M/S. Usha Rectifier Corpn.(I) Ltd vs Commnr. Of Central Excise, New Delhi

1. By this judgment and order we propose to dispose of the appeal which is filed by the appellant herein being aggrieved by the

judgments and orders passed by the authorities including the

Customs, Excise & Gold [Control] Appellate Tribunal [for short

`CEGAT'] demanding duty of Rs. 4,92,566.28

from the appellant on the plant and machinery including

testing equipments manufactured by them.

2. The

appellant herein is a manufacturer of electronic transformers,

semi-conductor devices and other electrical and electronics

equipments. During the course of such manufacture the

appellant also manufactured machinery in the nature of

testing equipments to test the final products of the assessee

company costing Rs. 31,27,405/- as per Note 6 of the Schedule `Q' page 15 of the balance sheet for the year ending

December, 1987. The aforesaid position was further reiterated

in the Director's report appearing at page no. 2 of the Annual

Report for the year ending December, 1988.

3. A show cause notice was issued to the appellant directing them

to show cause as to why central excise duty should not be

levied on it along with interest and penalty. The appellant

submitted its reply to the aforesaid show cause notice wherein

they took a stand that no manufacture of plant and

machinery of the nature alleged had taken place during the

year to warrant levy of central excise duty. It was further

stated that for research and development wing of the company and to carry out trials, experiments and for undertaking

development job based on the latest technology available

worldwide or through their own resources it had bought out

items, parts, components, etc., and for that purpose such

items were assembled in the factory. It was also stated that

after research is so done, and if it was not successful, the

same was disassembled. It was contended that the job that

was carried out in that process was purely for research and

developmental works and it was not manufacture of testing

equipments. In the said reply it was also stated that project to

develop the aforesaid testing equipment for use within the

factory was undertaken to avoid importing of such equipment from the developed countries with a view to save foreign

exchange but since the project failed, no serious effort had

since been made to complete the manufacture of the said

testing equipments. It was further contended that under

Section 3 of the Central Excises and Salt Act, 1944 the

imposition of excise duty is on the act of manufacture or

production and when there is no manufacture or production,

there cannot be any duty so leviable, particularly, when the

aforesaid processed material was not marketable.

4. The Additional Collector, Central Excise under order-in-original

No. 6/92-93 dated 27.5.1992 after consideration of the

contentions confirmed the demand of duty amounting to Rs. 4,92,566.28 and imposed a penalty of Rs. 50,000/- holding

that in view of the documentary evidence and the balance

sheet it had been proved beyond doubt that they had

manufactured plant and machinery/testing equipments worth

Rs. 31.26 lacs. Being aggrieved by the said order, an appeal

was filed before the Collector (Appeals), who dismissed the

said appeal. Still aggrieved, the appellant filed an appeal

before the CEGAT which was also rejected after hearing the

counsel appearing for the parties and after extensively going

through various facets arising in the case. Thereafter, the

appellant has filed the present appeal on which we have heard

the learned counsel appearing for the parties.

5. It was submitted by the counsel appearing for the appellant that

the appellant have their own research and development wing

in which trials and experiments are undertaken from time to

time for the developmental jobs based on latest technology

and that during the course of such trials and experiments

they bought out various parts and components which were

assembled by them and that after the research is done the

same were disassembled and, therefore, such research and

development process undertaken by them cannot be said to

be manufacturing process by any stretch of imagination. It

was also submitted by the counsel that the aforesaid

equipments were not taken out from the factory premises of the appellant and rather they were dismantled and, therefore,

the respondent acted illegally in levying tax on the said goods.

He also submitted that the department was also not entitled

to invoke the extended period of limitation inasmuch as there

was no cause for invoking the provision of extended

limitation.

6. The

aforesaid submissions of the counsel appearing for the

appellant were however refuted by the counsel appearing for

the respondent. We have very carefully scrutinized the records

and examined the submissions of the counsel appearing for

the parties in the light of the said records.

7. The demand for payment of central excise duty in the present case appears to have been made on the basis of statement made

by the appellants in their balance sheet to the effect that there is

an addition to plant and machinery including testing

equipments worth Rs. 31.26 lacs which have been made in the

company by capitalisation of the expenditure on (i) raw material,

(ii) stores and spares and (iii) salary/wages and other benefits.

The

aforesaid statement and details were mentioned in Schedule `Q'

appended to notice of balance sheet and profit and loss account

of the appellant for the year ending December, 1987. Serial No. 6

of the said Schedule reads as follows: -

"Addition to plant and machinery includes testing equipments worth Rs. 31.26 lakhs fabricated in the company by capitalisation of following expenditure:-

(i) Raw material Rs. 26.31 lakhs,

(ii) Stores and spares Rs. 0.02 lakh, and

(iii) Salary/wages and other benefits Rs. 4.93 lakhs (On the basis of estimated time spent)"

8. The aforesaid position is further corroborated by the Director's

report appearing at page no. 2 of the Annual Report for the year

ending December, 1988, wherein it was mentioned that during the

year the company developed a large number of testing equipments

on its

own for

using the

same for

the

testing of

semi-

conductors. Once the appellant has themselves made admission

in their own balance sheet, which was not rebutted and was further

substantiated in the Director's report, the appellant now cannot

turn around and make submissions which are contrary to their own

admissions. (See: Calcutta Electric Supply Corpn. v. CWT, (1972) 3

SCC 222 para 8). Moreover, they have also clearly taken a stand in their reply to the aforesaid show cause notice that they bought

various parts and components to develop the testing equipments for

use within the factory and that such steps were undertaken to avoid

importing of such equipments from the developed countries with a

view to save foreign exchange.

9. From the aforesaid own admission of the appellant and from

the facts

brought

out from

the

records it

is clearly

proved

and

established that the appellant had manufactured machines in the

nature of testing equipments worth Rs. 31.26 lacs to test the final

products manufactured by them.

10. Even if such equipments were used for captive consumption

and within the factory premises, considering the fact that they are

saleable and marketable, we are of the view that duty was payable on the said goods. The fact that the equipments were marketable

and saleable is also an admitted position as the appellant has

admitted it in their reply to the show cause notice that they had

undertaken such manufacturing process of the testing equipments

to avoid importing of such equipments from the developed countries

with a view to save foreign exchange. Such a statement confirms the

position

that such

testing

equipments were saleable and marketable.

11. The provision of Explanations to Rule 9 and 49 of the Central

Excise Rules are very clear as it provides that for the purpose of the

said rules excisable goods manufactured and consumed or utilized

as such would be deemed to have been removed from the premises

immediately for such consumption or utilization. Therefore, the contention that no such duty could be levied unless it is shown that

they were taken out from the factory premises is without any merit.

12. Submission was also made regarding use of the extended

period limitation contending inter alia that such extended period of

limitation could not have been used by the respondent. The

aforesaid contention is also found to be without any merit as the

appellant

has not

obtained

L-4

licence

nor they

had

disclosed

the fact of

manufacturing of the aforesaid goods to the department. The

aforesaid knowledge of manufacture came to be acquired by the

department only subsequently and in view of non-disclosure of such

information by the appellant and suppression of relevant facts, the

extended period of limitation was rightly invoked by the department.

13. Consequently, we find no merit in this appeal, which is

dismissed without any order as to costs.

..........................................

...J [Dr. Mukundakam Sharma]

.............................................J [ Anil R. Dave ]

New Delhi January 13, 2011.