2010 (11) TMI 812 - AT - Central Excise

Whether activity of kitting carried out by the appellants amounts to manufacture - appellant imported various parts/modules/accessories of Printers, Copiers and Photocopiers and performed kitting activities including assembling of all the components with the use of imported parts/modules and indigenous components and accessories - kitting activity was an essential function to make the machine operational - appellant contended that their activities were nothing but installation of Copiers-cum-Printers and no new product emerged from such activities - held that - Moment there is a transformation into a new commodity, commercially known as distinct and a separate commodity, having its own character, use and name, whether be it the result of one process or several processes, manufacture takes place. It was only upon completion of process of kitting which comprised of assembly of the imported modules and parts along with indigenously procured parts and accessories that the machines become functional. The conversion of an article, which is incomplete or unfinished but having the essential character of finished articles into complete or finished article would amount to manufacture and the same has necessarily to be understood qua the requirement of the customers - Decided against the assessee Jurisdiction of the excise officer for conducting the investigation and adjudication proceedings - Held that - It is settled law that when a cause of action in relation to offendable incident or in relation to series of activities which are offendable or the violation of the provisions of law arises within the jurisdiction of different investigating officers or adjudicating officers, every such officer will have jurisdiction to investigate and or adjudicate upon such offence or violation arising in all such territories. Merely because installation was carried out beyond territorial jurisdiction, once it is established that the major activity of manufacturing in relation to such machines was carried out at Rampur which lies within the jurisdiction of Meerut Commissionerate, it cannot be said that Commissioner at Meerut had no jurisdiction to investigate and adjudicate upon the matter - Decided in favor of Revenue Extended period of limitation - Held that - The relevant information was suppressed from the department and assessee misdeclared their activity as trading activity and thereby wilfully indulged in contravention of the provisions of the said Act and the Rules made thereunder with intent to evade the duty payable on those goods. Obviously, therefore, the authorities were justified in invoking extended period of limitation. Penalty - Held that - There was a clear case of suppression of material facts with intent to evade the duty and that itself justified the imposition of penalty. See Dharamendra Textile Processors (2008 (9) TMI 52 - SUPREME COURT)

Issues Involved:
1. Whether the activity carried out by the appellants amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944 read with Note 6 to Section XVI of the Central Excise Tariff Act, 1985.
2. Whether the Commissioner, Meerut, lacked territorial jurisdiction to initiate the action and/or deal with the matter.
3. Whether the facts justified the invocation of the extended period of limitation or whether the demand was barred by limitation.
4. Whether the decision of the Bangalore Bench of CESTAT is a complete answer to the issues involved.
5. Whether the demand stands abated to the extent of Rs. 11,80,60,202/-.
6. Whether the appellants are entitled to the benefit of Cenvat credit and thus the major part of the demand is revenue neutral.
7. Whether no penalty is imposable in the facts and circumstances of the case.

Detailed Analysis:

1. Manufacture under Section 2(f) and Note 6 to Section XVI:
The Tribunal confirmed that the appellants' activities amounted to "manufacture" under Section 2(f) of the Central Excise Act, 1944, read with Note 6 to Section XVI of the Central Excise Tariff Act, 1985. The appellants were engaged in assembling imported modules and parts along with indigenously procured parts to make the machines functional. This process, termed as "kitting," involved assembling, aligning, and testing the parts to meet customer requirements, resulting in a new product with a distinct name, character, and use. The Tribunal relied on various precedents, including the Supreme Court's rulings, which emphasized that transformation into a new commodity having a distinct name, character, and use constitutes manufacture.

2. Jurisdiction of the Commissioner, Meerut:
The Tribunal held that the Commissioner, Meerut, had territorial jurisdiction to deal with the matter. The major activities of assembling the machines were performed at the warehouse/factory premises at Rampur, which fell within the jurisdiction of the Commissioner at Meerut. The Tribunal referenced the Karnataka High Court's decision in Raletronics Limited v. Union of India, which stated that when part of the cause of action arises within the jurisdiction of a particular officer, he is competent to investigate and adjudicate the matter.

3. Invocation of Extended Period of Limitation:
The Tribunal upheld the invocation of the extended period of limitation, noting that the appellants had suppressed material facts with the intent to evade duty. The appellants misdeclared their activities as trading rather than manufacturing, justifying the extended period for the demand.

4. Decision of the Bangalore Bench of CESTAT:
The Tribunal found that the decision of the Bangalore Bench of CESTAT was not a complete answer to the issues involved in the present case. The facts in the Bangalore case differed significantly, particularly regarding the absence of evidence of manufacturing activities in the warehouse. In contrast, the present case had clear evidence of manufacturing activities carried out by the appellants.

5. Abatement of Duty:
The Tribunal left the issue of abatement of duty to the extent of Rs. 11,80,60,202/- open to be considered at an appropriate stage in accordance with the provisions of law, particularly in proceedings for the recovery of the demanded amount.

6. Entitlement to Cenvat Credit:
The Tribunal stated that the appellants must comply with the provisions of the Cenvat Credit Rules to claim such benefits. The appellants failed to provide sufficient material to establish their entitlement to Cenvat credit at this stage.

7. Imposition of Penalty:
The Tribunal justified the imposition of penalties, citing the appellants' suppression of material facts with intent to evade duty. The penalties were imposed in accordance with the law laid down by the Supreme Court in Dharamendra Textile Processors case.

Conclusion:
The Tribunal dismissed the appeals, confirming the demand of excise duty, interest, and penalties imposed by the Commissioner, Meerut. The Tribunal found no infirmity in the impugned order and upheld the findings that the activities carried out by the appellants amounted to manufacture, the Commissioner had jurisdiction, the extended period of limitation was justified, and the penalties were rightly imposed. The issues of abatement of duty and entitlement to Cenvat credit were left open for consideration in appropriate proceedings.

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