Case: M/S. Escorts Ltd Vs. Commnr. Of Central Excise, Faridabad

2. By a show cause notice dated 31.1.2001, the Department for the period aforesaid relied upon evidence in the form of statements made by various officers of the appellant and other documentary evidence to show that Transmission Assemblies of tractors was a commodity known to the market as such and, therefore, came into the category of excisable goods. The respondent by their reply dated 1.10.2001 denied this stating that no separate product known as Transmission Assemblies came into existence which is known to the commercial community as such and, therefore, there was neither manufacture nor marketability of the same. In the reply, however, various statements were made which, in fact, amount to admissions, that Transmission Assembly of a tractor is, in fact, known to the market as such. These admissions are set outIt is submitted that transmission assemblies are in fact interchangeable. The Transmission Assembly can be used in both dutiable as well as exempt tractors, for example in Model No.325 (exempt tractor) and Model No.335 (dutiable tractor). Therefore, it serves as a common input for both tractors. Therefore, in terms of provisions of Rule 57CC MODVAT credit is admissible on the common inputs which form part of transmission assemblies in turn used in the manufacture of both types of Tractors.47.1. The department has relied upon the case of M/s International Tractors Ltd., Hoshiarpur who are supplying transmission assemblies.(a) The Notice contends that M/s. Mahindra & Mahindra have not purchased any transmission assemblies for use in tractors from any other unit. Further, they have not supplied or transferred any transmission assemblies to any other person. However, they have been supplying the transmission assembly to their own units at Nagpur and Rudhrapur for manufacturing tractors.(b) It is submitted that this letter can at most lead to a conclusion that the transmission assembly made by M & M is marketable.50. The show cause notice has placed reliance on certain other web site to contend that the Hoovers on-line web site and Carraro web site shows that transmission assemblies are marketed and sold. It is submitted that while there might be mass production of transmission assemblies marketed by Hoovers Carraro, etc., the product specific transmission assemblies of the noticees never come to the market and have never been sold. Hence, there can be no question of demanding duty on the transmission assemblies made on the assembly line and used for assembling the tractors in the noticees factory. These are not marketable and hence, are not goods and there is no removal under Rule 9 and 49.The Commissioner by an order dated 4.10.2002 held asI find that the issue has been well examined in the notice. Noticees plea that the impugned transmission assemblies are not goods as transmission assemblies do not have independent existence is without merit. Noticee in fact itself clears such goods on payment of duty to ECEL, Transmission assemblies are well known in the commercial world and are very much dealt with as a commercial commodity. The end use as put forth in the notice amply proves it. To reiterate transmission assemblies are cleared by the noticee to ECEL; noticee companys sister concern (Farmtrac Division) imported transmission assemblies from Carraro Spa of Italy and also purchased transmission assemblies from Carraro India Limited, Pune; M/s TAFE, Chennai, International Tractors Ltd., Hoshiarpur, Mahindra & Mahindra all deal in transmission assemblies and further information regarding transmission assembly availability as such is also available on internet.42. Noticees submission that no identifiable transmission assembly emerges in their production of Tractors is also incorrect. They are manufacturing transmission assemblies for their tractors as well as for ECEL. Of course transmission assemblies meant for different models of machines/vehicles will be of slightly different specifications from each other but as a whole transmission assemblies are one identifiable commercial product as already discussed. I also note that the concerned persons of the noticee company themselves have admitted that transmission assemblies do emerge as identifiable goods. Statements of Sh. K.K. Kachroo, Manager Excise, Shri Vinod Ahuja, Plant Head, Sh. Ramesh Kumar Khurana, Chief Manager Production all admit this fact. Even otherwise manufacturing of the tractors in the noticees factory cannot be accepted as such a continuous process in which raw materials are fed in the machine at one end and final product emerges at another. Only in such a case, can it be believed that there is no independent identifiable intermediate stage of goods. The procedure as adopted by the noticee is basically assembly of various parts & components and of course all these parts and accessories which are manufactured by the noticee in their factory as identifiable goods are excisable themselves. Therefore, the emergence of I.C. Engines is excisable and so also the emergence of the transmission assembly is also excisable. In fact in the case of Pratap Rajashtan Copper Foils Vs. CCE -1999(109) ELT 288 (T) it was held that duty is payable on intermediate products even if some minor processes were not carried to make the product marketable.43. I also find that the noticee in their reply has laid great emphasis on their argument that their tractors are manufactured as a result of integrated manufacturing process on the assembly line and therefore there is no removal of intermediate goods, if any, in terms of Rule 9 or Rule 49. I have to reiterate that noticees plea is inadmissible. In terms of Rule 9 and 49, intermediate goods emerging during such integrated assembly line production would be deemed to have been cleared for production and therefore liable to Central Excise duty. Besides facts of the case are entirely different as has been stated by the noticee companys concerned persons in their statements. Assembly of a vehicle or machine on line or otherwise still remains assembly i.e. various parts and components are either manufactured first by the assessee himself or procured from outside and then assembled to produce the resulting machine. All excisable goods emerging during such assembly or production are themselves excisable as intermediate goods meant for captive consumption unless or until specifically exempt. Transmission assembly is one such excisable intermediate product and therefore its duty liability is obvious. Therefore, I hold that these are independent, identifiable, commercial goods capable of being bought and sold in the market and, therefore, are excisable goods leviable to Central Excise duty under Section 3 of the Central Excise Act, 1944. That impugned transmission assemblies have been used captively in production of Tractors cleared at Nil rate of duty is not denied by the noticee. The captive consumption exemption Notification No. 67/95-C E dated 16.3.95, as amended, debars such intermediate products used in production of exempt final products, from the duty exemption under the notification. As the final product i.e. Tractors were exempt, the impugned transmission assemblies did attract Central Excise duty. I hold that all the observations in the show cause notice regarding excisability of the impugned goods are correct. I also note that as far as the classification of the product is concerned, the same has not been challenged by the noticee.By the impugned judgment dated 27.5.2004, CESTAT dismissed the appealWe have considered the submissions of both the sides. The Central Excise duty is leviable on goods manufactured in India. "Manufacture" as per the judgment of the Supreme Court in the case of Union of India vs. Delhi Cloth and General Mills, 1977 (1) ELT (J 199) "implies a change .... and there must be transformation; a new and different article must emerge having a distinctive name, character or use."The Supreme Court, after referring to various judgments on the concept of the manufacture, has laid down a two fold test for deciding whether the process is that of "manufacture" in Union of India vs. J. G. Glass, 1998 (97) ELT 5(S.C.) as follows, "First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the saidWe find that this two fold tests laid down by the Supreme Court is satisfied in respect of the transmission assembly coming into existence during the course of manufacture of tractors by the Appellants. After assembly of various parts and components a new and different article known as transmission assembly emerges having a distinctive name, character and use and but for the manipulation undertaken by the Appellants, the parts and components would not have served the purpose which a transmission assembly performs. The impugned product is also marketable as the learned Senior Departmental Representative has mentioned the fact of its being imported by the Appellants themselves (Farmtrac Division); the clearance of the transmission assembly by the Appellants to their subsidiary company M/s. Escorts Construction Equipment Ltd. and the removal of transmission assembly by M/s. Tractors and Farm Equipment Ltd. The mere fact that the impugned product is meant only for the tractors manufactured by them will not mean that the impugned product is not capable of being brought to the market for being bought and sold. The Supreme Court in the case of A.P. State Electricity Board vs. CCE, Hyderabad, 1994 (70) ELT 3 (S.C.) has held that the marketability is essentially a question of fact to be decided in the facts of each case. The fact that the goods are not, in fact, marketed is of no relevance. So long the goods arc marketable, they are goods for the purpose of Section 3 of the Central Excise Act. It is not necessary that the goods should be generally available in the market. We, therefore, uphold the finding in the impugned order that the transmission assembly is an excisable goods exigible to Central Excise

Reasoning:
9. Although the definition ofis an inclusive one, it is clear that materials, commodities and articles spoken of in the definition take colour from one another. In order to beit is clear that they should be known to the market as materials, commodities and articles that are capable of being sold.The facts in the present case show that Transmission Assemblies of tractors are commercially known products as has been pointed out above. The fact that not a single sale of such Assembly has been made by the appellants is irrelevant. This being the case, we are of the view that the Transmission Assembly of the tractor on the facts before us is clearly an intermediate product which is a distinct product commercially known to the market as such. On this ground therefore, the appellants are not liable to succeed.Added to this, the appellants have also clearly stated that not a single Transmission Assembly has in fact been sold by them in the market. On these facts, we are of the opinion that the appellants would fall within the test laid down in two judgments of this Court.Judged by this test, it is clear that on facts in the present case there was no suppression on the part of the appellants nor was there any willful attempt to evade duty. As stated by the appellant, the appellant has been manufacturing tractors from 1965 onwards. There has never been any change in the manufacturing process. In the year 1994-95, IC engines were stated by the department to contain Transmission Assemblies, which were dutiable. On receiving a reply from the appellant, the department did not levy any excise duty on such Transmission Assemblies. The show-cause notice itself stated that the issue of manufacture and captive consumption of Transmission Assemblies for tractors is the same as that for IC engines. These facts, coupled with the fact that not a single Transmission Assembly of tractors manufactured by the appellant had been sold makes it clear that there was no suppression or any intent to evade excise duty in the present case. We feel that the show cause notice needs to be quashed on this ground alone. Accordingly, the appeal is allowed, and the judgment dated 27.5.2004 passed by CESTAT is set aside.In view of what is stated in Civil Appeal No.6561 of 2004, the part of the order in original and the CESTAT order on merits have to be set aside. However, for the self-same reasons as are contained in Civil Appeal No.6561 of 2004, we hold that the extended period of limitation is not available as we are satisfied that the reply extracted above of the respondent shows that the respondent bona fide believed that Transmission Assemblies were not dutiable. In the circumstances, the appeals of the revenue shall stand dismissed on this ground.The facts in this appeal are as follows. The period involved is April, 1996 to May, 1998 and the show cause notice is dated 1.5.2001. As the impugned judgment in this case by CESTAT merely follows the Escorts case i.e. Civil Appeal No.6561 of 2004, we hold that the finding of the authorities on merits is correct. However, in this case also the extended period of limitation is not available to theintention to evade duty is clear from the statement of Shri P.C. Kale dated 12.04.2001 as the noticee was knowing that duty is required to be paid on the goods which go into the assembly of the tractor of engine capacity less than 1800 CC. As such tractors were exempt from duty during the relevant period. Knowing this fact very well and not declaring the transmission assembly or chassis assembly in the classification declaration and clearing such transmission assembly/ chassis assembly without payment of duty without recording their production in the statutory records and without filing the RT-12 returns for the production and clearance of such transmission assembly/ chassis assembly clearly established that this was done with an intention to evade payment of duty.We find that in successive declarations made by the assessee in this case starting from 16.3.1995 the assessee had declared not merely the tractor but the chassis therefor. The assessee bonafide believed that the declaration of the chassis would suffice as according to them Transmission Assemblies were not taxable goods. The intention to evade duty is according to the Commissioner made out from a statement made by Shri P.C. Kale dated 12.4.2001. It is pointed out by learned counsel appearing on behalf of the appellant that in the memorandum of appeal filed against the order in original, Shri P.C. Kale was never in the employment of the appellant during the relevant period as he joined the appellant only in July, 2000. Apart from this, it is also pointed out that the appellant is a public sector company governed by a Board of Directors consisting of IAS Officers.