By TIOL News Service

BANGALORE, APRIL 25, 2017: ASSESSEE is engaged in procuring various parts of computers such as CPU, monitor, hard-disk drive and mouse from different suppliers. These parts were being assembled by assessee by interconnecting the various components resulting in emergence of computer systems.

Department viewed that assembling various components results in emergence of new product i.e. Computers, on which excise duty was liable to be paid.

The original authority confirmed the demand on 04.04.2000 and the matter was remanded by the Tribunal on the ground of non-observance of principles of natural justice. In denovo proceedings, the demand was again confirmed and in appeal the CESTAT set aside the order on the ground that the same suffered from the vice of denial of principles of natural justice viz. non supply of documents relied in SCN.  The department took the matter to the High Court and the Revenue appeal was allowed by remanding the matter to the CESTAT.

After considering the submissions made by both sides, the Bench inter alia noted –

+ All units of an Automatic Data Processsing machine (ADP) are designed to be interconnected to enable the ADP system to be formed to carry out its function. It cannot be said that assembly of various units into a working system has brought about any new goods which have a distinct name, character or use different from that of the units of computer system. Further, it is noted that each of the components bought out by the assessee is separately duty paid. Though the Revenue has not gathered specific evidence of assembly of various components into an ADP machine by the assesse, the thrust of the case is that the assessee has undertaken such activity which is claimed to be an act of 'manufacture'.

+ Revenue has already clarified vide their Circular No.497/63/99-CX that the activity of creating a computer network from duty paid computers and peripherals would not amount to manufacture, since the network does not bring into existence goods with a distinct new name, character and use.

The CESTAT observed that the above clarification, though not strictly applicable to the facts of the present case, an analogy could be adopted to conclude that the activity of assembling various computer components/units into a working system does not amount to manufacture.

The Appeals were allowed.

In passing: Man is still the most extraordinary computer of all – John Fitzgerald Kennedy

(See 2017-TIOL-1379-CESTAT-BANG)