2007 (6) TMI 51 - AT - Central Excise

Manufacture - Alleged that appellant were made willful suppression of fact with intent to evade payment of duty and accordingly demand were made along with penalty - Held that allegation was not correct and demand and penalty not sustained

Summary

Issues:
1. Liability of duty and penalty on M/s. CCS Infotech Ltd.
2. Imposition of penalties on Directors of the company.
3. Whether activities of M/s. CCS/CCSIL amount to 'manufacture' under Central Excise Act.
4. Recovery of duty payable by M/s. CCS from M/s. CCSIL.
5. Validity of show-cause notice and duty recovery process.

Analysis:

1. The judgment dealt with the liability of duty and penalty on M/s. CCS Infotech Ltd. The company was accused of clandestinely manufacturing and clearing computers without paying duty. The demand for duty and penalty was based on 'wilful suppression of material facts to evade duty'. The Directors of the company were also penalized for rendering goods liable for confiscation. However, the acquisition of business from a firm by the company was nullified in arbitration, leading to a challenge on the duty liability.

2. The imposition of penalties on the Directors of the company was also a crucial issue. The penalties were imposed based on their omissions and commissions regarding the goods. The judgment found that since the demand of duty on the company was not sustainable, the penalties on the Directors were also set aside.

3. The analysis focused on whether the activities of M/s. CCS/CCSIL amounted to 'manufacture' under the Central Excise Act. The Commissioner found that the assembly of computers by the appellants involved upgrading bought-out components to customer specifications. The Department argued that this activity constituted 'manufacture' and attracted duty liability. However, the Tribunal found that the appellants were engaged in trading activities, not manufacturing, as per the Board's Circular and lack of deeming provisions in the Tariff Act.

4. Another issue was the recovery of duty payable by M/s. CCS from M/s. CCSIL. The judgment highlighted the lack of a show-cause notice issued to the firm, questioning the validity of fixing duty liability on a different entity without due process. The nullification of the acquisition in arbitration proceedings further supported the separation of business entities, leading to the setting aside of duty and penalties on M/s. CCSIL.

5. The final aspect analyzed the validity of the duty recovery process and the limitations of penal liability. The judgment emphasized the importance of natural justice and due process in fixing duty liabilities. Ultimately, the impugned order was set aside, and the appeals were allowed based on the findings related to duty liability, penalty imposition, and recovery process.