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TMI Blog1998 (1) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... llants premises : (1) M/s. Gupta Electronics Engg. Co. (2) M/s. Process Engineers; and (3) M/s. Yusuf Fabricators, Gurgaon. The appellants did not file any classification list or price list for these items nor did they maintain any statutory records for he same nor did they pay any Central Excise duty leviable thereon; hence a show cause notice dated 1-6-1994 was issued to them proposing recovery of a sum of Rs. 30,63,946/- under Rule 9(2) of the Central Excise Rules read with proviso to sub-section (1) of Section 11A of the Central Excise Act and proposing imposition of penalty for contravention of the Rules. 3. The appellants claim to the benefit of Notification No. 217/86, dated 2-4-1986 was denied by the Adjudicating authority for the reason inter alia that items of the category of material handling equipment were excluded under the Explanation to the Notification. The plea that the fabricators above named are the real manufacturers was rejected, holding that the fabricators were only in the nature of hired labourers and that the appellants were the real manufacturers of the Trollies, Bins and Pallets. By order dated 26-5-1995, the Collector of Central Excise, Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 87 are covered by the table annexed to Notification 217/86. The material handling equipment are undoubtedly used within the factory of production in or in relation to the manufacture of the final products i.e. Motor Vehicles which are neither chargeable to nil rate of duty nor wholly exempt form duty but cleared only on payment of duty. The question arises when considering as to whether they are excluded by Clause 1 of the Explanation to the Notification. The Explanation reads as under : For the purpose of this Notification, inputs does not include : (I) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products. (II) .......... (III) ....... (IV) ........ 5. The appellants rely upon the decision in the case of Tata Engineering Locomotive Company Ltd. v. Collector of Central Excise [1994 (70) E.L.T. 75] in which the majority has held that material handling equipment used within the factory of production of a motor vehicle manufacturer are eligible for exemption under Notification 217/86 and such equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge in the raw material nor do they produce the components by themselves and are, therefore, not used for producing or processing any goods or for causing any change in the substance for the manufacture of final products and are therefore, not covered by the definition of capital goods under Rule 57Q, was rejected by the Tribunal which held that fixture and baskets which were material handling equipment contributed to the processing of the components since without them, the oven cannot be effectively used for the purpose of change in the components. The Tribunal extended the benefit of Modvat to fixtures and baskets considering them to be covered by the definition of capital goods contained in explanation to Rule 57Q. 9. In the case of Collector of Central Excise v. M.M. Forgings reported in [1997 (89) E.L.T. 617], the Tribunal, relying upon the judgment of the Apex Court in the case of Collector of Central Excise v. Rajasthan Chemical Works (cited supra) held that the term capital goods has to be read in the context of the use of the equipment in the assessee s factory and what has to be seen is whether equipment used is a part of the manufacturing stream in the assessee s fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in any substance in or in relation to the manufacture of final products. These vary items are covered by exclusion clause (1) contained in the explanation to Notification 217/86. On the other hand, capital goods have been defined in clause (1)(a) of the explanation to Rule 57Q to mean machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in substance for the manufacture of the final products . Therefore, what is excluded from the scope of Notification No. 217/86, is automatically covered by definition of capital goods under Rule 57Q. Viewed from this angle, we hold that the judgments in the context of Rule 57Q are directly applicable to the present case. Since it has been held in the above decisions that material handling equipment is used for processing goods in relation to the manufacture of the final product, such equipment are excluded from the scope and ambit of Notification No. 217/86. The items in dispute viz. trollies, bins and pallets are material handling equipment used for storing, stacking, handling and bringing together various materials/components used in the manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be supplied by Maruti Udyog Ltd. (MUL). 2. Material preparation for manufacturing the above jobs is the responsibility of the party. 3. Electrical power, water, compressed air, oxygen, DA, fastners electrodes and paint etc. will be provided by MUL free of cost for the exclusive purpose of carrying out the work awarded under this contract. 4. The party is to make its own arrangement for the hacksaw machine, drilling machine for material preparation. 5. Also, the party will arrange its own gas cutting torch, nozzles, regulators, and welding sets with proper safety equipments for welding hand tools like files, hammers etc. 6. The keyway milling machine will be made available by us to the party wherever slot milling is required for fabrication of the pallets. The party will arrange to operate the Slot Keyway Milling machine with their skilled workers for making the slots on the pallets if required. Any damage caused to the machine by the party s operators is to be recovered from the party. When Tool Room machines are operated by the contractor s workers, it is fully at the risk of the contractor with no obligation on the part of MUL whatsoever. COMPLETION OF WORK : Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L.T. 22 (S.C.) = 1997 (68) ECR 527], the Supreme Court held that the appellants who supplied metal for conversion into containers for packing of biscuits (manufactured by the appellants) could not be treated as the container manufacturers, having regard to the terms and conditions of the agreement entered into between them and the job workers to whom the metal was supplied by the appellants and the value of which was adjusted against the amounts that were required to be paid for the manufacture of the containers and having regard to the right of the appellants to reject the containers and having further regard to the fact that the four job workers had their own licence and employed their own workers. 15. In the present case, however, not only do the fabricators fabricate the disputed items in the factory premises of the appellants but the appellants also had total control and supervision over their manufacture. Hence the ratio of the judgments relied upon by the learned Counsel is not attracted in this case. We therefore, hold that in the eye of law, the appellants are the manufacturers of the bins, trollies and pallets of iron and steel. Issue No. II is answered accordingly. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TELCO case. While it is true that in a series of decisions, the Tribunal has been extending the benefit under Rule 57Q for material handling equipment, treating them as capital goods (what is included under the definition of capital goods under clause (a) of the First Explanation to Rule 57Q corresponds to the items excluded from the benefit of Notification 217/86 under the proviso), this only highlights the fact that the question regarding availability of exemption under Notification 217/86 was a matter of considerable debate and opinion. Even the Excise Department was of the view that the benefit of Modvat credit under Rule 57A was available to material handling equipment, in the case of the appellants themselves, as seen from the latter dated 25-8-1994 issued to the appellants by the jurisdictional Superintendent of Central Excise. The letter is reproduced below : Copy of letter No. CE/57G/MUL/R-VI/94/533, dated 25-8-1994 from the office of the Superintendent, Central Excise, Range VI, Maruti Complex, Palam-Gurgaon Road, Gurgaon addressed to M/s. Maruti Udyog Ltd., Gurgaon Road, Gurgaon Sub. : CE-Availment of Modvat credit on measuring instrument and material handling equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of the various provisions of the Rules such as Rules 9, 49, 173F, 173G, etc. Further, Section 11A refers to duty short paid, not paid etc. from which it is clear that is only when the duty is otherwise payable at an earlier point of time but was not paid that proceedings under Section 11A for recovering such unpaid duty (which was otherwise payable) are initiated. It is settled law that the liability to tax is by virtue of a charging section and the tax becomes payable by virtue of the charging section. Assessment is only a method of calculation of the tax which is to be paid and it cannot pertake of the nature of levy under the charging section. It only particularises the amount payable. 19. In the case of Neptune Assurance Company Ltd. v. LIC of India [AIR (1963) SC 900], `the Apex Court was dealing with the question of entitlement of the appellants to refunds under the provisions of the Income Tax Act, 1922 which was resisted by the respondent Corporation created under the Life Insurance Corporation Act, 1956. In para 8 of the judgment, the liability to be charged to tax, if any, exists all along. The amount of the liability depends upon the Finance Act of the year con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Commercial Tax-Officer [(1974) 94 STC 422] in which it has been held that `when a statute levies a tax, it does so by inserting a charging section by which a liability is created or fixed and then proceeds to proivde the machinery to make the liability effective. It therefore, provides the machinery for the assessment of the liability already fixed by the charging section and then provides the mode for the recovery and collection of the tax....... ordinarily a charging section which fixes the liability is strictly construed...." The Provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage, interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount . 22. We therefore, hold that the appellants are not liable to pay interest as the provisions of Section 11AB, are not applicable in the present case. This issue is therefore, answered in the negative. 23. Issue No. V : The Adjudicating authority has imposed a penalty of Rs. 26,59,620/- (equivalent to the duty deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Section 11AC can also be applied to cases pending adjudication as on the date of enactment of Finance (No. 2) Bill, 1996. However, there is one more aspect of Section 11AC. The section has the effect of imposition of a mandatory penalty which is equal to the amount of duty evaded and there is no discretion to the adjudicating authority to impose penalty less than or more than the amount of duty evaded. It is obligatory upon him to impose the mandatory penalty, once the adjudicating authority comes to the conclusion that the duty has been evaded and he determines the amount of duty so evaded. These powers of imposition of mandatory penalty can be said to have been provided to the adjudicating authority only w.e.f. the date of enactment of Finance (No. 2) Bill, 1996. The Board is therefore, of the view that the provisions of Section 11AC shall not apply to cases pending adjudication on the date of enactment of Finance (No. 2) Bill, 1996 and shall apply only to such cases where show cause notices have been or are issued on or after this case." Further we find that the Hon ble Supreme Court in the case of Brijmohan v. Commissioner of Income-tax [1979 (120) ITR 1] has held that `i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to limitation, and imposition of penalty under Rule 173Q. Considering the terms of work orders, I find appellants have not succeeded in proving the ingredients of a bona fide belief to entitle them to the benefit of limitation. The terms of the work order as set out from pages 5 to 8 of the Order of Commissioner clearly make out that there could be no ground for entertaining any bona fide belief that the workers were not hired and the appellants were not manufacturers of the impugned goods. It is not that the appellants were not exposed to Excise Law. In fact, they have been dealing with excise law for years together and it would have been clear to them that the terms of work order clearly spell out a Master-servant relationship which made them the manufacturers. 28. I, therefore, hold that the demand is sustainable. While I agree that mandatory penalty as provided in Section 11AC is not attracted, I hold that penalty under Rule 173Q would be attracted. Considering the facts and circumstances of the case, I am of the view that penalty of Rs. 5,00,000/- (Rupees Five lakhs only) would meet ends of justice. I accordingly uphold order of Commissioner confirming duty demand of Rs. 26, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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