M/S.Man Structurals (P) Ltd vs Cce, Jaipur-I

(Arising out of OIA No No.200 (GRM) CE/JPR-I/2007 dt.18.7.07 passed by the CCE(Appeals), Jaipur-I)

Date of Hearing/Decision 19.10.2015

For approval & Signature:

Honble Smt.Sulekha Beevi C.S., Member (Judicial)

Honble Mr.B.Ravichandran, Member (Technical)

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No 3. Whether their Lordships wish to see the fair copy of the order? seen 4. Whether order is to be circulated to the Department Authorities? yes

M/s.Man Structurals (P) Ltd. Appellant

Vs.

CCE, Jaipur-I Respondent

Appearance:

Present for the Appellant: Shri Bipin Garg, Advocate

Present for the Respondent: Shri S.Nunthuk, JCDR

Coram: Honble Smt.Sulekha Beevi C.S., Member (Judicial)

Honble Mr.B.Ravichandran, Member (Technical)

Final Order No.53319/2015

Per: SULEKHA BEEVI C.S.

The appellant is engaged in manufacture and supply of towers to Rajasthan Rajya Vidyut Prasaran Nigam Ltd. In the contract entered between the parties there is a condition that the tower has to be tested before clearing the same to the buyer. To fulfill this condition the appellants send the towers in a knock down condition to KEC International Ltd. (job worker) for testing. After testing the towers are turned into scrap and returned back to the appellants. This scrap is cleared after payment of duty. The department entertained the view that as the appellant has received value of such towers from the buyer i.e. charges for testing of towers upto destruction including cost of tower, the appellants are liable to pay central excise duty on the towers removed for testing. A show cause notice dated 5.12.2006 was issued proposing recovery of duty, with interest and penalty. The appellants contested the notice stating that as the said towers have been destroyed during testing, there is no liability to pay duty. After adjudication the order passed confirmed the duty demand, interest and penalty. In appeal, the Commissioner (Appeals) upheld the same vide the impugned order. Being aggrieved the appellants are before the Tribunal.

2. We have heard both sides and perused the appeal records.

3. The short issue involved is whether the appellants are liable to pay duty on the tower manufactured, and send for destructive testing.

4. The Central Excise Rules permits a manufacturer to remove excisable goods manufactured in his factory to another premises without payment of duty, for carrying out tests, or any other process not amounting to manufacture. There is no dispute that the goods were removed for job work/testing according to the provisions of law. It is the case of the department that as the appellants have received the value of the tower including cost of testing from the buyer, they are liable to pay the excise duty. It is not disputed that the goods were removed for testing. It is also not disputed that in the process of testing the goods/towers were destroyed and were returned as scrap only. Per se there was no clearance of excisable goods. It cannot be said that the towers when removed for job work/testing were excisable in nature. It needed to undergo the process of testing before clearing to the buyer. After job work what was received back was not goods but scrap only. Though the appellants received charges from the buyer towards testing of tower upto destruction including cost of tower the towers were removed to the premises of M/s.KEC International Ltd. for destructive testing in a knocked down condition and undeniably goods at that stage were not excisable goods. As per law, central Excise duty is chargeable only on excisable goods.

5. Further the contract entered between the parties for supply of towers, stipulates that the towers should undergo quality control testing/destructive testing. As this requirement is compulsory, unless the towers satisfy the technical specifications including that of destructive testing, they cannot be considered as goods liable to payment of duty.

6. Similar issue came up for consideration in CCE, Guntur vs. Sahuwala Cylinders Pvt.Ltd.-1998 (98) ELT 645. The question therein was regarding the gas cylinders that were destroyed during the operation of testing. Certain cylinders were removed without payment of duty for the purpose of tests conducted by ISI authorities. It was mandatory that the cylinders be subjected to such tests. The Tribunal held that no duty is payable on such cylinders which during the process of manufacture were destroyed.

7. In Traco Cable Company Ltd. vs. Commissioner, Cochin-2000 (126) ELT 0643, the issue was whether the length of three meters of cables cut and removed from each drum for destructive testing is liable to payment of duty. The Tribunal observed that as there was stipulation in the contract for such testing the goods became excisable only satisfying destructive testing. This decision was upheld by the Apex Court in 2001 (127) ELT A49 (S.C.).

8. In the instant case, unless the towers undergo destructive testing they are not saleable to the buyer/Rajasthan Rajya Vidyut Prasaran Nigam Ltd. Thus if not saleable, it only means that the process of manufacture is incomplete and the duty of excise is not leviable on them. Merely because the appellants received the cost for manufacture along with testing charges it cannot be said that the towers are liable to excise duty. As per the contract the manufacturing process is not complete when the goods were removed for testing. After testing the goods no longer exist. They are destroyed and turned into scrap. Appellant clears scrap on payment of duty. Thus, the process of destructive testing being integrally connected with the ultimate production of final product, it cannot be said that appellants have cleared any goods liable to duty.

9. In view of the foregoing discussion, and the propositions laid in the above judgements, we hold that the impugned order is not sustainable. The same is set aside and the appeal is allowed.

(pronounced in open court)

(B.Ravichandran) (Sulekha Beevi C.S) Member (Technical) Member (Judicial)

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