2003 (12) TMI 104 - AT - Central Excise

Summary

Issues:
Whether excise duty is leviable on Water Purification and Filteration System mounted on a base frame by a company engaged in job work.

Analysis:
The appeals revolved around the issue of whether excise duty is applicable on Water Purification and Filteration Systems mounted on a base frame by a company engaged in job work. The Appellant Company contended that the process of mounting the system on a base frame does not amount to manufacture under Section 2(f) of the Central Excise Act. They argued that the items imported by them were complete systems capable of independent functioning, and there was no change in their characteristics before and after mounting. They relied on previous decisions to support their stance, emphasizing that the process did not result in a new commercial commodity. Furthermore, they claimed entitlement to Modvat credit to cover any duty liability and argued against the invocation of the extended period of limitation for demanding duty.

On the contrary, the Department argued that the assembly of various components by the Appellants resulted in the creation of a new product, a Water Purification and Filteration System. They contended that this assembly process constituted manufacture as it led to the emergence of a distinct product with different characteristics, name, and use. The Department relied on a previous decision to support their argument that combining filtering and purifying machinery into one system creates a new commercially different product. Additionally, they highlighted that not all parts used were duty paid, further supporting their claim that a new product emerged from the assembly process.

The Tribunal, after considering both sides' submissions, referred to the Supreme Court's definition of manufacture, emphasizing that a new and different article must emerge with distinctive name, character, or use for excise duty to be leviable. They noted that the Appellants received various components from a supplier and assembled them to create different types of Water Purification and Filteration Systems. The Tribunal concluded that the assembly process resulted in the creation of a new and commercially different commodity, falling within the definition of manufacture under Section 2(f) of the Central Excise Act. They upheld the demand for Central Excise duty on the Appellants and imposed a reduced penalty, citing suppression of the fact of manufacturing the goods from the Department as the basis for invoking the extended period of limitation. The penalty on the Director was set aside due to lack of evidence of personal knowledge regarding the liability of the goods to confiscation.

In conclusion, the Tribunal upheld the demand for Central Excise duty on the Water Purification and Filteration Systems mounted on a base frame by the company engaged in job work, considering the assembly process as constituting manufacture under the Central Excise Act. They also imposed a reduced penalty on the company while setting aside the penalty on the Director.