1993 (9) TMI 187 - 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, 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.

Detailed Analysis:

1. Assembly and Manufacture under Section 2(f) of the Central Excises and Salt Act, 1944

The appellants, a State Government undertaking engaged in the generation and distribution of electricity, were served with a show cause notice for duty and penalty on 29 Desert Coolers assembled in their workshop. The appellants contended that the assembly of these coolers out of duty-paid exhaust fans and water pumps, meant exclusively for their own use and not for sale, did not constitute "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944. They cited the Tribunal's decision in Life Insurance Corporation of India, Bombay v. CCE Bombay, which held that assembling parts for one's own use does not make the product excisable.

The Tribunal noted that the appellants were not in the business of manufacturing and selling Desert Coolers. The coolers were fabricated out of scrap materials and were not offered or advertised for sale. Referring to the precedent in Life Insurance Corporation of India, Bombay v. CCE, Bombay, the Tribunal concluded that the coolers assembled for their own use were not excisable. The Tribunal emphasized that the assembly for personal use does not meet the criteria of "manufacture" as defined in the Act.

2. Time-Barred Demand

The appellants argued that the demand was time-barred as it was issued beyond the six-month period. They highlighted that Central Excise officers regularly visited their workshop and were aware of the assembly activities, which were not deemed as manufacturing. The Tribunal referenced the Supreme Court's decision in Padmini Products v. Collector of Customs and Excise, which held that the extended period for raising a demand requires evidence of fraud, collusion, or willful misstatement. Mere failure or negligence does not justify the extended period.

The Tribunal found that the appellants acted under a bona fide belief that the assembly of coolers for their own use was not excisable. The demand was raised only after an audit objection, and there was no evidence of fraud or willful misstatement. Consequently, the Tribunal held that the demand issued on 27-4-1984 for 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 for personal use did not constitute manufacture and that the demand was time-barred.