Judgment:
1. Appellants are engaged in the manufacture of submersible power driven pumps used for handing water (known as P.D. Pumps) and parts thereof, which fall under Chapter sub heading 8413.13 of the schedule to the Central Excise Tariff Act, 1985. They clear the said P.D. Pumps at a NIL rate of duty. They also manufacture Electric Motors and Parts, which are fitted at the base of the said P.D. Pumps. These electric motors fall under Chapter sub-heading 8501.00 of the CET and the Appellants clear the same for captive consumption without payment of duty vide Notification Nos. 6/2000 & 3/2001.
'"8501.00 Electric motors and generators (excluding generating sets)" They also manufacture certain entities termed as Thrust Support Plate.
Thrust Support Segment, Support Segment Carrier and Ball Retainer Ring (Lower and Upper) and use them captively, classifying them separately, under Chapter sub-heading No. 8503.00 of the CET viz.
"Parts suitable for use solely or principally with the machines of heading 85.01 or 85.02".
These entities, in the Electric motor have the effect of reducing the friction.
2. The Appellants cleared the disputed entities for captive consumption without payment of duty vide Notification Nos. 6/2000 and 3/2001.
3. The Appellants submitted declaration under Rule 173B of the Central Excise Rules, 1944 (also known as the 'said Rules') of all excisable and other goods produced/manufactured or warehoused and intended to be removed by the Appellants. It is submitted that the said classification lists/declaration under Rule 173B were duly approved. Accordingly the Appellants filed the RT12 returns under Rule 173G of the said Rules.
4. Under Notification No. 6/2000 dated 1/3/00, the appellant paid NIL rate of duty under Entry 250 of the said Notification No. 6 of 2000, after complying with condition No. 51 i.e. "If the goods are used within the factory of production" or in the alternative "if the goods are used in the manufacture of submersible pumps". Notification 3/2001 dated 1/3/2001 replaced Notification 6/2000 and in respect of the product of the Appellant is identical to Notification 6/2000 and therefore the Appellants continued to clear said entities under the corresponding entry 253 of Notification 3/2001 after complying with Condition No. 47.
5. Both notifications inter alia exclude "bearings" from the benefit of the exemption. The department issued a show cause notice dated 28/3/02 on the ground that the Appellants had mis-declared goods as parts of electric motors and classified same under Chapter sub heading No.8503.00 with an intention to evade the payment of Excise duty of Rs. 50,04,734/-. The said show cause notice was confirmed by the impugned Order-in-Original No. 4/2003, relying heavily on the CBEC Circular No.678/69/2002-CX.CBE dated 4/12/2002. Hence this appeal.
a) The Circular No. 678/69/2002-CX.CBE dated 4/12/2000 begins by admitting, that doubts were raised regarding the classification and durability of "thrust bearing assembly" used in submersible power driven pumps. It further recorded that the Board referred the matter to IIT Delhi for their expert advice. The opinion of IIT summarised in the Circular is as "They have opined that the "thrust bearing assembly" is actually a 'Hydrodynamic Thrust Bearing' and that it is neither roller bearing, nor ball bearing (Heading 84.82) nor plain shaft bearing (sub-heading 8483.90). "Thus, since the item is a 'bearing' it is not exempt from duty under Notification No. 6/2002-CE, dated 1-3-2002 (sl No. 236)". This Circular also referred to two CEGAT decisions viz Calama Industries Ltd. v. CCE, Bombay 1998 (100) E.L.T. 79 and CC, Calcutta v. Bharat Sales Corp. 1999 (105) E.L.T. 733.
b) The following submissions were made on behalf of the Appellants in respect of the said Circular: i) All electric motors do not have separately identifiable bearings.
There was no evidence on record to determine as to which type of electric motors were considered by the IIT, Delhi.
ii) In any event the said circular was issued to remove doubts. The said circular also sought to set at naught two decisions of this Hon'ble Tribunal. Such a circular can only have prospective effect.
iii) Reliance was placed on decisions of the Hon'ble Supreme Court in the matter of H M Bags Manufacturer v. CCE. It was held that "the effective date for raising, the demand by the Revenue cannot be any date prior to 5/11/1992". The date 5/11/1992 being the date of publication of the trade notice." We find force in these submission and hold that since the entire demand was for a period prior to the issue of the said Circular the same cannot be recovered.
c) The notice nor the order gives reasons for classification as bearings. It is found, the entities for the electric motor, manufactured by the Appellants, do/may reduce friction, but the same do not form an identifiable bearing. Mere reduction of friction cannot inpso facto amount to that object being a "bearing" as understood by the people dealing with the products. Lubricants for example reduce friction, but by no stretch of imagination can a lubricant be called a "bearing". The "bearing" excluded from the benefit of the notification have to encompass, only such, items as are understood by people dealing with them to be "bearings" or commercially understood so. No material relied upon in the impugned order, to arrive at to support such an understanding is found.
Merely because part numbers in drawings are referred to by the words "bearings" that would not lead to the entity to be understood in market as such. As no separate and distinct product as known in the market is established to come into existence, the purported levy as "bearing" is clearly contrary to the charging Section 3 of the said Act. No duty demand on bearings could be upheld. d) In this case of Mather and Platt, another manufacturer of P.D. Pumps, primarily designed for handling water, procured duty paid ball / roller bearings and assembled them into bearing assemblies and used such assembly of P.D. Pumps. These bearing assemblies, were fitted between the bearing housing and the shaft to resist thrust and therefore were called "thrust bearing assemblies". In the facts of that case, this Tribunal held that a "Thrust bearing assembly" used in the assembly of P.D. Pumps is classifiable under Heading 84.83 of the CET and held that the benefit of the said Notification Nos. 6/2000 and 3/2001 was applicable. The case of the Appellants is in fact even better footing, in as much as there is no evidence that a bearing at all comes into existence independently. Capability of being brought and marketed as a "thrust bearing" and material findings thereto are since qua non to bring in the intermediate goods to be "bearings" excluded from the benefit of the said notifications. It is well settled law that such capability of being removed and marketed and evidence thereto is a must to bring exigibility Manufacture and Existence of "bearings" excluded by the notification is therefore not established.
e) Denial of exemption and Demands made are therefore not upheld hence there is no case to call for import of penalty on the assessee or its employees.
7. With reference to the written submissions submitted by the Ld DR submits that there is some confusion about the matter taken up by one Kirloskar Brothers Ltd. Before the settlement Commission and the Appellants herein. The Appellants have not approached the Settlement Commission. The Appellants as well as this Bench is also not aware of the exact nature of the product manufactured by the said Kirloskar Brothers Ltd This could not be proved. An error was accepted by the DR before this bench on the day of hearing therefore, on that issue no findings are arrived.
8. In view of the findings, the entities in question are not found to be excluded on the reasons as in the notice issued when manufacturer and captively consumed. The entitlement of the benefit of notification is available & rightfully availed.
f) 9. In view of the findings, the order is set aside. The Appellant is granted the benefit of the exemption pursuant to Notification Nos. 6/00 and 3/01 and the appeal allowed.