By TIOL News Service

MUMBAI, DEC 31, 2012: THE appellant are manufacturers of laboratory equipment and they cleared the same on payment of excise duty. On occasions, the equipments cleared to the customers are returned to the factory. In some cases, the equipment brought back are not repairable and, therefore, they are completely dismantled and the useable parts are salvaged and again re-used in the manufacture of goods of the same kind and the unusable parts, which are negligible (approximately 10%) are cleared as scrap. The appellant follows the provisions of rule 16 of the CER, 2002.

The department was of the view that when the goods are cleared after repair/reconditioning, etc. the activity does not amount to manufacture and, therefore, the appellant should have reversed the original credit taken and accordingly, issued a show-cause notice and the demand was confirmed.

Since the appellant failed before the lower appellate authority, they are in appeal before the CESTAT.

It is submitted that the useable parts are once again used in the manufacture of similar equipments and, therefore, the activity undertaken by them amounts to manufacture and, therefore, they are not required to reverse the credit taken as reversal of credit is required only when the activity undertaken by them does not amount to ‘manufacture'. Reliance is placed on the decision in the case of Maruti Udyog = (2002-TIOL-191-CESTAT-DEL)wherein a question arose whether new motor vehicle assembled with the help of both new components and salvaged parts would amount to manufacture of a motor vehicle. The Tribunal had in that case held that the process undertaken by appellant amounts to manufacture of a new motor vehicle and not repair, as the damaged vehicle is not restored to good condition by replacing or re-fixing parts. In view of the legal position, the appellant prayed for grant of stay.

The Revenue representative submitted that the activity undertaken by the appellant does not amount to manufacture and is only repair and, therefore, the appellant should be put to terms.

The Bench observed -

"6.1 From the details given in the show-cause notice nowhere it is coming out that the activity undertaken by the appellant is only repair of the equipment already supplied. On the other hand from the facts narrated in the show-cause notice what is coming out is that the returned equipment is dismantled and salvaged parts are reused in the manufacture of medical equipment of the same kind and unusable parts are sold as scrap. The statement of facts made in the show-cause notice does not lead to any conclusion that the activity undertaken by the appellant does not amount to manufacture. In this view of the matter, I find that the ratio of the judgement in the case of Maruti Udyog cited supra to be prima facie applicable to the facts of the case. Thus, the appellant has made out a prima facie case in their favour for grant of waiver of pre-deposit of dues adjudged. Accordingly, I grant waiver of pre-deposit of the dues adjudged in the impugned order and stay recovery thereof during the pendency of the appeal."

A hole in the Rule 16 Loop - probably the CBEC is unaware!

(See 2012-TIOL-1973-CESTAT-MUM)