ORDER
V.K. Agrawal
1. The issue involved in this appeal, filled, by revenue, is whether duty of excise is payable by M/s. Mahindra & Mahindra Ltd., in respect of goods received from job workers as motor vehicles under Chapters 87 of the Schedule to the Central Excise Tariff Act.
2. Shri M.P. Singh, learned D.R., mentioned that a Misc.Application No. E/Misc./37/2001-B has been filed by the Commissioner praying for taking on record Section 11D of the Central Excise Act as amended by the Finance Act, 2000.Shri V. Lakshmi kumaran, leaned Advocate for the Respondents has no objection. Accordingly the Misc.Application, filed by the Commissioner is allowed.
3. Briefly stated the facts are that M/s. Mahindra & Mahindra manufacture motor vehicles. They were clearing cowl and chasis on payment of duty to Doby Builders who constructed the metal body on the said cowl and chasis and returned the vehicle under their gate passes to the Respondents.M/s.Mahindra & Mahindra subsequently sold these vehicle after testing etc. Under their own delivery notes cum inoices.in addition the Respondents were sending materials to M/s.Roplas (I) Ltd., Pune for body building under the provisions of Rule 57F(2) of the Central Excise Rules. According to the Department duty of excise was not paid on full value of vehicle at which the said vehicles were sold in the course of wholesale trade through the Respondents had recovered the duty from their customers.The Central Excise Officers seized 43 such vehicles which were provisionally released subsequently on execution of bond and payment of differential duty.A show cause notice dated 4.7.1991 was (sic) for demanding differential duty, for confiscating the seized vehicle and for imposing penalty on M/s.Mahindra & Mahindra.A few offices of the Respondents and Body Builders were also asked to show cause as to why penalty be not imposed on them under Rule 209A of the Central Excise Rules.The Collector, Central, Central Excise, under the impugned Order No. 28/92 dated 13.7.92, dropped the proceeding against all the notices, holding that body built vehicles were classifiable under Sub-heading 8707.00 of C.E.T.A.; body-builders were not related persons; thee was no allegation in the show cause notice that body-builders were under the control direct or indirect of the Respondents; that in view of the decision in Ujagar Prints vs. U.O.I., 1989 (39) ELT 493 (SC), no recovery of any differential duty was warranted inspite of the fact that M/s. Mahindra & Mahindra charged higher prices from their customers.
4. Shri M.P. Singh, learned D.R., submitted that the Revenue is only demanding the payment of the differential duty on the motor vehicle which was fully manufactured in the hands of the Respondents only; that the differential duty is being demanded since the duty has already been paid on chasis as well as body fabricated by the body-builders. He emphasised that transfer of chasis and cowl by Mahindra & Mahindra body builders was not in the form of sale and throughout the Respondents were the owners of chasis and cowl; that the Agreement, entered between the Respondents and body-builders, clearly shows that the body-builders did no have any right of ownership of an nature whatsoever in respect of the vehicles and chasis entrusted to them by the Respondents; that body-builders were not at liberty either to deal, change, sell or otherwise deal with eh vehicle which should be returned to manufacturer by the body-builders immediately after completion of work for which the vehicles and chasis were sent to them.The leaned D.R. referred to the following clauses of agreement in support of his contention:
3. The vehicles and chasis sent by the Manufacturer to the Body Builders shall be held by the Body Builder in trust for the Manufacturer and for the sole purpose of constructing steel bodies on the said vehicles and chasis and for no other purpose. The body builder shall not have any rights of ownership of any nature whatsoever in respect of the said vehicles entrusted to him by Manufacturer.
4. The body builders shall not be at liberty either to pledge, charge, sell or otherwise deal with the said vehicles and chasis entrusted to him. The vehicles and chasis in question shall be returned to the Manufacturer by the Body Builder immediately after the completion of the work for which the vehicles and chasis are entrusted by the Manufacturer to the Body Builder namely, steel body fabrication in accordance with the specifications and requirements of the Manufacturer.
8. The Budy Builder further undertakes to insure the vehicles and chasis against all risks, including loss by fire, theft, riot,strike and civil commotion.The Body Builder agrees and undertakes to pass on the value or benefit realised by the Body Builder under such insurance policies to the Manufacturer.
4.2 The learned SDR also mentioned that Shri Mohan Regavan, Sr.Executive, had admitted in his statement dated 22.2.91 that no sales tax was paid on clearances of cowl and chasis to Body Builders because the same had not been sold to them.he further said that Respondence were even directing the Body Builders to procure raw materials from specific persons; that this apparent from their letter dated 8.8.88 addressed to M/s.Neelima Motors, Thane to procure carpet material from M/s. Supreme Non-woven (P) ltd.; that the ownership of the Respondents is rather evident from the fact that in respect of export of vehicles, the Respondents were getting cash compensatory support which is clear from their letter dated 9.11.1989 requesting M/s. Neelima Motors to get a permission to take out 4th copy of Excise Gate Passes under Rule 52A.
5. The learned D.R. further emphasised that the undisputed fact is that a motor vehicle came into existence in respect of which no central excise duty was paid as the Body Builders had paid duty only on body; that the vehicle was not complete in the hands of the Body Builders; that the vehicle in the hands of Body Builders was not in a marketable condition; that a vehicle can be road worthy only after a certificate has been given to that effect by expert technician; that respondent were carrying out necessary test such as of load factory, road worthiness,emission test; that further if there was any defect, the same was rectified by them.he emphasised that when there is a legal requirement of test, goods cannot be treated as fully manufactured without such tests; that the activity of test is not being taken in isolation, but the entire processes undertaken by the Respondents are to be seen in entirety right from sending cowl and chasis to Boddy Builders without effecting sale and getting them back after fabricate;ion of body, conducting different tests and then selling the Motor vehicle; that it is not a simple case of trading in motor vehicles by M/s. Mahindra & Mahindra by purchasing road worthy motor vehicles from someone and selling the same. He referred to ‘certificate of confirmity with Emission Norms’ given by the Respondents in compliance with Rule 115 (1) and 115(6) of the Central Motor Vehicle Rule and mentioned that this was one of the tests carried out by the Respondents. The learned D.R. relied upon the decision in the case of CCE vs. General Cement (P) Ltd., 1989 ELT 689 (T) wherein it was held that quality control test being a mandatory requirement, the product cannot be considered as fully manufactured and duty is not payable if the cement concrete poles get destroyed in the mandatory quality control test. Reliance was also placed on the decision in the case of CCE vs. Jay Engineering Works Ltd., 1989 (39) ELT (SC) wherein nameplate fixed on fan was held to be an essential ingredient and input though fan can perform its essential function without a name plate .He also referred to decision in TEKNO VALVES vs. CCE, 1991 (56) ELT 408 (T), wherein it was held that only after inspection and Certification by ISI which is compulsory to make gio cylinder valve marketable, the valves should be treated as fully manufacture and liable to be entered in the R.G.1 register. He also relied upon the following decision:-
(i) Taylor Instrument Co.(I) Ltd. vs. CCE, New Delhi, 1995 (77) ELT 149 (T)
(ii) H.H.M. Ltd. vs. CCE,1994 (74) ELT 19(SC)
(iii) CCE vs. Sudershan Beopar Co. Ltd., 1993 (64) ELT 359 (T)
(iv) National Cables, vs CCE, Meerut, 2000 (117) ELT 390
The learned D.R. also placed reliance on the decision of the Larger Bench in the case of CCE, Meerut-II vs. Prabhat Zarada Factory Ltd., 2000 (119) ELT 191 (T-LB) Wherein it was held that the place upto which the ownership with the buyer shall be the place of removal of the excisable goods.
6. The learned D.R. further argued that the Respondents recovered central excise duty on full value of the motor vehicle sat which these vehicles were sold by them. He referred to a circular dated 25.8.1990 issued by the Respondents to all dealers, sales, service and spare parts personnel intimating about the revision of their jeep and FJ range of vehicles.It was also mentioned therein that the prices indicated in the revised price lists were for delivery ex works and were exclusive of sales tax, transportation, insurance, registration, octroi etc.; that it means that the prices were inclusive of excise duty; that this is also evident from Proforma Invoice date 11.10.1089 issued by the Respondent to Executive Engineer Transport (City), Municipal Corporation, Greater Bombay in which price of the Motor Vehicle (single stretcher Ambulance) has been quoted ex-plant i.e. plant of the Respondents. He also mentioned that M/s.Mahindra & had declared assessable value incorrectly without a reference to the price oat which the motor vehicles were sold ultimately to the wholesale dealers. he, in this regard, referred to their letter dated 22.3.1988 addressed to Body Builders regarding determination of net assessable value for being declared to the Excise authorities; that the Respondents were collecting excess duty from their customers. The learned D.R. also mentioned that the body builders were not discharging duty liability on motor vehicles as they were paying duty under Heading 87.07 of the Schedule to the Central Excise Tariff Act which applies to “Bodies for the motor vehicles of Heading Nos. 87.01 to 87.06; that this is also evident from the Gate Pass No.235 dated 23.9.90 of M/s. Gems Tech (Poona) Pvt. Ltd. which clearly shows that the goods were classified under Heading 87.07 only; that in their letters dated 19.12.90 they directed another Body Builder to make proper representation and follow up with the Excise Authorities after which he should report to excise payment under Heading 87.07.He submitted that the provisions of Section 11D of the Central Excise Act are applicable as the Respondents had collected duty on full value of the Motor vehicles from their customers. Finally he mentioned that their procedure of getting the bodies built on chasis by the body builders was nothing but a colourable device which, as per Apex Court in McDowell & Co. Ltd. vs. C.T.O., 1997 (69) ECR 29 (SC) “can not be part of tax planning and it is wrong to encourage or entertain the belief that is honourable to avoid the payment of tax by dubious methods.”The learned D.R. commented that the transaction between the Respondents and Body Builders were just paper transaction and referred to the decision in S.P. jaiswal vs. C.I.T., (1997) 224 I.T.R. 619 (SC).
7. On the other hand, Shri V. Lakshmikumaran, learned Advocate, submitted that ownership is not relevant for discharging the duty liability as held by the Supreme Court in the case of ujagar Prints vs. U.O.I., 1988 (38) ELT 535 (SC); that in view of this the fact that ownership of vehicles and chasis remained with them is immaterial.He, further, submitted that the Emission Test is conducted in respect of Chasis which was admittedly manufactured by them only and cleared only on payment of duty; that load factor again is as per design of the chasis. He also mentioned that all the decisions, relied upon by the learned D.R., in support of his contention that motor vehicles were manufactured by the Respondents were in relation to the manufacturers who were undertaking all the manufacturing process; that in an integrated manufacturing activity, certainly RGI stage doe snot reach before the testing of the goods;that, however, the activity of testing and packing does not change the item into a new product and the product remain the same as held by the Tribunal in the case of T.I.Diamond Chain Ltd. vs. CCE, Chennai-II,2000 (126) ELT 790 (T); that Civil appeal No.396/2000 filed by the Revenue
against the said decision has been dismissed by the Supreme Court on 3.32000 upon hearing Counsel. The learned Counsel also mentioned that the decision of the Tribunal in the case of Swaraj Majada Ltd. vs. CCE,Chandigarh, 1996 (63) ECR 77 (T), is squarely applicable to the facts of the present matter.Finally, he submitted that amendment effected in section 11D of the Central Excise Act by Finance Act, 2000 provides that only those persons who are liable to pay duty under the Act or Rules are liable to pay the amount of duty collected in excess of the duty assessed or determined and paid on any excisable goods; that no more every person is liable to pay the duty collected in excess; that as M/s. Mahindra & Mahindra are not liable to pay duty in respect of the motor vehicles in question, they are not liable to pay the duty, if any, collected in excess; that no invoice issue by them shows excise duty collected in excess from their customers. He placed reliance on the decision in the case of CCE, Bhope vs. Perfect Refectories, 2001 (127)ELT 304 (T).
8. We have considered the submissions of both the sides. The facts which are not in dispute are that M/s. Mahindra & Mahindra have cleared the cowl and chasis on payment of duty to Body Builders for the purpose of fabrication of a body on the chasis .The body builders sent the motor vehicle, after fabrication of body on the chasis, back to the Respondent after discharging duty liability under Heading 87.07.No doubt the body which is fabricated on the vehicle is classified under Heading 87.07 of CETA, a motor vehicle comes into existence.We, therefor, do not find any substance in the submission of the learned D.R. that the motor vehicle which is cleared by the builders is a semi-finished motor vehicle. There is nothing on record to show as to how the vehicle is not a complete motor vehicle.Merely because a few tests are carried out by the Respondents, the same will not make them manufacture of the motor vehicle as the tests carried out by the them does not bring into existence a new commercial product. In the leading case on the subject of manufacture, “the Supreme Court has held in Union of India vs.Delhi Cloth & General Mills Co. Ltd., 1977 ELT (J199) that to amount to manufacture “there must be transformation; a new and different article must emerge having a distinctive name, character or use.” It is not the case of the Department that after test conducted by the respondents, a new and different product emerges having a distinctive name, character product emerges having a distinctive name, character or use. Similarly the Supreme Court laid dow in J G GLASS case a twin test ” for deciding whether the process is that of ‘manufacture’. First, whether by the said process a different commercial commodity comes into
existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process.” Applying these two-fold test, it cannot be said that a different commercial commodity comes into existence at he hands of the Respondents.In T.I.Diamond Chain case, appeal against which has been dismissed by the Supreme Court, the Appellants were purchasing Sprockets from manufacturers and after testing for quality and durability the same were packed along with the automotive chains manufactured by them.The Department demanded the central excise duty treating the product as “Transmission kit”. The Tribunal held that “the activity of testing and packing doe snot change the item into a new product and the products remain the same.” The decisions relied upon by the learned D.R. are not applicable in the present matter as the activities which were treated as manufacturing activities were undertaken in the same place where the goods were manufactured.Thus in General Cement Products case, supra, the cement concrete poles were manufactured by the Appellants only and as per the terms of the specific contract with U.P. State Electricity Board, about one percent poles were to be subjected to specific tests till they broke in the testing process. In view of these facts,the Tribunal held that the goods became marketable only after the samples had passed the prescribed tests.In jay Engineering Works case, supra, the issues involved was whether make plate was an input for the purpose of availing set off of duty under Notification No. 201/79-CE.It is not the ratio of the said decision that the process of affixing name plate on a fan will amount to manufacture.In Tallor Instrument Co’s case the Tribunal has interpreted the words “any other similar process” used in Rule 173L of the Central Excise Rules.In view of the provisions of Rule 173L, the Tribunal held that process of retesting, rechecking and re-calibration of the duty paid goods returned to the factory would be covered by the Pharse “or subjected to any other similar process in the factory.” This decision is not applicable to the facts of the present case and cannot be used to interpret the term ‘Manufacture’ as defined in Section 2(f) of the central Excise Act.
9. The learned Counsel for the Respondent has rallied upon the decision in Swaraj Mazda Ltd. case, supra. In the said case, the Appellants cleared chasis to body builder on payment duty under the cover of gate pass issued to self/body builder.After fabrication of body on chasis, motor vehicle was sent of various depots of the assessee or direct to the customers after payment of duty.They raised the invoices on the customers for the full value of the motor vehicles. Hence, they were called upon to make payment of duty short paid on the invoice value of the complete motor vehicles. The Tribunal held:-
“The duty having been levied and collected at the state of emergence of goods namely chasis as specified in the Tariff, therefore, the manufacture of motor vehicle at the hands of a separate independent manufacture, cannot be considered as having being manufactured at the hands of the assessee.”
The Tribunal further held:
“Therefore, mere fact of the appellants invoicing the full vehicle from their depot does not lead to the interference that the motor vehicle has been manufactured by them or it was manufactured on their behalf….They are adding their margin margin of profit, insurance and other incidental charges.”
10. We also observe that the Respondents had sought permission to remove inputs or partially processed goods under Rule 57F(2) and/or Notification No. 214/86-CE, dated 25.3.1986, which was refused by the Assistant Collector, under letter dated 3.11.1987 on the ground that the partially processed vehicles are chasis and cowl and not open jeap and the chasis and cowl are neither input nor semi-finished and is classified under Sub-heading 8706.30 attracting duty. By holding so, the Department cannot now argue that sending of chasis and cowl to the Bod-Builders was a paper transaction.In Swaraj mazad’s case also, the Department did not permit removal of chasis under Chapter X procedure to independent units.We also do not find any force in the submission of the learned D.R. that ownership of the goods always remained with the Respondents.It has been held by the Supreme Court in ujagar Prints vs. U.O.I., 1988 (38) ELT 535 (SC) that “Duties of excise are imposed on the production or manufacture of goods and are levied upon the commodity taxed.The question whether the producer or the manufacture is or is not the owner of the goods is not determinative of the lability.”Similar views were held by the Gujarat High Court in Profile Engineering Co. vs. U.O.I., 1995 (75) ELT 257 (Guj) wherein it was held that “ownership of raw material is not relevant for the purpose of deciding who is the manufacturer under the Act. The ratio of the larger Bench decision in Prabhat Zarda case, relied upon by the learned D.R. is not relevant as the Larger bench of the Tribunal was interpreting the terms ‘Place of Rem;oval’ under Section 4 of the Act as amended by Fiance Act, 1996.The provisions of Section 11D of the Central Excise Act are also not applicable is the present matter as the show cause not applicable in the present matter as the show cause notice was issued even prior to coming into force the provisions of this Section.Further, as held by the Tribunal in CCE, Bhopal vs. Perfect Refractories, 2001 (127) ELT 304 (T) evidence has to be brought on record that what was collected by the Respondents represented the duty do excise.The learned Counsel has mentioned that no invoice reflects collection of nay excise duty in excess. Accordingly the appeal filed by the Revenue is rejected.
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