2018 (12) TMI 1532 - AT - Central Excise

Manufacture or not - appellants were purchasing parts, components and assemblies as spares for these vehicles in bulk and selling them after repacking and relabeling in retail / bulk pack from their spare parts division - MRP based assessment as required under Section 4A (2) of Central Excise Act, 1944 not followed - opportunity to cross-examine not given - reliability on statements - section 9D of the Excise Act. Held that - There was no justifiable reason for non-conduct of the verification process when the appellant s manufacturing premises were still in Hosur. Such laches will therefore not only preclude the Revenue from wriggling out of responsibility for conduct of the verification process, but at the same time put a question on the stand of the department that activity of appellant only amounted to manufacture‟, which issue per se had been remanded by the Tribunal for de novo verification - Even more surprising however, is the adjudicating authority s outright refusal to grant cross-examination in spite of the clear remand instructions of the Tribunal. Principles of natural justice - opportunity to cross-examine - Held that - The necessity of strictly complying with the provisions of Section 9D of the Central Excise Act, 1944, including the requirement for grant of cross examination, has been consistently reiterated by higher appellate forums - the directions of the Tribunal in the earlier final order dt. 16.11.2009 has not been complied with and has only been followed in the breach. In consequence, appellants surely have been denied natural justice and opportunity to establish their credentials and case. The proceedings which have seen two rounds of litigation had commenced by way of issue of first SCN No.29/2008 dt. 10.4.2008. More than a decade has passed by, without any sign of resolution of the allegations raised by the department. The opportunity given for causing verification of the activity of the appellants was frittered away only due to quasi-judicial lethargy. The directions for granting cross examination was also not honoured - we find no purpose would serve by once again causing remand of the matter to the adjudicating authority. The impugned order cannot then sustain and will have to be set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the activities undertaken by the appellants amount to "manufacture" under Section 2(f)(iii) of the Central Excise Act.
2. Validity of the demand based on statements without granting the right to cross-examine.
3. Applicability of the Packaged Commodity Rules, 1977, and the Standard Weights and Measures Act, 1976.
4. Compliance with the Tribunal's remand directions and principles of natural justice.

Detailed Analysis:

1. Whether the activities undertaken by the appellants amount to "manufacture" under Section 2(f)(iii) of the Central Excise Act:
The appellants argued that their activities, which include repacking and relabeling of spare parts for motor vehicles, do not constitute manufacturing as per Section 2(f)(iii) of the Central Excise Act. They contended that these actions were aimed at logistical convenience and inventory management rather than adding value to make the goods marketable. The Tribunal noted that the adjudicating authority failed to verify the nature of the activities despite having ample time before the appellants shifted their premises. Consequently, the Tribunal found that the department's claim that the activities amounted to manufacture was not substantiated.

2. Validity of the demand based on statements without granting the right to cross-examine:
The Tribunal emphasized that the adjudicating authority relied heavily on statements from witnesses without allowing the appellants to cross-examine them, despite clear remand instructions to do so. The Tribunal cited several cases, including J&K Cigarettes Limited v. Collector of Central Excise and CCE, Delhi v. Vishnu and Co. Pvt Ltd., which established that statements under Section 14 of the Central Excise Act are unreliable unless cross-examination is afforded. The refusal to grant cross-examination was deemed a violation of natural justice, rendering the order invalid.

3. Applicability of the Packaged Commodity Rules, 1977, and the Standard Weights and Measures Act, 1976:
The appellants argued that the provisions of the Packaged Commodity Rules, 1977, and the Standard Weights and Measures Act, 1976, do not apply to their case as the spares were sold to industrial or institutional consumers. Consequently, Section 4A of the Excise Act, which pertains to MRP-based assessment, would also not apply. The Tribunal did not explicitly rule on this issue but noted the appellants' contention as part of their broader argument against the demand.

4. Compliance with the Tribunal's remand directions and principles of natural justice:
The Tribunal found that the adjudicating authority failed to comply with the remand directions to verify the appellants' activities and grant the right to cross-examine witnesses. The Tribunal highlighted that the adjudicating authority's actions, including the refusal to conduct verification and denial of cross-examination, were unjustified and violated principles of natural justice. The Tribunal referenced the case of Kiran Overseas v. Collector of Customs, where a similar refusal led to the setting aside of the order on technical grounds without a further remand.

Conclusion:
The Tribunal concluded that the adjudicating authority's order was unsustainable due to non-compliance with remand instructions and principles of natural justice. The Tribunal set aside the impugned order and allowed the appeal with consequential relief as per law, emphasizing that further remand would serve no purpose and only prolong the appellants' agony. The appeal was thus allowed, and the order pronounced in court on 28.12.2018.

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