2009 (11) TMI 306 - AT - Central Excise

Manufacture- Photocopiers- The finding of manufacture by the Commissioner is on the basis that XIL had undertaken assembly of components of photocopiers imported by it into complete photocopiers. This activity was held to be converting an incomplete machine into a complete machine envisaged in Section 6 of Section XVI of the Central Excise Tariff (tariff) and was manufacture. The demand is on the value of the complete machines cleared by XIL. Held that- As the demand and penalty on XIL are vacated, the personal penalties imposed on the executives of XIL on a finding of the XIL having manufactured and cleared excisable goods without payment of excise duty and the appellants having knowingly dealt with such offending goods are not sustainable. In the circumstances, the impugned order is set aside and all the three appeals allowed.

Summary

Issues:
- Challenge to demand of duty on manufacture of photocopiers
- Challenge to personal penalties imposed on executives
- Interpretation of "manufacture" under Central Excise Act

Analysis:
1. Challenge to demand of duty on manufacture of photocopiers:
The appeal filed by Xerox India Pvt. Ltd. contested the demand of duty and applicable interest amounting to Rs.178647382 on the manufacture of photocopiers carried out between April 2002 to November 2006. The dispute centered around whether the assembly of components of photocopiers imported by XIL constituted manufacturing activity as per Section 6 of Section XVI of the Central Excise Tariff. The Commissioner held that the assembly of components into complete photocopiers amounted to manufacturing, justifying the duty demand on the value of the assembled machines. XIL argued that they merely grouped imported components into sets of complete machines without undertaking any manufacturing process. They contended that the assembly took place at the customers' premises, outside the jurisdiction of the adjudicating authority, and therefore was not exigible to duty. The Tribunal analyzed the facts and legal precedents, ultimately ruling in favor of XIL by vacating the demand of duty.

2. Challenge to personal penalties imposed on executives:
Apart from the duty demand, personal penalties of Rs.50,000 each were imposed on Sri S. K. Gupta, Finance Controller, and Shri A. K. Srivastava, Senior Manager of XIL. These penalties were imposed under Rule 26 of the Central Excise Rules, 2002, for their alleged involvement in the manufacturing and clearance of excisable goods without payment of duty. However, since the Tribunal ruled in favor of XIL by vacating the duty demand on the grounds that no manufacturing activity took place, the personal penalties on the executives were also deemed unsustainable and set aside.

3. Interpretation of "manufacture" under Central Excise Act:
The crux of the legal dispute revolved around the interpretation of "manufacture" under the Central Excise Act. The Commissioner relied on Note 6 of Section XVI of the Central Excise Tariff to justify that the assembly of components into complete photocopiers constituted manufacturing. However, the Tribunal found that the activities undertaken by XIL, such as grouping components into sets, assigning identification numbers, and selling the complete machines, did not amount to manufacturing as defined under the Act. The Tribunal emphasized that no conversion of incomplete machines into complete machines occurred in XIL's warehouse, and the assembly of components into photocopiers took place at the customers' premises. Therefore, the Tribunal concluded that the demand of duty based on the manufacturing premise was not valid, leading to the dismissal of the appeals and setting aside of the impugned order.