2015 (5) TMI 28 - SC - Central Excise

Manufacture - Captive consumption - whether excise duty is payable on an intermediate product, namely, Transmission Assembly which comes into existence during the manufacture of tractors made by the appellant - Exemption claim under notification 162/1986 - Suppression of facts - Evasion of duty - Invocation of extended period of limitation - Held that - Transmission Assemblies of tractors are commercially known products as has been pointed out above. The fact that not a single sale of such Assembly has been made by the appellants is irrelevant. This being the case, we are of the view that the Transmission Assembly of the tractor on the facts before us is clearly an intermediate product which is a distinct product commercially known to the market as such. On this ground therefore, the appellants are not liable to succeed. There was no suppression on the part of the appellants nor was there any willful attempt to evade duty. As stated by the appellant, the appellant has been manufacturing tractors from 1965 onwards. There has never been any change in the manufacturing process. In the year 1994-95, IC engines were stated by the department to contain Transmission Assemblies, which were dutiable. On receiving a reply from the appellant, the department did not levy any excise duty on such Transmission Assemblies. The show-cause notice itself stated that the issue of manufacture and captive consumption of Transmission Assemblies for tractors is the same as that for IC engines. These facts, coupled with the fact that not a single Transmission Assembly of tractors manufactured by the appellant had been sold makes it clear that there was no suppression or any intent to evade excise duty in the present case. Extended period of limitation is not available as we are satisfied that the reply extracted above of the respondent shows that the respondent bona fide believed that Transmission Assemblies were not dutiable. Successive declarations made by the assessee in this case starting from 16.3.1995 the assessee had declared not merely the tractor but the chassis therefor. The assessee bonafide believed that the declaration of the chassis would suffice as according to them Transmission Assemblies were not taxable goods. The intention to evade duty is according to the Commissioner made out from a statement made by Shri P.C. Kale dated 12.4.2001. It is pointed out by learned counsel appearing on behalf of the appellant that in the memorandum of appeal filed against the order in original, Shri P.C. Kale was never in the employment of the appellant during the relevant period as he joined the appellant only in July, 2000. Apart from this, it is also pointed out that the appellant is a public sector company governed by a Board of Directors consisting of IAS Officers. Be that as it may, we are satisfied that there was no attempt to evade excise duty and in this case also the show cause notice being beyond the period of limitation of one year would have to be quashed on this ground. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether excise duty is payable on the intermediate product, Transmission Assembly, used in the manufacture of tractors.
2. Whether the Transmission Assembly is a marketable commodity.
3. Whether the extended period of limitation for excise duty demand is applicable.

Issue-wise Detailed Analysis:

1. Excise Duty on Intermediate Product:

The primary issue was whether excise duty is payable on the intermediate product, Transmission Assembly, used in the manufacture of tractors by the appellant for the period January 1996 to May 1998. The Department issued a show cause notice asserting that Transmission Assemblies were excisable goods known to the market. The appellant denied this, stating that no separate product known as Transmission Assemblies came into existence. The Commissioner held that Transmission Assemblies were identifiable commercial products and thus excisable. CESTAT upheld this decision, stating that a new and different article known as Transmission Assembly emerges during the manufacturing process, satisfying the test of manufacture and marketability.

2. Marketability of Transmission Assembly:

The appellant argued that the Transmission Assembly was not a separate marketable commodity but an aggregate of various items specific to their tractors, not sold in the market. The respondent countered that the Transmission Assembly was known to the market and capable of being sold, supported by evidence of similar products being marketed by other companies. The Supreme Court reiterated that marketability means the goods must be known to the market and capable of being sold, even if not actually sold. The Court found that Transmission Assemblies were commercially known products, fulfilling the criteria of marketability, thus making them excisable goods.

3. Extended Period of Limitation:

The appellant contended that the extended period of limitation was not applicable as there was no fraud or willful suppression of facts. They argued that the manufacturing process had been known to the Department since 1965, and there was no change in the process. The Court agreed with the appellant, citing previous judgments that mere failure or negligence does not attract the extended period unless there is deliberate withholding of information with intent to evade duty. The Court found no evidence of suppression or intent to evade duty, noting that the appellant had a bona fide belief that Transmission Assemblies were not dutiable. Consequently, the show cause notice was quashed on the ground of limitation.

Separate Judgments:

In Civil Appeal Nos. 9469-9470 of 2010, the Court found similar facts and quashed the show cause notice on the ground of limitation, despite setting aside the orders on merits. In C.A. No. 457 of 2006, the Court also quashed the show cause notice on the ground of limitation, noting that the appellant had declared the chassis and bona fide believed that Transmission Assemblies were not taxable goods. The appeal was allowed, and the impugned judgment was set aside on this ground alone.