2018 (1) TMI 529 - AT - Central Excise

Deemed Manufacture - laptops - It appeared that as per Note 6 to Section XVI of the first schedule to the Central Excise Act, 1985 and also as per Section 2 (f) (iii) of the Central Excise Act, 1944, the processes carried out on the imported laptop computers amounted to manufacture - Held that - It is not disputed that the imported laptops are subsequently sent to Supreme in their individual packings, ie., in unit containers. It is not the case that the purpose of sending these laptops to Supreme is only for quality control checks, or for that matter, to ensure that the imported laptops are in working condition - the master hard disk drive is totally dismantled and removed from the laptops and various softwares are loaded on them, only after which the HDDs are fixed back into the laptops. All the processes which are involved are repacking of goods in or into the unit container, and in addition relabeling, testing, and loading of software without which the laptops would not be fully functional and would not be accepted by ELCOT. The ingredients of Section 2 (f) (iii) of the Act will definitely get attracted in respect of processes undertaken, hence the impugned activity will definitely fall within the legal definition of manufacture under the said Section 2 (f) (iii) ibid. Confiscation - Penalty - Held that - the sum of the components of SAD and CVD exceed the duty liability demanded in this case - the ingredients of Section 11 AC will not be attracted in this case, hence, no penalty under that Section can be imposed - penalties set aside - confiscation and redemption fine also set aside. Appeal allowed in part.

Summary

Issues:
Manufacture of laptop computers involving loading software, dismantling hard disk drive, and other processes - Whether it amounts to manufacture under Section 2 (f) (iii) of the Central Excise Act, 1944. Duty liability, confiscation of goods, imposition of penalties, and redemption fines.

Detailed Analysis:

Manufacture Process:
The case involved M/s. Acer India Pvt. Ltd. and M/s. Supreme Cables engaged in the manufacture of laptops. The department found that Acer imported laptops and Supreme loaded software on them at their premises. Various processes were carried out, including dismantling hard disk drives, copying software, and testing. The department issued a show-cause notice for duty demand, confiscation of seized laptops, and penalties. The adjudicating authority demanded duty and imposed penalties under Section 11 AC. The appellants argued that the processes were done in compliance with supply order requirements and did not amount to manufacture under Section 2 (f) (iii).

Arguments by Appellants:
The appellants contended that the imported laptops were pre-loaded with necessary software, and the additional processes were to meet specific customer requirements. They claimed that activities like dismantling, testing, and labeling were not covered under the definition of manufacture. They emphasized that they had no intention to evade duty and had even received refunds on certain components.

Department's Position:
The department argued that the processes undertaken at Supreme's premises, including repacking, relabeling, and loading software, amounted to manufacture. They highlighted the detailed analysis in the impugned order supporting the view that the processes were essential for the buyer's acceptance of the laptops.

Judgment:
The Tribunal analyzed Section 2 (f) (iii) of the Act, which includes processes like repacking, labeling, and rendering goods marketable as part of the definition of manufacture. It was observed that the processes carried out by the appellants, such as dismantling hard drives, loading software, and relabeling, fell within this definition. The duty demand was upheld, but penalties under Section 11 AC were set aside due to the appellants' compliance with ELCOT's requirements and the refund received. Confiscation of goods and redemption fines were also revoked.

Conclusion:
The Tribunal found that the processes undertaken by the appellants constituted manufacture under the Act. While duty liability was upheld, penalties and confiscation were set aside considering the appellants' actions in good faith. The judgment partially allowed both appeals based on the above findings.

This detailed analysis covers the issues related to the manufacture process of laptop computers, duty liability, penalties, and confiscation of goods as addressed in the judgment by the Appellate Tribunal CESTAT CHENNAI.