1998 (8) TMI 620 - AT - Central Excise

Issues Involved:
1. Classification of Cable Jointing Kits under Central Excise Tariff.
2. Determination of whether the process of assembling components into Cable Jointing Kits amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
3. Validity of the duty demand and penalty imposed.
4. Applicability of the CBEC Circular dated 27.3.1997.
5. Allegations of suppression of facts and evasion of duty.
6. Time-barred nature of the demand.

Detailed Analysis:

1. Classification of Cable Jointing Kits under Central Excise Tariff:
The Commissioner of Central Excise, Chennai, classified the Cable Jointing Kits under tariff sub-heading 8547.00 of the Central Excise Tariff Act, 1985, which pertains to insulating fittings for electrical machines, appliances, or equipment. This classification was based on the interpretation that the assembled kits constituted a new product.

2. Determination of whether the process of assembling components into Cable Jointing Kits amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944:
The core issue was whether the act of assembling various components into a Cable Jointing Kit constituted "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. The Department argued that the process of putting together duty-paid articles into a container resulted in a new commercially distinct product, thus amounting to manufacture. However, the appellants contended that merely packing components into a common carton did not transform them into a new product.

The Andhra Pradesh High Court's judgment in the case of Excel Telecom Ltd. was pivotal, concluding that such an activity did not amount to manufacture since no new and different article with a distinct name, character, or use emerged from the process. The Tribunal agreed with this view, stating that the process of assembling the components did not result in a new commercially distinct product.

3. Validity of the duty demand and penalty imposed:
The Commissioner confirmed the duty demand for the period 1993-94, 1994-95, and 1995-96, and imposed a penalty of Rs. 50,00,000 under Rule 173Q of the Central Excise Rules. The appellants argued that the demands were based on a CBEC Circular that had been struck down by the Andhra Pradesh High Court, making the duty demand and penalty invalid.

4. Applicability of the CBEC Circular dated 27.3.1997:
The CBEC Circular dated 27.3.1997, which formed the basis for the duty demand, was struck down by the Andhra Pradesh High Court. The High Court held that the circular had no authority of law and that the process described did not amount to manufacture. The Tribunal followed this judgment, rendering the circular inapplicable.

5. Allegations of suppression of facts and evasion of duty:
The Department alleged that the appellants had suppressed facts about the manufacture of Cable Jointing Kits and cleared the goods without paying duty, intending to evade duty. However, the Tribunal found that the appellants had a bona fide belief that their activity did not constitute manufacture and that such kits were not commercially known as distinct goods.

6. Time-barred nature of the demand:
The show cause notice was issued on 9.5.1997 for the period 1.4.1993 to 31.3.1996, invoking the larger period. The Tribunal noted that the appellants held a bona fide belief that their activity did not amount to manufacture, supported by the fact that the Department itself was uncertain about the classification until the issuance of the circular on 27.3.1997. Consequently, the demands were deemed barred by time, referencing the Supreme Court judgments in Tamilnadu Housing Board v. CCE and Pushpam Pharmaceuticals Co. v. CCE.

Conclusion:
The Tribunal set aside the impugned order, agreeing with the Andhra Pradesh High Court's judgment that the process of assembling the components into Cable Jointing Kits did not amount to manufacture. The duty demand and penalty were invalidated, and the appeal was allowed, noting that the demands were also barred by time.

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