1996 (3) TMI 209 - AT - Central Excise

Summary

Issues:
1. Whether manufacture of varnish on an experimental basis exempts from Central Excise Act and Rules.
2. Whether assembly of bought-out items and fabricated parts amounts to manufacture, and if so, whether duty is payable.
3. Whether penalty imposition is warranted in the circumstances.

Analysis:

Issue 1 - Varnish Manufacturing:
The appellants claimed that their varnish manufacturing was on an experimental basis and not for commercial purposes, thus exempting them from duty payment and licensing requirements. However, the Tribunal held that varnish, being a distinct item, even if manufactured experimentally, is subject to duty under the Central Excise Act. The fact that the varnish was used internally by the appellants indicated its marketability, leading to the requirement of a license and duty payment.

Issue 2 - Assembly of Machinery:
Regarding the assembly of machinery using purchased parts and fabricated components, the Tribunal determined that the process constituted manufacturing under Section 2(f) of the Central Excise Act. Assembling distinct items to create a new product qualified as manufacture, necessitating duty payment. The argument that the machinery was affixed to the ground and not goods was dismissed, confirming the duty liability on the assembled machinery.

Issue 3 - Penalty Imposition:
The Tribunal found that the appellants failed to declare their varnish manufacturing and machinery assembly activities to the Department, did not maintain records, and did not clear goods even for captive use after duty payment. Considering these violations, the Tribunal upheld the imposition of the penalty.

In conclusion, the Tribunal upheld the order-in-original, rejecting the appeal and affirming the duty liability on varnish manufacturing and assembled machinery. The penalty imposition was deemed justified based on the appellants' non-compliance with regulatory requirements.