Wandleside National Conductors Vs. Collector of C. Ex. - Court Judgment

Excerpt:
1. this appeal is directed against the order-in-original passed by the collector, central excise, pune.2. the facts of the case, in brief, are that the appellants manufactured varnishes stating that they manufactured varnishes on experimental basis and since there was no commercial production of varnishes, they had the impression that it did not require any licence to manufacture or they were not required to pay duty as the manufacture was on the experimental basis. the appellants also assembled erected machinery after acquiring some parts on payment of duty from the market. the contention of the appellants was that since the items were embedded to the ground they were not goods. the department however, alleged that in so far as the manufacture of varnishes is concerned, even experimental manufacture is not exempted from the requirement of central excise rules and stipulations of the central excise act and that appellants were required to pay the central excise duty to obtain central excise licence and to maintain all the records necessary for central excise purposes. on the question of plant and machinery, the department alleged that no doubt some items were purchased by the appellants from the market on payment of duty, however, the some items were fabricated on the spot and the plant and machinery were assembled and therefore, they were dutiable.3. the appellants have requested a decision on the issue and have made written submissions. in the written submissions on varnishes, they have contended that varnishes manufactured by them were on experimental basis and a small quantity; that they had not sold this product in the market. as the product was not a standard one and therefore, contended that manufacturing without attaining the marketability is meaningless.the appellants also contended that the department has not established that the varnishes manufactured by them were marketable; that the revenue had not taken any sample and subjected the goods to test and that since the marketability of the goods was not established, therefore, the demand cannot be sustained and penalty cannot be imposed.4. on the question of manufacture of machinery, the appellants contested that the show cause notice was not specific; that the statement of expenditure incurred submitted by them clearly shows that they had undertaken erection and commissioning. erection and commissioning did not constitute manufacture. it has also been contended by the appellants that they held a licence for manufacture of tariff item 68 - parts and components and that these items were fitted to the old machines in place of worn out items and they were entitled to exemption under notification no. 118/75. the appellants have also contended that they did not manufacture the entire machinery and therefore, the question of payment of duty etc. did not arise.5. shri p.k. jain, the learned sdr appearing for the respondent collector submits that so far as varnish is concerned, the appellants have admitted that what they were manufacturing was varnish; that varnish is an item specified in the central excise tariff schedule as dutiable. he submitted that there is no exemption whatsoever if varnish is manufactured on experimental basis or a small quantity. he submitted that the collector, central excise, in his order-in-original has clearly held that varnish manufactured by the appellants was also used by them and that the question of marketability was for the first time raised by the appellants in their written submission. the use of varnish itself by the appellants shows that varnish was marketable. he therefore, submitted that the collector, in his order-in-original has rightly held that varnish was manufactured product and that the appellants were required to have a licence and should have cleared varnishes on payment of duty.6. on the question of assembly of machinery, the learned sdr submitted that even if some items were purchased from the market on payment of duty, the appellants have admitted that assembly of items was done in the factory. he submitted that when the items were assembled definitely a product, distinct in name and character came into existence and that assembly of the bought out item clearly amounts to manufacture. he submitted that the collector, in his order-in-original has dealt with this issue in a very lucid manner. the learned sdr also submitted that the question of admissibility of the concession under notification 118/75, dated 30th april, 1975 has also been gone into by the collector in his order-in-original wherein it has been held that notification 118/75 exempts only parts and not the whole machine and therefore, the exemption under notification no. 118/75 was not available to the appellants.7. heard the submissions of the ld. sdr. we find that the issues for determination before us are as under : (i) whether manufacture of varnish even on experimental basis or a small quantity was exempted from the requirement of central excise act and rules made therein; (ii) whether the assemble of bought out items and some parts fabricated and then assembled in the factory amounts to manufacture and if yes, then whether duty was payable on such assembled machinery and (iii) whether in the circumstances of the case, penalty was warranted.8. insofar as varnish is concerned, we find that the appellants had imported certain ingredients and had after processing these ingredients obtained varnish. varnish is a distinct item and was used internally (captively) by the appellants. the contention of the appellants was that manufacture was on experimental basis and was manufactured in a small quantity. it does not absolve them from the requirement of obtaining licence, paying duty, maintaining central excise records etc.we therefore, hold that duty was payable on the varnish manufactured by the appellants even on experimental basis in their r & d section and do not see any infirmity in the order passed by the collector, central excise on this issue.9. on the question whether fabrication of some parts and other parts being purchased from the market and assembling them in the factory premises does not amount to manufacture. manufacture has been defined in section 2(f) of the cesa, 1944. manufacture means to bring into existence a new item distinct in name and character and use. in the instant case, the appellants had purchased parts and fabricated some parts, assembly of bought out items and the fabricated parts no doubt gave birth to a new product. the individual item did not make machine.a machine came into existence only when all the distinct items were assembled. thus, the process undertaken by the appellants amounted to manufacture.10. the other issue that was raised before the lower authorities was that machine was erected on the ground and therefore, it was not goods.the collector, in his order-in-original has very clearly held that machine was first assembled and then subsequently affixed to the ground, therefore, the machine in the instant case, is goods and therefore, duty shall have to be paid on the machine so erected.11. on the question of imposition of penalty, we find that no declaration was made to the department that they were manufacturing varnish and assembling full machines. no records were being maintained and the goods were not being cleared even for captive use after payment of duty. having regard to these facts, we hold that penalty was warranted.12. in view of the above discussions, we uphold the impugned order and reject the appeal.

Judgment:
1. This appeal is directed against the order-in-original passed by the Collector, Central Excise, Pune.

2. The facts of the case, in brief, are that the appellants manufactured varnishes stating that they manufactured varnishes on experimental basis and since there was no commercial production of varnishes, they had the impression that it did not require any licence to manufacture or they were not required to pay duty as the manufacture was on the experimental basis. The appellants also assembled erected machinery after acquiring some parts on payment of duty from the market. The contention of the appellants was that since the items were embedded to the ground they were not goods. The Department however, alleged that in so far as the manufacture of varnishes is concerned, even experimental manufacture is not exempted from the requirement of Central Excise Rules and stipulations of the Central Excise Act and that appellants were required to pay the Central Excise Duty to obtain Central Excise licence and to maintain all the records necessary for Central Excise purposes. On the question of plant and machinery, the Department alleged that no doubt some items were purchased by the appellants from the market on payment of duty, however, the some items were fabricated on the spot and the plant and machinery were assembled and therefore, they were dutiable.

3. The appellants have requested a decision on the issue and have made written submissions. In the written submissions on varnishes, they have contended that varnishes manufactured by them were on experimental basis and a small quantity; that they had not sold this product in the market. As the product was not a standard one and therefore, contended that manufacturing without attaining the marketability is meaningless.

The appellants also contended that the Department has not established that the varnishes manufactured by them were marketable; that the Revenue had not taken any sample and subjected the goods to test and that since the marketability of the goods was not established, therefore, the demand cannot be sustained and penalty cannot be imposed.

4. On the question of manufacture of machinery, the appellants contested that the show cause notice was not specific; that the statement of expenditure incurred submitted by them clearly shows that they had undertaken erection and commissioning. Erection and commissioning did not constitute manufacture. It has also been contended by the appellants that they held a licence for manufacture of Tariff Item 68 - parts and components and that these items were fitted to the old machines in place of worn out items and they were entitled to exemption under Notification No. 118/75. The appellants have also contended that they did not manufacture the entire machinery and therefore, the question of payment of duty etc. did not arise.

5. Shri P.K. Jain, the learned SDR appearing for the respondent Collector submits that so far as varnish is concerned, the appellants have admitted that what they were manufacturing was varnish; that varnish is an item specified in the Central Excise Tariff Schedule as dutiable. He submitted that there is no exemption whatsoever if varnish is manufactured on experimental basis or a small quantity. He submitted that the Collector, Central Excise, in his order-in-original has clearly held that varnish manufactured by the appellants was also used by them and that the question of marketability was for the first time raised by the appellants in their written submission. The use of varnish itself by the appellants shows that varnish was marketable. He therefore, submitted that the Collector, in his order-in-original has rightly held that varnish was manufactured product and that the appellants were required to have a licence and should have cleared varnishes on payment of duty.

6. On the question of assembly of machinery, the learned SDR submitted that even if some items were purchased from the market on payment of duty, the appellants have admitted that assembly of items was done in the factory. He submitted that when the items were assembled definitely a product, distinct in name and character came into existence and that assembly of the bought out item clearly amounts to manufacture. He submitted that the Collector, in his order-in-original has dealt with this issue in a very lucid manner. The learned SDR also submitted that the question of admissibility of the concession under Notification 118/75, dated 30th April, 1975 has also been gone into by the Collector in his order-in-original wherein it has been held that Notification 118/75 exempts only parts and not the whole machine and therefore, the exemption under Notification No. 118/75 was not available to the appellants.

7. Heard the submissions of the Ld. SDR. We find that the issues for determination before us are as under : (i) whether manufacture of varnish even on experimental basis or a small quantity was exempted from the requirement of Central Excise Act and Rules made therein; (ii) whether the assemble of bought out items and some parts fabricated and then assembled in the factory amounts to manufacture and if yes, then whether duty was payable on such assembled machinery and (iii) whether in the circumstances of the case, penalty was warranted.

8. Insofar as varnish is concerned, we find that the appellants had imported certain ingredients and had after processing these ingredients obtained varnish. Varnish is a distinct item and was used internally (captively) by the appellants. The contention of the appellants was that manufacture was on experimental basis and was manufactured in a small quantity. It does not absolve them from the requirement of obtaining licence, paying duty, maintaining Central Excise records etc.

We therefore, hold that duty was payable on the varnish manufactured by the appellants even on experimental basis in their R & D Section and do not see any infirmity in the order passed by the Collector, Central Excise on this issue.

9. On the question whether fabrication of some parts and other parts being purchased from the market and assembling them in the factory premises does not amount to manufacture. Manufacture has been defined in Section 2(f) of the CESA, 1944. Manufacture means to bring into existence a new item distinct in name and character and use. In the instant case, the appellants had purchased parts and fabricated some parts, Assembly of bought out items and the fabricated parts no doubt gave birth to a new product. The individual item did not make machine.

A machine came into existence only when all the distinct items were assembled. Thus, the process undertaken by the appellants amounted to manufacture.

10. The other issue that was raised before the lower authorities was that machine was erected on the ground and therefore, it was not goods.

The Collector, in his order-in-original has very clearly held that machine was first assembled and then subsequently affixed to the ground, therefore, the machine in the instant case, is goods and therefore, duty shall have to be paid on the machine so erected.

11. On the question of imposition of penalty, we find that no declaration was made to the Department that they were manufacturing varnish and assembling full machines. No records were being maintained and the goods were not being cleared even for captive use after payment of duty. Having regard to these facts, we hold that penalty was warranted.

12. In view of the above discussions, we uphold the impugned order and reject the Appeal.