By TIOL News Service

MUMBAI, MAY 19, 2015: THE appellants are engaged in the manufacture of Professional Grade Printed Circuit Boards and Micro assemblies falling under TI 8542 1090 of CETA, 1985.

They are also engaged in the assembly of lottery terminal out of CKD kit supplied by M/s. Pan India Network Infravest P. Ltd. (hereinafter referred as M/s. Pan India) on job work basis however they cleared the said assembled lottery terminals without payment of excise duty. It is the contention of the Revenue that the activity amounts to manufacture and CE duty is payable thereon.

During the period 16/6/2006 to 22/11/2006 the appellant had cleared 1500 lottery terminals under the cover of commercial invoices and on these clearances the DGCEI vide demand notice dated 27/07/2011 demanded CE duty of Rs.1.59 crores. In the first round the CESTAT had remanded the matter to the adjudicating authority by observing a discrepancy in classification of goods namely lottery terminals. Inasmuch as the Adjudicating authority classified the same under heading 85421090 as against the prima facie view of Tribunal that it should be classified under 84709010.

In the remand proceedings the CCE, Belapur once again confirmed the CE duty demand along with penalties and, therefore, the appellant is before the CESTAT in the second round.

It is inter alia submitted that the appellant procured complete lottery terminals from M/s. International Lottery & Totlizator System Inc., USA in CKD condition and they have not procured any single item from any other source; that assembly did not require any machinery &it only requires tools such as Screw Driver, Allen Key, crimping tools for re-assembly;that testing process too was carried out by simply switching on built in Resident Diagnostics (RED) program; that necessity of importing goods in dis-assembled condition is due to cost of packing convenience and ease of transportation. Further, the goods assembled by the appellant were meant for export and the same has been exported; the import clearances were made against advance licence where under the appellants were declared as supporting manufacturer. A plethora of case laws were also cited to buttress their stand.

The AR reiterated the findings of the adjudicating authority and also submitted that even at the time of investigation and during adjudication appellant could not produce any evidence that the goods manufactured by them have been exported by producing documentary evidence such as export invoice, shipping bills etc. to co-relate with the goods manufactured and cleared by the appellant, and, therefore it is clear that goods manufactured have been cleared for home consumption. In the matter of limitation, it is submitted that activity of manufacture of 1500 lottery terminals and clearance thereof was never declared by the appellant to the department despite the fact that on earlier occasions they cleared the same product on payment of excise duty.

After going through the bill of entry, packing list etc. the Bench observed that the appellant M/s. Pan India had imported playwin DMX lottery terminals in knockdown kits, LCD display, keyboards, dist and supplied the same to the appellant M/s. LEO Circuit Boards Pvt Ltd. for assembling lottery terminals on job work basis; that lottery terminals is consisting of 114 parts and appellant is engaged in the assembly of 114 components alongwith power supply, motherboard, LCD, keyboard which in its view clearly amounts to manufacture.

Rejecting the submissions made by the appellant as misleading the Bench further observed -

"…Lottery terminal, though it is complete kit but same have been imported in en-numbers of parts. The said CKD parts do not qualify as complete lottery terminal. When all these parts are systematically assembled tested then only it takes form of distinguished product i.e. lottery terminal. CKD parts are not a lottery terminal and same could not perform as lottery terminal…

…In view of the rule 2(a), if CKD parts in complete set are imported, for the purpose charging custom duty, it shall be classified as complete machines under the chapter heading of the said machine but it is for limited purpose of charging custom duty and not resorting the term manufacture provided in Section 2(f) Central Excise Act. Section 2 (f) is reproduced below -

x x x

…In terms of above section 2(f) manufacture includes any process incidental or completion of manufacture product that means even if a product is partly manufactured any activity incidental/ancillary to complete such product shall also be amounting to manufacture. In the present case input are more than 100 parts and even these parts in the form of components and not a manufactured good therefore assembly of all these parts converting to distinguished product which is called as lottery terminal. Therefore the activity from conversion of various components of lottery terminal into complete unit of lottery terminal is undoubtedly amounting to manufacture and correctly chargeable to excise duty under chapter heading 84709010."

The Bench also mentioned that identical issue had been dealt in the following case laws:-

+ PRADEEP @ ASHOK SHANTI PRASAD JAIN Versus COLLECTOR OF C.EX., MUMBAI-I 2011-TIOL-1049-CESTAT-MUM

+ MAJESTIC AUTO LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MEERUT[2001 (130) E.L.T. 551 (Tri. - Del.)]

The CESTAT, thereafter, concluded -

"In view of above judgments it is clear that assembly of various components into complete equipment or machinery indeed amounting to manufacture. In view of this position, the activity of assembling of various components of lottery terminals and making a complete unit of lottery terminals is amounting to manufacture and same is excisable product. As regard the claim of the appellant that lottery terminal assembled by them has been exported on the ground that in the advance licence of M/s Pan India under which the CKD parts of lottery terminals were imported appears the name of appellant, M/s. Leo as supporting manufacturer. We find that merely on this count claim of the appellant as regard export of goods does not get substantiated. The appellant have not produced any records or co-relation of their manufactured goods with the goods exported by M/s. Pan India, if any. Therefore in absence of any such evidence the claim of the appellant as regard export of the goods has no basis and the same is rejected. On the issue of limitation, we find that it is admitted fact that the appellant at one point of time have cleared the same assembled lottery terminal on payment of excise duty and subsequently in respect of 1500 lottery terminal involved in this case knowingly not cleared on payment of duty. Fact of manufacture and removal of these lottery terminals without payment of duty has not been disclosed to the department therefore it is clear that the appellant has cleared the goods with intention to evade payment of excise duty therefore proviso of Section 11A has been correctly invoked by the Ld. Commissioner and also correctly imposed penalty. The judgments relied upon by the appellant are not applicable in the particular facts and circumstances of the case. In view of our above discussion we are of the considered view that the activity of assembling lottery terminal from various imported components is amounting to manufacture and consequently liable for payment of excise duty…."

The order passed by the CCE, Belapur was upheld and the appeals were dismissed.

In passing: Lottery - A Tax on people who are bad at math - Anonymous

(See 2015-TIOL-894-CESTAT-MUM)