JUDGMENT
P.G. Chacko
1. This appeal of the assessee is against order dated 28.2.94 of the Collector of Central Excise in adjudication of a show-cause notice dated 12.4.91 and its corrigendum dated 21.4.93. The appellants are aggrieved by the demand of Central Excise duty of Rs. 1,80,621.52 confirmed against them and the penalty of Rs. 20,000 imposed on them.
2. The appellants are a unit of the Industrial Development Corporation of Orissa Ltd., with their factory at Hirakud. During the periods of dispute (1.4.86 to 30.9.87 and 1.3.88 to 31.12.89), they had removed certain structural materials from their factory without payment of duty to the sites of their customer viz. the Orissa State Electricity Board for the purpose of construction of transmission towers etc. They had also removed bearing boxes likewise during those periods. The department, by show-cause notice dated 12.4.91 answerable to the Additional Collector of Central Excise, proposed to levy duty of excise on the structural items and bearing boxes, alleging that the structural items and bearing boxes were chargeable to duty of excise under Chapter 73 and Chapter 84 respectively of the CET Schedule. It raised a demand of duty of Rs. 1,92,982.64 on the appellants, invoking the extended period of limitation under the provision to Section 11 A(1) of the Central Excise Act for which it was alleged that the appellants had suppressed production and removal of excisable goods with intent to evade payment of duty. Later on, by a corrigendum, the show cause notice was made answerable to the Collector of Central Excise. In their letters dated 17.10.91 and 25.5.93, the appellants denied the department’s allegations and took the stand that the subject items were not chargeable to duty. They also raised alternative grounds for challenging the demand of duty. These included the plea of limitation. They also objected to the value addition made by the Collector. In adjudication of the dispute, the Collector confirmed the demand of duty to the extent of Rs. 1,80,621.52 against the appellants after deducting an amount of Rs. 12,361.12 from the amount demanded in the show-cause notice. The deduction was of the duty demanded on materials which were found to be covered by two gate passes evidencing payment of duty. The Commissioner also imposed a penalty of Rs. 20,000.00 on the appellants under Rule 173Q.
3. Examined the records. The description of the items removed by the appellants without payment of duty during the period of dispute, the Tariff enteries whereunder the department held those items to be classifiable, the quantities removed, the value of the items as valued by the department and the duty allegedly payable on such values are as under:
SL.
No.
Description of goods
CHS
Quantity
Value (in Rs.)
Duty involved (in Rs.)
1.
Tower materials
7308.20/
7308.90
54.608
MT
6,85,663.66
1,04,845.78
2.
Substation structure materials
7308.90
4.944
MT
70,948.55
11,169.86
3.
Bolts & nuts for SI. No. 1 & 2
7308.20/
7308.90
5.857
MT
1,59,577.78
25,133.47
4.
Foundation Bolts &
Nuts
7318.10
0.951 MT
14,826.42
3,113.53
5.
Bearing Boxes
8483.00
58
Nos.
2,32,000.00
48,720.00
In the show-cause notice, the department alleged that the above items were manufactured and cleared during the periods of the dispute by the appellants by wilfully suppressing the activity before the department with intent to evade payment of duty. On the strength of this allegation, the department invoked the larger period of limitation for demanding the duty. For imposing penalty, the department alleged that the appellants had contravened Rules 9(1), 52A, 173G, 173F, 53, 54 and 226 of the Central Excise Rules. Denying the allegations, the appellants submitted that they were manufacturers of engineering goods primarily connected with construction, erection and installation of transmission towers at site. They submitted that most of the materials manufactured by them in their factory fell within the ambit of CET heading 73,08. They did not generally manufacture bolts and nuts falling under CETA sub-heading 7318.10. The bearing boxes falling under CET sub-heading 8483.00 were not manufactured by them. Those items were received by them under cover of gate passes issued by Rourkela Steel Plant, for machining on job work basis. The appellants contended that they were not liable to pay duty on the bearing boxes on which they had undertaken job work only in terms of Rule 57F (2). They were also not liable to pay duty on the bolts and nuts purchased from the market. They raised the same plea in regard to foundation bolts and nuts also. Referring to the challans (which were submitted to the department by the appellants themselves) on the basis of which the demand of duty was made, the appellants submitted that most of those challans related to materials which had been returned as defective from the sites and subsequently sent back after removal of defects. The remaining challans related to materials which were dispatched to the site to make up short supply. Since the duty of excise on entire quantity of materials covered under gate passes had been paid at the time of original despatch In terms of the contract, no further levy of duty could be made on the goods supplied later only to make up the short supply. The members of the tower were not marketable goods and hence not excisable. The demand of duty was barred by limitation also. When the appellants received an order from the Electricity Board, they duly intimated the same to the department. They also provided a copy of the customer’s order to the department and, thus, the department was fully aware of the activity of the appellants. There was no suppression of facts on the part of the appellants. Prior to 1.3.88, the goods were not dutiable. In fact, the department had, for the period prior to 1.3.88, approved the appellant’s classification list in which exemption had been claimed in respect of the goods. The appellants also objected to the value addition of 25% made by the Collector in determination of the assessable value of the goods, They contended that such value addition made on the basis of the price variation clause of the work contract was arbitrary. AH the objections of the party were rejected by the Collector, who passed the impugned order.
4. Heard both sides.
5. Ld. counsel for the appellants submitted that, in respect of Items No. 1 and 2 of the schedule given in para (3) of this order (for short, scheduled items) excisability was covered by the Tribunal’s Final Order No. E/475/97-B dated 5.3.97 passed in Appeal No. E/302/89-BI between the same parties. In that case, it was held that the process of punching, cutting, painting and galvanizing of steel angles, plates channels and other parts did not amount to manufacture and hence the structural items resulting from the said processes were not dutiable. Counsel, in this connection, also relied on the Tribunal’s decision in Dodsal Mfg. (Pvt.) Ltd. v. CCE, 1993 (67) ELT 138. He submitted that the Final Order No. E/475/97-B ibid was not appealed against by the department and, therefore, the finding of non-excisability of duty paid angles, shapes, sections, plates etc. cut to shape and size and used in the construction of transmission towers attained finality and the same was binding on the department. Counsel, in this connection, relied on the decision of the Tribunal in Dyerslime & Chemicals Pvt. Ltd. v. CCE, Indore, 1996 (87) ELT 720. With regard to the scheduled items 3 and 4, Ld. counsel submitted that those were parts of the transmission tower fixed to the earth and, therefore, they were not marketable or excisable. With regard to the scheduled item No. 5 (bearing boxes), counsel submitted that what the appellants had done on that item was only machining on job work basis. Machining did not amount to manufacture and, therefore, the machined boxes were not exisable. Referring further to case law, the counsel submitted that the department’s appeal against the Tribunal’s decision in the Dodsal case (supra) was referred by a Division Bench of the Supreme Court to a Larger Bench and the Larger Bench dismissed the department’s appeal [2001 (132) ELT A 89]. Ld. counsel, therefore, contended that the non-excisability of the duty-paid angles, shapes, sections etc. cut to shape and size and used in the construction of transmission towers was finally settled by the Supreme Court in favour of the assessee. With regard to the bolts and nuts, which were claimed to have been purchased from the market and supplied to the customer site, the counsel re-iterated the appellant’s submissions made in their reply to the show-cause notice. Ld. counsel also raised a plea of violation of principles of natural justice in relation to the value addition made by the Collector. He submitted that the Collector enhanced the assessable value by 25% on the basis of some report submitted by the Superintendent. Such report was not disclosed to the assessee. No reason whatsoever was stated by the Collector for the enhancement of value, either. He also pointed out that there was no proposal in the show-cause notice for any such value addition. Ld. counsel reiterated the relevant submissions in the assessee’s reply to the show-cause notice, on the question of limitation. He submitted that the entire demand of duty was time-barred in the absence of suppression of facts.
6. Ld. DR submitted that the classification of the subject goods and their chargeability to duty, for the period from 1.3.88, were covered by the restructured Central Excise Tariff. On the issue of excisability of the structural item, the DR submitted that all those items were distinctly identifiable marketable goods covered under specific sub-headings under CET Heading 73.08. Those items were, therefore, excisable. In this connection, he relied on the decision of the Supreme Court in CCE, v. Man Structural Ltd., 2001 (75) ECC 712 (SC): 2001 (130) ELT 401 (SC). He also relied on the Tribunal’s decision in CCE v. S.A.E (India) Ltd., 2001 (133) ELT 670. With reference to bearing boxes, the DR submitted that the procedure prescribed under Rule 57F was not followed by the appellants. Inviting our attention to the submissions contained in the reply to the show-cause notice, he pointed out that the foundation bolts and nuts were, admittedly, manufactured by them and hence it was not open to them to question the excisability of the items.
7. We have carefully examined the submissions. It is a part of the record that the appellants had filed classification list effective from 1.10.87, claiming exemption from payment of duty, in respect of the items involved in this case and that the classification list was approved by the proper officer of the department. It is also obvious that no duty of excise has been demanded by the department for the period 1.10.87 to 28.2.88. The demand of duty is for the periods 1.4.86 to 30.9.87 and for the period 1.3.88 to 31.12.89. For these periods, nothing pertaining to approval of the classification list by the proper officer of the department is relevant. It has been argued by Ld. counsel that the excisability of the materials used for construction of transmission towers and substation structures has already been settled by this Tribunal in the case of Dodsal (supra). On a perusal of the Tribunal’s decision in Dodsal case, we note that it has been held in that case that the processes of galvanizing and drilling of steel beams/joists do not amount to manufacture under Section 2(f) of the Central Excise Act. In that case, the coordinate Bench of this Tribunal was relying on an earlier decision in the same assessee’s case CCE, Baroda v. Dodsal Pvt. Ltd., 1987 (11) ECC 154 (T) : 1987 (28) ELT 352. In the said earlier case, it had been held that there was no manufacture of excisable goods in the activity of cutting into pieces, bending, punching and galvanizing of iron and steel angles, plates, channels and rods (supplied by the Orissa State Electricity Board), for the purpose of erection of transmission tower for the Electricity Board. In the second Dodsal case [1993 (67) ELT 138], the Tribunal followed the ratio of the decision in the first Dodsal case, and held that structural parts for fabrication of transmission line tower were not excisable. The department’s appeal against the decision in the second Dodsal case was dismissed by a Larger Bench of the Supreme Court [2001 (132) ELT A 89]. It has been argued by Ld. DR that the Central
Excise Tariff was restructured with effect from 1.3.88, that the decision in Dodsal case was on excisability of the structural items under the old Central Excise Tariff, that the question of excisability arising in the instant case is under the new/restructured Tariff and therefore the Dodsal decision cannot be applied to the instant case. Ld. DR has further argued that the decision in Dodsal case cannot hold good after the decision of the Supreme Court in Man Structural (supra). In Man Structural a Larger Bench of 5 Judges of the Apex Court held that structural were excisable if they emerged as new identifiable goods from a process of manufacture and were marketable. In the Dodsal case, it was, again, a Larger Bench of 5 Judges of the Supreme Court that dismissed the department’s appeals filed against the Tribunal’s order. The Court thus upheld the Tribunal’s view that the aforementioned processes on duty-paid angles, channels etc. did not amount to manufacture under Section 2(f) of the Central Excise Act. The question of marketability had not arisen in that case. In Man Structural, on the other hand, this did arise as the prime issue and a co-ordinate Bench of the Apex Court reaffirmed the position that, for manufactured goods to be excisable, the test of marketability had also to be passed. Obviously, the later decision in Man Structural is the law on the question of excisability of structurals. In the instant case, we find, the adjudicating authority did not, or had no occasion to consider the marketability of the subject goods.
8. As regards bolts and nuts mentioned at SI. No. 3, the appellants in their reply to the show-cause notice, contended that those items were purchased from the market and hence were not further chargeable to duty. In regard to the foundation bolts and nuts, they contended that they manufactured such bolts and nuts rarely when the stock purchased from the market was not sufficient to meet their requirements. They further conceded that those foundation bolts and nuts which were manufactured by them were leviable to duty on clearance. But no evidence of purchase of the goods from the market was placed before the adjudicating authority, nor is any such evidence available to us. In any case, as the appellants conceded the excisability of the bolts and nuts, it is no longer open to them to contest the excisability of those items.
9. Insofar as the bearing boxes mentioned at SI. No. 5 are concerned, it has been strenuously argued on behalf of the appellants that those items were received from Rourkela Steel Plant for machining on job work basis, under cover of gate passes issued by the Steel Plant. The appellants have claimed that they were acting under Rule 57F (2) of the Central Excise Rules, 1944 as the rule then stood. Apparently, they failed to produce evidence before the adjudicating authority to show that they had received the goods under Rule 57F (2) and removed them back to the Rourkela Steel Plant after job work without having to pay duty thereon.
10. The Collector has made a value addition of 25% in respect of the goods on the strength of the price variance clause in the contract between the appellants and the Orissa State Electricity Board. This addition was apparently made by the Collector on the basis of a report submitted by the Supdt. (Adjudication) of Sambhalpur Division. But the report of the Supdt. was not disclosed to the party. Therefore, the value addition made by the Collector is violative of the principles of
natural justice. This apart, no price variance bill was shown to have been raised by the appellants under the price variance clause of the contract. In the absence of evidence in this behalf, the value addition made by mere reason of existence of price variance clause in the contract is not justifiable.
11. On the issue of limitation, the Collector has found that the proviso to Section 11A (1) of the Central Excjse Act was applicable to the case as the appellants had contravened the provisions of Rules 9(1), 52A and 173G of the Central Excise Rules, 1944. Though, in the show-cause notice, the department alleged deliberate suppression of facts to evade payment of duty, the Collector has not attributed any such conduct to the appellants. In order to invoke the extended period of limitation for demanding duty, there should be a finding that the assessee short-paid, or did not at all pay, any duty of excise by reason of fraud, collusion or any wilfully statement or suppression of facts or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty. In the instant case, the allegation of the department was that the appellants had wilfully suppressed facts with intent to evade payment of duty. There was no allegation that they contravened provisions of the Act or the Rules with intent to evade payment of duty. The finding of the Collector is that the appellants contravened the provisions of the aforesaid rules. There is no finding that such contravention was with intent to evade payment of duty. There is no finding of suppression either, in the impugned order. Thus the sine qua non for invoking the extended period of limitation under Section 11A of the Act has not been fulfilled in this case. The entire demand of duty, being beyond the normal period of six months, will be held time-barred. In the result, the appellants succeed in this case on the ground of limitation. We hold the demand time-barred and unenforceable and consequently vacate the penalty imposed by Ld. Collector. The appeal stands allowed.