2011 (7) TMI 675 - HC - Central Excise

Demand - components received in sets were cleared as such; no conversion of an incomplete machine into complete machine took place in the warehouse of the Appellants - Even if the CESTAT, New Delhi did not agree with the reasoning given by the CESTAT, Bangalore, in similar proceedings on the same facts, it should have followed the practice of referring the matter to a Larger Bench - Held that the same Company, in respect of same period in the same activities, could not be subjected to different opinions expressed by the Tribunal, causing doubts and confusion over the liability - Appeal is allowed by way of remand to Tribunal

Issues Involved:
1. Whether the processes undertaken by the assessee amount to "manufacture" or not?
2. Whether the processes undertaken by the assessee at Rampur warehouse being similar to the processes undertaken by the assessee at Hyderabad warehouse and the evidence being the same, the Tribunal bench at Delhi could distinguish the earlier decision of Tribunal bench at Bangalore, to arrive at a different conclusion?
3. Whether in the circumstances of the case, the extended five years period of limitation could be invoked by the Excise Department or not?
4. Whether in the circumstances of the case, any penalty could be imposed?

Detailed Analysis:

1. Whether the processes undertaken by the assessee amount to "manufacture" or not?
The core issue revolves around whether the activities performed by the assessee in their warehouses at Hyderabad and Rampur qualify as "manufacture" under the Central Excise Act. The Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Bangalore (CESTAT, Bangalore) found that the processes did not amount to manufacture. The Tribunal observed that the components were imported in CKD form, grouped in sets, and dispatched without any assembly or physical alteration. The Tribunal concluded that there was no conversion of incomplete machines into complete machines at the warehouse, and thus, no manufacturing process took place.

Conversely, the Principal Bench of the CESTAT, New Delhi, found that the activities at Rampur, particularly the refurbishing of old machines into new ones with new frames/bodies, amounted to manufacturing. The Tribunal emphasized that the new machines acquired a new commercial identity, justifying the classification as manufacturing.

2. Whether the processes undertaken by the assessee at Rampur warehouse being similar to the processes undertaken by the assessee at Hyderabad warehouse and the evidence being the same, the Tribunal bench at Delhi could distinguish the earlier decision of Tribunal bench at Bangalore, to arrive at a different conclusion?
The appellant contended that the CESTAT, New Delhi, could not arrive at a different conclusion from CESTAT, Bangalore, given the identical facts and evidence. The High Court noted the Supreme Court's concern in Gammon India Ltd. v. Commissioner of Customs, Mumbai about inconsistent judgments by different benches of the Tribunal on identical issues. The High Court emphasized that if the CESTAT, New Delhi, disagreed with CESTAT, Bangalore, it should have referred the matter to a Larger Bench to maintain judicial consistency and institutional integrity.

3. Whether in the circumstances of the case, the extended five years period of limitation could be invoked by the Excise Department or not?
The CESTAT, New Delhi, justified the invocation of the extended period of limitation, citing that the assessee had willfully misdeclared their activities as trading rather than manufacturing, thereby suppressing relevant information from the department. The Tribunal found that the assessee's actions were in contravention of the provisions of the Central Excise Act and the Rules made thereunder, with the intent to evade duty.

4. Whether in the circumstances of the case, any penalty could be imposed?
The CESTAT, Bangalore, vacated the penalties imposed on the company and its executives, finding no basis for the claim of manufacturing. However, the CESTAT, New Delhi, upheld the penalties, asserting that the refurbishing activities amounted to manufacturing and that the assessee had knowingly dealt with excisable goods without payment of duty.

Conclusion:
The High Court set aside the order of the CESTAT, New Delhi, and remitted the matter back to the Tribunal to decide afresh. The High Court directed that if the CESTAT, New Delhi, disagrees with the CESTAT, Bangalore, it should refer the matter to the President of the Tribunal for referral to a Larger Bench, ensuring consistency and clarity in judicial decisions. The appeal was allowed, and the matter was remanded for reconsideration in light of these directions.

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