2017 (9) TMI 945 - AT - Central Excise

Duty liability - appellants were regularly procuring various items from domestic as well as the foreign source and bring the same to the PDC for further process and distribution on sale - Revenue entertained a view that the appellants are not discharging applicable central excise duty on various items which are subjected to different process in the PDC - Held that - the appellants are engaged in repacking and relabeling of indigenous items with FORD MRP labels and in respect of imported items only relabeling of FORD MRP labeling are done at the PDC of the appellant - the Chapter Notes as they existed during the relevant period carried both the conditions of relabeling or bulk to retail pack. The appellant would not be put to duty liability based on these Chapter Notes r/w section 2(f)(ii). In respect of these items, upto the period 1.3.2003. We note that lubricating oils, adhesive kits, coolants etc. will be covered under Schedule III which figures the respective entries finding place in the said Schedule which is applicable with effect from 1.3.2003 - the appellant is liable to duty of their activities in respect of three products from that date. Classification of goods - emblem radiator grill, cap assembly oil filter, audio players with or without speakers, bulbs, switches, fuses and relays - Revenue classified these items under Chapter 39 and 85 - deemed manufacture - Held that - audio players with or without speakers, radio assemblies are sound reproducing equipments which are specifically to be under the classification of Tariff Entry 8527 as per the clarificatory note of HSN applicable at the relevant time. As such, following the clarificatory note of HSN, we find the product is rightly classifiable under Chapter 85 and is subjected to levy of duty in terms of the above Schedule r/w section 2(f)(iii) for the period after 1.3.2003 - Considering that these are items are designed for manufacture for use in automobile industry and same was recorded by the original authority also in more than one place of the impugned order, we find no justification to call these items as generic articles of plastic when they are admittedly principally and solely usable in the automobiles. As such, the duty liability in terms of the above Schedule r/w section 2(f)(iii) will not raise prior to 1.6.2006. Regarding duty liability of the appellant on bulbs, switches, fuses and relays, we note that the original authority classified the same under Chapter 8536/8539. These entries are for electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits, for a voltage not exceeding 1000 volts and electric filament or discharge lamps including sealed beam lamp units and ultra-violet or infrared lamps, arc lamps - In the present case, admittedly, the products in dispute are specifically designed and usable only with automobile except when they are excluded to be classified under Chapter 87 as components, parts and accessories, they have to be classified under Chapter 87. Heading 812 is not discussed for a decision in the impugned order. Extended period of limitation - penalty - Held that - there can be no positive sustainable allegation of willful mis-statement, fraud, collusion etc. to invoke the extended period or to impose penalty - demand upheld for normal period - penalty set aside. Appeal allowed - decided partly in favor of appellant.

Summary

Issues Involved:
1. Duty liability on activities in Parts Distribution Centre (PDC).
2. Classification of various items (lubricating oil, adhesive kits, coolants, emblem radiator grill, cap assembly oil filter, audio players, bulbs, switches, fuses, and relays).
3. Application of deemed manufacture provisions.
4. Limitation period for demand and imposition of penalty.

Detailed Analysis:

1. Duty Liability on Activities in PDC:
The appellants, engaged in the manufacture of passenger cars, operated a Parts Distribution Centre (PDC) where they processed and distributed various items. The Revenue argued that the appellants did not discharge applicable central excise duty on items processed in the PDC. The original authority demanded ?2,04,76,495/- as central excise duty and imposed an equal amount of penalty under section 11AC of the Central Excise Act, 1944.

2. Classification of Various Items:
The dispute involved the classification of lubricating oil, adhesive kits, coolants, emblem radiator grill, cap assembly oil filter, audio players, bulbs, switches, fuses, and relays. The appellants contended that:

- Lubricating Oil: Classified under Chapter 2710, and argued that the Chapter Note stipulating deemed manufacture was not applicable as they did not undertake repacking from bulk to retail packs.
- Adhesive Kits and Coolants: Similar arguments were made for adhesive kits (Chapter 3506) and coolants (Chapter 3820), asserting no duty liability as per Chapter Notes and section 2(f)(ii).
- Emblem Radiator Grill and Cap Assembly Oil Filter: No dispute on classification under Chapters 3919 and 3923.
- Audio Players, Bulbs, Switches, Fuses, and Relays: Classified under Chapters 8527, 8537, and 8539. The appellants contended these items were specifically designed for automobiles and should be classified accordingly.

3. Application of Deemed Manufacture Provisions:
For the period 1.6.2002 to 28.2.2003, the appellants argued that excise duty was not leviable on lubricant oils, adhesive kits, and coolants as they did not meet the criteria of both labeling/relabeling and repacking from bulk to retail packs. The Tribunal agreed, citing the Supreme Court decisions in Johnson and Johnson Ltd. and BOC Ltd., which required both conditions to be met for deemed manufacture.

From 1.3.2003, Schedule III and section 2(f)(iii) of the Central Excise Act applied, making the appellants liable for duty on these items. For emblem radiator grill and cap assembly oil filters, the Tribunal ruled that these items, designed for automobiles, should not be classified as generic articles of plastic under Chapter 39.

4. Limitation Period for Demand and Imposition of Penalty:
The appellants contested the demand on limitation and the imposition of an equal amount penalty. They argued that the activities in the PDC were known to the department, and there was no suppression or willful mis-statement. The Tribunal noted that the issue involved interpretation of deemed manufacture and there was no regular manufacture. Consequently, the extended period of limitation and penalties were set aside.

Conclusion:
The Tribunal held that the appellants were liable for duty on lubricating oils, adhesive kits, and coolants from 1.3.2003. For emblem radiator grill and cap assembly oil filters, duty liability arose only from 1.6.2006. The Tribunal set aside the extended period of limitation and penalties, allowing the appeal partly.