Judgment:
1. By the impugned order No. 1867/CE/CHD/99 dt. 29.10.99, the Commissioner (Appeals) upheld the Order-in-Original passed by Dy.
Commissioner confirming demand of Rs. 87,838-50 and imposing a penalty of Rs. one lakh under Rule 173Q of Central Excise Rules read with Section 11AC of the Act. Being aggrieved by this order, the appellants have filed this Appeal No. E/401/2000-D.2. The facts of the case in brief are that the appellants are engaged in the manufacture of Uninterrupted Power Supply System (UPS). The officers of Central Excise visited the factory premises of the appellant on 16.12.94 they found that during the period 20.3.92 to 13.7.92 the appellants had cleared Lead Acid Batteries valued at Rs. 9,07,600/- involving duty amounting to Rs. 98,838.50. Accordingly, a Show Cause Notice was issued to the appellants asking them to explain as to why duty amounting to Rs. 98,838.50 should not be demanded from them in-as-much as they had not been paying duty on the value of batteries being cleared as part of the UPS system without including the value of the Lead Acid Batteries in the assessable value of the UPS system, why interest should not be demanded under Section 11AB of the Central Excise Act and why penalty should not be imposed under Section 11AC read with Rule 173Q of the Central Excise Rules, 44. In reply to the SCN, the assessee submitted the batteries supplied with the UPS system were nothingelse but a accessories; that the Lead Acid Batteries were exempted during the material period; that the respondents did not apply their mind by stating that the demand pertains to the period April'92 to June'92 whereas in the SCN at one point the period has been shown as April'92 to July'95; that a SCN was issued on 11.3.97; that the entire demand was time barred.
3. It was also contended that the appellants categorically declared in the classification list that UPS system would be cleared alongwith the batteries; that the invoices on which the goods were cleared, batteries were mentioned; that these invoices showed that batteries were cleared without payment of duty; that the assessments in R.T. 12 Returns were finalised; that the entire demand was time barred.
4. After careful consideration of the facts and submissions made as also the evidence on record, the authorities below held as indicated above.
5. Shri B.B. Gujral, Ld. Counsel appears for the appellant whereas Shri Ashok Mehta, Ld. SDR represents the respondent Commissioner.
6. Arguing the case for the appellant, Ld. Counsel submits that the first issue in the instant case was classification of UPS system. he submits that the issue has finally been settled by the Larger bench of this Tribunal in the case of Luminous Electronics Ltd. reported in 2001(129) ELT.605. It was submitted that the supply of battery was optional; that the batteries were being separately supplied also; that whenever any customer did not like to take batteries, he could take the other apparatus; that this clearly shows that batteries were not the core of the system. He submitted that since the supply of the batter was optional, therefore, the question inclusion of the value of the battery in the value of the UPS system was not necessary.
7. Ld. Counsel submits that the appellants were not manufacturing batteries. They were purchasing duty paid cells from the market and were only assembling such duty paid cells and since batteries were not being manufactured by them, it was a bought out item; that there is a catena of Tribunal judgements wherein it has been held that in case bought out items are supplied alongwith the main apparatus, it was not necessary to include the value of the bought out items. In support of his contention he referred to the decision of the Apex Court in the case of PSI Data System reported in 1997(89) ELT.3 as also the cases reported in 1999(32) RLT, 2000(117) ELT.81 and 1986(23) ELT.426.
Ld. Counsel submits that thus on merits, the appellants have a case in-as-much as Lead Acid Batteries were accessories they were not manufactured by the appellants, the supply of these Lead Acid Batteries was optional and they were bought out items.
8. The thrust of the arguments of the Ld. Counsel was on limitation. He submitted that the demand pertained to the period 20.3.92 to 13.7.95 and the SCN was issued on 11.3.97. He submits that the entire demand was beyond said months as was time barred. In support of his contention Ld. Counsel submits that in the case of Raj Bahadur Narayan Singh Sugal Mills Ltd. vs UOI reported in 1996(88) ELT.24, the Apex Court held that extended period for five years was inapplicable as a SCN did not refer to any Act or omission as referred to in Rule 10 of the Central Excise Rules (now Section 11A of the Central Excise & Salt Act, 44) since the defaulters enumerated in the said proviso are more than one, therefore, the authorities are required to specifically stat for which of the default the assessee is charged. Ld. Counsel submitted that in the case of Pushpam Pharmaceuticals Co. vs CCE, Bombay reported in 1995(78) ELT.401, the Apex Court observed that the Expression 'suppression of facts' provided in proviso to Section 11A(1) is to be interpreted strictly because it has been used in company of such strong words as fraud, collusion or wilful default. The above view of the Apex Court was also repeated in the case of Kaur and Singh vs CCE, New Delhi reported in 1997(94) ELT.289. Ld. Counsel submits that in the case of CCE vs HMM Ltd. reported in 1995(96) Elt. 497, the Apex Court observed that limitation for extended period was not invokable unless SCN puts assessee to notice specifically as to which of the various commission or omissions stated in the proviso to Section 11A(1) of Central Excise & Salt Act, 44 had been committed.
9. Ld. counsel also submitted that these decisions of the Apex Court are being followed by the Tribunal. He submits that the SCN does not bring out as to what wilful mis-statement with intent to evade payment of duty was attributed to the appellant. He submits that in view of the above decisions of the Apex Court, the demand is time barred. Ld.
Counsel, therefore, prayed that the appeal may be allowed.
10. The Departmental Representative submitted that on merits, the appellants have no case in-as-much as the supply of Lead Acid Batteries with the UPS system was not optional. He referred to the Annexure to the SCN and submitted that the Annexure showed that in all the cases Lead Acid Battery was supplied and thus, the contention of the appellant was not correct that the supply of the battery was optional.
Regarding the batterybeing a bought out item Ld. DR referred to the letter/dt. 27.6.95 of the Managing Director of the Company in which the Managing Director had stated that they were purchasing cells and were assembling batteries. Ld. DR, therefore, submitted that the contention of the appellant that battery was a bought out item, is not supported by the facts on record. he submitted that assembly of individually cells into lead Acit Battery amounts to manufacture; that battery is a new item and was different from cells. He, therefore, submits that batteries were being manufactured by the appellant.
11. Regarding the battery being an accessory, ld. DR submits that it was not an accessory but was an essential part of the UPS system. He submits that battery has been shown as a component in the HSN Notes, He submits that there are decisions of the Apex Court in which it has been held that since the Central Excise Tariff Act is being based on HSN nomenclature, therefore, HSN should be given due importance. Ld. DR, therefore, submits that on merits, the appellants have no case.
12. On limitation Ld. DR submits that the allegation is very clear stating clearly that though battery was being supplied with the UPS system, the value of battery was not being disclosed either in the gate passes or duty paying documents. He submits that the allegation being very clear, the case law cited by the appellant is distinguishable. He submits that in this view of the matter, the limitation does not hit the demand. He, therefore, prays that the appeal may be rejected.
13. We have heard the detailed submissions of both the sides. We have also perused the case law cited by both the sides. On careful consideration of the submission made, case law cited and relied upon as also the evidence on record, we note that Lead Acid Batteries were being supplied with each UPS system as is evident from the Annexure to SCN. We, therefore, agree with the contention of the Ld. DR that supply of battery was not optional.
14. The second question therefore, arises whether battery is an essential component of the UPS system. We have carefully considered the arguments putforth by the Ld. DR on the basis of the HSN and on the basis of the supply, we note that battery was a component of the UPS system and was essential.
15. We find from the above discussions and submissions that the appellants have no case on merit.
16. Ld. Counsel for the appellant explained at length that the demand was time barred. He cited a lot of case law, in support of his contention, we have perused, every bit of the case law cited and relied upon by the appellant. We, therefore, proceed to examine the SCN whether the allegation for purpose of extension of time under proviso to Section 11A(1) of the Central Excise Act is met fully or not. In the SCN in para 9, it has been alleged "from the above it appears that the noticees have been availing duty on the value of batteries being cleared as part of UPS system by them. The party cleared batteries valued at Rs. 9,07,600 during 20.3.92 to 13.7.95 (It may be stated that there is a clerical mistake in this the period should be from 20.3.92 to 13.7.95") As a part of UPS without including the value of the same in the assessable value of the said UPS and thus evaded duty of Rs. 98,838.50 detailed as per Annexure 'A' which appears to be recoverable from them under proviso to Section 11A of the Central Excises & Salt Act, 44 by invoking the extended period of 5 years as the period has not included the value of batterie in the assessable vale of UPS with all intention to evade duty thereon and thus contravened Rules 9(1), 173F, 17.G and 52A. Beside interest on delayed payment of duty is also recoverable from the noticee under Section 11AB of the Central Excise Act, 44. Noticees have rendered themselves liable to penal action under Section 11AC of the Central Excise Act and under Rule 173Q of the Central Excise Rules'44." We find that the ingredients of the proviso to Section 11AC(1) are very clear and unambigous in the SCN. The charge is brought out explicitly and leaves no room for doubt. The charge is that the value of the battery was not added to the value of the UPS system with the intent to evade payment of duty. Thus, we find that in the instant case the allegation of mis-statement and suppression with intent to evade payment of duty has been clearly brought out in the case. We, therefore, hold that the case law cited by the Counsel, in support of his contention on limitation is not applicable to the facts of the instant case. We, therefore, hold that the demand is not hit by limitation.
17. In regards to payment of interest, we note that charging of interest came to the statute book w.e.f. 28.9.96. The demand in the present case pertains to the period 20.3.92 to 13.7.95, therefore, interest is not payable.
18. In so far as imposition of penalty is concerned, we note that a penalty of Rs. one lakh has been imposed under Rule 1730 read with Section 11AC. We note that Section 11AC came to the statute book only w.e.f. 28.9.96 whereas in the instant case the demand pertains to the period 20.3.92 to 13.7.95. Hence penalty under Section 11AC on this demand period is not sustainable in law. Further, we find that though Rule 173Q has been mentioned but in the absence of apportionment of penalty under Section 11AC and Rule 173Q, we hold that imposition of penalty is not sustainable in law. Ordered accordingly.