1. These appeals have been filed against the Order-in-Original No.13/CEX/P-III/2005 dated 18.04.2005 passed by the Commissioner of Central Excise, Pune-II.2. The appellants are the manufacturers of Mobile Image Intensifiers and X-Ray Machines, which are excisable. The Officers of the Directorate General of Central Excise Intelligence (DGCEI) conducted investigations. Consequent to the investigations, Show Cause Notice dated 21.07.2003 was issued to the appellants invoking extended period under Section 11A of the Central Excise Act. The main allegations are that during the course of manufacture of Mobile Image Intensifiers, intermediary products, which are excisable, emerge and the appellants had not discharged duty liability on the above mentioned excisable products. They had also suppressed the fact of manufacture of the intermediary products and their captive consumption with a deliberate and malafide intention to evade central excise duty. Further, some of the spares were mis-classified under CSH 9022.10 of CETA, 1985 by deliberately ignoring the Chapter Note 2(a) of Chapter 90 with an intention to avail the concessional rate of duty. Penalties were also proposed. The Adjudicating Authority, in the impugned order, held that the appellant is liable to pay a duty of Rs. 11,53,04,274/- on the intermediary products (S-cat items) under proviso to Section 11A of the Central Excise Act, 1944. Further, duty of Rs. 1,67,96,857/-, being differential duty on the spares of X-Ray Machine and Mobile Image Intensifiers on account of mis-classification was demanded. Interest under Section 11AB was demanded. Penalty of Rs. 13,21,01,131/- was imposed under Section 11AC of the Central Excise Act, 1944. Further a penalty of Rs. 10,00,000/- on Shri M.C. Sudarshan, Manager (Finance) was imposed under Rule 209A of the Central Excise Rules, 1944. The appellants strongly challenge the impugned order. Hence, they have come before this Tribunal for relief.
3. Shri B.V. Kumar, the learned Advocate, appeared for the appellants and Shri Anil Kumar, the learned JDR, for the Revenue.
(i) The period of dispute is 1.4.1998 to 31.3.2001. The Show Cause Notice was issued on 21.7.2003 invoking the extended period. The appellants filed periodically declarations under Rule 173B from 1998 onwards in respect of Mobile Image Intensifies consisting of S-Cat items viz. Mobile Base Stenoscope, Monitor Cart, Image lntensifier-16CM/22CM, DR-4, MD 10, MDA, Memory, Monitor 20", Collimeter, Diaphragms, hand switches, cassette holder, VCR, Printer, Camera, Laser Device, Dose Meter, Remote Control etc. and hence, there was actually no suppression of facts. They had also addressed 3 letters dated 4.11.1998 and 22.09.1998 all addressed to the Superintendent of Central Excise, Range-VI, Pune, in which they had clearly mentioned the manufacturing process of C-Arm Mobile Image Intensifiers manufactured by them. They clearly mentioned that the major Hi-end components, except the base assembly, are imported from France, Belgium and other countries of Europe. Further, the Deputy Commissioner of Central Excise, in his order dated 30.06.2000, had held that the parts of Mobile Image Intensifiers cleared for export have been originally imported into India and are not manufactured i.e. they are either not subjected to any processing or process amounting to manufacture. This clearly shows that the department itself was of the opinion that the parts (S-cat items) have not undergone any process of manufacture. In these circumstances, it is not correct to allege that the appellants had not declared the above items in 173-B declarations and failed to discharge the duty liability. Therefore, the charge of suppression of facts is not maintainable and the demand is barred by limitation.
The following case-laws were relied on:Lubri-chem Industries Ltd. v. CCE, Bombay (ii) The appellants manufacture the impugned item from September 1998. These items are popularly called as 'C-Arm', which essentially has the features of an X-ray System, coupled with lot of additional features. This is used to intensify, record and to take print outs of the images. Due to the mobility of C-Arm, it is able to capture the images more efficiently as compared to a Stationary General X-Ray System. The main parts of the C-Arm Mobile Image Intensifier System are (i) C-Arm Buggy (Base System) and (ii) Monitor Trolley.
The above parts are so interconnected/dove tailed into each other that these cannot be used separately as such, on other C-Arm systems. The C-Arm comprises of the following: (iii) The above items are referred to as 'S-cat' items. The customers, depending on their requirement, decide the configuration.
In other words, a C-Arm is manufactured and cleared only after receipt of a specific order and not off the shelf. All these items are imported except the Base Assembly, which is manufactured in India. It includes fabricated, pressed & welded parts. It also consists of local components that include column, carriage shaft, break assembly, monitor trolley, welded base and yoke. The Base Assembly is integrated with the imported items and assembled into a C-Arm (Mobile Image Intensifier). Hence, these S-cat items are not manufactured in the appellant's unit as the components are either imported or purchased locally. The fact that the said S-cat items are imported is evident from the three letters dated 4.11.1998 and 22.9.1998 addressed to the Superintendent.
(iv) The learned Commissioner ignored the fact that 90% of the finished products viz. Mobile Image Intensifies has been exported.
He has ignored the CBEC Circular No. 229/63/96-CX dated 8.7.1996 and 303/19/97-CX dated 11.3.1997 on the ground that the appellants have not exported the goods under Rule 13 of the Central Excise Rules.
The fact that 90% of the total products have been exported is not disputed. As Mobile Image Intensifiers are liable to 'Nil' rate of duty, the question of following the procedure under Rule 13 does not arise. There is ample evidence to show that 90% of the production has been exported. Hence, no duty is demandable on the S-cat items originally imported free of duty and utilized in the manufacture of Mobile Image Intensifiers which were exported under the AR 4 procedures.
(v) With regard to the differential duty in respect of spares of X-ray Machines and Mobile Image Intensifiers, it is submitted that the spares, which are purchased from local vendors, are required to be manufactured in accordance with the specifications given by the Bureau of Indian Standards IS 7620 (Part 2) - 1986. In other words, the said goods are specifically manufactured for being used in the X-Ray systems. The CH 90.22 reads as follows: Apparatus based on the use of X-rays or of alpha, beta or gamma radiations, whether or not for medical, surgical, dental or veterinary uses, including radiography or radio - therapy apparatus, x-ray tubes and other x-ray generators, high tension generators, control panels, desks, screens, examination or treatment tables, chairs and the like.
It can be seen from the above that parts/components which are specifically manufactured for being used in an X-ray system including X-Ray Generators are required to be classified under CH 9022 of CETA 1985, not only in terms of Note 2(b) of Chapter 90, but even in terms of the CH 9022. Further, as per Explanatory Notes in HSN for Chapter 90.22, it is stated that (F) Examination or treatment tables, chairs and the like specialized for x-ray work whether designed to be incorporated in the x-ray apparatus or to form separate articles. Provided they are exclusively or primarily designed for use with x-ray apparatus, such tables, chairs, etc. remain classified in this heading even if presented separately; but tables, chairs etc. not specialized for x-ray work are excluded.
(vi) Some of the spares/components such as screws, bolts, nuts, pipes, base plates, strips revealex, lead glass, push buttons, table tops, etc. were procured locally from SSI Units. These items were cleared to the Appellant's Customers as spares/components and duty at 5% and 8% was paid as spares/components of X-Ray items, under the heading 9022.10 of CETA 1985, for the year 1998-1999 and 1999-2000.
No modvat credit was taken on the above items since some of the goods were procured from SSI units. In terms of Rule 57F(3), on the inputs cleared from home consumptions, duty equal to the amount of credit availed is required to be paid. Since no input credit was taken, no duty is required to be paid.
(vii) W.e.f. 1.3.2000, the goods falling under CSH 9022.00 (C-Arm/Mobile Image Intensifiers and their parts; X-ray Systems and their parts) are chargeable to 'Nil' rate of duty. Therefore, the demand of duty on the parts of X-ray systems for the period commencing from 1.3.2000 to 31.3.2001 is not sustainable in law.
(viii) As far as M.C. Sudarshan, Manager (Finance) is concerned, he is only an employee of the Company and he has not done any act of omission or commission, so as to make him liable for penalty under Rule 209A of the Central Excise Rules, 1944.
(ix) For strengthening his contentions, the learned Advocate relied on the following decisions: Once the Classification List is approved by the Department with or without enquiry, there is no willful suppression on the part of the assessee for invoking extended period of limitation.
Reopening of approvals/assessments is different from raising demand in relation to extended period of limitation. In former case, time limit is of one year whereas in later case, it is five years.Primella Sanitary Products Pvt. Ltd. v. Col. of Central Excise, Goa 2005 (184) ELT 117 (SC) Once the Classification List annexing the statement showing the manufacturing process/materials approved from time to time by the Department, the demand of duty and penalty for extended period of limitation is not sustainable.
When non duty paid goods ultimately exported, the procedural lapses can be condoned as there is no loss of revenue and demand is not sustainable.
R.C. Edwards & Co. Pvt. Ltd. v. Col. of Central Excise, Bombay Filing of AR 4 is not necessary in the case of export of exempted goods.CCE, Madras v. T.K.K. Pharma Ltd. Demand-Limitation-Suppression of facts - Approval of classification list - Order of Assistant Collector approving classification list not a mere cursory reasoning but a detailed investigation into facts and conclusion reached on basis of those facts - Assistant Collector may be wrong in approving classification of product, but it cannot be said that he did not consider relevant material or that there was any suppression of fact - Tribunal's opinion on non-applicability of extended period of limitation upheld - Section 11A of Central Excise Act, 1944.
5. The learned JDR countered the learned Advocate's contentions in the following manner:CCE, Jaipur v. Hindustan Zinc Ltd. , has held that when material information regarding manufacture of 'Lead Anodes and their captive use in electrolysis process was not disclosed in the Classification List, extended period of limitation is invokable. Further, in the case of Anand Nishikawa Co. Ltd. v. CCE, Meerut , it has been held that approval of classification list supplied by assessee cannot take away conferment of right on Central Excise officer to initiate a proceeding for recovery of duties not levied or paid or short levied or short paid or erroneously refunded within six months or one year or five years, as the case may be, from the relevant date, after amendment in Section 11A of the Central Excise Act, 1944 in 2000." (ii) After 1995, the approval of classification list by the Department is done away with. The appellants themselves have to classify the items and submit the classification declaration to the department. Therefore, the law had casted greater responsibility.
(iii) The contention of the appellant that S-cat items are not manufactured in their unit is factually incorrect and misleading.
Shri Girish Vardadkar, in his statements dated 26.07.2001 and 24.07.2001, has given the manufacturing process of various S-cat items in detail. No duty is demanded in respect of S-cat items which are not subjected to manufacturing process.
(iv) The contention of the appellant that no duty is demandable for S-cat items captively consumed in the manufacture of Mobile Image Intensifier since 90% of the goods are exported is erroneous because there is no exemption notification which exempts intermediate products manufactured and utilized in the finished goods which are exported.
(v) As regards the classification of spares, the appellant has ignored Chapter Note 2(a) of Chapter 90. According to the above Note, "Parts and accessories which are goods included in any of the headings of this Chapter or of Chapter 84, 85 or 91(other than heading No. 84.85, 85.48 or 90.33) are in all cases to be classified in their respective headings".
(vi) The appellant's contention regarding exemption with effect from 01.03.2000 is not sustainable because the exemption is available only for goods coming under 9022.00 and in terms of Chapter Note 2(a) of Chapter 90, the said spare parts cannot be classified under Chapter 90. Hence, it is not correct to say that for the period from 01.03.2000 to 31.03.2001, the spare parts are exempted from duty.
(vii) As regards the penalty on Shri M.C. Sudarshan, Manager (Finance) is concerned, his complicity has been discussed in the OIO in detail. The internal auditors of the appellants, M/s. Price Water House, had clearly pointed out that S-cat items are emerging and no duty is being paid thereon when the same are captively consumed. In spite of this, Shri Sudarshan maintained deliberate silence as he did not inform the department about this fact. Therefore, penalty under Rule 209A has rightly been imposed on him.
6. We have gone through the records of the case carefully. The appellants manufacture Mobile Image Intensifiers and X-Ray Machines.
For a proper understanding, a photograph of the impugned item is enclosed in this order. The main demand over Rs. 11 crores is on account of the Department's stand that certain intermediary products known as S-cat items are manufactured by the appellants for captive consumption for further manufacture of Mobile Image Intensifiers and no excise duty has been discharged on these intermediary S-cat items.
Moreover, there is no exemption in respect of these intermediary products as the final product Mobile Image Intensifiers are completely exempted from Excise Duty. While demanding the above amount, longer period has been invoked on grounds of suppression of facts with intent to evade to Central Excise Duty. This has been strongly contested by the appellants. The appellants have invited the Bench's attention to the classification declarations filed by them and also the three letters written by them to the Jurisdictional superintendent. On 04^th November 1998, the appellant had written a letter to the Superintendent Export Cell) regarding the manufacturing process of C-Arm Mobile Image Intensifier. The letter is reproduced below: Sub: Manufacturing Process of C-Arm Mobile Image Intensifier - in brief.
As requested by your goodself during the visit of Julius Swaminathan to your office on 08^th Oct' 98, given below in brief is the manufacturing process of above mentioned machine to be assembled in the EHTP bonded area.
1. Major Hi-end components are Base Assembly, Image Intensifier, Tube-Head, Memory Device, Monitor, Controls.
2. Except the Base Assembly all above listed Hi-End components are imported. No processing is done on them in India. They are directly assembled onto the machine. All Plastic components & Fasteners are imported.
3. Base Assembly is manufactured in India. It includes fabricated, press, welded parts.
4. Local components form 30% of the machine & include Column, Carriage Shaft, Break Assembly, Monitor Trolley, Welded Base, yoke.
5. The above-mentioned imported & local components are then assembled to make the final product.
6.1. From the above letter, it is seen that the appellants had disclosed all the components of the Mobile Image Intensifier and further they have stated that except Base Assembly, all Hi-end components are imported and no processing is done on them. In another letter dated 04th November 1998, they have given the particulars of all the products manufactured for domestic market and also export. Earlier, the appellants were manufacturing only X-Ray machines and their parts.
When they decided to manufacture Mobile Image Intensifier systems, they informed the department in their letter dated November 4, 1998. We have also perused the Classification declarations wherein they have indicated in the following manner: Mobile image Intensifier Consisting of Mobile Base Stenoscop-2, Monitor Cart, Image Intensifier-16cm/22cm, DR4/MD10/MDA/Memory, Monitor 20"/ Collimeter/ Diaphragms, Hand Switch, Cassette Holder, VCR, Printer, Camera, Laser Device, Dose Meter, Remote Control.
6.2. We have also gone through the order issued by the Assistant Commissioner of Central Excise on 30^th June, 2000 in connection with the rebate claims filed by the appellants.
I have gone through the detailed list of the items (Inputs) exported by the assessee wherein they have mentioned their nature of the goods exported i.e. goods exported as such i.e. imported as well as indigenous inputs, and goods manufactured by them. Further from the joint report regarding verification done on 28.3.2000 by the Departmental Officer and the representative of the assessee, I find that number of items (parts) which the assessee have claimed as the manufactured one are infact are not manufactured i.e. they are either not subjected to any processing or the process is not amounting to manufacture. Since such items were not manufactured by the assessee and no modvat was availed and duty paid on the same if any, duty was not payable on them when taken for export. Thus I find that duty paid on such items is paid enormously for which no rebate under Rule 12 of the C.Ex. Rules, 1944 will be allowable, however the amount paid as duty is refundable as per the provisions of Section 11B and time limitation for allowing the claim will be 6 months from date of actual payment. The list of the manufactured items does not contain some of the items listed in their worksheet hence is to be considered as exported as such. As no further information has been given to ascertain the status of manufactured item and not even produced at the time of physical verification there is no alternative but to consider these items so.
6.3. A perusal of the above order and also the letters written by the appellant to the Superintendent reveals that the allegation of suppression of facts is not sustainable. The Assistant Commissioner has actually come to the conclusion that even the items which the assessee had claimed as manufactured are infact not manufactured i.e. they are either not subjected to any processing or the process is not amounting to manufacture. It is not disputed that the appellants import all Hi-end components from abroad. They have clearly stated that only the base part is manufactured by them. The base part cannot be marketed separately. Depending upon the customer's requirement, the various components of the system are configured. In any case, once the Classification declaration was filed by the appellants, nothing prevented the departmental officer to go through the same thoroughly to determine the duty liability on the components mentioned in the Classification declaration. This has not been done. If the Department had felt that the Deputy Commissioner's finding were incorrect, nothing prevented them from reviewing the order of the Deputy Commissioner. The Hon'ble Supreme Court has held that once the Classification List is approved by the department, with or without enquiry, there is no willful suppression on the part of the assessee for invoking extended period of limitation. In the present case, the classification declarations have been filed. If the department had failed to make further enquiries on the Classification declaration filed by the appellants, it is only a lapse on the part of the Department. Moreover, there is a finding of Assistant Commissioner in his order dt. 30.6.2000 to the effect that no manufacturing process is carried out. Even assuming that some intermediary products emerge, the fact that 90% of the goods are exported is not in dispute. The Commissioner, in his order, has held that Board's Circulars regarding payment of duty on intermediary products which are used in goods which are ultimately exported is not applicable because the appellant had not exported the Mobile Image Intensifies under Rule 13. The appellants have stated that Rule 13 relates to the execution of bond before exporting the goods. In the present case, since the final products are exempted from duty, there was no need to execute Bond under Rule 13. Anyhow, as per Board's Circular, no duty need be charged on the intermediary products if they are used in the manufacture of goods, which are ultimately exported. In the present case, definitely the Board's Circular is applicable in spite of the fact that Rule 13 procedures were not followed. When there is no need to follow the Rule 13 procedure, the benefit conferred by Board's Circular cannot be denied. Therefore, the Commissioner's finding that the appellants are not entitled for duty exemption for the intermediary products is not correct. Board's Circular No. 229/63/96-Cx dated 08.07.1996 makes it clear that intermediary goods manufactured and used captively in the further manufacture of finished goods exported under bond need not discharge any duty liability. Normally, the finished goods would be liable to Central Excise duty. A bond is executed only to ensure that if there is no proof for the export of the goods, the exporter would be liable to pay the Central Excise duty. In the present case, the final product itself is not liable to duty.
Therefore, while exporting the final product, there is no need for the manufacturer to execute a bond under Rule 13. On that ground, we cannot say that this Circular is not applicable in the present case and demand duty on the intermediary products. The intermediary products form part of the finished goods. Inasmuch as the finished goods are exported, there is no duty liability on the intermediary goods. The Circular dated 11.03.1997 also makes it clear in para 3 in the following manner: Board had clarified vide its Circular No. 229/63/96-CX dated 8.7.1996 that merely because certain provisions of Chapter X viz.
generation of CT-3 cannot be followed in cases of intermediate goods which are being manufactured within the factory premises for the manufacture of export goods, the facility of clearance of said intermediate goods without payment of duty cannot be taken away.
6.4. From the above observations, it is clear that there is no suppression of facts and the intermediary products captively consumed in the finished goods which are exported are not liable to pay Central Excise duty. Therefore, the demand of duty to the extent of Rs. 11,53,04,274/- on the intermediary products (S-cat items) is not sustainable on account of merits as well as on time bar. Further, the entire demand including the demand of duty on spare parts of X-Ray machines pertains to the period 1998 to 2001. The Show Cause Notice has been issued invoking the extended period. As we have held that there is no suppression of facts, the extended period cannot be invoked.
Therefore, the entire demand is time barred. In view of this, we are not further discussing the classification of the spares for X-Ray machines, cleared by the appellants. Since the entire duty demand is set aside, no penalty is leviable. In the result, we allow the appeals with consequential relief, if any, by setting aside the impugned order.