2007 (2) TMI 421 - AT - Central Excise

Summary

Issues:
1. Demand of duty and penalties on the appellants for the period August 1998 to July 2001.
2. Treatment of activities by the appellants as "manufacture" of computers.
3. Challenge of demand of duty on the ground of limitation.

Analysis:

Issue 1 - Demand of duty and penalties:
The impugned order demanded duty exceeding Rs. 5 crores from the appellants for the mentioned period and imposed penalties under Section 11AC of the Central Excise Act. The demand was related to activities involving computers, specifically assembly and upgradation of bought-out components. The firm, acquired by the appellants, was also involved in similar activities under its brand name. The Commissioner treated the firm's clearances as the company's, leading to the duty demand. However, the appellants argued that the firm's acquisition was nullified later, making it a separate entity for duty purposes. The appellants contended that their activities did not constitute "manufacture" of computers, emphasizing the absence of relevant Tariff provisions. The plea of limitation was raised, stating a bona fide belief in not owing duty for the activities performed.

Issue 2 - Treatment of activities as "manufacture":
The Commissioner's order considered the appellants' activities as manufacturing computers, disregarding the Board's Circular clarifying such activities as trading, not manufacturing. The Tribunal observed that the Circular encompassed upgrading obsolete computer systems to attract customers, which was the appellants' field of activity. The Tribunal opined that the Circular should have been applied retrospectively, benefitting the appellants. The Commissioner's requirement for case law was deemed unnecessary as statutory law was presented, and no contrary case law was found. The absence of Section or Chapter Notes against the appellants further supported their argument.

Issue 3 - Challenge of demand on limitation grounds:
The appellants' belief in not owing duty due to the nature of their activities was considered in light of the plea of limitation. The Tribunal found the plea compelling, especially as no legal precedents contradicted the appellants' position. The Commissioner's request for case law was deemed unnecessary given the statutory provisions presented. The Tribunal acknowledged the forcefulness of the limitation plea and granted waiver of pre-deposit and stay of recovery for duty and penalties.

In conclusion, the Tribunal granted relief to the appellants by waiving pre-deposit and stay of recovery, acknowledging the merit in their arguments regarding the demand of duty, penalties, and the treatment of their activities as "manufacture" of computers. The case was directed to be expedited for further proceedings.