1. Both these appeals are directed against Order-in-Original No. 9/05 dated 2.5.05 passed by the Commissioner of Central Excise, Pondicherry.
In the impugned order the adjudicating authority has held that M/s.
Ericsson India (P) Ltd (ECPL) had manufactured Transmission Apparatus for Radio Telephony (TART), an excisable item classifiable under sub-heading 85.25 of the Central Excise Tariff without following Central Excise formalities. The Commissioner demanded duty of Rs. 3,57,16,259/- on the item under proviso to Sub-section (1) of Section 11A of the Central Excise Act, 1944 along with interest due thereon from ECPL. He also imposed a penalty of equal amount on ECPL. A penalty of Rs. 30 lakhs was imposed on M/s. Aircel Limited (Aircel) under Rule 209A of the erstwhile Central Excise Rules, 1944/ Rule 26 of the Central Excise Rules, 2001/2002. Appeals have been filed by ECPL and Aircel.
2. The facts of the case are that Aircel Limited, Chennai imported various components under an agreement with ECPL to install and integrate a system for providing radio telephony. The Commissioner found that Aircel had imported various apparatus for radio telephony viz, Mobile Switching Centres (MSC), Base Station Controllers (BSC) and Base Transceiver Stations (BTS) under the supplier agreement. ECPL had also procured certain indigenous materials for the manufacture of the impugned goods. The imported components fell under various sub-headings of Chapters 85, 73 and 72 of the Central Excise Tariff Act, 1985.
3. The Commissioner observed that all the imported and indigenous components had separate individual functions and were parts of transmission apparatus for radio telephony. Systematic assembly of the above components had brought into existence intermediate products, such as Mobile Switching Centres, Base Station Controllers, and Base Transceiver Stations. Integration of these in turn had brought into existence new goods known as transmission apparatus for radio telephony. ECPL had assembled components and integrated those into new goods known as 'transmission apparatus for radio telephony' (TART).
These goods fell under Chapter Heading 85.25 of the Central Excise Tariff. The apparatus was different from its components, had a new name, characteristics and use. The Commissioner found that, Note 6 to Section XVI of the Central Excise Tariff Act. 1985, provides that conversion of an article which is incomplete or unfinished but having essential character of the complete or finished article (including blank, that is an article, not ready for direct use, having approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into the finished article or part) into complete or finished article shall amount to manufacture.
4. Hence, the assembling of Transmission Apparatus for Radio Telephony by ECPL amounted to manufacture and Transmission Apparatus for Radio Telephony was classifiable under Chapter Heading 8525.00 attracting Basic Excise Duty at the rate 16% advolarem. The transmission apparatus was fixed on top of the buildings by simple mechanical operation using bolts and nuts and were goods. The Commissioner also relied on the Board's Circular No. 58/1/002-Cx dated 15.1.2002 and decided that as the system could be dismantled without substantial damage and transported to another place and reassembled, the same was goods exigible to excise duty. As the transmission apparatus was erected and installed at site acquired on lease basis, it showed the movable nature of the equipment. The Commissioner went on to observe that there were 30 sites where the goods were located in the jurisdiction of the Pondicherry Central Excise Commissionerate which he found liable to duly in the impugned order. Duty of Rs. 3,57,16,259 is demanded on Rs. 19,41,10,103/- being the value of the equipment installed in the Commissionerate and a notional profit of 15% on the above value.
Charges for installation and commissioning of TART are not part of the taxable value.
5. ECPL had contested the demand on the ground that they had registered as "Consulting Engineer' and paid Rs. 2.2 crores as Service Tax on the subject project and that the Department seeking to recover excise duty on the very same activity was incorrect. It also showed that the Department was aware of the activity undertaken by ECPL. ECPL had submitted that the imported equipment MSC, BSC and BTS were movable and had been tested as a network before their export to India. The network could not be removed from one place to another as such. They did not have any expertise to assemble the technically complex components such as MSC, BSC and BTS. They had only installed the imported equipments in a network. That activity was outside the Central Excise levy. If the activity involved was considered to be manufacture, then the same was eligible for exemption under Notification No. 67/95CE.6. In the appeal before the Tribunal, the appellants submitted that the network of MSC, BSC and BTS considered as an excisable goods constituting transmission apparatus for radio telephony was located in various districts in the State of Tamil Nadu and no complete system of MSC, BSC and BTS was located in the jurisdiction of the adjudicating authority. The imported items were fully manufactured and they had only installed them at various sites. MSC was the heart of the network and functioned as an interface between BSC on the one side and external network on the other side. BSC was a switching apparatus like MSC and managed channels on the radio interface. A BSC, managed upto 10 BTSs.
The base transceiver station was a radio base station and could be considered as complex radio modems. BTS received and transmitted calls to mobile phones. A BSC managed upto 10 BTSs called a cell. The BTS received and transmitted calls to the mobile terminals. Each BTS maintained connectivity with a slew of mobile phones thus enabling the subscribers communicate among themselves and also with members of other systems of telephony.
7. The appellants submitted that all the equipments were site specific.
Moving them would require change in the hardware and software configuration and it was not advisable to change the site of the main components once they were installed. This fact was ignored by the Commissioner. The appellants only had erected the imported equipment at site. This process did not amount to manufacture. MSCs and BSCs had been installed outside the jurisdiction of the adjudicating authority.
Therefore, these could not be considered by the Commissioner for classification or valuation of the goods alleged to have been manufactured by the appellants. The appellants cited the decision of the Supreme Court in the case of CCE v. Damodar Ropeways & Construction Co. (P) Ltd. 2003 (54) RLT 125 (SC), wherein it was held that erection of ropeway system for carrying passengers by trolley system was not a manufacturing activity. They also cited para 4 of the Board's Circular No. 49/11/2002-ST dated 18.12.02, in support of their plea that the impugned activity did not involve manufacture. The circular reads as follows: Circular No. 49/11/22002-ST dated 18.112.2002: In para 4 (iv) it has been categorically clarified that integrated plants/machines, as a whole, may or may not be 'goods'. For example, plants for transportation of material (such as handling plant) are actually a system or a network of machines. The system comes into being upon assembly of its component. In such a situation there is no manufacture of "goods" as it is only a case of assembly of manufactured goods into a system. This cannot be compared to a fabrication where a group of machines themselves may be combined to constitute a new machine, which has its own identity/marketability and is dutiable (e.g. a paper making machine assembled at site and fixed to the earth only for the purpose of ensuring vibration free movement).
8. The Commissioner had wrongly relied on Note 6 to Section XVI as the imported equipments were complete at the time of import. As per CBEC Circular No. 49/11/2002-ST dated 18.12.02 "erection and commissioning" charges were liable to service tax and therefore the impugned order was without merit. In Triveni Engineering and Industries Ltd. v. CCE , the apex Court had affirmed the view that to be goods the same should be marketable as such and not after dismantling the same into parts. In their case the network was not marketable as such. The adjudicating authority had not adduced evidence to show that the network subsequent to cabling at site was capable of being shifted from one place to another without substantially damaging the network.
The network was not movable. Similar demands issued by Commissioners in other jurisdictions were dropped. The appellants were eligible for exemption under Notification No. 67/95CE. The larger period could not be invoked as there was no allegation of suppression of facts with intent to evade payment of duty. Penalty could not be imposed as the appellant was not guilty of dishonest conduct or had acted in conscious disregard of its statutory obligations.
9. We have carefully gone through the records and considered the submissions made by both sides. In the instant case, the appellants had imported various equipment comprising the Transmission Apparatus for Radio Telephony network such as MSC, BSC and BTS and installed the same at various locations spread over several districts. The adjudicating authority has found that the Mobile Switching Centre, the Base Station Controller and the Base Transceiver Station imported by Aircel installed in several districts in the State by HCPL are excisable goods. It was admitted by the appellants that components of the system were movable goods, but could not be moved as their alignment was software specific in relation to their relative locations in the network. If the network was considered to be a complete equipment the same could not be considered a movable item as the same could be moved only by dismantling the network. In such cases, the item could not be considered to be movable as decided by the apex Court in the case of Triveni Engineering and Industries Ltd. (supra). We are not in a position to accept this claim as it is an undisputed position that the components had been tested after assembly in a network/system before they had been dismantled and exported to India. We find that what the appellants had done was to install and commission the Transmission Apparatus for Radio Telephony with the components imported. They had paid Service Tax for the said activity. Therefore, tax cannot be charged under the Central Excise Act on the same activity. As per the submissions of the appellants, the article decided to be excisable comprises MSCs, BSCs and BTSs. No MSC or BSC is situated in the jurisdiction of the adjudicating authority. This claim is not contested by the Department. Hence the adjudicating authority was not competent to decide installation/assembly of several equipments as constituting manufacture when critical components of that system were situated outside his jurisdiction. In the circumstances, we find that the impugned order is devoid of merits. Accordingly we set aside the impugned order and allow the appeals.