2017 (8) TMI 64 - AT - Central Excise

Manufacture - Assembly installation and commissioning of switching system - Revenue is of the view that this activity of the appellant amounts to manufacture and appellant are required to pay Central Excise Duty on telephone exchanges which has come into existence and same is classifiable under the CTH 8517 - whether assembly installation and commissioning of switching system along with power plant, inverter etc. would amount to manufacture? - Held that - the main component of a telephone exchange is switching system which is an electrical apparatus for line telephony. The power plant and inverter are only auxiliary equipments. Power plant supplies the 48V DC current for functioning the switching system and inverter is required for standby period in case of power break down. Thus, the goods which have been purchased Switching systems have remained the switching systems only even after installation and in our view no new commodity with distinct commercial identity or character or use has emerged. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the activity of the appellant amounts to manufacture under Central Excise Law?
- Whether the appellant is required to pay Central Excise Duty on telephone exchanges assembled and installed by them?
- Whether the demands proposed in the show cause notice are sustainable?

Analysis:

Issue 1: Activity amounting to manufacture
The appellant, engaged in manufacturing, installing, and commissioning digital telephone exchanges, was alleged to have engaged in manufacturing activities attracting Central Excise Duty. The Revenue contended that the assembly and installation of switching equipment and other essential parts constituted manufacture. However, the appellant argued that no new goods emerged with distinct commercial identity or characteristics upon installation. The Tribunal examined the nature of the activity, emphasizing that the switching system was the main component, while power plant and inverter were auxiliary equipment. Relying on precedents and technical literature, the Tribunal concluded that no new commodity emerged post-installation, thereby rejecting the manufacturing characterization.

Issue 2: Liability to pay Central Excise Duty
The core dispute revolved around whether the appellant was liable to pay Central Excise Duty on the telephone exchanges assembled and installed by them. The Tribunal, after analyzing the components and the nature of the activity, held that the appellant was not required to pay duty as no new goods emerged post-installation. The Tribunal referenced technical literature and past judgments to support its conclusion that the assembly of switching systems did not result in the creation of new goods necessitating duty payment.

Issue 3: Sustainability of the demands proposed
The show cause notice issued to the appellant demanded duty, interest, and penalty. The Tribunal, after considering submissions from both parties, found that the demands proposed in the notice were not sustainable. Citing precedents and technical evidence, the Tribunal set aside the impugned order, allowing the appeal and providing consequential relief to the appellant. The Tribunal's decision was based on the finding that the appellant's activities did not amount to manufacture, thereby negating the need for duty payment.

In conclusion, the judgment by the Appellate Tribunal CESTAT Chandigarh delved into the intricacies of the appellant's activities related to assembling and installing telephone exchanges. By analyzing the components, precedents, and technical aspects, the Tribunal determined that the appellant's actions did not constitute manufacturing under Central Excise Law. Consequently, the demands proposed in the show cause notice were deemed unsustainable, leading to the appeal being allowed in favor of the appellant.