2009 (1) TMI 228 - AT - Central Excise

Manufacture Period of limitation Repair of old transformers - conversion of coils - The department has given some instance of sale of the coil by M/s. Associated Power Equipment Pvt. Ltd. and states that there is manufacture and marketability and duty is to be paid by the respondents. A stray case is not very convincing in the light of a large number of case laws on the issue. Held that Process is not a manufacturing activity and not liable to central excise duty - there is enormous correspondence between the respondent and the department with regard to the repair of the transformers. In these circumstances, the Commissioner was right in saying that the longer period could not have been invoked

Summary

Issues Involved:
1. Whether the replacement of coils during the repair of old transformers constitutes "manufacture" under the Central Excise Act, 1944.
2. Whether the coils are marketable and therefore subject to excise duty.
3. Whether the longer period for invoking suppression of facts is applicable.

Issue-wise Detailed Analysis:

1. Whether the replacement of coils during the repair of old transformers constitutes "manufacture" under the Central Excise Act, 1944:
The primary contention of the Revenue was that the process of replacing coils in old transformers results in the emergence of a new manufactured product, thereby attracting excise duty. The Revenue argued that the process described in the party's reply and summarized in Para 8 of the Order-in-Original (O-I-O) demonstrated that an entirely different product from its basic form emerged. However, the respondents countered with multiple case laws indicating that no new product emerges during the repair of transformers. The Tribunal referenced several decisions, including *CCE v. KVK Control Panels* and *East India Transformers & Switch Gears (P) Ltd. v. CCE*, which held that repairing old transformers by rewinding coils does not amount to "manufacture" as no new distinct excisable product comes into existence.

2. Whether the coils are marketable and therefore subject to excise duty:
The Revenue contended that the coils were marketable, citing evidence of supply by M/s. Associated Power Equipment Pvt. Ltd. to M/s. NGEF, and referenced the Supreme Court's decision in *Commissioner v. M/s. East India Transformers & Switch Gears Pvt. Ltd.*, which held that parts manufactured and used in the repair of transformers are liable to duty. However, the respondents presented numerous case laws establishing that the coils used in transformer repairs are not considered marketable goods. The Tribunal cited *Indian Cable Co. Ltd. v. CCE, Calcutta* and *CCE, Jammu v. Western Hardware Industries*, which emphasized that marketability is a prerequisite for levy of duty and that coils fabricated for repairs are not excisable goods.

3. Whether the longer period for invoking suppression of facts is applicable:
The Show Cause Notice invoked the longer period alleging suppression of facts. However, the Commissioner found that the respondents' activities were well within the knowledge of the Department, supported by extensive correspondence between the parties. The Tribunal upheld this finding, referencing paragraph 15 of the impugned order which stated, "The claim made by the assessee in this regard carries more weight since as pointed out by them, there have been exchange of correspondence between the assessee and the Department." Consequently, the allegation of suppression of facts was deemed not maintainable, and the longer period could not be invoked.

Conclusion:
The Tribunal concluded that the replacement of coils during the repair of transformers does not constitute "manufacture" and that the coils are not marketable goods. Additionally, the longer period for invoking suppression of facts was not applicable due to the extensive correspondence between the respondent and the Department. The Tribunal found the order of the Commissioner to be legal and proper, dismissing the Revenue's appeal.

(Pronounced in open Court on 13-1-2009)