1998 (12) TMI 332 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for duty exemption under Notification No. 217/86.
2. Determination of the real manufacturer.
3. Applicability of limitation period for demand.
4. Liability for interest u/s 11AB.
5. Liability for penalty under Rule 173Q read with Section 11AC.

Summary:

Issue No. I: Eligibility for Duty Exemption under Notification No. 217/86
The Tribunal examined Notification No. 217/86, which exempts certain goods used within the factory of production from excise duty. The Tribunal concluded that material handling equipment (trollies, bins, and pallets) used in the manufacture of motor vehicles are excluded from this exemption as they fall under the definition of capital goods used for producing or processing goods. Thus, the exemption under Notification No. 217/86 is not applicable.

Issue No. II: Determination of the Real Manufacturer
The Tribunal analyzed the relationship between the appellants and the fabricators. It was found that the fabrication was carried out within the appellants' premises, using materials and equipment supplied by the appellants. The terms of the work orders indicated a master-servant relationship, leading to the conclusion that the appellants are the real manufacturers, not the fabricators.

Issue No. III: Applicability of Limitation Period for Demand
The demand covered the period from May 1989 to March 1992, with the show cause notice issued on 1-6-1994. The Tribunal noted the absence of a deliberate attempt to withhold information and the appellants' bona fide belief supported by previous Tribunal decisions. Therefore, the extended period of limitation was not applicable, and the entire demand was barred by limitation.

Issue No. IV: Liability for Interest u/s 11AB
Section 11AB, which came into force on 28-9-1996, was examined. The Tribunal held that interest could not be applied retrospectively to the period in question, as the duty became payable before the introduction of Section 11AB. Thus, the appellants were not liable to pay interest.

Issue No. V: Liability for Penalty under Rule 173Q read with Section 11AC
The Tribunal noted that Section 11AC, mandating penalty equal to the duty evaded, was not applicable to periods before its enactment on 28-9-1996. The penalty under Rule 173Q was also set aside due to the demand being barred by limitation. However, a separate opinion by one member suggested reducing the penalty to Rs. 5 lakhs, considering the facts and circumstances.

Majority Order:
The majority confirmed the duty demand but reduced the penalty to Rs. 5 lakhs, disposing of the appeal in these terms.