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TMI Blog2001 (8) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... n him by the Commissioner under Rule 209A of the Central Excise Rules. 2. M/s. Sulzer Flovel Hydro Ltd. (in short, SULZER) were contractors of various State Electricity Boards for designing, erecting and commissioning hydro-electric power projects. Supply of Hydraulic Turbines was a part of the projects under the contracts. M/s. SULZER, for this purpose, manufactured in their factory various parts of turbine, such as runner, stay ring, runner chamber, fly wheel, oil head, butterfly valve, cooling water system, draft tube, inlet and outlet pipe, turbine shaft, etc., and removed the same to the customer s site. The remaining parts required for installation of turbine were either bought out from market or imported, and directly brought to the site. All the parts were then assembled into turbine at the customer s site and handed over after testing and commissioning. 3. Hydraulic turbines are classified under Heading No. 84.10 of the Schedule to the Central Excise Tariff Act, 1985. The Finance Act, 1995 sub-divided this Heading into 8410.10 and 8410.90, the latter sub-heading covering parts and the former covering all goods other than parts . Notification No. 205/88-C.E., dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were charged by the appellants from their customers were also includible in the assessable value of the goods for the purpose of duty of excise. Alleging wilful misdeclaration, mis-statement and suppression of facts with intent to evade payment of duty, against the appellants, the SCNs proposed to invoke the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act to demand duty from M/s. SULZER. Accordingly, SCN dated 5-6-1998 demanded duty amounting to Rs. 2,54,33,968.00 on the goods manufactured and cleared by the appellants from their factory during the period 16-3-1995 to 9-2-1998 SCN dated 14-8-1998 demanded duty of Rs. 28,17,062.43 on the goods cleared from the factory of the appellants during the period February to May 1998. The demand in SCN, dated 4-3-1999 was for an amount of duty of Rs. 6,47,500.00 for the period August to November, 1998. All the three SCNs also contained proposals to levy interest on duty under Section 11AB of the Central Excise Act and also to impose penalties on the company under Section 11AC of the Act and Rule 173Q of the Central Excise Rules. As against Shri Maharaj Kar, the SCNs contained a proposal to impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Counsel referred to the completion certificates issued by the Electricity Board authorities (copies available on record) and cited them as proof of the plea that the appellants had supplied all the components/sub-assemblies required for setting up turbines at the sites. He relied on the Tribunal s decision in the case of Flat Products Equipments (I) Ltd. v Commissioner of Central Excise, Mumbai, 2000 (115) E.L.T. 629 (T) in support of the contention that the parts of turbines supplied by the appellants from their factory should be classified as complete turbine under Sub-heading 8410.10 in view of Interpretative Rule 2(a). Counsel also heavily relied on the Board s Order No. 4/92, dated 19-5-1992 issued under Section 37B of the Central Excise Act in respect of M/s. Cethar Vessels Ltd., in support of the contention that the parts/components/sub-assemblies of turbine cleared from the appellants factory should be treated as a complete device in CKD/SKD condition for the purpose of grant of exemption in terms of Sl. No. l6A of the Table to Notification No. 205/88-C.E. as amended. The parts/components cleared from the appellants factory formed part of a complete device viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Section 4(2) of the Central Excise Act. 7. On the question of limitation, Counsel submitted that the Department was fully aware of the manner in which the appellants had been clearing the goods in terms of the contracts entered into between them and their buyers, viz. the State Electricity Boards. There was no suppression of facts on the part of the appellants. The Department had accepted payments of duty on the clearances of parts of turbine at the rate applicable to turbine, prior to 16-3-1995. The Revenue changed its opinion for the first time in the SCNs issued to the appellants. Such change of opinion was not a valid ground for invoking the proviso to Section 11A(1) of the Act. In this connection, Counsel relied on the Supreme Court s decision in the case of Prabhu Steel Industries Ltd. v. Collector of Central Excise, Nagpur, 1997 (95) E.L.T. 164 (S.C.). In view of the Board s Order No. 4/92 issued under Section 37B, extending the benefit of exemption under Notification No. 205/88-C.E. as amended to complete devices cleared in CKD/SKD condition, it could not be alleged that the appellants had mis-stated/misdeclared that they were manufacturing turbines and cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, which were not brought to their factory but directly brought to the customer s site. Duty had to be charged according to the condition in which the goods were removed from the factory. Admittedly, all requisite parts/sub-assemblies for erecting turbine at customer s site were not removed from the appellants factory and therefore the parts/sub-assemblies of turbine actually removed from the factory would not have made complete turbine on assemblage so as to be classified under TSH 8410.10 in terms of Interpretative Rule 2(a). The parts/sub-assemblies actually removed had only to be appropriately classified under sub-heading 8410.90. Ld. DR heavily relied on the Tribunal s decision in the case of Space Age Engg. Projects (P) Ltd. v. Collector of Central Excise, Pune, 1995 (78) E.L.T. 544 wherein it was held that the criterian for classification of goods was the form in which the goods were removed from factory. In another line of argument, the DR submitted that the mere activity of bringing parts/sub-assemblies of turbine to customer s site did not amount to manufacture of turbine at that site in CKD condition and therefore there was no question of charging duty of excise on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the notification without informing the Department. Ld. SDR drew our attention to some of the invoices issued by the appellants prior to and after 16-3-1995 and also to the declarations filed by them under Rule 173B and submitted that suppression of facts and misdeclaration/mis-statement were apparent on the face of the records. Therefore, according to him, the extended period of limitation was rightly invoked against the appellants. 12. We have examined the submissions. It is an admitted position that many of the parts required for hydraulic turbine to be erected by M/s. SULZER at their customer s site in terms of the contract entered into between them were manufactured in M/s. SULZER s factory and supplied at the site over a period of time and the remaining parts required for the purpose were supplied at the site by their suppliers directly. All the parts so supplied by M/s. SULZER from their factory and by their suppliers went into assemblage of turbine at the project site of the former s customer, say, the Tamil Nadu Electricity Board (TNEB). Such assemblage could be undertaken only in a phased manner over a period of time due to technical and other constraints. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t incomplete or unfinished turbines were removed from SULZER s factory to their customers project sites. As far as the latter part of the rule is concerned, the appellants appear to have placed strong reliance on it. They have submitted that any turbine was never assembled in their factory or transported as such to any customer s site on account of its huge size and weight. It follows that there was no question of any turbine being disassembled in their factory for the purpose of removal. The probability, then, was only one of any turbine being removed unassembled . But, in order that the above rule becomes applicable, the probability must emerge as a reality. The appellants appear to have claimed that the parts/components of turbine removed from their factory to the customer s sites were liable to be treated as turbines removed unassembled. However, admittedly, all the parts/components required for assemblage into complete turbine were not removed from the factory, some having been supplied directly at the site by SULZER s suppliers. In order that certain parts/components of a machine or equipment, removed from the factory of production, should be treated as that machine/equip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch, however, held as above by invoking the essential character test with reference to Interpretative Rule 2(a). Essential character is not relevant for the second part of Rule 2(a), though it is relevant for the first part of the rule. The two parts refer to distinctly different factual situations and are independent of each other. It is only the second part of the rule that could be applied to machine parts removed unassembled. Thus, we may point out with great respect, it is not clear as to which part of Rule 2(a) was applied by the Bench to the case of Space Age Engg. Products. The facts of the present case are substantially similar to the facts of the above case and ld. DR before us has heavily relied on the decision rendered by the Bench in that case. But we have not had the advantage of a doubt-free interpretation of Rule 2(a) or error-free application thereof, if we may say so with great respect, in the case of Space Age Engg. Products. 18. However, in that case, the Bench clearly held that the form in which goods were cleared from the factory of production was the criterion for classification. A contrary view appears to have been taken by the co-ordinate Bench in Fla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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