Full Judgment
2.1 JMC Industries (hereinafter referred to as the assessee) are engaged in the manufacture of various types of motor vehicle parts falling under Tariff Item 68 CET. Besides manufacturing the above goods, the assessee is also importing forged crankshaft. The said crankshafts are thereafter sent by them outside their factory for machining, grinding etc. on job work basis. After the receipt of the crankshaft thus processed/manufactured by outside units the assessee undertakes the shallock process i.e. applying oil etc. to save the crankshaft from rusting. Thereafter they pack it before despatching to their customers.
2.1A. Before 15-1-1983 the assessee had included the value of the crankshafts manufactured on their behalf by the outside manufacturers and they were paying duty and the value of the crankshafts was also taken into account while computing the exemption limit of Rs. 30 lakhs in terms of Notification 105/80 dated 19-6-1980. Prior to 15-1-1983 the assessee were in fact availing the facility of procedure under Rule 56B for which they requested vide their letter dated 24th December, 1981 addressed to the Asstt. Collector of Central Excise, Rajouri Garden, New Delhi.
The said Asstt. Collector vide his letter dated 13-1-1982 permitted the assessee to effect the clearance of semi-finished crankshaft for further processing to the premises of Sahyadri Automotive Product Pvt. Ltd., Industrial Area, Pune under their usual gate passes and challans and to bring the finished goods back to their factory for further clearance thereof till they cross the clearance of Rs. 30 lakhs, whereafter the permission was granted subject to the observance of the procedure contained in the provisions of Rule 56B ibid read with the trade notices.
2.2 Thereafter the assessee had a doubt regarding payment of duty on crankshafts so got manufactured by them from outside. Accordingly, they wrote a letter dated 10th November, 1982 to the said Asstt.
Collector stating that the crankshaft was not being manufactured in their factory; the entire manufacturing process i.e. grinding, machining and hardening etc. were being done by ther companies in different parts of the country and that they were merely repacking the finished crankshaft at their factory premises and trading the same in the market. Accordingly, they urged that they were not liable to pay any duty on the crankshafts so cleared by them after getting it manufactured from others. A further clarification was, therefore, sought by the department vide its letter dated 22-1-1982 by the concerned Range Supdt. of Central Excise. After receipt of the clarification from the assessee vide his letter dated 15-1-1983 the Supdt. advised the assessee to file a revised classification list and also to intimate the department regarding withdrawal of facility under Rule 56B in respect of crankshafts. Hence the assessee stopped paying duty on crankshaft thus got manufactured by the assessee on job work basis from outside w.e.f. 15-1-1983.
23 They also stopped paying duty after 15-1-1983 on the plea that they had not cleared the goods worth more than Rs. 30 lakhs in the year 1982-83 after excluding the value of crankshaft as it was not manufactured by them. They had also filed a refund claim consequently for the past period. While this claim was under scrutiny, a doubt was felt whether the value of the crankshaft was to be included in the value for the purpose of Notification 105/80 dated 19-6-1980 and as superseded by Notification 77/83 dated 1-3-1983. Accordingly, the manufacturing unit was visited on 6-9-1983 and 7-9-1983 for making enquiries in this regard.
2.4 As a result of those enquiries and investigation it was observed by the Central Excise department that during the period 1982-83 the assessee had cleared from their factory and from other factories on their behalf excisable goods valued at Rs. 44,07,909.51p (which does not include the value of the raw material used in the manufacture of the goods which were cleared after job work by the assessee). It was, therefore, felt that the assessee was not entitled to the exemption from payment of duty in excess of Rs. 30 lakhs in terms of the said Notification 105/80 dated 19-6-1980 for that year and since the value of the goods cleared by the assessee or on their behalf during the year 1998~2r83 had exceeded Rs. 40 lakhs, the assessee was not also entitled to the exemption from payment of duty leviable on the goods manufactured by them during the year 1983-84 vide Notification No. 77/83 dated 1-3-1983, 2.5 A show cause notice was, therefore, issued to the assessee on 21-9-1983 asking them to show cause to the Collector of Central Excise as to why (i) duty of Rs. 200649.32p should not be demanded from them under Rule 9(2) of the Central Excise Rules and (ii) penalty should not be imposed under Rule 173-Q. 2.6 After due adjudication the Collector has confirmed the said amount of duty subject to entitlement of the assessee to the benefit of Notification 167/79-C.E., dated 19-4-1979 pertaining to supply of automobile parts to original equipment (OE) manufacturers. However, no penalty has been imposed on the assessee inasmuch as the assessee did not indulge in hide and seek with the department nor there is a case of intentional and wilful misdeclaration or evasion, on the part of the assessee.
3. In the other appeal i.e. 1786/86-B1 the impugned order-in-appeal passed by the lower Appellate Authority, namely, Collector of Central Excise (Appeals), New Delhi, identical issues had also come up for consideration before the said authority. He disposed of the following 5 orders of the Asstt. Collector of Central Excise :- (i) 58-CE/APPL/DLH/85 against order C. No. V(68) 18/6/84/10000 dated 23-11-84 rejecting two claims for refund 6f Rs. 7472. 80 + 31,998.18.
(ii) 238-CE/APPL/DLH/85 against order C. No. V (68) 18/1/83/1184 dated 22-4-85 according provisional approval to the classification list.
(iii) 250-CE/APPL/DLH/85 against order C. No. V(68) 18/13/84/55/2934 dated 13-6-85 rejecting the claims for refund of Rs. 69,905.08.
(iv) 250-CE/APPL/DLH/85 against order C. No. V(68) 18/7/85/55/7243 dated 16-7-85 rejecting the claim for refund of Rs. 1,15,952.20 and (v) 251-CE/APPL/DLH/85 against order C. No. V(68) 18/2/85/16/2138 dated 13-6-85 rejecting a claim for refund of Rs. 64,894.92p.
by the common impugned order-in-appeal No. 83-87-CE/DLH/86 received by the assessee on 23-4-86. Following issues are involved in both the appeals :- (1) Whether the manufacture of goods takes place in terms of the Central Excise Law when the forged crankshaft is converted into finished crankshaft at the hands of the outside job workers to whom the forged crankshafts are sent or at the hands of the assessee who merely undertakes shallock process (oiling process to prevent rusting) and packing thereof before sending to the market.
(2) Whether the assessee is the manufacturer in the facts and circumstances of the case in respect of the said crankshafts.
(3) Whether the demand is time-barred having been issued beyond the normal period of six months.
4. On the first issue the learned advocate for the assessee has urged that there has been no manufacture; what was supplied to the outside job workers was a forged or semi-finished crankshaft and it has been converted into a finished crankshaft without bringing into existence any new commodity having a different name, character or use.
4.1 On the other hand, the Collector has given the following findings in his impugned order 44/84 dated 18-8-84 :- the party has been importing crankshaft forging in crude form as actual users, getting the same processed from outside on their behalf but no duty is being paid under Til. No. 68 of Central Excise Tariff. That these cankshafts were originally imported in their crude cast form and countervailing duty paid under erstwhile item T.I. 26AA as iron and steel castings, after due grinding, processing and machining, the goods assumed a different shape as identifiable motor vehicle parts and attract duty under Tariff Item 68 which has at no stage been paid".
The aforesaid findings of the Collector have not been rebutted by assessee. Forging of a crankshaft as imported is totally a new commodity different from the one brought into existence namely, crankshaft manufactured by the outside job workers. It cannot, therefore, be held as contended by the assessee that no manufacturing has taken place when forged crankshafts are finished in crankshafts. A forging is obviously not an automobile part; a lot of machining, grinding etc. is to be done before it becomes an automobile part.
Countervailing duty was also levied under a different T.I. 26AA CET and not under T.I. 68 under which the finished product crankshaft is finally chargeable to duty. It is, therefore, held that a new product involving the process of manufacture in terms of the Central Excise Law comes into existence at the hands of the outside job workers when forged crankshaft is converted into a finished crankshaft. A fresh duty liability, therefore, under T.I. 68 for the finished crankahaft would arise.
42 On the next issue the learned advocate has submitted that in any case the assessee is not a manufacturer because finished crankshafts have come into existence at the hands of the outside job workers to whom the forged crankshafts were supplied. In these circumstances, duty liability on the assessee cannot be imposed. If there is a duty liability, it will have to be demanded according to the learned advocate, for the assessee, from such job workers. In support of this plea he relies on a large number of citations of different High Courts - (1) CCE, Madras v. Modoplast (P) Ltd., Coimbatore [1985 (21) ELT 187 (Tri.)] (2) Jay Engineering Works v. CCE, Calcutta [1987 (21) ELT 299 (Tri.)] (4) Prasad Engineering Works and Ors. v. CCE, Hyderabad [1987 (31) ELT 247 (Tri.)] (5) Lucas India Service Ltd. v. CCE, Madras [1984 (16) ELT 415 (Tri.)] (7) Steel City Beverager (P) Ltd. v. UOI [1986 (23) ELT 147 (Pat.
DB]UOI v. CIbatul Ltd. Apart from the above, he has also relied on a Tribunal's recent decision in the case of Tata Robins Fraser Ltd. v. CCE, Patna [1990 (46) ELT 562 (Tri.)] which takes into account many judgments cited earlier. It has been held in Para 8 of the aforesaid judgment in Tata Robins Fraser Ltd. case as follows - "8. We have carefully considered the pleas advanced on both sides and we agree with the appellants' learned counsel. There is a catena of judgments as relied upon by the appellants' learned counsel which support him. There is neither an allegation nor any finding that the persons who manufactured the goods on job work basis after getting the raw materials from the appellants were actually the agents of the appellants or they were working as their dummy units or that these various fabricators were mere facade for the appellants. On the other hand, it was the assertion of the appellants, as well as before the adjudicating authority and it is so in the appeal memo that these fabricators were doing their independent work not only for the appellants but also for others. The mere fact that some of them have wound up their business would not lead to an inference, as appears to have been hinted at in the impuged order that such fabricators were agents of the appellants. It is for the department to prove by cogent and acceptable evidence that the fabricators were actually puppets in the hands of the appellants. Leave apart production of any cogent evidence there is absolutely no evidence on record to even hint at in that direction. The adjudicating authority has merely relied upon the interpretation given by him to the definition of 'manufacturer' under Section 2(f) of the Central Excises and Salt Act. In view of the series of judgments on this issue we disagree with the interpretation of the Collector." 4.3 While general proposition made by the assessee's learned advocate is not disputable the facts in this particular case have also to be taken into account. It is admitted to the assessee that they were availing the facility of the procedure under Rule 56B of the Central Excise Rules, 1944. In order to appreciate the scope of Rule 56B which was being availed of by the assessee, it is reproduced below :- "RULE 56B. Special Procedure for removal of finished goods or semifinished goods for certain purposes. - The Collector may, by special order and subject to such conditions as may be specified by the Collector, permit a manufacturer to remove - (i) excisable goods which are in the nature of semi-finished goods, for carrying out certain manufacturing processes, or to some other premises of his or to the premises of another person and to bring back such goods to his factory, without payment of duty, or to some other licensed premises of his or to the premises of another assessee and allow these goods to be removed on payment of duty or without payment of duty for export from such other licensed premises of his or from the premises of such assessee to whom the goods have been sent: Provided that this rule shall not apply to the goods known as 'proto-types' which are sent out for trial or development test." It is apparent from the perusal of the aforesaid Rule 56B that when a semi-finished article is converted into a finished article involving a duty liability on such finished article, such duty liability has to be discharged either by the manufacturer himself by bringing back the goods to his own factory or by paying the duty at such premises at which such finishing of the article has taken place. In other words, it is a conscious undertaking by the person availing of the facility of Rule 56B. He undertakes to discharge the duty liability on the goods coming into existence during the process undertaken while availing of such facility under the said Rule. It is admitted that upto 15-1-1983 the assessee was availing of this facility and he was bringing back such finished crankshafts manufactured outside at the job workers' premises. By virtue of the assessee availing of the facility of Rule 56B he is to be deemed to be the manufacturer who has undertaken to discharge the duty liability on the goods so processed in the course of availing of that facility. This would also be apparent from the permission granted by the Assistant Collector of Central Excise as conveyed by the Superintendent in his letter dated 13-1-1982 to the assessee in the following terms :- "The Assistant Collector, Central Excise, MOD. III, New Delhi is pleased to grant permission to the effect that semi-finished crankshafts may be cleared by you for further processing to the premises of Sahyadri Automotive Product Pvt. Ltd., Industrial Area, Pune under your usual gate passes/challans and bring the finished goods back to your factory for further clearance thereof till you cross the clearance of Rs. 30 lakhs, whereafter permission is granted subject to the observance of the procedure contained in the provisions of Rule 56B ibid read with Trade Notices." Accordingly, the clearance of crankshafts by the assessee during the financial year 1982-83 upto 15-1-1983 should be counted for the purpose of computing the benefit of Notification 105/80 dated 19th June, 1980 and as superseded by Notification No. 77/83 dated 1-3-1983.
4.4 However, as regards the clearances of crankshafts after 15-1-1983 are concerned, it is apparent that the assessee ceased to be the manufacturer. He has no doubt supplied the forged crankshafts to the outside job workers for converting them into finished crankshafts and has been bringing them back for the purpose of oiling to prevent from rusting and packing thereafter, he cannot be termed 'a manufacturer' because there is no inter-relationship between the outside job worker and the assessee in a manner so as to make the outside job worker merely a facade or a dummy for the assessee. Ratio of the Tribunal's judgment in the case of Tata Robins relied upon by the learned advocate for the assessee and as set out above would apply in this case also so far as the clearance of crankshafts after 15-1-1983 in the instant case is concerned.
4.5 Since no data regarding clearance of crankshafts upto 15-1-1983 is available on record and consequently of all the aggregate clearances of the assessee during the financial year 1983, keeping in view the clearances of crankshafts upto 15-1-1983 as directed above, we order that the demand will have to be revised, if any, in the light of the above observations. Similarly, the refund claims of the assessee will have to be disposed of in the above terms.
4.6 As regards the third issue on the question of time-bar, we find force in the assessee's plea. There has been no question of any suppression of facts of mis-statement of facts by the assessee. In the first instance he was availing of the subject procedure under Rule 56B with the consent of the department; he also withdrew from this facility with the full consent of the department after proper correspondence.
The demand, therefore, if any, ought to have been raised within six months. The demand should, therefore, be restricted for the period of six months preceding the receipt of the show cause notice.
I agree with the findings of my learned brother on the issue of limitation and the appellant being the manufacturer of crankshafts upto 15-1-1983. However, regarding data on clearance of crankshafts upto 15-1-1983,1 find that the data is available from the records.
The order of the Assistant Collector dated 22-4-1985 clearly indicates at page 2 that the value of sales of crankshafts during 1982-83 is Rs. 24,66,050.00 and the approved C.L. of 1-4-1983 (At page 18) gives the value of sales upto 15-1-1983 as Rs. 15,19,398.00. From this, the value of sales for the period between 15-1-1983 to 31-3-1983 can be arrived at Rs. 9,46,652.00. The party supplied material (other than crankshaft) to O.E. manufacturers of the value of Rs. 6 lakhs upto November 1982 without following complete Chapter X procedure, G.P.I's & Certificates from O.E. manufacturers such as Mahindra & Mahindra and Simpson & Co.
have been submitted for the above value. The Assistant Collector did not exclude the above value of 6 lakhs only on the ground of non-fulfilment of Chapter X procedure. Collector (Appeals) has held that the appellants were entitled to the benefit of O.E. clearances in terms of Notification No. 167/79. Therefore, the total value of excisable clearances during 1982-83 would now be :- which is well within the exemption limit of Rs. 30 lakhs under Notification No. 105/80. Therefore, the demand cannot be sustained. I would therefore propose that the appeal be allowed with consequential relief of refund of Rs. 1 lakh immediately.
In view of the above finding that the clearances during 1982-83 are less than Rs. 40 lakhs,. I would propose an order dismissing the appeal and directing immediate grant of refund.
In view of the majority finding, the appeal is allowed by way of remand.