2015 (5) TMI 659 - AT - Central Excise

Demand of duty - Manufacturing activity or not - Held that - Appellant is engaged in the assembly of 114 components alongwith power supply, motherboard, LCD, keyboard which in our view clearly amount to manufacture. It is not that only on the basis that Ld. Commissioner has conceded that if the goods are incomplete or unfinished in terms of note 6 of Section XVI of Central Excise tariff act activity amount to manufacture and else it will not amount to manufacture. The submissions is misleading that in the present case it is not the question whether the goods imported is incomplete or unfinished. Lottery terminal, though it is complete kit but same have been imported in en-numbers of parts. The said CKD parts do not qualify as complete lottery terminal. When all these parts are systematically assembled tested then only it takes form of distinguished product i.e. lottery terminal. CKD parts are not a lottery terminal and same could not perform as lottery terminal. Section 2(f) manufacture includes any process incidental or completion of manufacture product that means even if a product is partly manufactured any activity incidental/ancillary to complete such product shall also be amounting to manufacture. In the present case input are more than 100 parts and even these parts in the form of components and not a manufactured good therefore assembly of all these parts converting to distinguished product which is called as lottery terminal. Therefore the activity from conversion of various components of lottery terminal into complete unit of lottery terminal is undoubtedly amounting to manufacture and correctly chargeable to excise duty under chapter heading 84709010 - Decided against assessee.

Issues Involved:
1. Whether the assembly of lottery terminals from CKD kits amounts to manufacture under the Central Excise Act.
2. Classification of the lottery terminals under the correct tariff heading.
3. Applicability of excise duty on the assembled lottery terminals.
4. Whether the assembled lottery terminals were exported.
5. Applicability of the extended period for demand and imposition of penalties.

Issue-wise Detailed Analysis:

1. Assembly of Lottery Terminals as Manufacture:
The primary issue was whether the assembly of lottery terminals from CKD kits constitutes "manufacture" under the Central Excise Act. The appellant argued that the activity did not amount to manufacture as the imported goods were complete and finished, merely requiring assembly using simple tools. They cited several case laws to support their claim that such assembly does not amount to manufacture. However, the Tribunal found that the assembly of 114 components, including power supply, motherboard, LCD, and keyboard, clearly amounted to manufacture. The Tribunal referred to Section 2(f) of the Central Excise Act, which includes any process incidental or ancillary to the completion of a manufactured product as manufacture. The Tribunal concluded that converting various components into a complete lottery terminal is undoubtedly manufacture.

2. Classification of Lottery Terminals:
The Tribunal addressed the discrepancy in the classification of lottery terminals. The adjudicating authority had classified the goods under heading 85421090, while the Tribunal had a prima facie view that they should be classified under 84709010. In the denovo adjudication, the Commissioner confirmed the classification under 84709010, which the Tribunal upheld, stating that the assembly of various components into a complete unit of lottery terminals amounts to manufacture and is an excisable product.

3. Applicability of Excise Duty:
The Tribunal upheld the demand for Central Excise duty of Rs. 1,59,47,997/- and the imposition of a penalty of an equal amount under Section 11AC of the Central Excise Act, 1944, read with Rule 25 of the Central Excise Rules, 2002. The Tribunal agreed with the Revenue's contention that the assembly of CKD parts into lottery terminals constitutes manufacture and is liable for excise duty. The Tribunal also dismissed the appellant's reliance on Rule 2(A) of the General Rules for Interpretation, stating that it is only for the purpose of charging customs duty and not for interpreting the term "manufacture" in Central Excise.

4. Export of Assembled Lottery Terminals:
The appellant claimed that the assembled lottery terminals were exported, and thus, there was no malafide intention. However, the Tribunal found that the appellant failed to produce any documentary evidence, such as export invoices or shipping bills, to substantiate this claim. Therefore, the Tribunal rejected the appellant's claim regarding the export of the goods.

5. Applicability of Extended Period and Penalties:
The Tribunal upheld the invocation of the extended period under Section 11A of the Central Excise Act, as the appellant had previously cleared the same assembled lottery terminals on payment of excise duty but failed to do so for the 1500 lottery terminals involved in this case. The Tribunal found that the appellant had suppressed the fact of manufacture and removal of these lottery terminals without payment of duty from the department, indicating an intention to evade payment of excise duty. Consequently, the Tribunal upheld the imposition of penalties on the appellant and the other parties involved.

Conclusion:
The Tribunal dismissed the appeals, upholding the impugned order that confirmed the demand for Central Excise duty and imposed penalties. The Tribunal concluded that the activity of assembling lottery terminals from various imported components amounts to manufacture and is liable for excise duty. The Tribunal also found no merit in the appellant's claims regarding the export of goods and the applicability of the extended period and penalties. The stay applications were also disposed of accordingly.

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