1986 (8) TMI 166 - AT - Central Excise

Summary

Issues Involved:
1. Maintainability of the revision application u/s 35A of the Central Excises and Salt Act, 1944.
2. Allegation of evasion of Central Excise Duty through misuse of Rule 173H of the Central Excise Rules, 1944.
3. Determination of whether the activities conducted by the appellants amounted to "repair" or "manufacture."
4. Validity of the demand for duty and imposition of penalty under Rule 173Q.

Summary:

1. Maintainability of the Revision Application:
The Tribunal held that the revision application filed by the appellants u/s 35A of the Central Excises and Salt Act, 1944, before the Central Board of Excise and Customs was maintainable and should be heard on merits.

2. Allegation of Evasion of Central Excise Duty:
The Collector alleged that the appellants were evading Central Excise Duty by salvaging parts from defective compressors and using them to manufacture new compressors. The new compressors were cleared without payment of duty by engraving the serial numbers of the old compressors, thus evading the duty. The Collector demanded Rs. 3,07,35,200/- in duty and imposed an equal penalty under Rule 173Q.

3. Determination of "Repair" vs. "Manufacture":
The Tribunal examined Rule 173H, which permits the retention or re-entry of duty-paid goods for repair, reconditioning, or remaking, provided the process does not amount to manufacture. The Tribunal referred to Supreme Court judgments to distinguish between "repair" and "manufacture," emphasizing that "manufacture" involves bringing into existence a commercially distinct article. The Tribunal found that the appellants' activities, which involved dismantling and reassembling compressors with some parts being replaced, constituted "repair" and not "manufacture." The reassembled compressors were of the same model and specification as the defective ones received, thus retaining their identity.

4. Validity of the Demand for Duty and Imposition of Penalty:
The Tribunal noted that the procedure followed by the appellants was known to the authorities and had been evolved in agreement with them. The appellants maintained proper records and issued separate gate passes for repaired compressors. The charge of clandestine removal and suppression or fraud was not established. Consequently, the demand for duty and the imposition of penalty were not warranted.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential relief to the appellants, as the activities conducted by the appellants were deemed to be repairs and not manufacture, and no violation of rules was proved.