1996 (8) TMI 251 - AT - Central Excise

Issues Involved:
1. Dutiability of Electric Motors used in the manufacture of power-driven pumps.
2. Marketability of the Electric Motors used for captive consumption.
3. Application of amended Rules 9 & 49 of Central Excise Rules, 1944.
4. Relevance of prior judgments and Government notifications.

Issue-Wise Detailed Analysis:

1. Dutiability of Electric Motors used in the manufacture of power-driven pumps:

The primary issue in this appeal is whether electric motors, which are manufactured and captively consumed in the production of power-driven pumps, should be subject to duty under Tariff Item 30 of the erstwhile Central Excise Tariff. The Assistant Collector initially ruled that duty must be paid on the electric motors before their use in manufacturing pumps. This decision was overturned by the Collector (Appeals), who held that duty should be collected at the time of the clearance of the power-driven pumps, as the motors become integral and inseparable parts of the pumps.

2. Marketability of the Electric Motors used for captive consumption:

The assessee contended that the electric motors used in the pump sets are integral components that lose their identity and are not marketable as standalone items. They argued that these motors are different in form and appearance from bare motors and are not in a marketable form. The Tribunal, in its previous judgment (1984 (17) E.L.T. 431), supported this view, stating that motors used in power-driven pumps are integral parts and not marketable as separate goods. The Collector (Appeals) upheld this contention, but the revenue did not address the detailed findings regarding the marketability of the motors.

3. Application of amended Rules 9 & 49 of Central Excise Rules, 1944:

The revenue argued that, according to the amended Rules 9 and 49 and Section 51 of the Finance Act, 1982, duty on electric motors should be paid before they are removed for further use in manufacturing power-driven pumps. The Vice President noted that an excisable item manufactured in a factory must be accounted for before being cleared for captive consumption, and duty should be paid at this stage unless deferred by a specific legal provision. The respondents did not provide any rule under which the payment of duty could be deferred until the clearance of the power-driven pumps.

4. Relevance of prior judgments and Government notifications:

The assessee relied on the Tribunal's previous judgment and Government of India's letter dated 4-2-1981, which clarified that motors are integral parts of power-driven pumps. The Collector (Appeals) also referenced these documents in support of the assessee's case. The Vice President, however, pointed out that the instructions from the Baroda Collectorate allowed deferment of duty collection only in the context of exemption Notification No. 83/72, and the respondents had not substantiated their claim that the electric motors did not come into existence as distinct commodities before being used in pumps.

Separate Judgments:

Judgment by Member (Judicial):

The Member (Judicial) found no merit in the revenue's appeal, emphasizing that the electric motors used in power-driven pumps are not marketable as separate goods. The Member (Judicial) also highlighted that the revenue did not address the detailed findings of the Collector (Appeals) and relied on the Tribunal's previous judgment and Government of India's letter. Therefore, the appeal was rejected on the grounds that the motors are integral parts of the pumps and not marketable.

Judgment by Vice President:

The Vice President disagreed, stating that the legal point raised by the Department was correct. In the absence of any rule allowing deferment of duty payment, the electric motors, being fully manufactured before use, should be accounted for and cleared on payment of duty. The Vice President accepted the Department's appeal, emphasizing that the respondents failed to substantiate their claim that the motors did not come into existence as distinct commodities.

Majority Opinion:

The matter was referred to a third Member due to the difference of opinion. The third Member concurred with the Member (Judicial), stating that the marketability of the item must be established for levy of duty. The Tribunal's previous decision and the Government of India's letter supported the respondents' case, and the Department had not rebutted these findings. Therefore, the appeal was rejected.

Conclusion:

In view of the majority opinion, the appeal was rejected, upholding the Collector (Appeals)'s decision that duty on electric motors used in power-driven pumps should be collected at the time of clearance of the pumps, as these motors are integral, inseparable, and not marketable as separate goods.

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