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Judgment
Appeal has been filed against order-in-original dated 19.3.2010 in terms of which service tax demand of Rs.1,89,22,510/- was confirmed under
Section 28 of Customs Act, 1962 along with interest and equal mandatory penalty under Section 114A of the Customs Act, 1962.
The facts of the case are as under:
The appellant a manufacture of colour picture tubes (CPTs) also used to receive old CPTs under Rule 16 of the Central Excise Rules, 2002 and
repaired the same. It was importing certain goods under the benefit of exemption under Notification No. 25/1999-Cus. dated 28.2.1999. The said
notification provided for concessional rate of Customs duty on goods specified therein when imported into India provided those goods were used for
the manufacture of finished goods. As repair of CPTs did not amount to manufacture, such goods used for repairs were not eligible for the benefit of
Notification No. 25/1999-Cus. The appellant indulged in mis-statement/suppression of facts in as much as the appellant did not disclose the fact of
repairing activity carried out by it using the goods imported at concessional rate of duty under Notification No. 25/1999 while it was in the know of the
fact that repair did not amount to manufacture. It also did not cooperate in providing information sought by Revenue in this regard. For that reason the
Commissioner confirmed impugned differential duty along with interest and penalty.
The appellant has contended that:
(i) Way back 2001 it declared that it was received defective CPTs in its factory for repairs.
(ii) A defective CPTs underwent processes which amounted to manufacture. It cited the CESTAT judgment in case of CCE, Ahmedabad Vs. Tudor
(I) Ltd. - 2006 (197) ELT 53.
(iii) The repaired CPTs were cleared on payment of Central Excise duty.
(iv) It cited judgments in the case of Collector of Central Excise Vs. Chemphar Drugs & Liniments - 1989 (40) ELT 276 (SC )and Padmini Products
Vs. Collector of Central Excise - 1989 (43) ELT 195 (SC )to press the point that the extended period is not invokable in this case. It also cited the
judgment of CESTAT - 2006 (197) EL T 83 (Tri.-), wherein it was held that repair /re-making battery amounted to manufacture.
The Id. D.R. argued that repair of CPTs did not amount to manufacture and the appellant was guilty of suppression/mis-statement as has been
brought out in the impugned order.
We have considered the contentions of both sides. It is seen that the appellant was receiving defective CPTs under Rule 16 of the Central Excise
Rules. The said rule is reproduced below:
RULE 16. duty on goods brought to the factory. - (1) Where any goods on which duty had been paid at the time of removal thereof are
brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such
receipt in his records and shall be entitled to take CENV AT credit of the duty paid as if such goods are received as inputs under the CENV
AT Credit Rules, 2002 and utilise this credit according to the said rules.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an
amount equal to the CENV AT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received
under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4
or section 4A of the Act, as the case may be.
[Explanation. - The amount paid under this sub-rule shall be allowed as CENV AT credit as if it was a duty paid by the manufacturer who
removes the goods.]
(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-
made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be
specified by the Commissioner.
As per the said Rule 16 even if the repair did not amount to manufacture, the appellant was required to pay at the time of clearance of repaired CPTs
an amount equal to the Cenvat credit taken as it had taken Cenvat credit of duty paid on the defective CPT at the time of their earlier clearance from
their factory. The crucial issue in this case is whether repair of CPTs amounted to manufacture. We find that in appellant's own case, - 2004(172)
ELT 236 (Tri.-Del.), CESTAT (in paras 7 & 8) held that the activity of repair of CPT undertaken by the appellant did not amount to manufacture.
Paras 7 & 8 of the said CESTAT judgement are reproduced below:
Yet another document relied on by the Commissioner is a letter dated 28-7-1998 of M/s. Texla Electronics Ltd. addressed to the appellants
that they had received replacement of broken CPTs. Insurance claim of 71 CPTs according to the Commissioner is an indication that the
appellants had been replacing broken CPTs with fresh CPTs in the garb of repairs. It is pointed out by the Learned Counsel for the
appellant that in respect of 71 CPT while it was being transported to the appellants factory for repairs an accident occurred en route and
the CPTs were totally broken. Since CPTs could not be repaired appellants replaced 71 CPTs, In respect of the above mentioned 71 CPTs
appellant had paid central excise duty and interest under intimation to the Superintendent, Central Excise Range before issue of show cause
notice. This is the only goods where insurance claim had been made.
It is also contended by the appellant that the fact that they had reversed Modvat credit to the extent of Rs.3,40,398/- on components like
Magnet, Compation Plate, Sonibond, Rubber Wedge, etc. used in repairs of such defective CPTs would clearly show that they carried out
repair work and not replacement. Learned Counsel for the appellant would further submit that there were no evidence of any excess
production produced by the Department. It was also submitted that denial of Modvat on electron gun is totally unsustainable. If the loss of
electron gun during the process is taken into account correctly it will be seen that there is no diversion of electron gun. According to the
appellant reliance placed on MIS reports by the Commissioner is unjustified. Month-wise MIS report would show the figures of mount yield
varying from 80% to 85%. In the affidavit filed by Shri D.C. Tripathi, Vice President (Works) he explained the different circumstances
under which loss of electron gun comes about in the manufacturing process. Reliance is also placed by the Learned Counsel for the
appellant on the Hand Book of Procedure of Standard Input-Output Norms fixed by DGFT (Ministry of Commerce) under the EXIM Policy,
Sr. No. B23 under the category of 'Electronic Products' is for 100 CPTs 115 electron guns are permitted as import. This would also show
that there will be loss of electron gun in the process of vaccumisation of CPTs after mounting and sealing of electron guns. The appellant
has also contended that the entire demand is barred by limitation.
Thus it is evident that the appellant was fully aware that the repair activity undertaken by it did not amount to manufacture and therefore the goods
used for repair of CPTs were not eligible for the concessional rate of duty under Notification No. 25/1999-Cus. as that exemption was available only
for such goods which were used for the manufacture of finished goods. Therefore, demand of differential duty on such goods which were imported at
concessional rate of duty under Notification No. 25/99-Cus. and were used for repair of CPTs is clearly sustainable.
The appellant has contended that it had informed Revenue wayback in 2001 vide letter dated 23.5.2001 about such repairs. We have perused that
letter dated 23.5.2001. In that letter it is not even indicated that it will be using goods imported at concessional rate of duty under Notification No.
25/1999-Cus. for repair work. Indeed there is no evidence to show that the appellant ever informed Revenue about using goods imported at
concessional rate of duty for such repair work. The appellant was a well established manufacture of CPTs and was fully aware that the concessional
rate of duty was applicable to only such goods as were used for manufacture of excisable goods. It was also aware that its repair activity did not
amount to manufacture as it was so held by CESTAT in its own case wayback in 2004. In spite of that it used such parts for repairs which clearly
shows its intention to evade customs duty by indulging in suppression. Indeed, as has been brought out in the impugned order, when Revenue sought
the information regarding use of such goods it indulged in prevarication instead of providing specific answer. Thus wilful suppression of facts on the
part of the appellant is clearly evident. The judgements in the case of Chemphar Drugs & Liniments (supra) and Padmini Products (supra) essentially
state that mere inaction or failure on the part of the appellant is not sufficient to invoke the extended period and there has to be conscious or deliberate
withholding of information or some positive act on the part of the appellant to demonstrate suppression has to be brought out to invoke the extended
period. In the present case it is evident that the appellant was fully aware that the repair of CPTs did not amount to manufacture, it was also aware
that the goods imported at concessional rate of duty were to be used only for manufacture of excisable goods and still it used those goods for repair.
Not only that when information was sought, it indulged in prevarication. Thus the said judgments do not come to the rescue of the appellant. As
regards the judgment of CEST AT in the case of Tudor (I) Ltd. (supra) referred to by the appellant to advance the proposition that repair /remaking
amounts to manufacture, suffice to say that in that case CESTAT held that the processes undertaken clearly supported the conclusion that they
amounted to manufacture while in its own case, CESTAT had given a finding that repair of CPTs did not amount to manufacture.
In the wake of the analysis above, we do not find any infirmity in the impugned order and therefore the appeal is dismissed.