2011 (10) TMI 538 - AT - Central Excise

Confiscation of goods - Redemption fine - Absence of Condition u/s 11AC - Difference of opinion - Majority order - whether the order of confiscation of the impugned car is justified and, therefore, the imposition of redemption fine and penalty on the appellant is correct or not in the facts and circumstances of the case - Held that - assembly of cars from various components brings into existence an excisable item, namely the car, which is distinct or different from the parts from which it is assembled. Therefore, the assembly of car from the component parts amounts to manufacture under Section 2(f) of the Central Excise of the Act and excise duty is liable to be charged on such assembly. There is no dispute on this point that the activity of assembling of the car by the appellant amounts to manufacture. Once a manufacturing activity is undertaken for manufacture of excisable goods, the manufacturer is required to obtain a licence from the Central Excise department under Rule 174 of the Central Excise Rules and if any manufacturing activity is undertaken without a licence from the department, there is a contravention of the Central Excise Rules and the excisable goods so manufactured are liable for confiscation under Ruled 173Q(1)(c). This is also a fact that Section 11AC was not in existence at the time of this manufacturing activity undertaken by the appellant. Therefore, the absence of the condition of Section 11AC will not have any effect on the confiscation of the goods in this case - order of confiscation of the impugned cars and the consequential imposition of redemption fine and penalty is upheld - Decided against assessee.

Summary

Issues Involved:
1. Confiscation of 15 cars and imposition of redemption fine.
2. Liability for Central Excise Duty on assembled cars.
3. Double taxation issue (Customs Duty vs. Central Excise Duty).
4. Limitation period for issuing duty demand.
5. Eligibility for proforma/modvat credit.
6. Imposition of penalty.

Detailed Analysis:

1. Confiscation of 15 Cars and Imposition of Redemption Fine:
The Commissioner ordered the confiscation of 15 cars under Rule 173Q(i)(c) of the Central Excise Rules, 1944, with an option to redeem them on payment of a fine of Rs. 10,000/- per car. The appellant argued that they had informed the department about their activities and sought guidance, thus there was no intent to evade duty. The Tribunal held that the appellant's activity of assembling cars from imported and locally procured parts amounted to "manufacture" under Section 2(f) of the Central Excise Act, 1944, making them liable for excise duty. The Tribunal reduced the redemption fine from Rs. 10,000/- to Rs. 1,000/- per car.

2. Liability for Central Excise Duty on Assembled Cars:
The appellant contended that since they had paid customs duty on imported parts, they should not be liable for additional excise duty. The Tribunal rejected this argument, stating that the taxable event for customs duty is "import" while for excise duty it is "manufacture." Thus, the assembly of cars from parts constitutes manufacture, attracting excise duty.

3. Double Taxation Issue (Customs Duty vs. Central Excise Duty):
The appellant argued that paying both customs duty and excise duty on the same set of cars amounted to double taxation. The Tribunal clarified that different aspects of a transaction can be subjected to different taxes if the law provides for it. Customs duty was levied on the import of parts, while excise duty was levied on the manufacturing activity of assembling the cars.

4. Limitation Period for Issuing Duty Demand:
The appellant claimed that the duty demand was time-barred. The Tribunal noted that the show-cause notices were issued within six months from the date of seizure, as required under Section 110 of the Customs Act, which applies to the Central Excise Act. Therefore, the demand was not barred by limitation.

5. Eligibility for Proforma/Modvat Credit:
The Tribunal observed that the appellant might be entitled to proforma/modvat credit of countervailing duty (CVD) paid on imported parts while discharging their excise duty liability. The case was remanded to the adjudicating authority to re-quantify the duty demand, allowing the appellant to present evidence for claiming such credit under Rule 56A or 57A of the Central Excise Rules, 1944.

6. Imposition of Penalty:
The Commissioner imposed a penalty of Rs. 50,000/- for manufacturing without a license and Rs. 1,00,000/- for removing cars without payment of duty. The Tribunal reduced the total penalty to Rs. 25,000/-. The appellant argued that they had sought guidance from the department and were under a bona fide belief that their activity did not amount to manufacture. However, the Tribunal held that ignorance of law is not an excuse, and failure to comply with statutory obligations attracts penalties.

Majority Decision:
The majority upheld the order of confiscation of the cars and the imposition of redemption fine and penalty, as discussed in the Member (Technical)'s order. The appeal was disposed of with directions to re-quantify the duty demand based on the eligibility for proforma/modvat credit.