ORDER
P.C. Jain, Member (T)
1. Since all the appeals arise out of a common impugned order, a common order is being passed.
2. Brief facts of the case are as follows :-
2.1 M/s. Alpha Dynamic Products Pvt. Ltd., an appellant herein (hereinafter referred to as the assessee) are/were engaged in the manufacture of electric motors falling under T.I. 30 of the 1st Schedule to the Central Excises and Salt Act, 1944 upto February 1986 and thereafter under Chapter 85 of the Schedule to the Central Excise Tariff Act (CETA), 1985.
2.2 On the basis of an intelligence, the Central Excise Officers visited the factory premises of the assessee on 12-3-1987 for checks. On enquiry it was found by the officers that the assessee had filed classification lists and price lists from time to time with the proper officer in respect of the aforesaid goods and that they were clearing the said goods on payment of central excise duty according to the value declared in the price lists. Further probe, however, revealed that after clearing the said electric motors from the factory, they were sending some of them to their sister concern M/s. Ravindra Industries (another appellant herein) for affixing requisite accessories on job work basis; that after affixation of such accessories the motors were known/described as grinder polisher, integral clutch motors and coolant pumps respectively in the common parlance in the trade. These were being cleared from the premises of M/s. Ravindra Industries directly to the consignees while the sale invoices in respect thereof were made by the as-sessee.
2.3 It was alleged that the assessee was selling such goods cleared from the premises of Ravindra Industries by issuing two invoices one for electric motor and the other for so-called accessories. It was also noticed from the assessee’s printed literature that the final product manufactured and sold by them were (i) integral clutch motors, (ii) coolant pumps and (iii) grinder polisher; Revenue alleging them to fall under erstwhile T.I. 30, 30-A and 51-A respectively.
2.4 It was, therefore, felt by the Excise Officers that the assessee had been evading central excise duty (i) on integral clutch motors by affixing the accessories namely clutch assembly, (ii) on coolant pumps falling under T.I. 30-A and (iii) on grinder polisher falling under T.I. 51-A. It was also noticed by the officers that the assessee was receiving duty paid electric motors removed from their factory for repairs and were removing these repaired motors without payment of duty without following the procedure prescribed under Rule 173-H of the Central Excise Rules, 1944. After further investigation by way of recording the statements of (i) Shri Ravindrabhai Prabhudas Mehta, Director in the assessee’s unit on 12-3-1987, (ii) statement recorded on 15-5-1987 and (iii) some other statements of the customers of the assessee, a show cause notice dated 5-2-1988 was issued to the assessee, and M/s. Ravindra Industries and the Directors and partners thereof respectively alleging that the assessee and the other firm M/s. Ravindra Industries and other Directors and Partners have contravened the provisions of Rule 174 read with Section 6 of the Act, Rule 173-F read with Rule 9(1), Rule 173-B, Rule 173-C read with Section 4, Rule 173-G(2) read with Rule 53 and 226 and Rule 173-H of the Central Excise Rules. They were, therefore, asked to show cause as to why duty as given below be not recovered :-
_____________________________________________________________________________________________
Value Duty
Rs. RS.
_____________________________________________________________________________________________
(1)Integral Clutch Motors falling under 5,38,566.95 3,21,813.26 Basic duty
erstwhile T.I. No. 30 and now under 12,783.75 Special duty
Chapter 85
(2)Grinder Polishers falling under 49,931.17 5,957.32 Basic duty
erstwhile T.I. 51A and now under
Chapter 84.60.
(3)Coolant Pumps falling under erstwhile 29,650.00 3,375.00 Basic duty
Tariff Item 30A and now under Chap-
ter 84.13.
___________ ___________
6,18,148.12 3,43,929.33
_____________________________________________________________________________________________
on goods illicitly manufactured and removed during the period 1982-83 to 1986-87 under Rule 9(2) of the Central Excise Rules, 1944 read with proviso to Sub-section (1) of Section 11-A of the Act and as to why penalty be not imposed on each of them separately under Rule 173-Q.
2.5 After considering the reply and giving an opportunity of personal hearing the adjudicating authority has upheld the various charges (except the charge of contravention of Rule 173-H) and has demanded duty of Rs. 3,43,929.33p from the asses-see/appellant under Rule 9(2) read with Section 11-A. It is noted at this stage, as rightly contended by the appellants’ learned advocate, that no finding has been made by the adjudicating authority on the charge of contravention of Rule 173-H. The appellants’ learned advocate, therefore, feels that this charge has been dropped and therefore, no arguments have been preferred by the appellants in that respect. The adjudicating authority has also found them liable to penalty including the Directors of the assessee and partners of the other firm M/s. Ravindra Industries for playing an active role in evasion of duty by
contravening the Central Rules. He has, therefore, imposed the following penalties:-
(1) M/s. Alpha Dynamic : Rs. 50,000/-
Products (P) Ltd.,
Plot No. 5 & 6, Road
No. 14, Udhana, Dist:
Surat.:
(2)Shri Piyush- : 5,000/-
kumar Prabhudas
Mehta:
(3)Shri Ravindrab hai : 5,000/-
Prabhudas
Mehta:
Directors of M/s. Alpha (4)Mrs. Champaben : 5,000/-
Dynamic Products Pvt. Ltd. Prabhudas
Surat. Mehta.:
(5)Mrs. Meenaben : 5,000/
Piyushkumar
Mehta.:
(6)Mrs. Parulben : 5,000/
Ravindrabhai
Mehta:
(7)M/s. Ravindra In- : 30,000/-
dustries, Plot No
10, Road No. 13,
Udyognagar, Ud-
hana, District :
Surat.
Partners in M/s. Ravindra
Industries, Surat. (8)Mrs. Champaben : 5,000/-
Prabhudas Mehta
(9)Mrs. Meenaben : 5,000/-
Piyushkumar
Mehta
(10)Mr. Ravindrab : 5,000/-
hai Prabhudas
Mehta.
2.6 Several issues are required to be considered in these appeals according to the learned advocate for the appellants. They Are :-
(1) Whether the demand of duty is time barred
(2) Whether any duty can be charged on the value of accessories fixed on the electric motors converting it into the product known as integral clutch motors.
(3) Whether grinder polisher manufactured by the assessee or Ravindra In-dustries falls under T.I. 50A of the erstwhile CET.
3.1 We would now examine the various issues :-
(1) Whether the demand of duty is time barred –
The appellants’ learned advocate, in respect of this issue has strongly relied on a letter dated 9-10-1980 submitted by M/s. Ravindra Industries. According to him this letter discloses all the facts which the adjudicating authority alleges to have been suppressed. It has been submitted that the said letter indicates clearly the nature of transactions proposed between the assessee/appellants and M/s. Ravindra Industries. Therefore, when the said letter dated 9-10-1980 was addressed to the concerned Superintendent the relevant facts were obviously within the knowledge of the department. Learned advocate submits that it does not matter that the letter was not addressed by the assessee.
3.2 It is also submitted that the Central Excise Officers including the audit parties have been visiting the assessee’s factory and had been verifying the invoices including the invoices for accessories. It is incorrect, submits the learned advocate, that the invoices were misleading. He also submits that the Excise Officers had also verified the invoices of M/s. Ravindra Industries for job work charges. Having seen the invoices of both the assessees and M/s. Ravindra Industries, it is contended that there was enough material for the Excise Officers to raise queries if they at all found anything suspicious or irregular. A number of other details have also been given in para 1 (c) of grounds of appeal which need not be gone into for the purpose of a finding on this issue.
3.3 On the other hand, the adjudicating authority has rejected the aforesaid plea of time bar on the following grounds :-
(a) There is nothing on record to indicate that the assessee brought this fact to the notice of the proper officer who approved the classification list.
(b) The fact that the accessories will be fixed on the electric motors and extra charges would be recovered from the customers by the assessee was neither reflected in the price list nor in any other way brought to the notice of the proper officer who approved the price list.
(c) The description in the invoices for accessories was misleading inasmuch as it was to the following effect :-
“for supplying the clutch components of electric motor part for fixing on”.
The description according to the adjudicating authority indicated that the asses-see was supplying only clutch components for fixing on the motors. Thus the impression given was that the fixing of the accessories on the motor was done by the customer himself.
In the aforesaid circumstances, the adjudicating authority found that the invoices issued by the assessee could not give any clue to the clandestine activity of the as-sessee for evading the duty.
(d) M/s. Ravindra Industries’ letter dated 9-10-1980 to the Range Supdt. was of no significance inasmuch as they were doing the job work on behalf of the assessee. It was the duty of the assessee to bring the fact of fixing of accessories to the notice of the department. The adjudicating authority also found that M/s. Ravindra Industries did not pursue the matter when no reply was received from the Range Supdt. indicating mala fides of the appellants.
4.1 In order to appreciate the above controversy, we reproduce below the letter dated 9-10-1980 admitted by the Revenue to have been sent by M/s. Ravindra In-dustries to the Range Supdt. :-
" RPM/SFP/ 9th October, 1980.
BY REGISTERED POST
The Superintendent,
Central Excise,
Range V,
SURAT.
Dear Sir,
M/s. Alpha Dynamic Products Pvt. Ltd. wants to send duty paid electric motors manufactured by them to us for fitting clutch components to it on the job work basis. The clutch components will be manufactured by us and will be fitted to the electric motors. The clutch motors will then be despatched according to the instructions of M/s. Alpha Dynamic Products Pvt. Ltd.
As even after fitting the clutch components the clutch motor is still classifiable as Electric Motor and as duty has already been paid on the electric Motor, we presume that no further duty is payable by us.
Kindly confirm and oblige.
Thanking you,
Yours faithfully,
For RAVINDRA INDUSTRIES
(R.P. MEHTA)
PARTNER”
We notice that though the letter has been sent from M/s. Ravindra Industries it clearly mentions that it would be receiving the duty paid electric motors from the assessee. It also mentions that Ravindra Industries would be fixing the clutch components on electric motors on job work basis. It also states very clearly that the clutch motors after fixation of clutch accessories components would then be despatched according to the instructions of the assessee. From the factual details, as mentioned above, given in the said letter dated 9-10-1990 no doubt is left about giving all material information to the department in respect of manufacture of integral clutch motors by Ravindra Industries for and on behalf of the assessee i.e. M/s. Alpha Dynamic Products Pvt. Ltd. In view of the information given in the said letter dated 9-10-1980 to the Range Supdt., particularly the Range within whose jurisdiction both the units of the assessee and Ravindra Industries fell, it cannot be held, that the appellants have suppressed any information in respect of manufacture and clearance of integral clutch motors. The show cause notice has admittedly been issued beyond the period of six months. On this short ground alone the demand of duty to the tune of Rs. 3,34,597.01p on integral clutch motors would be time barred. We do not find any merit in the findings of the adjudicating authority that the information was not given in the classification list and the price list to the concerned proper officers who approved those lists. Range Supdt. is the assessing officer. He is directly working under the Divisional Officer/Asstt. Collector. If he gets any information which has a bearing on the assessment of the goods, it becomes his duty to bring it to the notice of the concerned proper officer. Accordingly, we hold that the demand to the extent of Rs. 3,34,597.01p is time barred and cannot be recovered from the assessee.
5.1 (2) Whether any duty can be charged on the value of accessories fixed on the electric motors converting it into the product known as integral clutch motors!
Learned advocate Shri Willingden Christian has urged that no further duty can be charged on the value of accessories fixed on the duty paid electric motors, in another unit inasmuch as no new product has come into existence and the duty has already been paid under the Tariff Entry 30 of the erstwhile CET and thereafter under Chapter 85 of the CET. He also relies on a number of authorities for the proposition that the value of optional accessories should not be included in the assessable value of main item which are as follows :-
(1) 1977 (1) ELT J 133 (Bom.) – Paras 21 & 22 [International Tractor Co. of India Ltd. v. UOI]
(2) 1985 (22) ELT 780 (Bom.) – Para 3 [UOI v. International Tractors Co. of India Ltd.]
(3) 1981 ELT 725 (Bom.) – Paras 5 & 6[Kosan Metal Products Pvt. Ltd. v. UOI]
(4) 1979 ELT J 145 (Guj.) – Para 2 [Amkar Engg. Works v. Supdt. of C. Excise]
(5) 1979 ELT J 546 (Guj.) – Para 15 [Jyoti Ltd., Baroda v. UOI]
(6) 1988 (34) ELT 622 (Tribunal) – Para 23 [Diamond Clock Mfg. Co. Ltd. v. Coll. of C. Excise]
(7) 1987 (32) ELT 453 (Tribunal) – Paras 7 & 8 [Webel Telecommunications (I) Ltd. v. Coll. of C. Excise]
(8) 1989 (40) ELT 340 (Tribunal)[Dr. Prem Kumar v. Coll. of Customs]
(9) 1990 (45) ELT 508 (Tribunal) – Paras 8 & 9 [Universal Luggage Mfg. Co. Ltd. v. Coll. of C. Excise]
The adjudicating authority has summarily dismissed the aforesaid plea of the appellants without making any discussion whatsoever. He has simply observed as follows :
“I have examined various judgments quoted by the learned consultant and find that the facts of the case is slightly different and as such the same are not applicable to the instant case. I, therefore, reject their plea and hold that the asses-see should have paid the duty on the total value including the value of accessories to the Department”.
5.2 We observe that the adjudicating authority has not made the slightest effort to go into the facts of some of the cases cited by the appellants and distinguish them from the facts of the present case. He has dismissed all the judgements as not being applicable to the instant case without any discussion. Although he finds that the facts of the instant case is slightly different [emphasis supplied], what exactly is this slight difference and whether this is material enough to make the instant case distinguishable from the judgements cited before him never occurred to the adjudicating authority. Prima facie, there-fore, the finding of the adjudicating authority that the judgments are not applicable, as contended to the contrary by the appellants, is incorrect.
5.3 From a perusal of the judgment of the Tribunal in the case of Universal Luggage Mfg. Co. (mentioned supra), we find that one of the issues decided therein is essentially the same as in this case, namely whether the value of optional accessories should be included in the assessable value of main item. In that case what was considered was whether the value of wheel kits ought to be added to the value of the suitcase. Even though fixing of wheel kits did not make any change in the nature and character of the product; the Tribunal on the factual aspect in that case found that wheel kit was not an integral part of the suitcase but was only an optional accessory. Similarly, it is not disputed that a large number of electric motors are being cleared by the assessee without fixing any clutch assembly. It is only to a small percentage of 20 to 30% of electric motors cleared from the assessee’s factory that the clutch assembly was fixed as per the requirement of their customers. Accordingly, we hold, as has been held by the Tribunal in the case of Universal Luggage Manufacturing Co. (mentioned supra), that the value of the clutch assembly would not be includible in the value of the electric motors which had already been cleared on payment of duty. Hence on merits also, no demand of duty is leviable on the differential value on integral clutch motors.
6.1 (3) Whether grinder polisher manufactured by
the assessee or Ravindra Industries falls
under T.I. 51A of the erstwhile CET.
As regards this issue the appellants’ learned advocate has urged that the grinder polishers manufactured by Ravindra Industries cannot by any stretch of imagination be considered as tools. Tariff Item 51A covers tools or hand-tools or industrial blades, the grinder polisher is not a hand-tool, nor is it an industrial blade. In the impugned order in para 18(vii) the appellants had taken the plea that their grinder polisher is neither a hand-tool nor an industrial knife or blade but it was ordinarily known as a bench grinder which has to be fixed to a bench or other suitable base for operation. Accordingly, they urge that no duty was chargeable on it under T.I. 51A upto 28-2-1986 or after a new Tariff came into force on 1-3-1986 under Chapter/sub-heading 8460.00.
6.2 We observe that the impugned order does not discuss these pleas of the appellants. The impugned order appears to assume that the grinder polisher manufactured by the appellants falls under T.I. 51A. The order, therefore, suffers from lack of application of mind by the adjudicating authority.
6.2 In order to appreciate the controversy T.I. 51A is reproduced below :-
“51 A. Tools, the following, namely –
(i) Hand tools, the following : Pliers (including cutting pliers) spanners, wrenches, files and rasps, screw drivers (including ratchet types);
(ii) Tools for working in the hand pneumatic or with self-contained non-electric or electric motor;
(iii) Tools designed to be fitted into hand tools, machine tools or tools falling under sub-item (ii) including dies for wire drawing, extrusion dies for metals and rock drilling bits;
(iv) Industrial knives and blades for hand or machine saws.”
Tariff Heading 8460.00 in CETA 1985 is reproduced below :-
“8460.00 – Machine-tools, for deburring, sharpening, grinding, honing, lapping, polishing or otherwise finishing metal, sintered metal carbides or cermets by means of grinding stones, abrasives or polishing products, other than gear cutting, gear grinding or gear finishing machines of Heading No. 84.61.”
6.4 Apparently the contention of the appellants appears to be correct in so far as their objection regarding classification under erstwhile T.I. 51A is concerned. However, we notice that the scope of Tariff Heading 8460.00 is much wider. It covers all machine tools for …grinding …metal…”. Therefore, in the absence of any finding of fact by the adjudicating authority that the grinder polisher manufactured by Ravindra Industries on behalf of the assessee is a bench grinder, as contended by the appellants, are unable to classify the said product. On this issue, therefore, we remand the matter to the adjudicating authority to examine it in depth with reference to the Tariff Entry/Heading in question and give his decision regarding the classification first before imposing a liability of duty on the appellants.
7.1 The appellants have further pleaded that the manufacture was done by Ravindra Industries and therefore, the assessee is not liable to pay any duty. On this plea the learned adjudicating authority has held that since Ravindra Industries were merely doing the job work of fixing clutch assessories or accessories of coolant pumps and grinder polisher on behalf of the assessee, the latter has become the manufacturer of the finished items emerging at the end of M/s. Ravindra Industries. That authority has fur-ther held that the assessee could have followed the provisions of Notification 305/77 dated 5-11-1977 or they could comply with all the requirements of Central Excise law. We are unable to agree with this finding only on the basis that Ravindra Industries were merely doing the job work. The assessee could be held a manufacturer only if Ravindra Industries are found a dummy unit under the control and supervision of the assessee. No evidence has been brought on record on this point. Nor do we find that the assessee has adduced any evidence about the exact relationship between them and the Ravindra Industries. No contract entered between them and the Ravindra Industries has been brought on record. In the absence of suitable evidence we are unable to give our finding on this issue i.e. whether the assessee is the manufacturer or Ravindra Industries is the manufacturer. Accordingly, we remand the matter to the adjudicating authority to look into the entire evidence which the parties may like to adduce regarding the exact relationship between the assessees and the Ravindra Industries.
8.1 As regards the coolant pumps we agree with the adjudicating authority that it is liable to duty under T.I. 30A of the erstwhile CET. There is no dispute on this issue even from the side of the appellants/assessee. We, however, find that the assessees is dis-puting the rate of duty applicable to the coolant pumps. This dispute we find from the impugned order has not been dealt with by the adjudicating authority. On this issue as well, therefore, we remand the matter to the adjudicating authority to give a clear find-ing whether the rate of duty applicable to the coolant pumps would be 20% or 5%.
8.2 In view of our decision on integral clutch motors, which forms the bulk of demand of duty we do not find that there is any case for penalty. No metis rea on the part of the appellants is discernible from the facts and circumstances of this case. Therefore, the penalties imposed are set aside. The adjudicating authority, however, would be at liberty to impose suitable penalties if the evidence so warrants, provided the adjudicating authority finds on readjudication that there has been an evasion of duty in respect of grinder polisher and coolant pumps.
9. In short, the demand of duty on integral clutch motors to the tune of Rs. 3,34,597.01p is set aside both on merits and time bar. On the other issues the matter is remanded to the adjudicating authority who should decide them afresh in accordance with law in the light of the aforesaid observations.