2009 (10) TMI 348 - AT - Central Excise

Valuation- Modular Terminal Rossette (MTR) is a plastic box with provision to plug in a male jack and can facilitate connection of phone to the external line. It is an accessory to telephone. The appellants M/s. ITEL Industries (ITEL) got MTRs manufactured on job work basis with the components it supplied. These were cleared separately as well as along with the electronic push button telephones manufactured by ITEL. It is since settled vide Final Order No. 89-90/01 dated 24-1-01 of the Tribunal that assembling MTR from bought out components constitutes manufacture. The department had issued the following show cause notices to recover duty on MTRs cleared by ITEL. Held that- if the goods were under provisional assessment, differential duty could be recovered without issuing a Show Cause Notice u/s 11A of the Act. Demand could not validly be confirmed invoking longer period as no suppression is found against ITEL. The impugned order held that the dispute involved interpretation. We hold that no penalty is imposable on the appellants for its failure to pay duty demand sustained by us since the dispute involved interpretation. The impugned order is set aside. The appeal is allowed in part by remand to the original authority to requantify the demand allowing benefit u/s 4(4)(d)(ii) of the Central Excise Act, and Cenvat credit of duty paid on the inputs since reversed.

Summary

Issues:
Recovery of duty on Modular Terminal Rossette (MTR) cleared by the appellant, classification of MTR as part of the phone, liability of the appellant as the manufacturer of MTRs, provisional assessment of telephones affecting MTR demand, imposition of penalty under Rule 173Q of Central Excise Rules, 1944.

Analysis:
The judgment revolves around the recovery of duty on Modular Terminal Rossette (MTR) cleared by the appellant. The MTR, considered an accessory to a telephone, was manufactured by the appellant on a job work basis with supplied components. The Tribunal had previously determined that assembling MTR from bought-out components constituted manufacturing. The department issued multiple show cause notices to recover duty on MTRs cleared by the appellant, leading to a demand for duty and imposition of penalties.

The appellant challenged the demand, arguing that the independent job worker who assembled MTRs should be considered the manufacturer and liable for duty. The appellant contended that MTR was an accessory, not an essential component of the phone. The appellant reversed input credits taken, asserting they should not be treated as manufacturers. However, the Tribunal found that the appellant, by supplying inputs and receiving finished MTRs, qualified as a manufacturer liable to pay duty.

Regarding the classification of MTR as part of the phone, it was established that MTR was an accessory facilitating phone connection to the external line. Citing relevant case law, the Tribunal determined that MTR, not being an integral part of the telephone, should not have its value included in the telephone's assessment. The demand for duty on MTRs, except for specific notices, was deemed unsustainable.

The judgment also addressed the provisional assessment of telephones affecting MTR demand. It was clarified that without a specific order for provisional assessment of MTR, demands beyond the normal period could not be confirmed. The Tribunal emphasized that no penalty should be imposed on the appellant due to the interpretational nature of the dispute. The appeal was partially allowed, remanding the case for a fresh decision on the show cause notices with specific instructions for quantifying the demand and allowing relevant benefits.

In conclusion, the judgment provided a detailed analysis of the issues surrounding duty recovery on MTRs, the appellant's liability as a manufacturer, the classification of MTR as part of the phone, and the impact of provisional assessment on demand. The decision offered clarity on legal interpretations and set aside the penalties while allowing the appellant an opportunity to present their case afresh.