JUDGMENT
S.S. Sekhon
1. The brief facts of this case are-
On 23.3.84, Central Excise (preventive) Officers, Hqrs Bangalore visited the appellants premises and found that they were fabricating certain items required by Tea Processing Factories. They were engaged in supplying what was termed as ‘Fluid Bed Tea Driers’ (hereinafter referred to as FBTD). After conducting the enquiries a Show-cause notice was issued:-
“Where as it appears that M/s Bedi & Bedi Private Limited, A-01, HMT Industrial Estate, Bangalore-31 have contravened Rules 9(1), 52-A, 173 G, 173 B, 173 C, 173 F, 174 and 226 of Central Excise Rules, 1944, in as much as, they have manufactured and cleared Fluid Bed Tea Driers, Milling Arbors, Harvesting Shears, Drilling machines, Spindle cartridges, Machine tools and components falling under Tariff Item No. 68 of Central Excise Tariff without obtaining a Central Excise licence. They have further suppressed the actual production and clearance of the said items of their factory by clearing the same under their own invoices as also under the invoices of M/s Bedi & Bedi (Agents) Private Limited, and M/s Bedi and Bedi Tea Processing Systems Private Limited, Bangalore. They have thus cleared the goods so manufactured without filing a price list, without assessing the correct duty liability, without proper accounting, without cover of gate pass and without payment of Central Excise duty and have wrongly availed exemption under Notification No. 105/80 dated 19.6.80 as amended separately for three units, thereby evading Central Excise duty due on the goods cleared by them. M/s Bedi & Bedi (Agents) Private Limited, M/s Bedi & Bedi Tea Processing Systems Private Limited, Bangalore have thus connived and abetted with M/s Bedi & Bedi Private Limited, Bangalore in transporting the goods manufactured by M/s Bedi & Bedi Private Limited, Bangalore without gate passes and have wrongly availed exemption under Notification No. 105/90 dated 19.6.80 as amended. The value of goods so cleared during the year 1982-83 is Rs. 84,26,623.83 and Rs. 87,17,027.82 respectively. The Central Excise duty payable on the said value in Rs. 4,73,783.35 and Rs. 8,71,702.78 for the year 1982-83 and 1983-84 respectively.
2.1 The said M/s Bedi & Bedi Private Limited, Bangalore are hereby required to show cause to the Collector of Central Excise, Central Revenue Building, Queen’s Road, Bangalore as to:-
i) why penalty should not be imposed on them under Rule 9(2), 52-A, 173 Q & 226 of Central Excise Rules, 1944; and
ii) Why Central Excise duty of Rs. 13,45,486.13 on the goods manufactured and cleared by them under their invoices and also under invoices of M/s Bedi & Bedi (Agents) Private Limited, and M/s Bedi & Bedi Tea Processing Systems Private Limited, during the years 1982-83 and 1983-84, should not be demanded under the extended time limit under Rule 9(2) of Central Excise Rules, 1944 in terms of provisions of Section 11-A of Central Excise and Salt Act 1944 as made applicable under Rule 9(2) of Central Excise Rules, 1944.
2.2. The said Bedi & Bedi (Agents) Private Limited, and M/s Bedi & Bedi Tea Processing Systems Private Limited, Bangalore are also required to show cause to the Collector of Central Excise as to:-
(i) why penalty should not be imposed on each of them under Rule 52-A of Central Excise Rules, 1944.”
2.The notice was adjudicated by the Collector, by his order dated 23.12.1985, wherein a duty of Rs. 13,45,486.13 was confirmed and demanded for the period 1982-83 and 83 & 84 on M/s Bedi & Bedi Private Ltd., (hereinafter referred to as BBP) and a penalty of Rs. 1,00,000/- was imposed under Rule 9(2), 173(Q)(1) of Central Excise Rules 1944 and a penalty of Rs. 1,000/- under Rule 52 A was imposed on them. A penalty of Rs. 1,000, each was imposed on M/s Bedi & Bedi Agencies Pvt Ltd., (herein after referred to BBA) and M/s Bedi and Bedi Tea Processing Systems Pvt Ltd., (herein after referred to as BBTP) under Rule 52(A) of Central Excise Rules.
3. The appellant viz BBP took up the matter in Appeal to CEGAT who after considering the matter vide their Order No. 734/1987-D dated 22.9.1987:-
“We observe that an important aspect of the sale of the machine is that these have to be inspected before there are dispatched. As it is before the appellants can fix the machines at site functionally there will have to be tested.
It is seen from the catalogue that this tea leaves are fed by hopper from the one end and carried on to a coveyor through various stages of drying in the inner chambers and the dried tea leaves merge at the other end Various arrangements for the movement of the tea leaves, drying mechanism required therefore and arrangement for the flow of air, are all built into the single unit in the shell fabricated by confabs. From what appears in the diagram there has to be high degree of integration between various components which go into this unit and the functioning of the different sub assemblies has to be coordinated to a high degree of precision for a unit to function efficiently. From the catalogues produced it is seen certain amount of electric connection have to be laid along the length of the machine and the mechanism for adjustment of the spread of the tea for controlling of flow are all also built in. For ensuring that the drying is done just right without any damage to the leaves, the temperature gradient to be maintained along with the level of heat to be provided, again all required a degree of fine tuning. The appellants are making specialised equipment and they have the desired expertise in this regard available at Bangalore. It is therefore, a normal thing in a case like this that before the unit is installed the necessary parameters required for drying unit is installed the necessary parameters required for drying tea are all checked up, as whole. The inspection of the goods being a prerequisite before their sale and even in terms of the agreement between confabs and B&B the machines are required to be inspected before there are sent at the cost of M/s B&B. It has to be held that the machines as inspected as per the requirements would have to be in a form that all the equipment which functionally participate in the drying of the leaves right from the first stage to the last are tested in an integrated form. It is only then that any defect in the operation of the machine would come to light. It is therefore to be held that FBD machines in the form in which it is shown in the catalogue does come into existence before it is sent in CKD from to the buyers site.
The appellants have pleaded that not withstanding the fact that they offered complete machines, these came into existence as machines only at site as immovable goods as plenum chamber had to be recessed under ground for the purpose of installation of the machinery. Their plea is that FBD machines for the purpose of levy of excise duty did not come into existence at the time of dispatch of the machines to the customers. They have maintained that in case of all the machines which they had sold the plenum chamber had to be recessed underground and therefore there could have been no trial run of the machines at the premises of confabs before dispatch of the goods and it was carried out only at the site. We observe that the appellants had made this plea before the Collector and Collector had not given any findings in this regard. The appellants have not produced any evidence before us that they had sold any FBD’s other than the standard models. In respect of the standard models sold or offered for sale we find that the plenum chambers of the machines is capable of being recessed underground but there is indications that it is so designed that it has to be recessed and unless this was done, the machine won’t function.
In view of the above discussions, we hold that standard models of the FBD machines as shown in the catalogue came into existence at the hands of the appellants before clearance of the same from the factory of the confabs to the customers. No facts have ben placed before us as to whether any machines were specially designed with plenum chambers having to be recessed underground. Collector did not examine this aspect. In case there are any such machines which were sold by the appellants, this aspect will have to be examined by the Collector with reference to the facts of these machines. We observe, that it is possible that the electric motor or a for operational reason may not be mounted on the shell of the machine. If any such electric motor is fitted separately to the ground or fixed otherwise than on the machines, the FBDs unit will continue to retain the character of the machines like any other machines without the prime mover. Regarding valuation of the machine, is as much as we have held that the standard models of the machine come into existence before clearance of the same, the question of excluding the value of brought out duty period term does not arise as the value of the machines as a whole has to be taken into reckoning for excise purpose. However, in case the brought out motor is not fitted on to the machine, the cost of the same should be deleted from the said price for arriving at the assessable value. The Commissioning charged and any other post clearance charges will have to be excluded under the law. As mentioned earlier, since the facts in relation to all the machines cleared have not been placed before us and some verifications regarding the nature of the machine cleared has to be done, we find it a fit case for remand. We therefore direct the lower authority to adjudicate the case denovo in the light of our findings above after giving the appellants an opportunity of hearing and to produce evidence. The appeal is therefore, allowed by remand in the above terms.”
4.1 The matter was there after reheard by the Collector. He confirmed the demand of Rs. 12,76,061.96/- and demanded the same from BBP. He imposed a penalty of Rs. 20,000/- on BBP Ltd under Rule 173(Q)(1). The present appeal is against this Order.
4.2 The grounds taken in appeal are-
(a) The Order in adjudication is opposed to the facts and circumstances of the case.
(b) The findings given with regard to the special machines is erroneous as Collector in Para 35 of the Order has given a finding that what is manufactured is Fluid Bed Tea Driers (herein after referred to as FBD) for which plenum chamber is an essential part. Further he held that these machines could not be said to be special machines just because plenum chamber was to be recessed underground. This finding overlooks the direction of the Tribunal who remitted the case for the adjudication. In this view once he held that the machines need a plenum chamber which is an essential part thereof, the machine should be held to be special machines.
(c) The finding that FBD comes into existence before clearance from the place of manufacture is contradictory to the findings given as regards plenum chambers being recessed to the ground. The procedure of fabrication described by various witnesses in the cross-examination establish that once the drier is fixed to the plenum chamber it would cease to be goods excisable.
(d) The finding that FBDS cannot be equivated with parts just because the parts of the drier are embedded is also erroneous on the facts and in law:
(e) The Collector has mis-interpreted the word ‘special machine’ in para 29 of his order while considering the fact of the existence of the plenum chamber if necessary. Once such chambers are held to be an integral part, the drier cannot function in isolation and as such cannot be held to be goods.
(f) The observation made by the Collector in para 24 & 25 of his Order relying on certain judgments is totally out of context and irrelevant.
(g) The reliance by the Collector to Circular No. 16/89 CX4 dt 19.4.89 issued by CBEC that the duty is chargeable on pats and components leaving the factory in condition in which they are removed is also irrelevant. Even otherwise, this circular if applicable to this case will not be held as opposed to provisions of Section 3 of the Central Excise and Salt Act 1944 and this cannot be complied. The Circular referers to unassembled and dis-assembled parts and components of lifts under heading 8428/8431 whereas the present case is of assessment under old Tariff item 68, the circular is therefore not applicable.
(h) Collector’s Order is influenced by extraneous facts of the appellant paying duty after the expenditure because the duty has been paid at the instance of the Department by collection from the customer and therefore protest did not arise.
(i) The evidence produced before the Collector to demonstrate beyond reasonable doubt that all the machines supplied were with plenum chamber recessed to the ground has been over-looked.
(j) The demand made by the Collector is also unsustainable as the same is barred by a period of limitation of 6 months under Section 11 A (1) as the extended period was not applicable.
(k) The Collector failed to appreciate that the FBDs did not come into existence at the factory and were invoiced only on assembly at the customer’s premises where they cease to be goods.
(l) The burden of proving that FBDs with plenum chamber recessed were leviable to Central Excise duty was on the Department.
(m) Penalty of Rs. 20,000/- imposed is arbitrary and excessive.
5. We have heard both sides and considered the matters on record and after considering the same we find that-
(a) A plain reading of the Tribunal’s Order No. 734/1987-D records in Para-5 that the Advocate for the appellant stressed the following points.
i) “All the components and sub-assembly required to make a complete FBD were sent from the factory of M/s Confabs and that there was no further components required to make a complete FBD at the site of the customer.
ii) The FBD, as such, did not come into existence at the factory of M/s Confabs and that the goods were invoiced as FBDs as on assembly at the customers premises these formed into FBDs.
iii) After setting up of the FBDs at the customers premises, the plenum chamber had to be recessed underground and enclosed in the necessary civil work. Further some of the bought out items had to be fixed on the ground separately.
iv) The FBDs which came into existence at the customer’s site became immovable goods as in the case of installation of the lift where the lift came into existence after same of its parts became part of the structure of the building.”
Considering the plea and in view of the above, we do not find any new point taken in the appeal before us, except reliance on the decision of Triveni Engineering & Industries Ltd., (2000 (120) ELT 273 (SC).
(b)(i) It is evident, from para Nos. 19, 20, 24 of the Commissioner’s Order impugned before us, that not only relevant documentary material has been relied by the Commissioner, but he has arrived at his conclusions regarding the nature of ‘plenum chambers’, to be recessed underground or they are/could be, also supplied not recessed depending upon the model and the floor level and other requirements of the individual Tea Estates. he has specifically concluded, after examining the statements of senior responsible personnel of the tea estates, that the said chamber need not necessarily be underground but can be kept above the floor level. He has arrived at his conclusions after fact established by this examination of the material and evidence as available with regard to certain FBDs which were dismantled and reinstalled elsewhere. Therefore he has concluded that FBDs cannot be articles ‘fixed’ to the ground, but are ‘movable’ in nature and therefore have all the characteristics of goods. Thereafter relying on the Hon’ble Supreme Court’s decision in Narne Tula Ram Manufacturers Pvt Ltd., 1989 38 ELT 566 came to the conclusion that assembly of the components at site would amount to manufacture. He specifically emphasized on the finding of the Hon’ble Supreme Court.
“a part/component may be goods as known in the excise law and should be dutiable at the same time the final product assembled from such “may be separately known and dutiable under excise law because when parts and end products are separately dutiable both are taxable.”
He has, also held from the correspondence exchanged between M/s Bedi & Bedi & Confabs, to indicate that after completion of the FBDs the same were open to inspection, and after inspection, attending to the rectification, such assembled machines were disassembled into parts for easy transportation in as much as FBDs were 20 feet in length and 8 feet in breadth and therefore he has held that even if the heat source was not attached, the claim of the appellant that the FBDs do not become a tea dryer till attachment of such heat source, was not acceptable. He had observed from the files and other documents of M/s Bedi & Bedi that they were not supplying any heat source for such FBD machines and after examining the heat source as available in the tea estates they were recommending the type of drier which would be suitable for a particular tea estate and concluded that what was supplied was a complete machine assembled, tested and there-after removed in disassembled condition form Bangalore premises.
(b)(ii) Para 24 & 26 of the Commissioner’s findings in this regard induces us to come to a conclusion, that the Commissioner has followed the directions in remand regarding the nature of ‘plenum chambers’ and whether the FBD units would continue to retain the character of the machine. During the hearing before us, the appellant was asked to produce the catalogue of such machines which was produced before the Tribunal at the earlier hearing. Even though the learned advocate had promised to supply the said document, the same were not filed. In absence of the catalogue, we cannot ascertain whether there was, a supply, of any model other than standard models of the FBD machines as shown in the catalogue produced before the Tribunal earlier. Therefore we also conclude that components and/or a FBD came into existence, in the hands of the appellants, before clearance of the same from the factory, as held by the Tribunal vide the final Order No. 734/1987-D dated 22.9.1987.
(c) In this view of the matter, when the appellants have not been able to substantiate their claim of existence of any ‘special models other than ‘standard models’ which have been held to be excisable goods and the Commissioner is finding the FBDs to be movable items which infact have been shifted as per the evidence from place to place we have no hesitation in coming to a conclusion that FBDs supplied would be falling under tariff item 68 of the wrest while Central Excise Tariff which was applicable at the relevant time.
(d) From the impugned Order we find, that the allegations were made and it is an admitted position, that M/s Bedi & Bedi had maintained records and registers of such machines serial No wise. The registers being ‘replacement registers, (Para 9.2)’ of the impugned order and FBD register showing the ‘parts of components’ manufactured by M/s BBP as in para 9.1. We have no hesitation to come to a conclusion that component replacement parts of the FBDs were manufactured and FBDs were installed and tested before being dispatched and removed. The appellants pleading therefore do not impress us. Such Components would be dutiable under erstwhile T.I. 68.
(e) We have carefully considered the reliance of learned advocate for the appellants on the case of Triveni Engineering & Industries Ltd (2000 (120) ELT 273) especially paras 20, 21, 22 thereof. We find that
“marketability test requires that the goods as such should be in a position to be taken to the market and sold”
and further in that case concluded that
“to take to the market the turbo alternator has to be separated into components-turbine and the other alternator-”
In the present case, the Commissioner has come to a specific finding that the FBDs come into existence and are tested; no material has been produced before us to counter this specific finding of the Commissioner. We find that the turbo alternator being separated into its components would not remain a turbo alternator in the facts of that case before the Hon’ble Supreme Court, which facts are not applicable in the present case before us. Therefore reliance on the decision of the Supreme Court, in Triveni Engineering Case, by the appellants does not help their case.
(f) We find that in the Triveni Engineering case, the Hon’ble Supreme Court found it useful to refer to explanatory notes under HSN and thereafter inferred that in the facts of that case as per HSN notes etc., movable property came into existence. In the present case, the classification of the excisable goods viz FBDs has to be done under tariff item 68 which at the relevant time read as follows:
“68. all other goods, not elsewhere specified, but excluding”
All kinds of machinery complete or incomplete and informs of components would fall under tariff item 68. In the case of Arlaps Limited (1981 ELT 684) Bom) while examining the dutiability on turn-key projects came to a conclusion, that if an article did not come into existence until it is fully erected or installed, tested and commissioned and such article becomes a part of immovable property then the same could not be described as goods attracting levy of duty, but various parts and components, used in the manufacture of such erected articles, would be liable to appropriate rate of excise duty at the time of clearance from the respective factory. In the present case, the Tribunal vide their earlier Order 734/1987-D dated 22.9.1987 have already given a ruling on excluding the value of items which were bought out and supplied at site. The same has been done and no serious challenge to the Calculation of the duty quantification as per the direction of the Hon’ble Tribunal has been raised before us. It can therefore be concluded, that what is being charged to duty now by excluding the value of bought out items from the total cost of FBDs recovery in the present Order is the value of FBDs in component form, such components would fall under tariff item 68. This would be permissible in terms of the Bombay High-court decision and the Hon’ble Supreme Court’s decision in the case of Narne Tularam relied by the learned Commissioner. We would therefore find no flaw in the present confirmation of demand under tariff item 68 on the FBDs.
6. In view of our finding, the appeal is rejected.
(Pronounced in open court on 16/11/2001)