By TIOL News Service

MUMBAI, DEC 02, 2015: IN the case of CCE, Pune-I vs. JCB India Ltd. - 2014-TIOL-09-CESTAT-MUM the Division Bench of CESTAT had held thus -

CX - Manufacture & Valuation - the word 'Automobile' is not defined in the CEA or CETA - Loader, Backhoe loader & Road Rollers are Automobiles as they are required to be registered with Road Transport authorities under Rule 2 of the Central Motor Vehicles Rules, 1989 & also certificates are required to be taken from Automotive Research Association of India, Pune and also satisfy Section 2 of the Air (Prevention and Control of Pollution) Act, 1981 - Parts, components and assemblies of Loader, Backhoe Loader and Road Rollers are covered by "parts, components and assemblies of Automobiles" mentioned in Third Schedule - purchase of various parts of Loaders, Backhoe Loaders, Road Rollers from different suppliers in India and abroad & repacking these parts with new packing material and affixing Logo, fixing of MRP and selling under own brand name amounts to manufacture in view of provisions of s. 2(f)(iii) of CEA, 1944 - being notified goods, they are subject to valuation in terms of section 4A of CEA, 1944 - Demand upheld for the normal period - Revenue appeal allowed to the said extent: CESTAT [paras 17.10, 18.5, 18.6 & 18.12]

This decision was followed by the Bench in the case of Larsen & Toubro Ltd. & Ors. - 2014-TIOL-1920-CESTAT-MUM and it was held -

CX - Appellant undertaking activity of packing/re-packing, labelling/re-labelling and fixing of MRP on earth moving equipment - Whether 'earth moving equipment' are 'automobile parts' & whether activity amounts to manufacture in terms of s.2(f)(iii) of CEA, 1944.

Held: As per decision of Tribunal in the case of JCB India Ltd. - 2014-TIOL-09-CESTAT-MUM, Earth Moving equipment is an automobile part, therefore, the activity undertaken by the appellants is manufacture & they are liable to pay duty - although the appellants have no case on merit but on limitation they are having a case as held in the said case of JCB India Ltd. paragraph 18.13 refers - SCN dated 09.08.2012 issued for the period July 2007 to April 2011 by invoking extended period of limitation is set aside - demand for the normal period of limitation covered under SCN dated 02.12.2011 is upheld along with interest - as extended period is not invokable, goods are not liable for confiscation, confiscation set aside and redemption fine is not imposable - penalties also not warranted as the dispute in classification settled by Tribunal in JCB case - appeals disposed of: CESTAT [Para 3.3, 4]

Unhappy with this decision, both, the Revenue as well as the appellant had filed appeals before the Bombay High Court.

The High Court by its order dated February 13, 2015 in CE Appeal No. 32 of 2014/ Appeal No. 3 of 2015 remanded the matter to the Tribunal for deciding afresh.

Accordingly, the matter was last heard on 24/09/2015 and an order was passed recently.

At the outset, the Bench observed that there are number of factual variations in the present case of Larsen & Toubro vis-à-vis the case of JCB India Ltd. - 2014-TIOL-09-CESTAT-MUM and it was strange that the counsel for the appellants did not point out these differences at that time.

+ in the case of JCB, the items were parts of Loaders, Backhoe Loaders and Road Rollers whereas in the present case, none of the three vehicles is involved but what is involved are parts of scania trucks, dumpers, motor graders, wheel loaders, dozers and hydraulic excavators; that the end vehicles are different, though these items are also used as earth moving vehicles in construction or mining industry; that out of the earlier mentioned six items, two items, trucks and dumpers are classifiable under Chapter 87 while the remaining four are under Chapter 84.

+ in the case of JCB, all the parts were proposed to be valued under Section 4A of the Central Excise Act. In the present case, Revenue has taken the view that activities undertaken by the appellant are covered under Section 2(f)(iii) read with Third Schedule to the Central Excise Act, and hence amounts to manufacture. Further, in respect of packed parts, components and assemblies the same are required to be valued under Section 4A while in respect of unpacked parts, components and assemblies value is required to be determined under Section 4.

+ in the case of JCB Ltd. the demands were for the period prior to February/April 2010 and the appellants in that case were paying duty under Section 4A after February/April 2010, in the present case, demand is even for the period February/April 2010 - April 2011, the appellants even after the removal of the word automobiles in February/April 2010 and specifying particular headings and Chapters both in the third schedule to the Central Excise Act as also from Notification relating to Section 4A continued to clear the goods without taking registration, without payment of duty, etc.

The law:

The Bench extracted the relevant sections, notifications and circulars and while explaining the tumultuous amendments observed -

++ It will be seen that the term automobile was replaced by specific chapters, headings. The term automobile became irrelevant as far as Section 4A notifications are concerned. [Notfn. 49/2008-CE(NT) dt. 24.12.2008 as amended by 9/2010-CE(NT) & 19/2010-CE(NT) dt. 29.04.2010 refers]

++ However no amendment was carried out in the corresponding entry in the Third Schedule to the Central Excise Act at that time. In the Finance Bill, 2011, Third Schedule was amended.

++ Thus Finance Act, 2011 amended/inserted entries with retrospective effect i.e. the day when Notification No. 9/2010-C.E.(N.T.) and 19/2010-C.E.(N.T.) were issued.

++ It also appears that in the Finance Act, 2011 instead of third Schedule to the Central Excise Act, 1944, Central Excise Tariff Act, 1985 was inadvertently mentioned and the same was corrected by an amendment vide Finance Act, 2012.

Merits:

Adverting to the Circular No. 262/15/86-CX.8 dated 14.07.1987 [Automobiles - Cess not chargeable on earthmoving machinery], Circular No. 22/90-CX.4 dated 11.07.1990 [as hydraulic excavators are not automobiles the benefit of exemption Notification No. 61/86-C.E., dated 10-2-1986 on drivers seats would not cover Drivers seats meant for hydraulic excavators.], Circular No. 167/38/2008-CX.4 dated 16.12.2008 [all goods which are commonly known and sold in the trade as parts, components and assemblies are covered by said entry, irrespective of their clarification in the Tariff. Hence, the term parts, components and assemblies of automobiles includes items like batteries, brake assembly, tyres, tubes and flaps, IC engines, ball bearing etc.], the CESTAT further observed -

+ In the case of JCB India Ltd.(supra), parts were of the equipmentsviz: Loaders, Backhoe Loaders and Road Rollers, while in the present case the parts are of scania trucks, dumpers, motor graders, wheel loaders, dozers and hydraulic excavators.

+ As far as parts of scania trucks are concerned, even the appellant themselves were paying countervailing duty under Section 4A. Thus, they themselves are admitting that scania trucks are nothing but automobiles. They never disputed the same before the Customs authorities.

+ The next item is parts of dumpers. Dumpers is used for moving the mined material from one place to another and it is also classifiable under Chapter 87. …We therefore out rightly reject the appellants' contention as far as dumpers are concerned and hold that dumpers are automobile.

+ The other items are motor graders and wheel loaders. Motor graders and wheel loaders move on the roads like any other vehicle though the purpose of these equipments may be to move material from one point to other or on a vehicle, etc. Keeping in view the discussion relating to Loaders, Backhoe Loaders in the case of JCB India Ltd. (supra), in our considered opinion, these items will also be covered by the term automobile.

+ The remaining items are dozers and hydraulic excavators. The definition (of road vehicle which include the construction equipment vehicle has been defined in Automotive Industry Standard AIS 53 published in 2005 by the Automotive Research Association of India, Pune) includes excavator and the definition also includes rubber tyred excavator, pneumatic tyred, rubber padded or steel drum wheel mounted, thus, even the crawler steel plate type of excavator which the appellant is claiming would be covered by the said definition/standard. Thus, whether the excavator are running on the rubber tyre or are crawler type i.e., steel drum wheel mounted are all required to be considered in the same category. This is also true for dozer. It is also seen that the same definition is given under the Bureau of Indian Standards viz. IS 1427 (2011). Thus, whether the excavator/dozer that is rubber tyred or steel drum wheel mounted, these are considered as construction equipment vehicle and automotive vehicles and are therefore, would be covered under the broad definition of automobile.

+ We do not find anything in Section 2(f)(iii) linking the said definition of manufacture to only goods covered by Section 4A. In fact, if that was the intention, there was no need to create a Third schedule in the Central Excise Act, and there should have been a straight linkage in the definition of manufacturer in Section 2(f) (iii) with Section 4A.

+ In the present case, it is the claim of the appellant that due to the size, certain parts are received in unpacked condition and they are also selling the same unpacked and, therefore, the provisions of Section 4A will not be applicable. Revenue has accepted this position and in respect of such parts, they have proposed valuation under Section 4. We do not find anything wrong in such an approach accordingly the same is upheld.

+ In our considered view, the parts of automobiles is generally understood by certain code number specified by the manufacturer or supplier, in this case, M/s. L & T and the part number is very important while purchasing or selling any part. In view of this fact even putting a tag whether on individual or group would amount to labelling the goods. The fact that these are not put in a container is immaterial. In view of the said position, we hold that even putting the tag on the unpacked parts will amount to manufacture and will be covered under Section 2(f)(iii).

+ In order to capture the value addition in such situation and for similar items, Section 2(f)(iii) was introduced and the purpose of the said Section will be achieved if activity of putting a tag or label which will identify that part number of the equipment is considered as manufacture.

+ In third schedule to the Central Excise Act, the term used is goods. Similarly, under Section 2(f)(iii) there is no such requirement that the inputs should be manufactured in India only and cannot be imported.

+ For determining whether a particular process amounts to manufacture it is not relevant whether the inputs are locally produced or imported. What is important is the end product and whether the manufacturing process amounts to manufacture or not. In the present case, there is no dispute that the activity undertaken by the appellant amounts to manufacture under Section 2(f)(iii). The fact that inputs were imported is immaterial.

Limitation:

+ We find that the Notification relating to Section 4A were amended on 27/02/2010 and 29/04/2010. Under the said Notification the term automobile was replaced by specific headings of the Central Excise Act Tariff. Thus, after the said date, there can be no confusion or dispute about the fact that the goods are covered by Section 2(f)(iii) and appellant's activities amounts to manufacture. But appellants still did not pay duty. Not a single word is being uttered for such a conduct.

+ Even if it is assumed that they (assessee) did not pay duty during February/April 2010 to April 2011, due to un-amended third schedule, the least that was expected was to pay immediately in April/May 2011. Such a conduct is not expected from a reputed company.

+ In 2010 when the term 'automobiles' were removed from the relevant Notification and was replaced by specific headings of Chapter 84 and 87 and there could have been no doubt or dispute about the coverage of the items under Section 4A. Even then the appellant did not pay the duty under Section 4A. They did not take any registration and continued to do the manufacturing activity and cleared the goods without payment of duty. There was no reason for them not to pay duty. Even in 2011, when the enquiries were made by the department they did not pay duty for the earlier period. The least that was expected was to pay duty from February 2010 onwards. The overall conduct of the appellant leaves no doubt whatsoever that there was suppression of facts, contravention of provisions of Central Excise Act and Rules with intention to evade payment of duty. The ratio of JCB India Ltd. case (supra) as far as invocation of limitation and penalty, is therefore, not applicable. In that case, M/s. JCB India Ltd. has started paying duty from April 2010. In the present case, even that was not done.

Cum-duty benefit &CENVAT, s.11AC penalty

+ In the facts of the present case, the appellant would be entitled to cum-duty benefit.

+ Since the learned counsel has submitted that they have invoices and other documentary evidence to prove the duty-paid nature of the goods received by them and also evidences about the receipt of the goods, etc., in our view, it will be appropriate that benefit of CENVAT credit be extended to them. …we remand the matter for the limited purpose of examining these documents regarding admissibility of CENVAT credit as per law and in case the appellant is eligible for CENVAT credit the same should be extended.

+ The appellant will extend necessary cooperation and produce all the documents on its own, such as invoices, etc. and any other document required by the Commissioner without any delay. This exercise should be completed within 3 months from the date of receipt of this order. If the duty liability gets reduced due to the said exercise, as also cum-duty benefit, penalty imposed under Section 11AC will also get reduced to the same extent.

Confiscation, Redemption fine:

+ We note that the goods which are liable for confiscation are not available for confiscation. Moreover, keeping in view the nature of the dispute, in our opinion, confiscation and consequent redemption fine is not in order. We set aside the confiscation of the goods and related redemption fine.

Penalties u/r 26 of CER, 2002

+ We do not find anything which would indicate that Shri J. Kumar was in personal knowledge that the goods being cleared were liable to confiscation. Under the circumstances the penalty imposed by the adjudicating authority is not in accordance with law and we set aside the penalty (of Rs.1 lakh) imposed on Shri J. Kumar. Appeal of Shri J. Kumar is allowed.

+ We do not find anything in the order or in the statements which suggest that the M/s. Proficient Equipment Solutions, Nagpur had knowledge that the goods purchased by them are liable to confiscation. Under the circumstances, penalty imposed under Rule 26 (of Rs. 2,69,144/-) on M/s. Proficient Equipment Solutions, Nagpur is set aside.

All the appeals were disposed of in the above terms.

In parting: The assistance provided by the Commissioner (AR) is of great help and fully supports the conclusions already drawn by this Tribunal in the case of JCB India Ltd. …para 16.6

(See 2015-TIOL-2561-CESTAT-MUM)