2002 (10) TMI 105 - SC - Central Excise

Whether the appellants are entitled to exemption of the notification No. 162 of 1986 dated 1st March 1986? Held that - What the notification exempts is a special purpose motor vehicle . Of course the exemption (from payment of duty) is available provided excise duty has been paid on the chassis and the equipment used in its manufacture. Admittedly excise duty has been paid on the chassis. Excise duty has also been paid on all the inputs used in the manufacture of this vehicle. We are unable to accept the reasoning in the impugned order that term equipment used in the notification refers to the final body manufactured by the appellants. We find it rather strange that the Technical Members seek to justify such a reasoning on the ground that there is a separate Tariff Item No. 87.07. It was nobody s claim that the appellants special purpose motor vehicle falls under Tariff Item No. 87.07. As stated above Tariff Item No. 87.07 would only apply if a body was being sold separately by itself. The term equipment used in the notification necessarily refers to the material and the inputs which have gone into manufacturing the special purpose motor vehicle. As has been correctly held by the Judicial Member duty has been paid on all the inputs used by the appellants. As duty has been paid on all the inputs and as duty has been paid on the chassis the appellants are covered by the exemption notification. In our view the appellants are entitled to the benefit of the exemption notification. We therefore set aside the impugned order and hold that the appellants are entitled to exemption of the notification No. 162 of 1986 dated 1st March 1986. In favour of assessee.

Summary

Issues:
1. Interpretation of a customs duty notification exempting special purpose motor vehicles from excise duty.
2. Determining whether duty exemption applies to the body of the vehicle or only the chassis and inputs used in manufacturing.

Issue 1 - Interpretation of Customs Duty Notification:
The case involved an appeal against a Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT) order where the Judicial Member and the two Technical Members had differing views. The appellants were engaged in fabricating special purpose motor vehicles used at airports. The dispute arose from Notification No. 162 of 1986, which exempted certain goods from excise duty subject to conditions. The appellants claimed exemption based on this notification as they had paid duty on the chassis and inputs used in manufacturing the vehicles.

Issue 2 - Scope of Duty Exemption:
The core issue revolved around whether the duty exemption applied to the body of the special purpose motor vehicle or only to the chassis and inputs. The Technical Members contended that duty should be paid on the body under Tariff Item No. 87.07, thus denying the exemption. However, the Supreme Court clarified that the exemption pertained to the entire special purpose motor vehicle, which includes both chassis and body. The court emphasized that the term "equipment" in the notification referred to the inputs used in manufacturing the vehicle, not the final body. As excise duty had been paid on all inputs and the chassis, the appellants were deemed eligible for the exemption.

In conclusion, the Supreme Court set aside the impugned order and ruled in favor of the appellants, holding them entitled to the exemption under Notification No. 162 of 1986. The court rejected the argument that duty should be paid on intermediate products like hydraulic jacks or cranes, emphasizing that the demand notice was based on the classification of the special purpose motor vehicle under Tariff Item No. 87.05. The judgment clarified that the duty exemption covered all inputs used in manufacturing the vehicle and upheld the appellants' entitlement to the exemption.