2011 (1) TMI 532 - AT - Central Excise

Classification of spare parts - Since, the spare parts have been purchased by the respondent from the open market and no manufacturing activity has been taken on these spare parts - These spare parts have been cleared along with the machinery after discharging duty liability also, although the duty was not leviable on these spare parts because the respondent have not availed Modvat credit on these spare parts - When a product has not been manufactured by an assessee, duty liability does not arise as per Section 3 of the Central Excise Act, 1944 - Hence, the issue of classification of the impugned spare parts does not arise at all - Decided in favour of assessee.

Summary

Issues:
- Appeal against the impugned order admitting the defense of the respondents regarding classification of spare parts.
- Classification of spare parts purchased by the respondents along with machinery items under CHS 8483.
- Dispute regarding whether spare parts should be classified as machinery under respective headings.

Analysis:
The appeal before the Appellate Tribunal CESTAT, Mumbai involved a dispute over the classification of spare parts purchased by the respondents along with machinery items. The revenue appealed against the impugned order where the lower authorities had admitted the defense of the respondents. The respondents, who were manufacturers of machinery items, had purchased spare parts required to be supplied along with machines. These spare parts were bought from the market without availing any duty credit and were cleared along with the machinery after payment of excise duty. Show-cause notices were issued proposing to classify these spare parts under CHS 8483. Both lower authorities held that since the respondents did not manufacture these spare parts, the question of classification did not arise.

The Revenue argued that since the spare parts were cleared along with the machinery, they should be considered as part of the machinery manufactured by the respondents and classified accordingly. However, the Tribunal disagreed with this argument. The Tribunal noted that the spare parts were purchased by the respondents from the open market without any manufacturing activity undertaken on them. The spare parts were cleared along with the machinery after discharging duty liability, even though duty was not leviable on the spare parts due to the lack of Modvat credit availed by the respondents. The Tribunal emphasized that when a product has not been manufactured by an assessee, duty liability does not arise as per Section 3 of the Central Excise Act, 1944. Therefore, the issue of classification of the spare parts as machinery did not arise. Consequently, the Tribunal upheld the impugned order, rejecting the appeal filed by the revenue.

In conclusion, the Tribunal upheld the lower authorities' decision to admit the defense of the respondents regarding the classification of spare parts purchased along with machinery items. The Tribunal clarified that since the spare parts were not manufactured by the respondents and were cleared after payment of duty without availing any credit, the duty liability did not arise. As a result, the issue of classifying the spare parts as machinery under respective headings was deemed irrelevant, leading to the rejection of the revenue's appeal.