2017 (5) TMI 610 - AT - Central Excise

Clandestine removal - computer systems and allied products - job-work - demand on the grounds that the appellant had manufactured and cleared computer systems in the guise of trading of bought out items and evaded payment of duty - Held that - The salient features of the contract entered into between M/s. Everonn and the appellant specifically mandates that the latter should supply computers/equipment and installing the softwares as per the specifications mentioned in Schedule thereunder at the locations as per the address list attached - It therefore clearly emerges that the appellant was fully in the knowledge that they were supplying completed computer systems and that such complete systems were required to be supplied to the schools. We, therefore cannot digest why appellants, at this stage, are taking resort to the plea that they had not supplied such complete systems or that they had only manufactured CPU. There is no hesitation in holding that the appellant was indubitably supplying completed computer systems as per the contract enjoined on them. This being so, whether the complete computer system was assembled by him after procuring the required components, peripherals and accessories in his own premises or whether he does it at the rented premises at Besant Nagar, Chennai or for that matter even at the schools where he is supposed to supply the systems, will not make any difference to the inevitability that appellant is the manufacturer of these goods. Duty liability cannot be escaped from. The original authority has been generous and considerate in allowing not only Rs.one crore exemption limit of SSI but also has extended cum-duty benefit. In the process, the contract value of ₹ 2,78,80,500/- has been reduced to ₹ 1,61,85,686/- for the purposes of duty levy. Penalty - Held that - contumacious conduct of the appellant has been exposed, they have attempted to weave a web of deceit with intent to suppress their value of dutiable clearances with intent to evade discharge of required duty liability to the exchequer - Penalty u/s 11AC of the Act is therefore fully justified - for the same reason, the equal penalty u/s 11AC of the Act has been imposed, we set aside the penalty of ₹ 5,00,000/- imposed u/r 173Q of the CER, 1944. Appeal dismissed - decided partly in favor of assessee.

Summary

Issues: Alleged evasion of duty on manufactured computer systems, liability of contractors, classification of goods under CETA, applicability of exemptions, duty liability on completed computer systems, penalty under section 11AC, and Rule 173Q.

Analysis:

1. Alleged Evasion of Duty:
- The case involved manufacturers of computer systems facing allegations of evading duty by clearing products under the guise of trading bought-out items. The lower adjudicating authority confirmed a demand for duty, interest, and penalties, which was upheld by the Commissioner (Appeals), leading to the present appeal.

2. Liability of Contractors:
- The appellant argued that independent contractors were responsible for manufacturing the goods and should bear the liability. They claimed to have only cleared CPUs and not complete computer systems, emphasizing that the integration of components in schools did not constitute assembly of systems for marketable purposes.

3. Classification under CETA and Exemptions:
- The appellant's defense included reliance on case laws and circulars to argue against the classification of goods as dutiable computer systems. However, the tribunal found that the appellant knowingly supplied complete computer systems as per contracts, with no exemption obtained for duties.

4. Duty Liability on Completed Systems:
- Despite the appellant's contentions, the tribunal determined that the appellant was the manufacturer of the goods, assembling computer systems either at their premises or schools as per contracts. Duty liability was upheld, with adjustments made based on the contract value.

5. Penalty under Section 11AC and Rule 173Q:
- The tribunal found the appellant's conduct to be contumacious, attempting to deceive authorities and evade duty payments. As a result, penalties under section 11AC were justified, while the penalty under Rule 173Q was set aside due to the same reasons.

6. Judgment:
- The tribunal dismissed the appeal, upholding the duty demand and penalties under section 11AC. However, the penalty under Rule 173Q was revoked. The decision highlighted the appellant's deceptive practices and the inevitability of duty liability on the manufactured computer systems.

In conclusion, the judgment by the Appellate Tribunal CESTAT Chennai affirmed duty liability on the appellant for manufacturing and supplying complete computer systems, rejecting arguments regarding contractor liability and classification exemptions. The penalty under section 11AC was upheld, emphasizing the appellant's deceitful actions, while the penalty under Rule 173Q was set aside.