2017 (10) TMI 554 - AT - Central Excise

Manufacture - bullet-proofing activity undertaken by the appellant - job-work - It was alleged that as the bullet proofing was done by a division of Mahindra & Mahindra, the cost of bullet proofing should be included in the value of base vehicle cleared by Mahindra& Mahindra in terms of Rule 10A of the Central Excise Valuation Rules, 2000 as the said activity amounts to manufacture. It was alleged that the activity amounts to manufacture and cost of bullet proofing was to be added to the cost of base vehicle paid by Mahindra & Mahindra - case of appellant is that the process does not amount to manufacture and duty cannot be charged on the value addition carried outside the factory of clearance on account of certain processes not amounting to manufacture. Whether the bullet proofing amounts to manufacture or not, and whether the extended period of limitation is invokable or not? - Held that - Bullet Proofing of Mahindra Bolero and Mahindra Rakshak does not amount to manufacture and no duty is payable by the appellant. With regard to Mahindra Scorpio and Mahindra Bus, we find that the process undertaken by the appellant involves the removal of body shell of the vehicle and reinforcing the same with bullet proofing sheets from the inside, strengthening the platform by welding iron studs on the weak joints of the platform and replacement of coils and shock absorbers so as to enable the platform to bear the increased weight of the base vehicle after bullet proofing. The body shell is then reinstalled on the platform and the floor is covered with a ballistic carpet. The glass is also changed to thicker bullet proof glass. We have seen that Mahindra Scorpio remains as Mahindra Scorpio and Mahindra Bus remains as Mahindra Bus before and after the bullet proofing and the use of the vehicles also remains same to carrying the passengers and the character of vehicle also do not change on accessories being added to these vehicles - in this case the Scorpio remain Scorpio and the Bus remains the Bus after bullet proofing and therefore, it cannot be said that the activity of bullet proofing amounts to manufacture. Accordingly, the activity undertaken by the appellant does not amount to manufacture. Merely few additions do not constitute a production or manufacture - activity undertaken by the appellant does not amount to manufacture. The adjudication order is beyond the scope of show cause notice with regard to the classification proposed in the show cause notice. Accordingly, the adjudication orders are set-aside. Penalties also set aside. Extended period of limitation - As we have decided the issue on merit, in favor of the appellant, therefore, we are not going into the issue of limitation. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the activity of bullet proofing amounts to manufacture.
2. Whether the vehicle has been classified correctly by the adjudicating authority.
3. Whether the issue of classification considered by the adjudicating authority is beyond the scope of the show cause notice.
4. Whether the extended period of limitation is invokable.
5. Whether the penalty on the appellant is imposable.

Detailed Analysis:

1. Whether the activity of bullet proofing amounts to manufacture:
The primary issue is whether the bullet proofing activity undertaken by the appellant constitutes "manufacture" under Central Excise law. The Tribunal referred to previous decisions, including the case of Mahindra & Mahindra Limited, where it was held that bullet proofing does not amount to manufacture. The process of bullet proofing involves reinforcing the vehicle with bulletproof sheets, strengthening the platform, and replacing certain parts to bear the increased weight. However, the vehicles remain essentially the same in appearance and use before and after bullet proofing. The Tribunal concluded that merely adding accessories or security features does not transform the vehicle into a new product with a distinct name, character, or use. Therefore, the activity of bullet proofing does not amount to manufacture.

2. Whether the vehicle has been classified correctly by the adjudicating authority:
The classification of the bullet proofed vehicles was contested. The show cause notice proposed classification under sub-heading 8703 3392, which applies to vehicles with a cylinder capacity exceeding 2500 cc. However, the Scorpio has a cylinder capacity of only 2179 cc. The Tribunal found that the correct classification for the bullet proof Scorpio should be under sub-heading 8703 3299, and for the bullet proof bus, it should be under heading 8702, which covers motor vehicles for the transport of ten or more persons. The adjudicating authority's classification under sub-heading 8703 3292 was deemed incorrect and beyond the scope of the show cause notice.

3. Whether the issue of classification considered by the adjudicating authority is beyond the scope of the show cause notice:
The Tribunal held that the adjudicating authority's classification of the vehicles under sub-heading 8703 3292 was beyond the scope of the show cause notice, which had proposed classification under sub-heading 8703 3392. The Tribunal cited the case of Aurobindo Pharma Limited, emphasizing that any classification beyond the scope of the show cause notice is not permissible.

4. Whether the extended period of limitation is invokable:
The appellant argued that the show cause notice dated 29.1.2013 was barred by limitation, as the department had been aware of the bullet proofing activities since 2003. The Tribunal did not delve deeply into this issue, as it had already decided the primary issue of whether bullet proofing amounts to manufacture in favor of the appellant.

5. Whether the penalty on the appellant is imposable:
Since the Tribunal concluded that the bullet proofing activity does not amount to manufacture, the demand for duty was not sustainable. Consequently, the penalties imposed on the appellant were also set aside.

Conclusion:
The Tribunal set aside the impugned orders, holding that the activity of bullet proofing does not amount to manufacture. The classification proposed in the show cause notice was found to be incorrect, and the adjudicating authority's classification was beyond the scope of the notice. As the demand was not sustainable, the penalties imposed on the appellant were also set aside. The appeals were allowed with consequential relief.

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