2015 (4) TMI 851 - AT - Central Excise

Area based exemption - Manufacturing activity or not - Job work - Activity of winding the wire on the stator and thereafter were putting varnish on the wires wound on the stators, receipt of stamping rotors and electrical grade aluminum and also dies and making cast, machined and painted rotors, which were being sent back to the principal manufacturer - Held that - duty would be chargeable on the goods being made by the appellant on job work basis only if, those goods are in fully finished condition and the same are being used by KEL as parts of fans without any further processing. But if, the items being cleared by the appellants are in the nature of semi finished goods which require further processing by KEL for being used as parts of the fans, the same cannot be treated as marketable and hence, excise duty would not be chargeable. As regards, the question of limitation it is seen that so far as SE are concerned, there was correspondence between KEL and the Department with regard to sending of semi finished/ raw material to SE for certain job work and hence, it cannot be said that the Department was not aware of the activity of SE. Similarly, in respect of JMAPL, it is seen that during 2004, there was correspondence between them and the Department with regard to the nature of their activity and whether they are eligible for exemption under notification no. 50/03-CE and from this correspondence also it is clear that the Department was aware about the nature of their activity. In any case, when both JMAPL and SE could have availed the full duty exemption under notification no. 50/03-CE just by filing the declaration and they did not file the declaration for availing of this exemption under belief that there activity does not amount to manufacture, no malafide can be attributed to them. In view of this, even if there is any duty demand confirmed against the appellant, the longer limitation under proviso to section 11A(i) would not be applicable and for the same reason, penalty under section 11AC would not be imposable. - Matter remanded back - Decided in favour of assessee.

Summary

Issues Involved:
- Whether the items manufactured by the appellants are fully finished parts of electrical fans.
- Whether the goods cleared by the appellants to the principal manufacturer are marketable and excisable.
- Whether the appellants are eligible for duty exemption under notification no. 50/03-CE.
- Whether the longer limitation period under proviso to section 11A(1) is applicable.

Analysis:

Issue 1: Fully Finished Parts of Electrical Fans
The appellants, as job workers for the principal manufacturer, received certain components and returned processed items. The contention was that the goods returned were not fully finished parts of fans but required further processing by the principal manufacturer. The Tribunal noted that no specific finding was given by the Commissioner on this crucial point. It was held that duty would only be chargeable if the goods were fully finished and directly usable as parts of fans without further processing. If the items were semi-finished and needed additional processing by the principal manufacturer, they could not be considered marketable, and excise duty would not be applicable. The matter was remanded for further adjudication on this aspect.

Issue 2: Marketability and Excisability
The Department contended that the goods returned by the appellants were fully finished parts of fans, directly usable by the principal manufacturer. However, the appellants argued that the items were in a semi-finished state and required additional processing. The Tribunal emphasized the need for a clear determination on whether the goods were marketable and excisable in their current state or needed further processing. The decision on marketability would impact the applicability of excise duty.

Issue 3: Eligibility for Duty Exemption
The appellants claimed eligibility for duty exemption under notification no. 50/03-CE. The Department argued that the exemption could not be availed as no specific claim was made during the disputed period. The Tribunal observed that the appellants' failure to file the declaration for exemption did not imply malafide intent, especially as they believed their activity did not amount to manufacture. The matter of exemption eligibility was to be reconsidered during the fresh adjudication.

Issue 4: Longer Limitation Period
Regarding the question of limitation, it was noted that there was correspondence between the Department and the appellants in the past, indicating awareness of the nature of their activities. The Tribunal held that the longer limitation period under the proviso to section 11A(1) would not apply in this case, as no malafide intent was established. Consequently, any duty demand confirmed against the appellants would be subject to the normal limitation period, and penalty under section 11AC would not be applicable.

In conclusion, the Tribunal set aside the impugned orders and remanded the matter to the Commissioner for fresh adjudication. The Commissioner was directed to determine whether the goods cleared by the appellants were fully finished or required further processing by the principal manufacturer. Additionally, the eligibility of the appellants for duty exemption under notification no. 50/03-CE was to be reconsidered, taking into account relevant legal precedents.