2001 (1) TMI 287 - AT - Central Excise

Issues Involved:
1. Whether the activity of fabricating Glued Insulated Rail Joints (GIR Joints) constitutes 'manufacture' under Section 2(f) of the Central Excise Act.
2. Classification of GIR Joints under the Central Excise Tariff.
3. Marketability and excisability of GIR Joints.
4. Invocation of the extended period of limitation under Section 11A(1) of the Central Excise Act.
5. Valuation of GIR Joints for the purpose of duty calculation.
6. Entitlement to Modvat credit on duty-paid inputs.
7. Legality of confiscation and penalties imposed on M/s. Dynamic Engineers and its partner.

Detailed Analysis:

1. Manufacture under Section 2(f) of the Central Excise Act:
The appellants argued that their activity of fabricating GIR Joints did not constitute 'manufacture' as defined under Section 2(f) of the Central Excise Act. They claimed that the process of cutting, drilling, and rejoining rails with insulating materials did not result in a new and distinct product. However, the tribunal found that the process resulted in a distinct commodity with a distinct name, character, and use, thereby constituting 'manufacture'. The tribunal referenced the Supreme Court's decision in J.G. Glass Industries Ltd., which laid down the two-fold test for 'manufacture'.

2. Classification under Central Excise Tariff:
The department classified GIR Joints under sub-heading 8530.00 as parts of electrical signalling equipment. The appellants contended that the GIR Joints were merely insulated rails used for laying railway tracks and not signalling equipment. The tribunal upheld the department's classification, noting that the GIR Joints acted as insulation between adjacent track circuits and were used for signalling purposes, thus fitting the description under sub-heading 8530.00.

3. Marketability and Excisability:
The appellants argued that GIR Joints were not marketable as they were not available for sale and purchase in the market. The tribunal rejected this argument, stating that the GIR Joints were supplied to the Railways and had a definite market, even if the Railways were the sole buyer. The tribunal concluded that the GIR Joints were marketable and hence excisable.

4. Extended Period of Limitation:
The department invoked the extended period of limitation under Section 11A(1) of the Central Excise Act, alleging suppression of facts by the appellants. The tribunal found that the appellants had not disclosed their manufacturing activity to the department and had not registered with the Central Excise department, thereby justifying the invocation of the extended period. However, any demand relating to the period prior to 1-6-1994 was held to be time-barred.

5. Valuation of GIR Joints:
The appellants challenged the valuation of GIR Joints, arguing that the department had overvalued the rails used in the fabrication process. The tribunal directed the Commissioner to re-determine the duty liability after reconsidering the valuation of the rails based on the evidence provided by the appellants, including certificates from the Western Railway authorities.

6. Modvat Credit:
The appellants claimed entitlement to Modvat credit on duty-paid inputs used in the manufacture of GIR Joints. The tribunal acknowledged this entitlement and directed the Commissioner to allow Modvat credit while re-determining the duty liability.

7. Confiscation and Penalties:
The tribunal upheld the confiscation of the seized GIR Joints and the penalties imposed on M/s. Dynamic Engineers, finding no fault with the lower authorities' actions. However, the tribunal reduced the penalty of Rs. 5 lakhs imposed on M/s. Dynamic Engineers to Rs. 3 lakhs and set aside the penalty of Rs. 25,000 imposed on the partner, Shri M.M. Gupta, due to the lack of personal liability under Rule 209A.

Conclusion:
The tribunal upheld the classification of GIR Joints under sub-heading 8530.00 and affirmed the duty liability of M/s. Dynamic Engineers. The matter was remanded to the Commissioner for re-determination of the duty amount, considering the revised valuation and Modvat credit. The penalties were partially modified, with the penalty on the partner being set aside.

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