellate Tribunal held as under : "There is no way of repairing a defective compressor unless its outer shell is cut open and the assembly inside the compressor is dismantled. After such dismantling, what would be visible to the naked eye would be only individual parts and not a compressor. This situation is not peculiar to compressors but occurs in the matter of repairs of practically all items of machinery and appliances. The important point is that after rectification/ replacement of the defective parts, the parts are reassembled in the form of the parent equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein it was held that the process of repair of defective picture tubes after salvaging the workable parts does not amount to manufacture. He also emphasized that in the case of Samtel Color Ltd., there was no separate assembly line and as such the finding of the Commissioner that the Appellants herein did not have any separate assembly line for repairing vehicles is not material. 5.On a query from the Bench, as to whether the provisions of Rule 173H will apply even after one part of any goods is salvaged and by supplying fresh parts the same goods is again made, the learned Counsel submitted that for applying the provisions of Rule 173H cost of repairs vis-a-vis the value of the goods is to be ascertained. If the cost of the repair is a slight percentage of the value of the goods, the process undertaken would amount to repair. Learned Counsel said that activity has to be examined in terms of dominant activity in terms of value. He emphasized that if the critical parts are intact, activity undertaken will amount only to repair; that if repairing activity constitutes major operation of the value of the goods which has come back, the goods is nothing but a scrap and revival of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed orders. 6.Countering the arguments, Shri R.D. Negi, learned SDR submitted that the damaged vehicle have been categorized by the Appellants in three categories, A, B and C; that the vehicles which are involved in the present matters are thus vehicles which have suffered heavy damages and could not be repaired at the dealers' end; that the vehicles, after bringing into the factory, are dismantled and good parts are salvaged and taken to assembly line where a new car is assembled with the help of salvaged parts and new parts; that the salvaged parts only constitutes 20% of the total parts used in the motor vehicles which goes to show that almost 80% parts of the motor vehicle had been rendered useless when it was brought to the factory; that the duty paid goods under Rule 173H can be brought into the factory only when the process involved does not amount to manufacture; that the basic identification parameters of the motor vehicles are the engine numbers and chassis number; that the new vehicle which are manufactured by the Appellants by using some of the salvaged parts have different chassis number and, therefore, these are new vehicles which have been manufactured, on which dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellants themselves in their Memorandum of Appeal in E/38/2000-B that when the vehicle is damaged and the body of the vehicle is damaged, the chassis is got to be changed and it is also not disputed by the Appellants that wherever the vehicles are not damaged, the repairs carried out by the dealers themselves and only damaged vehicles are brought back to the factory. 8.We have considered the submissions of both the sides. Rule 173H provides that an assessee may bring into his factory excisable goods accompanied by duty paying documents if they need to be re-made, refined, reconditioned, repaired or subjected to any similar process in the factory. The Rule, further, provides that the goods brought into the factory may, if not subjected to any process amounting to manufacture, be removed from the factory without payment of duty. It is thus evident from the provisions of Rule 173H that these provisions will not apply if the process amounts to manufacture and in that case, the goods after remaking have to be removed from the factory on payment of duty. It is admitted fact that if the damage caused to the vehicle is essentially of a cosmetic nature, the vehicle is not returned to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said matter, considered the process to be 'amounting to manufacture' as the identity of the returned compressor was lost and the compressor was not reassembled with the help of salvaged parts removed therefrom. In the light of these facts, the Tribunal has held in Shriram Refrigeration Industries case that the process did not amount to manufacture as compressor are sealed unit and there was no way of repairing the defective compressor unless its outer shell is cut open and the assembly inside the compressor is dismantled and what is visible to the naked eye is only individual part and not a compressor. According to the Tribunal "If one were to object to the process of dismantling in the course of repair work, the provisions for repair made under Rule 173H would become a dead letter, so far as machinery items were concerned". We find that the ratio of Shriram Refrigeration case is not applicable to the present matter. In the repair of cars, it is not necessary at all that complete motor vehicle is dismantled and everything is put on the assembly line for carrying out the repairs. The very fact that the parts are taken out of the damaged vehicle and put up on the assembly line goe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being used in the manufacture of the new car, it is only the parts which have been salvaged, are used. The ratio of the decision of the Larger Bench, in Tin Manufacturing (supra) is not applicable to the facts of the present matters. In the case before Larger Bench the respondents were manufacturing Metal Containers which were cleared on payment of duty and subsequently, these were returned as there were certain defects found in the metal container. The metal containers were desealed and the metal sheets were reused for making the metal containers. In the fight of these facts the Tribunal held that defective containers become the inputs in the manufacture of new metal container. However, we agree with the submissions of the learned Counsel that Modvat credit reversed by them in respect of bought out items used by them will be available to them. Similarly, no duty would be payable by them in respect of body shell or any other components manufactured and captively consumed by them in the manufacture of impugned motor vehicles. In the facts and circumstances of the matter, we are of the view that no penalty is imposable on the Appellants particularly when the Adjudicating Authority hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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