2005 (3) TMI 115 - SC - Central Excise

Whether the benefit of Notification No. 281/86, dated 24-4-1986 is available to parts of loco wagon and rolling stock manufactured by the assessee-appellant? Held that - the show cause notices of 1987 dealt with breach of Exemption Notification by the consignor whereas the show cause notice dated 14-5-1991 dealt with breach of terms and conditions of license issued in favour of the said consignee who failed to intimate the actual use of the inputs in question. Even if it is accepted for the sake of arguments that Growth Shop was entitled to exemption under the above Notification, the crucial question is whether the Department can proceed against the said consignee for not following the procedure under Chapter X if there was any violation of the terms and conditions of Central Excise License No. 6 issued in favour of the Main Plant. This crucial issue has not been considered in the proper perspective by CEGAT. The basic question is whether the Main Plant, Jamshedpur failed to account for the goods received from Growth Shop, Adityapur. The matter is remanded to CEGAT for fresh adjudication keeping in view the legal position indicated supra.

Issues Involved:
1. Eligibility for benefit of Notification No. 281/86 for parts of loco wagon and rolling stock.
2. Interpretation of the term "installed" in the context of the Notification.
3. Applicability of Rule 196 and Section 11A(1) regarding the period of limitation for issuing show cause notices.

Detailed Analysis:

1. Eligibility for Benefit of Notification No. 281/86:
The primary issue in Civil Appeal Nos. 5421/1999 and 5836/1999 was whether parts of loco wagon and rolling stock manufactured by the assessee-appellant were eligible for the benefit of Notification No. 281/86, dated 24-4-1986. The Notification exempts excisable goods used for repairs and maintenance of machinery within the same factory or another factory of the same manufacturer. The adjudicating authorities, including the Assistant Collector, Collector (Appeals), and CEGAT, held that the Notification did not apply because the machinery for which the parts were intended was not "installed" in the factory. The CEGAT concluded that the machinery must be fixed in position and not movable, which excluded locomotives and rolling stock.

2. Interpretation of the Term "Installed":
The term "installed" was central to the dispute. The assessee argued that "installed" should be interpreted broadly to include machinery set up for use, not necessarily fixed in position. Various legal dictionaries and judicial precedents were cited to support this interpretation, including Black's Law Dictionary, T.P. Mukherjee's Law Lexicon, and decisions in Commissioner of Income Tax v. Sri Rama Vilas Service (Pvt.) Ltd. and Commissioner of Income Tax v. Mir Mohammad Ali. These sources suggest that "installed" can mean placing machinery in position for use, not necessarily embedding it. The Supreme Court noted that the CEGAT's interpretation might be too narrow and remanded the matter for further factual determination on whether the machinery was installed as per the broader interpretation.

3. Applicability of Rule 196 and Section 11A(1) Regarding Limitation:
In Civil Appeal No. 5209/2001, the issue was whether the show cause notices were issued within the prescribed period of limitation. The adjudicating authorities initially proceeded under Section 11A(1), which has a six-month limitation period, extendable to five years in cases of fraud or willful misstatement. However, the CEGAT applied Rule 196, which does not prescribe a limitation period, arguing that it operates in a different field from Section 11A(1). The Supreme Court observed that the CEGAT introduced Rule 196 without giving the assessee an opportunity to respond, and noted that the show cause notice and orders were based on Section 11A(1). The Court emphasized that Rule 196 deals with duty on excisable goods not duly accounted for, while Section 11A(1) concerns recovery of duties not levied or short-paid. The Court remanded the matter to CEGAT for fresh adjudication, considering the proper application of these provisions.

Conclusion:
The Supreme Court remanded the matters to the CEGAT for fresh adjudication, directing it to consider the broader interpretation of "installed" and the proper application of Rule 196 and Section 11A(1). The Court highlighted the need for a thorough factual determination on whether the machinery was installed and whether the Main Plant, Jamshedpur, failed to account for goods received from Growth Shop, Adityapur, under the terms of the Central Excise License. The appeals were disposed of with no order as to costs.

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