1994 (8) TMI 153 - AT - Central Excise

Issues Involved:

1. Whether the conversion of Lathe Machine Model HD-50B to Model SB-65 constitutes "manufacture" under Rule 173H.
2. Whether the appellant is entitled to a refund of the duty paid on the reconditioned Lathe Machine under Rule 173H(2).

Issue-wise Detailed Analysis:

1. Whether the conversion of Lathe Machine Model HD-50B to Model SB-65 constitutes "manufacture" under Rule 173H:

The Collector (Appeals) and the Assistant Collector both held that the conversion of Lathe Machine Model HD-50B to Model SB-65 involves activities that change the original character of the goods, resulting in a new product. The Collector (Appeals) emphasized that Rule 173H(1) is intended for goods that retain their original identity after processes like remaking, refining, reconditioning, or repairing. The conversion in question resulted in a new identifiable product, thus constituting "manufacture" and disqualifying the appellant from the benefits of Rule 173H.

The Assistant Collector noted that the appellant admitted to converting the Lathe Machine into a different model, thereby changing its value and identity. Rule 173H allows for goods to be brought back to the factory for rectification of defects without changing their form. Since the appellant cleared a different model with a higher value, the process was deemed to be "manufacture," and the duty paid was considered correct.

The appellant argued that the change in the model did not alter the use, character, or classification of the Lathe Machine, maintaining that it remained a Lathe Machine. They contended that the processes undertaken did not result in a new commercial product of a distinct name, use, or character, and thus did not constitute "manufacture." The appellant cited various legal precedents to support their argument that processing duty-paid goods does not amount to manufacture unless they fall under a different Tariff Item.

However, upon examining the facts, it was found that the conversion involved technical changes that resulted in a new model capable of performing different functions. These operations were not merely repairing or reconditioning but amounted to manufacturing a new product. The Tribunal concluded that the processes undertaken by the appellant constituted "manufacture" under Rule 173H.

2. Whether the appellant is entitled to a refund of the duty paid on the reconditioned Lathe Machine under Rule 173H(2):

The appellant claimed a refund of Rs. 45,156/- for the duty paid on the reconditioned Lathe Machine, arguing that it should have been cleared without payment of duty under Rule 173H(2). The appellant's counsel argued that the reconditioning did not result in a new commercial commodity and cited several legal precedents to support the claim that duty cannot be charged twice on the same product.

The Assistant Collector and the Collector (Appeals) both rejected the refund claim, stating that the conversion of the Lathe Machine into a different model constituted "manufacture." Rule 173H(3) specifies that goods can be removed from the factory without payment of duty only if they are not subjected to any process amounting to manufacture. Since the conversion process was deemed to be manufacturing, the refund claim was not admissible.

The Tribunal examined various case laws cited by the appellant, including decisions from the Supreme Court and High Courts, which dealt with the definition of "manufacture" and the taxability of processed goods. However, the Tribunal found that these cases were distinguishable from the present case, as they did not specifically address the provisions of Rule 173H.

The Tribunal upheld the findings of the lower authorities, concluding that the processes undertaken by the appellant amounted to "manufacture" and thus disqualified the appellant from claiming a refund under Rule 173H(2).

Conclusion:

The Tribunal upheld the impugned order, confirming that the conversion of Lathe Machine Model HD-50B to Model SB-65 constituted "manufacture" under Rule 173H. Consequently, the appellant was not entitled to a refund of the duty paid on the reconditioned Lathe Machine. The appeal was rejected.

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