1. This appeal has been filed against the OIA No. 101/2005-CE dated 22.04.2005 passed by the Commissioner of Central Excise (Appeals), Bangalore.
2. The appellants manufacture Drilling Rigs, parts of drilling rigs and accessories of drilling rigs. The Central Excise Officers conducted investigations into the activities of the appellant unit. Revenue proceeded against the appellants on the following grounds:- (a) The assesses had deliberately mis-classified Drilling Rigs mounted by them on Motor Vehicle Chassis under Chapter sub-heading 8430.00 instead of Chapter sub-heading 8705.00 of the Central Excise Tariff Act, 1985 with an intention to evade payment of appropriate Central Excise duty.
(b) The assessee had manufactured and cleared "Drilling Rigs mounted on Motor Vehicle Chassis" clandestinely without accounting in the statutory records, without payment of appropriate Central Excise duty and without following the procedures prescribed under the erstwhile Central Excise Rules, 1944.
(c) The assessee had not determined the proper Central Excise duty payable by them and did not discharge the same at the time of removal of excisable goods.
(d) The assessee had undervalued the goods by splitting the value of Drilling Rigs mounted on Motor Vehicle chassis into two invoices by falsely indicating the items as 'Bought Out Items-11 Sale'.
(e) The assessee had collected amounts as Central Excise duty and had not deposited the same to the Government accounts in violation of Section 11D of Central Excise Act, 1944; and (f) The assessee had deliberately suppressed the factual information from the Department with intent to evade payment of appropriate Central Excise duty.
The Adjudicating Authority, in his OIO No. 24/2004 dated 29.10.2004 held the following: (i) The Drill Rigs mounted on the Motor Vehicle Chassis is rightly classifiable under CSH 8705 of CETA, 1985 and are chargeable to Central Excise duty accordingly.
(ii) Demand of Rs. 11,81,168/- being the duty on the impugned goods for the period from July, 1996 to March, 1997 under provisions of Sub-section (1) of Section 11A of CET, 1944.
(iii) Confirmation of demand of Rs. 1,30,0007- under Section 11D of the CE Act, 1944.
The appellants approached the Commissioner (Appeals). The Commissioner (Appeals), in the impugned order ordered as follows:- The main issue of classification of the impugned goods has been upheld by holding that the same would be classified under CSH 8705.00 and not under CSH 8430.00 as claimed by the appellants. The appellants strongly challenged the findings of the appellate authority. Hence, they have come before this Tribunal for relief.
3. Shri G. Shiva Dass, the learned Advocate, appeared for the appellants and Shri K. Sambi Reddy, the learned JDR, for the Revenue.
(i) The manufacturing process was first outlined by the learned Advocate.
(ii) The bare Chassis is brought to the premises of the appellants by the customer and thereafter, the Chassis is modified for mounting the drilling rigs chassis on to the motor vehicle. The following modifications are undertaken by the appellants.
a. The propeller shaft is cut in order to fix the power take off in the gearbox so as to drive the hydraulic pumps; b. The length of the chassis is either increased or decreased depending on the specification of the customer; c. The front side of the chassis is altered to accommodate the hydraulic leveling jacks; and d. The number of leaf springs on the rear axle are enhanced and the chassis channels are also strengthened since the full load of the drilling rig is put on the chassis.
e. The power required for driving the hydraulic pumps which in turn operate the hydraulic drilling rig is drawn from the engine mounted on the chassis and necessary modification are carried out to achieve this objective.
It was submitted that the above activities were recorded in the decision of the Tribunal in the appellants' own case as (iii) The goods mentioned under CH 84.25 to 84.30 are basically items that are function based and the emphasis is on the structure of the machinery designed to aid and assist a particular function.
But, the goods in CH 87.05 are vehicles, which carry an additional facility and can be used for other purposes also. Therefore, the classification of a Drilling Rig on a Chassis under CH 84.30 or 87.05 would depend on the extent of integration of the drilling rig with the chassis. As per HSN Explanatory Notes under CH 84.30, if the propeller or controlling elements are located in the cabin of a machine mounted on a chassis or if the integration is so complete that the chassis cannot be used for any purpose then, the item would be covered under CH 84.30. Further, HSN Explanatory Notes under Chapter 87 specifically excludes self-propelled wheeled machines in which the chassis and working machines specially designed for each other form an integral mechanical unit. Further it is stated that in such cases, the machines is not simply mounted on a Motor Vehicle Chassis, but is completely integrated with a Chassis that cannot be used for other purposes and may incorporate the essential automobile features. Therefore, once it is demonstrated that either one of the operating elements of the chassis is integrated with the Drilling machine or that the Integration of the drilling rig with the chassis is so much that the chassis ceases to function as an ordinary chassis, then the classification has to be under Chapter 84 only.
(iv) The lower authorities have relied on the decision of the Apex Court in the case of CCE, Baroda v. L.M.P. Precision Eng. Co. Ltd. to hold that the impugned goods are classifiable under Chapter 87. The decision in the above mentioned case is clearly distinguishable for the following reasons: The Apex Court set aside the Tribunal's order on the only ground that the Tribunal accepted the integrated nature of the drilling rig by accepting the averments made by the assessee in reply to Show Cause Notice, which was not accepted by the Adjudicating Authority.
The JCDR who represented the Revenue before the Tribunal in the case of L.M.P. Precision Eng. Co. Ltd.(cited supra), specifically relied on a pamphlet which showed that the drilling equipment was simply mounted on the chassis without any integration as claimed by the assessee. Hence, the Apex Court noted that there was no evidence to support the assessees' contention as taken before the Tribunal in this regard. But, in the present case, there is absolutely no dispute on the factual position that there has been a complete integration of the chassis under Drilling Rig. Hence, the decision of the Apex court, in the case of L.M.P. Precision Eng. Co. Ltd., is not applicable to the present case.
(v) Building of body on chassis does not amount to manufacture. The following case-laws are relied on: (The Tribunal's decision in the G & P Engineering Co. case has been accepted by the Revenue.) (vi) The department commenced enquiries against the appellants on 27.08.1998 but, the Show Cause Notice demanding duty from July 1996 to March 1997 was issued on 3.10.2001. Thus, it is seen that the Show Cause Notice has been issued after a period of more than 3 years. The failure of the department to issue a Show Cause Notice within normal period cannot be overcome by invoking the longer period of limitation. Further, the appellants classified the impugned goods under CH 84.30 in terms of the law as settled by the following decisions during the period under dispute.Sparr Equipments (P) Ltd. v. CCE, Bangalore .Passed by the Tribunal on 16.06.1994LMP Precision Engg. Co. Ltd v. CCE, Baroda PassedP Engg. Co. v. CCE, Surat Passed by the Tribunal on 15.09.2000 (vii) The classification under CH 87.05 by the Apex Court in CCE v. LMP Precision Engg. (cited supra) was decided only on 16.12.2003. In the interregnum, the classification as claimed by the appellants was approved by several decisions of the Tribunal. In view of this, a subsequent decision laying down a different classification cannot ipso facto lead to the allegation of suppression of the facts or mis-declaration on the part of the appellants for the past period.
(viii) Both the Adjudicating Authority and the Appellate Authority accept the fact that the issue of classification was settled only in 2003. A sudden change, in legal position on account of a decision of another court cannot be a ground to invoke a longer period. In view of the above reasons, the entire demand is barred by limitation.
(ix) The onus of proving that the goods are classifiable under a particular heading/sub-heading is on the Revenue even if the assessee has not led in any evidence. In the present case, Revenue has not led in any evidence to show that the goods are really classifiable under CH 87.05. Hence, the entire demand is liable to be set aside. The following case-laws were relied on:Singhla Sales Corpn. Pvt. Ltd. v. CC, Amritsar (x) When the department wants to re-classify the goods, the duty should have been demanded on the value of the entire motor vehicle consisting of Chassis with drill pack mounted on it. But, the department has demanded differential duty by considering only the value of the drilling rigs without taking into account the chassis used for mounting. By taking into account only the drill pack for the purpose of demand of duty on account of re-classification, the department has accepted that mounting of the drill pack on the chassis is not essential. Hence, by considering only the drill pack for re-classification, department has given up its case that the goods in question are to be considered as Special Purpose vehicles.
(xi) In the course of personal hearing, the learned Advocate did not contest the demand of Rs. 1,30,000/- under Section 11D of the Central Excise Act, 1944.
5. The learned JDR reiterated the findings of the lower authorities and urged that the issue is covered by the Apex Court's decision.
6. We have gone through the records of the case carefully. The issues to be decided in this appeal are as follows:- (ii) The sustainability or otherwise of the demand of Rs. 11,81,1687- under proviso to Sub-section (1) of Section 11A of CE Act, 1944.
(iv) Imposition of penalty of Rs. 1,00,000/- under Section 11AC as decided by the Commissioner (Appeals).
CSH 8430.00 - Other moving, grading, levelling, scraping, excavating, tamping, compacting, extracting or boring machinery, for earth, minerals or ores; pile-drivers and pile-extractors; snow-ploughs and snow-blowers.
CSH 8705.00 - Special purpose motor vehicles, other than those principally designed for the transport of persons or goods (for example, breakdown lorries, crane lorries, fire fighting vehicles, concrete-mixer lorries, road sweeper lorries, spraying lorries, mobile workshops, mobile radiological units).
6.2 The learned Advocate has given the details of the manufacture of the impugned goods. He has also cited the Chapter Notes both 84 and 87 and brought out the point that the classification of Drilling Rig mounted on a Chassis would depend on the extent of integration of the Drilling Rig with the Chassis. He made the point that in the present case, the integration is so complete that the chassis cannot be used for any other purpose in the light of the HSN Explanatory Notes. He has also pointed out that the manufacturing process of the impugned goods has already been recorded by the Tribunal in the appellant's own case cited by him. We are reproducing para 2 of the cited decision of the Tribunal in the appellant's own case.
2. The appellants are engaged in the manufacture of 6 models of water well drilling rigs known as: All these models are identical in terms of manufacturing process and only vary in terms of capacity and size. A hydraulic power pack provides hydraulic power to all the drilling and control functions.
The mounting of the compressor and the drill pack could be done either on the skid or the truck chassis or the trailer or the crawler depending upon the need of the customer. In the present case the mounting was done on truck chassis purchased from outside by altering the gear box of chassis engine so that during the time of drilling, the chassis engine acts as the prime mover of the hydraulic system, certain structural changes are carried out in the gear box of the chassis either by cutting the main propeller shaft and incorporating a transfer gear box or by fixing an extra gear box in the gear box to draw power and connect it to another power take off unit, the chassis gets integrated with the drilling rigs.
From the activities undertaken, we find that the Drilling Rig is not simply mounted on the Chassis. The power required for driving the Hydraulic pumps, which in turn operate the drilling rig, is drawn from the engine mounted on the Chassis and lot of modification is necessary for this. The front side of the Chassis is altered to accommodate the hydraulic leveling jacks. The length of the chassis is also altered on the basis of the specification given by the customer. The number of leaf springs on the rear axle is increased and the chassis channels are also strengthened so that the full load of the drilling rig can be borne by the chassis. All these indicate that the extent of integration is total. In these circumstances, in view of the HSN Explanatory Notes under Chapter 84 and 87, the impugned item would be more appropriately classifiable under CH 84.30. Chapter 87 contains an exclusion clause which reads as follows:- Similarly, this heading excludes self-propelled wheeled machines in which the chassis and the working machines are specially designed for each other and form an integral mechanical unit (e.g.
self-propelled motor graders). In this case, the machine is not simply mounted on a motor vehicle chassis, but is completely integrated with a chassis that cannot be used for other purposes and may incorporate the essential automobile features referred to above.
The Adjudicating and Appellate authorities have simply relied on the decision of the Supreme Court in the case of Collector of Central Excise, Baroda v. L.M.P. Precision Engg. Co. Ltd. (cited supra), without making efforts to distinguish the facts of that case from the present. As rightly pointed out, the Apex Court held that in that case, there was no evidence to support the finding that the goods in question were self-propelled machines where the chassis and working machine had been designed for each other and where both the chassis and the machine formed an integral unit.
14. The question, therefore, before the Adjudicating Authority and the Tribunal was whether there was any evidence to support the finding that the goods in question were self-propelled machines, where the chassis and the working machines had been designed for each other and where both the chassis and the machine formed an integral unit. Whereas the Adjudicating Authority has considered the evidence on record and has come to the conclusion that there was no such integration as required and contemplated by the language of the explanatory note to Heading 84.30, the Tribunal appears to have accepted, without more, what had been stated by the assessee in answer to the show cause notice. The statement in reply to a show cause notice is not evidence, and the Tribunal erred in treating it as such without any evidence in support of the respondents' case.
The decision of the Tribunal was clearly perverse being unsupported by the material on record.
Thus, the facts of the L.M.P. Precision case and the present one are different. As Revenue has not disputed the manufacturing process of the impugned goods, the decision of the Apex court cannot be made applicable to the present case and the impugned goods are rightly classifiable under CSH 8430.00.
6.3. The demand has been confirmed by invoking the longer period. For invoking longer period, Revenue should show that there is suppression of facts or wilful mis-declaration with an intend to evade duty. The Show Cause Notice for the period from July 1996 to March 1997 was issued on 3.10.2001. The appellants have shown that during the relevant period, there were many Tribunal decisions in their favour on the classification of the impugned goods. It has already been pointed out that in their own case, the Tribunal has decided the classification under CH 84.30. The apex Court's decision in the L.M.P. Precision case was pronounced only on 16.12.2003. In view of this, we cannot come to the conclusion that the assessee misrepresented the facts to evade Central Excise duty. Thus, there is force in the appellant's contention that the Show Cause Notice is time barred. As the facts were clear and during the relevant period, the decisions of Tribunal were in the appellants' favour, the allegation of suppression of facts or willful mis-statement with an intent to evade payment of duty cannot stand.
Hence, the demand of duty of Rs. 11,81,168/- under the provisions of Sub-section (1) of Section 11A of CE Act, 1944 is clearly time barred.
6.4 Since the demand of duty under Section 11A has been set aside, no penalty can be levied. Hence penalty under Section 11AC is also set aside.
6.5. As regards the demand of Rs. 1,30,000/- under Section 11D of the Central Excise Act, the learned Advocate did not contest the issue during the personal hearing. Hence, without any further discussion on the subject, we uphold the decision of the lower authorities.
6.6 Since the duty demand under Section 11A has been set aside, the demand of interest is also not sustainable. We set aside the demand of interest under Section 11AB. (ii) The duty demand under proviso to Section 11A, the demand of interest under Section 11Abn and the imposition of penalty under Section 11AC are set asie.
(iii) The duty demand of Rs. 1,30,000/- under Section 11D is confirmed.
6.8 The learned Advocate cited several case-laws to show that the activity undertaken by them does not amount to manufacture. Further, he pointed out that the demand of duty is only on the value of the Drilling pack and not on the value of the entire goods including chassis. In view of our above findings regarding the classification of the impugned goods and the sustainability of the demand made, we do not feel it necessary to go into those issues.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)