2016 (1) TMI 435 - AT - Central Excise

Duty demand - Removal of towers for testing - whether the appellant s are liable to pay duty on the tower manufactured, and send for destructive testing - Held that - Unless the towers undergo destructive testing they are not saleable to the buyer/Rajasthan Rajya Vidyut Prasaran Nigam Ltd. Thus if not saleable, it only means that the process of manufacture is incomplete and the duty of excise is not leviable on them. Merely because the appellants received the cost for manufacture along with testing charges it cannot be said that the towers are liable to excise duty. As per the contract the manufacturing process is not complete when the goods were removed for testing. After testing the goods no longer exist. They are destroyed and turned into scrap. Appellant clears scrap on payment of duty. Thus, the process of destructive testing being integrally connected with the ultimate production of final product, it cannot be said that appellants have cleared any goods liable to duty. - Impugned order is not sustainable - Decided in favour of assessee.

Summary

Issues:
Whether the appellant is liable to pay duty on the towers manufactured and sent for destructive testing.

Analysis:
The case involves the appellant engaged in manufacturing and supplying towers to a specific entity under a contract requiring testing before clearance. The appellant sends the towers in a knockdown condition for testing to a job worker. The department claimed duty payment as the appellant received charges from the buyer for testing, arguing that the towers were excisable goods. However, it was established that the towers were sent for testing and returned as scrap, not as excisable goods. The law mandates central excise duty only on excisable goods, which the towers were not until testing was completed.

The contract between the parties specified quality control and destructive testing for the towers, making it compulsory for the towers to meet technical specifications, including destructive testing, to be considered goods liable for duty payment. Previous cases such as CCE, Guntur vs. Sahuwala Cylinders Pvt. Ltd. and Traco Cable Company Ltd. vs. Commissioner, Cochin, supported the notion that goods undergoing destructive testing are not liable for duty until they meet all specifications.

In this instance, the towers were not considered saleable until they underwent destructive testing, indicating an incomplete manufacturing process exempt from excise duty. The destruction of the towers during testing and their conversion into scrap, cleared by the appellant upon payment of duty, further supported the argument that the appellant did not clear any goods liable for duty. The process of destructive testing was deemed integral to the final product's production, absolving the appellant from duty liability.

Based on the above analysis and legal precedents, the Tribunal concluded that the impugned order demanding duty, interest, and penalty was unsustainable. The order was set aside, and the appeal was allowed, emphasizing the non-liability of the appellant for central excise duty on the towers sent for destructive testing.