IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CENTRAL EXCISE APPEAL NO.31 OF 2005 Date of Decision: January 20,2010 Commissioner of Central Excise, Delhi-III Gurgaon ................................................................... Appellant Versus M/s Maruti Udyog Ltd. Palam Gurgaon Road, Gurgaon..................................................................... Respondent Coram: Hon'ble Mr. Justice Ashutosh Mohunta Hon'ble Mr. Justice Mehinder Singh Sullar Present: Mr. Kamal Sehgal, Sr. Standing Counsel for the appellant. Mr. M.P.Devnath, Advocate for the respondent. ..... ASHUTOSH MOHUNTA, J. The Revenue has filed the present appeal under Section 35G of the Central Excise Act, 1944 (for brevity "Act") before this Hon'ble Court challenging the Final Order dated 8.6.2004 of the Customs Excise and Service Tax Appellate Tribunal (for short "CESTAT") on the ground that the following questions of law arise out of the Final Order dated 8.6.2004 passed by the CESTAT:- CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 2 ] “1. Whether the Hon’ble CESTAT was legally correct in setting aside demand in respect of cars which had been originally cleared for export but later on brought back to the factory of manufacture for being scrapped? 2. Whether the Hon’ble CESTAT was legally correct to set aside demand of duty on 169 cars, which were manufactured and scrapped? 3. Whether the Hon’ble CESTAT was legally correct in remitting the case to the original adjudicating authority for passing fresh orders regarding party’s claim under Rule 173L for which the competent authority is Assistant Commissioner / Deputy Commissioner having jurisdiction over the factory?” M/s Maruti Udyog Ltd. (hereinafter referred to as the respondents) is engaged in the manufacture of motor vehicles falling under Chapter 87 of First Schedule to Central Excise Tariff Act, 1985. The vehicles are cleared for home consumption on payment of appropriate duty of excise. The vehicles are also cleared for export under bond. Some times, after clearance of the vehicles from the factory but before the vehicles reach the destination viz. dealer’s premises or port through which export is to be made, transit damages occur to the vehicle. Various reasons due to which vehicles got damaged in transit are collusion of truck / trailers carrying vehicles with other vehicles, over turn of truck/ trailers, truck / trailers carrying vehicles hitting bush of trees etc. If damages/defects found are repairable at the dealer’s end, the same are not returned to the respondents factory but are repaired by dealers themselves. It is categorically submitted by the counsel for the respondent that only in cases where defects are of such a nature that the same cannot CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 3 ] be repaired by dealers, vehicles are brought back by the respondents to their factory for repair. The damages caused to vehicles are like damages to door, body shell etc. and such damages are essentially of a cosmetic nature like dents, scratches, fading of the paint finish to the bodies of the vehicles etc. The respondents replace body shells of the damaged vehicles since they are a quality conscious company and even after repair, they want to provide a brand new car to their customers. Except for these damages of cosmetic nature, all major parts of vehicle like engine, tyres, etc. remain intact and as good as new parts. While carrying out repair, the respondents replace few parts like fasteners, rubber parts etc. in all cases since these are low value parts. It is submitted by the respondents that the present dispute is not at all concerned with the vehicles which got damaged after being delivered to dealers, but submit that they only bring back those vehicles to their factory, which got damaged in transit. The respondents categorize the transit damages to vehicles in three categories. Category A pertains to vehicles which are repairable by dealers themselves. Category B pertains to vehicles which are repairable but which are not meant for sale in market. Category C pertains to vehicles which are repairable by respondents only. Amongst various categories of transit damage vehicles, it is Category C vehicles that are brought back by respondents to their factory and these vehicles can be repaired by respondents only. The respondents submit that number of vehicles to which damages occur is very few as compared to total number of vehicles manufactured & sold by respondents. This is evident from the following CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 4 ] table which depicts data of total vehicles repaired as a percentage of total vehicles cleared during the period of dispute:- Period Total vehicles Total vehicles %age of vehicles cleared repaired repaired as %age of vehicles cleared 1997-98 354,355 852 0.24% 1998-99 334,571 631 0.19% 1999-2000 407,433 622 0.15% 2000-2001 310,975 282 0.09% (upto Feb 2001) Total 14,07,316 2,387 0.17% Excise Department issued various Show Cause Notices to respondents contending that process of repair undertaken by respondents amounts to manufacture. These Show Cause Notices pertained to the period April 1997 to March 2002 and demanded duty of Rs.14,68,10,887/- from respondents after allowing adjustment of Rs.2,98,15,214/- to the respondents for duty paid on the body shells. These show cause notices also proposed for recovery of interest & imposition of penalty on the respondents. The Commissioner of Central Excise vide Order-in-Originals dated 28.7.2001 and 28.9.2001 adjudicated the above show cause notices (except for Show Cause Notices dated 8.3.2002 & 29.7.2002 & these Show Cause Notices were adjudicated later on). Ld. Commissioner confirmed duty demands of Rs.14,02,67,876/- against the respondents and also imposed penalty of Rs.1,90,00,000/-. On appeal, the CESTAT remanded the matter vide Final Order dated 12th August, 2002. In the remand proceedings, Commissioner of Central Excise passed impugned order dated 24th February, 2004 vide which he confirmed duty demand of Rs.12,41,59,647/- against the CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 5 ] respondents after reducing Rs.3,03,69,755/- being duty paid on body shells and Rs.1,40,90,087/- being modvat credit available on inputs used for repair. Ld. Commissioner of Central Excise passed impugned order dated 11th March, 2004 vide which he adjudicated Show Cause Notices dated 8.3.2002 & 29.7.2002 and confirmed duty demand of Rs.28,53,345/- after adjusting Rs.30,96,453/- being duty paid on body shells and Rs.20,56,814/- being modvat credit on inputs used for repair. The Tribunal vide impugned Final Order dated 8.6.2004 allowed the appeal filed by the Respondents and set aside the duty demand in respect of export vehicles as also internally damaged vehicles. In respect of the balance duty demand, CESTAT remanded the matter back to original adjudicating authority for considering the claim of Respondents under Rule 173L. Relevant portion of impugned Final Order dated 8.6.2004 is extracted as under:- 5. We have perused the records and heard the learned DR also. He has contended that the Commissioner’s order was legally correct and that there was no irregularity involved in separating claims under Rules 173L and 173H for the purposes of decision. 6. The duty demand in regard to goods originally cleared for domestic consumption which had been returned for repair/re- making had come up before this Tribunal earlier in appeal filed by this appellants and we had disposed of that appeal under Final Order No. 332-333/-02 in Appeal No. 2524/01 [2002 (146) E.L.T. 427 (Tribunal)]. We had specifically held that the appellants are entitled to benefit under Rule 173L and had remanded the case to the lower authorities for reconsideration in the light of provisions of that Rule. It is evident that the Commissioner has passed the present order without considering that claim. In the present case, the duty demand of a huge amount of Rs. 10.5 crores has been raised against the appellants without considering the claim under Rule 173L. The reason given by the Commissioner for such a part disposal of the case on remand is that Rule 173L claim has to be determined by the Assistant Commissioner/Deputy Commissioner. We are not able to agree with this course of action. This is a case where a consolidated disposal was called for and order passed indicating what is the net amount, if any, due from the assessee. Refusal to do so has led to, as we have noted, very unjust duty demand. The Commissioner could have considered the 173L claims also simultaneously since Rules permit a higher officer to perform the functions of a lower authority. CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 6 ] 7. With regard to the demand in respect of goods cleared originally for export, the demand has been made without taking into consideration the provisions of Rule 173M. During the hearing of the case, the learned Counsel has pointed out that in respect of some of the goods covered by other show cause notices involved in the impugned proceedings themselves, no demand had been made in respect of such goods. This demand on this account, therefore, is clearly not maintainable. There is no allegation that the assessee had not brought back to the factory, the cars cleared for export and such return is covered by Rule 173M. The assessee has also accounted for the cars so returned. Therefore, the provisions of Rule 173M are intended clearly to cover situations like the present appellants. Therefore, this demand is not maintainable. 8. With regard to the third demand in respect of 169 cars also, the duty demand is clearly unwarranted. Rule 49 makes it clear that duty is chargeable only on the removal of the goods from the factory or approved place of storage. Rule therefore, permits the manufacturer to carry out whatever processes are required to make the goods marketable. In the present case, repair of cars damaged during the process of manufacture came within the scope of the rule. No dispute is raised that the cars were not damaged or that the appellant is using this as a cover for making other cars. In such circumstances, no duty demand should have been raised. 9. In view of what is stated above, the demand in respect of cars which had been originally cleared for export and later on brought back, is set aside. Similarly, duty demand in respect of 169 cars (Rs.92 lakhs) is also set aside. The demand in relation to the cars which had been cleared for home consumption and brought back subsequently for repair/re-making is remitted to the original authority for passing a fresh order taking into account the appellants’ claim under Rule 173L also. It was argued on behalf of the appellant that the entire matter should be remanded. Learned counsel submits that there can be no piecemeal adjudication. He has further submitted that regarding Rule 173 H the Tribunal has wrongly held that no duty is payable. It was further submitted that the issue of 169 cars was not correctly decided by the Tribunal as Rule 49 and Rule 9 applies squarely to the present case. The respondents submit that no substantial question of law arises for the consideration of this Hon’ble Court. All the questions raised by the revenue in the present appeal are questions of facts. It is submitted that the Tribunal is the last fact finding authority and the Tribunal has CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 7 ] arrived at a correct conclusion after going through detailed facts involved in the present case. The duty demand in the present case pertains to the damaged vehicles that were brought back by the respondents in their factory for repairs. The respondents repaired the aforesaid damaged vehicles and thereafter, cleared them either for home consumption or for exports. As far as the exports of repaired vehicles are concerned, once the vehicles have been ultimately exported, there cannot be any duty demand. As regards the internally damaged vehicles, it is submitted that the respondents have removed such vehicles once only and that too on payment of full excise duty, thus, there cannot be any duty demand in respect of internally damaged vehicles. As regards, the clearance for home consumption are concerned, the respondents were following the procedure under Rule 173H and thus, were clearing the repaired vehicles without payment of excise duty. CESTAT vide Final Order dated 12th August, 2002 held that the process of repair undertaken by the respondents amount to manufacture and that instead of Rule 173H, Rule 173L was applicable to the case of respondents. The respondents submit that even if the activities of repair undertaken by them amounts to manufacture, under Rule 173L also, they would be entitled for refund of duty paid which would be more or less equal to duty payable on the clearance of repaired vehicles. It is also submitted that once the activities of repair undertaken amount to manufacture, the respondents would also become entitled for credit of duty paid on body shells as also credit reversed on parts, used for repairing. Thus, it is submitted that on an overall basis, under Rule 173H, the Respondents have paid excise duty much higher than duty that would have been payable if they would have followed procedure under Rule 173L. CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 8 ] The Tribunal has applied its mind and after proper appreciation of facts has held that no duty can be demanded in respect of repaired vehicles that were exported as also internally damaged vehicles that were cleared on payment of duty. The Tribunal has also correctly held that it would be unfair if the demand by denial of Rule 173H is not taken concurrently with the refund claim under Rule 173L as in such a situation, duty demand would get fastened on the respondents. The Tribunal has also correctly held that a higher officer can perform the functions of lower authority. Regarding the first issue, the Tribunal in its Final Order dated 12th August, 2002 categorically held that Rule 173L of Central Excise Rules, 1944 is applicable to the present case. The Tribunal also allowed the respondents to stake claim of refund under Rule 173L before proper authority who has to take necessary action in accordance with the provisions of law. The Tribunal in regard to this issued held as under:- 6. The duty demand in regard to goods originally cleared for domestic consumption which had been returned for repair/re- making had come up before this Tribunal earlier in appeal filed by this appellants and we had disposed of that appeal under Final Order No. 332-333/-02 in Appeal No. 2524/01 [2002 (146) E.L.T. 427 (Tribunal)]. We had specifically held that the appellants are entitled to benefit under Rule 173L and had remanded the case to the lower authorities for reconsideration in the light of provisions of that Rule. It is evident that the Commissioner has passed the present order without considering that claim. In the present case, the duty demand of a huge amount of Rs. 10.5 crores has been raised against the appellants withoutconsidering the claim under Rule 173L. The reason given by the Commissioner for such a part disposal of the case on remand is that Rule 173L claim has to be determined by the Assistant Commissioner/Deputy Commissioner. We are not able to agree with this course of action. This is a case where a consolidated disposal was called for and order passed indicating what is the net amount, if any, due from the assessee. Refusal to do so has led to, as we have noted, very unjust duty demand. The Commissioner could have considered the 173L claims also simultaneously since Rules permit a higher officer to perform the functions of a lower authority. CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 9 ] Hence the Tribunal has only remanded back the matter. Therefore, there is no question of law involved in the present case. The decision of the CESTAT for remitting the case to the original authority for passing a fresh order, taking into account the claim of respondents under Rule 173L with regard to cars cleared for home consumption but brought back to the factory because of irreparable damage is legally correct and justified as a higher authority can always assume the jurisdiction of the lower authority. . Hence no question of law arises in the present case as the Tribunal has only remanded back. Regarding the second question as raised in the present appeal, the Tribunal in the impugned order has held as under :- 7. With regard to the demand in respect of goods cleared originally for export, the demand has been made without taking into consideration the provisions of Rule 173M. During the hearing of the case, the learned Counsel has pointed out that in respect of some of the goods covered by other show cause notices involved in the impugned proceedings themselves, no demand had been made in respect of such goods. This demand on this account, therefore, is clearly not maintainable. There is no allegation that the assessee had not brought back to the factory, the cars cleared for export and such return is covered by Rule 173M. The assessee has also accounted for the cars so returned. Therefore, the provisions of Rule 173M are intended clearly to cover situations like the present appellants. Therefore, this demand is not maintainable. A perusal of the above shows that CESTAT has correctly held that demand in respect of the goods initially cleared for export & brought back to the factory is not maintainable as the provisions of Rule 173M cover this situation. It is further submitted that Rule 173M permits the return of the goods for the purpose of repairs, reconditioning and similar process. In the present case, the damaged vehicles received by the respondents are not being scrapped as major parts like engine, tyres etc. comprising a vehicle remain intact and this is evident from the fact that engine number of the vehicle remains same. Thus, Tribunal has correctly CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 10 ] applied the provisions of Rule 173M in the present case. Hence no question of law arises. Regarding the third issue, the Tribunal in the impugned order has held as under:- 8. With regard to the third demand in respect of 169 cars also, the duty demand is clearly unwarranted. Rule 49 makes it clear that duty is chargeable only on the removal of the goods from the factory or approved place of storage. Rule therefore, permits the manufacturer to carry out whatever processes are required to make the goods marketable. In the present case, repair of cars damaged during the process of manufacture came within the scope of the rule. No dispute is raised that the cars were not damaged or that the appellant is using this as a cover for making other cars. In such circumstances, no duty demand should have been raised. The Tribunal has correctly held that the repair of cars damaged during the process of manufacture came within the scope of Rule 49 as Rule 49 makes it clear that duty is chargeable only on the removal of the goods from the factory or approved place of storage. It is submitted that the fact that cars were manufactured is irrelevant since the cars were not removed from the factory of Respondents. It is further submitted that Rule 49(1A) of Central Excise Rules is inapplicable to the present case since the present case is not of non-accountal of finished goods but is a case where the finished goods manufactured by respondents were repaired. It is further submitted that the provisions of Rule 49 as well Rule 9 considering removal within the factory as removal are inapplicable in as much as the finished goods manufactured by respondents were damaged and were repaired to make them saleable to end customer. In view of the above, the Tribunal has rightly set aside the demand in respect of cars which had been originally cleared for export but subsequently brought back to the factory premises. The demand of duty in respect of 169 cars amounting to Rs.92 lacs has also been rightly set aside. The Tribunal has rightly remitted the matter to the original authority CENTRAL EXCISE APPEAL NO.31 OF 2005 [ 11 ] for passing a fresh order taking into account the appellants claim under Rule 173L also. In view of the above, we find no infirmity in the order passed by the Tribunal and, accordingly, the appeal is dismissed. (ASHUTOSH MOHUNTA) JUDGE 20.1.2010 (MEHINDER SINGH SULLAR) rupi JUDGE