2011 (7) TMI 201 - AT - Central Excise

Demand and penalty - Manufacturer of motor vehicle chassis - Hence, chassis cannot be treated as an input partially processed in terms of Rule 4(5)(a) of the Cenvat Credit Rules - But, held that chassis is semi finished goods in the context of body built vehicle which is a final product - Further, find that the tariff itself prescribing higher rates of duty for chassis by prescribing additionally a specific component of BED for chassis unlike in the case of body built vehicle - Since the duty paid on the body built vehicle is clearly on the higher side than the duty payable on the chassis as per the proposal by the department, there is no evasion of duty involved - Find that the body built vehicle has been allowed to be removed without payment of duty by respondent 2 ( no demand also is raised on the respondent 2) and the same received by respondent 1 and cleared on payment of higher amount of duty - Thus, do not find any justification to interfere with the order of the Commissioner in dropping the demand against respondent 1 and in not imposing penalties on the respondents - Decided in favour of assessee.

Issues Involved:
1. Classification of motor vehicle chassis as final product or semi-finished goods.
2. Legality of clearance of chassis under Rule 4(5)(a) of Cenvat Credit Rules.
3. Applicability of specific Basic Excise Duty (BED) component of Rs. 10,000/- per chassis.
4. Validity of the procedure adopted by the respondents for duty payment.
5. Justification for the Commissioner's decision to drop proceedings and not impose penalties.

Issue-wise Detailed Analysis:

1. Classification of Motor Vehicle Chassis as Final Product or Semi-Finished Goods:
The Department argued that the motor vehicle chassis assembled by the respondent is a final product and should not be treated as inputs or partially processed inputs under Rule 4(5)(a) of the Cenvat Credit Rules. The chassis, being a fully manufactured and marketable product, should have been cleared on payment of duty as provided under Rule 4 of Central Excise Rules, 2002. The respondents contended that the final product is the body-built vehicle, and the chassis sent for body building should be treated as semi-finished goods or partially processed inputs. The Tribunal concluded that the chassis is semi-finished goods in the context of the body-built vehicle, which is the final product.

2. Legality of Clearance of Chassis under Rule 4(5)(a) of Cenvat Credit Rules:
The Department contended that Rule 4(5)(a) permits clearance of any inputs, not a combination of inputs assembled into a final product. The respondents argued that Rule 4(5)(a) is a successor to erstwhile Rule 57F, which allowed clearance of semi-finished goods without payment of duty for further processing. The Tribunal found that the procedure adopted by the respondents was not against the interest of revenue and that the chassis should be treated as semi-finished goods eligible for clearance under Rule 4(5)(a).

3. Applicability of Specific BED Component of Rs. 10,000/- per Chassis:
The Department issued a show cause notice proposing a demand of Rs. 8,31,50,000/- for the clearance of 8315 chassis without the specific BED component of Rs. 10,000/- per chassis. The respondents argued that the duty paid on the body-built vehicle was higher than the duty payable on the chassis, including the specific BED component. The Tribunal noted that the duty paid on the body-built vehicle was higher than the duty payable on the chassis and concluded that there was no evasion of duty involved.

4. Validity of the Procedure Adopted by the Respondents for Duty Payment:
The respondents illustrated that the duty paid on the body-built vehicle was higher than the duty payable on the chassis. The Tribunal found that no objection was raised regarding the removal of other parts and components under Rule 4(5)(a) for body building. The Tribunal also noted that the Department did not demand the full duty in terms of Rule 4 of the Central Excise Rules and allowed the respondent 2 to operate under Notification No. 214/86. The Tribunal concluded that the procedure adopted by the respondents was valid and not against the interest of revenue.

5. Justification for the Commissioner's Decision to Drop Proceedings and Not Impose Penalties:
The Commissioner dropped the proceedings initiated under the show cause notice and did not impose penalties on the respondents. The Tribunal found that the duty paid on the body-built vehicle was higher than the duty payable on the chassis and that the respondents had paid a higher amount of excise duty. The Tribunal concluded that there was no justification to interfere with the Commissioner's order and rejected the Department's appeals.

Conclusion:
The Tribunal upheld the Commissioner's decision to drop the proceedings and not impose penalties on the respondents. The appeals by the Department were rejected.

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