2004 (5) TMI 418 - AT - Central Excise

Transmission assembly coming into existence during manufacture of tractors - Dutiability of - Demand - Limitation

Summary

Issues Involved:
1. Exigibility of transmission assembly to Central Excise duty.
2. Marketability and commercial identity of the transmission assembly.
3. Revenue neutrality and Modvat credit.
4. Invocation of the extended period of limitation.

Detailed Analysis:

1. Exigibility of Transmission Assembly to Central Excise Duty:
The primary issue in these appeals is whether the transmission assembly that emerges during the manufacture of tractors is subject to Central Excise duty. The appellants argued that the transmission assembly is not an independent product and is not marketable as it is unique to their tractors. However, the Tribunal found that the transmission assembly, after assembling various parts, becomes a new and distinct article with a specific name, character, and use, thus satisfying the criteria for "manufacture" as per the Supreme Court's two-fold test in Union of India v. J.G. Glass. Consequently, the Tribunal upheld the finding that the transmission assembly is an excisable good subject to Central Excise duty.

2. Marketability and Commercial Identity of the Transmission Assembly:
The appellants contended that the transmission assembly is not marketable and does not have an independent commercial existence. They relied on several Supreme Court decisions to support their claim. However, the Tribunal noted that the appellants themselves had imported transmission assemblies and supplied them to their subsidiary, indicating marketability. The Tribunal emphasized that actual sale is not necessary for a product to be considered marketable; it is sufficient if the product is capable of being marketed. The Tribunal concluded that the transmission assembly is a marketable product and thus an excisable good.

3. Revenue Neutrality and Modvat Credit:
The appellants argued that the entire exercise is revenue neutral because the duty paid on the transmission assembly would be available as Modvat credit. The Tribunal acknowledged that once the transmission assembly is held to be dutiable, the appellants would be eligible to avail Modvat credit of the duty paid on inputs used in its manufacture. However, the Tribunal noted that the appellants cannot take credit for duty paid on transmission assemblies used in the manufacture of exempt tractors. The Tribunal remanded the matter to the jurisdictional Adjudicating Authority to ascertain the specifics and recompute the duty payable and the Modvat credit available.

4. Invocation of the Extended Period of Limitation:
The Tribunal upheld the invocation of the extended period of limitation, noting that the appellants did not disclose the captive use of the transmission assembly in the manufacture of tractors. The Tribunal referenced the Supreme Court's decision in BPL India Ltd. v. C.C.E., Cochin, which upheld the extended period of limitation when the assessee had removed products without intimation to the Department. The Tribunal found that the appellants' plea of bona fide belief was not acceptable and that the extended period of limitation was correctly invoked.

Conclusion:
The Tribunal disposed of the appeals by upholding the exigibility of the transmission assembly to Central Excise duty and its marketability. The matter was remanded to the jurisdictional Adjudicating Authority to recompute the duty payable and Modvat credit available. The extended period of limitation was upheld, and penalties on the remaining two appellants were set aside.