1993 (9) TMI 186 - AT - Central Excise

Summary

Issues Involved:
1. Whether the assembly of a small number of Desert Coolers out of duty-paid exhaust fans and water pumps bought from the market, when meant for their own use and not for sale, amounted to manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
2. Whether the demand issued to the appellants was time-barred.

Issue-wise Detailed Analysis:

1. Assembly Constituting Manufacture:

The appellants, a State Government undertaking engaged in the generation and distribution of electricity, assembled 29 Desert Coolers in their workshop from duty-paid exhaust fans and water pumps purchased from the market, and scrap iron/tin sheets available in their workshop. These coolers were meant for use in their own offices and not for sale. The primary contention was whether this assembly constituted "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944.

The Tribunal referred to the case of Life Insurance Corporation of India, Bombay v. CCE, Bombay, where it was held that if water coolers were erected by a person by his own efforts and for his own use through assembly of different parts, the product would not be excisable. The Tribunal observed that the appellants were not in the business of manufacturing and selling Desert Coolers, and the coolers were not offered or advertised for sale as ready-assembled units. The Tribunal concluded that the assembly of coolers for their own use did not amount to manufacture, as the coolers were neither ready-assembled units nor sold or offered for sale. Therefore, the coolers assembled by the appellants were not excisable.

2. Time-Barred Demand:

The appellants argued that the demand was time-barred as it was issued beyond the period of 6 months. They contended that the Central Excise officers regularly visited their workshops and were aware of the assembly of coolers for their own use. The demand was raised only at the instance of an objection raised by the Audit Party.

The Tribunal referred to the case of Padmini Products v. Collector of Customs and Excise, where the Hon'ble Supreme Court held that the extended period of 5 years for raising a demand for the recovery of short levy would not be applicable in cases of mere failure or negligence on the part of the manufacturer where there was scope for doubt. The Tribunal found that the appellants acted under the bona fide belief that the assembly of coolers for their own use was not excisable. There was no evidence of fraud, collusion, or willful misstatement. Consequently, the demand issued on 27-4-1984 for the recovery of the alleged short levy during the period 1-3-1980 to 31-3-1983 was time-barred.

Conclusion:

Both issues were resolved in favor of the appellants. The Tribunal set aside the impugned order and allowed the appeal, concluding that the assembly of coolers did not constitute manufacture and the demand was time-barred.