Xerox India Ltd. vs Commissioner of Central Excise, Meerut-II

We have heard Sri M.P. Devnath assisted by Sri Nishant Mishra for the appellants. Sri S.P. Kesarwani, appears for the respondents-department. On 24-2-2011, the appeal was entertained on the following substantial questions of law :-

(i) Whether the processes undertaken by the assessee amount to "manufacture" or not?

(ii) Whether the processes undertaken by the assessee at Rampur warehouse being similar to the processes undertaken by the assessee at Hyderabad warehouse and the evidence being same, the Tribunal bench at Delhi could distinguish the earlier decision of Tribunal bench at Bangalore, to arrive at a different conclusion?

(iii) Whether in the circumstances of the case, the extended five years period of limitation could be invoked by the Excise Department or not?

(iv) Whether in the circumstances of the case, any penalty could be imposed?

It is submitted that the appellant was served with a show cause notice by the assessing authority both at Hyderabad and Rampur, where the Company have warehouses, in respect of demand of excise duty, on the alleged manufacture of photocopier through the Company during April 2002 to November 2005, and equal penalty imposed u/s 11 of the Central Excise Act 1944.

The Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Bangalore (in short CESTAT, Bangalore), vacated the demand and penalty on the Company, and the personal penalties imposed on the executives of the Company on the findings recorded in its order dated 9-11-2009 - 2010 (173) ECR 43 , as follows :-

"We observe that XIL imported Xerox brand photocopiers of different models in CKD form including printers. These consignments on import were received in the warehouse of the Appellants at Hyderabad and Rampur. The major component called "work centre" and other parts (modules) were received in separate packing. In the power point presentation made in the Court by the Appellant, it was shown that these modules to be fitted to the work centre were dispatched from the warehouse at Hyderabad in original packing. The Appellants undertook the process of kitting in the warehouse as follows. The imported components are grouped in sets of complete machines, with or without printers, depending on the Orders received. Each machine is assigned a unique identification number. The complete machines so configured and grouped are sold, or dispatched to various depots for sale to customers. Even though the learned Special Counsel for the Revenue submitted that certain components like HCF and DADF were fitted on work centre, he admitted that there was no evidence in support of this claim. The learned Counsel for the Assessee explained the statement relied on by the learned Special Counsel that the same was to the effect that HCF and DADF were fitted at the factory of the Appellant''s principals abroad. We find from the records that HCF and DADF were factory fitted; no fitting or assembly of any part took place in the warehouse of the Appellants. The transactions involved were receipt of photocopiers in CKD condition; imported, classified, assessed and charged to Customs Duty and CVD as complete machines of CH 8471. These were cleared from the warehouse in sets of components of complete photocopier machines without undertaking any process whatsoever involving them. The components alleged to have been fitted to the main module were cleared in original packing. We find that elaborate arguments advanced to establish that a process of manufacture had been undertaken by the Appellants before photocopier machines were cleared from the warehouse are entirely without any basis in facts. The Commissioner found that the Appellants undertook assembly without making any verification whatsoever. We do not find any deposition by the executives stating that the modules were assembled in the warehouse. The legal arguments advanced by the Revenue are based on Note 6 of Chapter XVI of the CET. This note reads as follows :

In respect of goods covered by this Section, conversion of an Article which is incomplete or unfinished but having the essential character of the complete or finished Article (Including "blank," that is an Article, not ready for direct use, having the approximate shape or outline of the finished Article or part, and which can only be used, other than in exceptional cases, for completion into a finished Article or a part), into complete or finished Article shall amount to "manufacture".

We find that the Appellants did not carry but any activity as envisaged in this note. The components received in sets were cleared as such; no conversion of an incomplete machine into complete machine took place in the warehouse of the Appellants. Assembly of components into photocopiers took place at the premises of the respective buyers. In view of this factual position the arguments advanced by the Revenue are totally irrelevant.

The learned Spl. Counsel argued that the components imported were assembled in the warehouse by kitting and this operation using the computer system was assembly, though not in a physical sense. This logic seeks to support the finding of the Commissioner that XIL assembled components in the warehouse. However, we find that in a case involving parts of copier machines process of manufacture can only be a physical process. A computer cannot produce any tangible goods such as photocopiers.

The learned Spl. Counsel for Revenue relied on case laws to support the view that there was manufacture in the process described and cited (i) 2001 (73) ECC 620 (ii) Tanzeem Screenarts v. CCE, Mumbai-I, 2006 (196) E.L.T. 209 (Tri.-Mumbai) and (iii) Commissioner of C. Ex., Coimbatore v. VXL Systems, 2009 (235) E.L.T. 109 (Tri.-Chennai). In these cases there were components manufactured and/or components assembled by the Assessee concerned to make complete machine. In the case on hand, the parts found to have been fitted to the main module were not dealt with except for removing them in sets in their original packing. By grouping the parts of a complete copier with printer or without printer, assigning the parts in each set a unique number using a computer, we hold, does not amount to manufacture. There is no conversion of an incomplete machine into a complete machine in the warehouse to attract the Section Note 6 of Section XVI. The learned Special Counsel could not show to us assembling of any two parts taking place before the impugned clearances from the warehouse as found by the Commissioner, If the plug pin is changed to suit the electrical fittings in vogue in the country, it is idle to argue that it is a material process of manufacture. Nothing new emerges from this process and every process is not manufacture as held by the Apex Court in its Judgment in the Union of India v. Delhi Cloth Mills 1977 (1) E.L.T. 199 (S.C.) case. Already complete photocopiers are in existence in CKD condition. There is no manufacture and demand of duty on such a finding is liable to be vacated.

As the demand and penalty on XIL are vacated, the personal penalties imposed on the executives of XIL on a finding of the XIL having manufactured and cleared excisable goods without payment of Excise Duty and the Appellants having knowingly dealt with such offending goods are not sustainable. In the circumstances, the impugned Order is set aside and all the three appeals allowed."

By the order dated 30-11-2010 [ 2011 (270) ELT 395 , passed by the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi under challenge in this Appeal for the same period on identical notice and issue, the Appellate Tribunal did not find any infirmity in the adjudication order of the Commissioner.

Learned counsel for the appellant submits that on the same facts and notices, the Appellate Tribunal of the Principal Bench at New Delhi could not have come to different conclusion. He submits that the opinion expressed by the CESTAT, Bangalore was placed before the CESTAT, New Delhi. The CESTAT, New Delhi has justified its order for the following reasons :-

"82. In fact, it is also evident from the order passed by the Bangalore Bench itself and particularly in para 8 thereof wherein it has been stated thus :-

"8. The ld. Spl. Counsel for Revenue relied on case laws to support the view that there was manufacture in the process described and cited (i) 2001 (73) ECC 620 , (ii) Tanzeem Screenarts v. CCE, Mumbai-I [ 2006 (196) E.L.T. 209 (Tri. Mumbai)] and (iii) Commissioner of C. Ex. Coimbatore v. VXL Systems [2009 (235) E.L.T. 109 (Tri. Chennai)]. In these cases there were components manufactured and/or components assembled by the assessee concerned to make complete machine. In the case on hand the parts found to have been fitted to the main module were not dealt with except for removing them in sets in their original packing. By grouping the parts of a complete copier with printer or without printer, assigning the parts in each set a unique number using a computer, we hold, does not amount to manufacture. There is no conversion of an incomplete machine into a complete machine in the warehouse to attract the Section Note 6 of Section ZVI".

(Emphasis supplied)

Therein it was a case of grouping and not of assembling.

As regards the activities undertaken by the appellants for "XMart" product referred as refurbishing activity at Jolly Godown Rampur, the adjudicating authority on the basis of analysis of the entire record has clearly described the activity as that the old machine after repairing were not merely cleared as such but they were cleared with a new frame/body. The cannibalized parts from old machine alongwith now ones procured from the appellants" factory were assembled within a new frame/body and thus a new machine came into existence with new identity as "XMart". The product so manufactured was not same as no original commercial identity as a photocopier was retained and on the contrary, it acquired new commercial identity with use of new different parts in the process of manufacture thereof. It is also pertinent to note that after December 2003, the appellants shifted very same activities from their Jolly Godown to their factory premises and they have been paying duty on the machines so manufactured and cleared. Being so, we find no fault with the impugned order rejecting the contention that the refurbishing activities undertaken by the appellants in respect of their product "XMart" in their Jolly Godown did not amount to manufacture.

It is also sought to be contended that the appellants having acted under bona fide belief that no duty was payable on the subject goods on the ground that there was no activity amounting to manufacture, there was no justification for invocation of extended period of limitation. As regards the contention about absence of manufacturing activities, as already held above the activities carried out by the appellants in the premises at Rampur clearly disclosed that the same were in the nature of manufacturing activity. Being so, there was no occasion for the appellants to harbour any belief that such activity did not amount to manufacture. In fact, the situation was made clear in their own case and the decision in Xerox Modicorp Limited was very clear in that regard. Inspite of the above fact, the relevant information was suppressed from the department and they misdeclared their activity as trading activity and thereby willfully indulged in contravention of the provisions of the said Act and the Rules made thereunder with intent to evade the duty payable on those goods. Obviously, therefore, the authorities were justified in invoking extended period of limitation.

As regards the claim for cenvat credit, obviously, the assessee has to comply with the provisions of law for claiming such benefit. No material on record has been pointed out which would reveal entitlement for such benefit to the appellants at this stage. Submissions are required to be made on the basis of actual foundation which are very much lacking in the case in hand in relation to the said contention on behalf of the appellants. It would be for the assessee to establish that they had complied with the requirements of the provisions of the Cenvat Credit Rules, 2002 as amended by Cenvat Credit Rules, 2004 which clearly required maintenance of proper records regarding receipt of the inputs and utilization thereof, inventory of inputs, the credit utilized in terms of the provision of law etc. It would be obviously for the assessee to claim such benefit and to establish the same, by following the procedure in accordance with law.

Yet another ground which was sought to be canvassed, though half heartedly, in the course of oral submissions was about the absence of jurisdiction to the Commissioner at Meerut to deal with the matter, though no such ground is found to have been included in the memo of appeal or in the written submissions.

The Commissioner while dealing with the said issue regarding jurisdiction has held that the major activities of assembling of the machines were performed at warehouse/factory premises at Rampur and mere installation was done at the site of customer and hence the activity of manufacturing was essentially undertaken at Rampur which fell within the jurisdiction of Commissioner at Meerut and therefore, the authority had the jurisdiction to deal with the matter. The Commissioner has applied the ratio of the order in the matter of Raltronics Limited v. Union of India reported in 1994 (71) E.L.T 26 (Kar.) while holding that when the cause of action or part thereof arises within the territorial jurisdiction of a particular officer he is competent to investigate and/or adjudicate into the matter even in relation to the part of the cause of action arising out of his jurisdiction.

It is settled law that when a cause of action in relation to offendable incident or in relation to series of activities which are offendable or the violation of the provisions of law arises within the jurisdiction of different investigating officers or adjudicating officers, every such officer will have jurisdiction to investigate and or adjudicate upon such offence or violation arising in all such territories. Merely because installation was carried out beyond territorial jurisdiction of Meerut Commissionerate once it is established that the major activity of manufacturing in relation to such machines was carried out at Rampur which lies within the jurisdiction of Meerut Commissionerate, it cannot be said that Commissioner at Meerut had no jurisdiction to investigate and adjudicate upon the matter"

Learned counsel for the appellant relied upon decision of the Supreme Court in Gammon India Ltd. Vs. Commissioner of Customs, Mumbai, , in which similar situation has occurred. The Supreme Court, expressing its deep concern on the conduct of two Benches of the Tribunal, in deciding appeals taking contrary view, has held in para 24 as follows :-

"24. Before parting, we wish to place on record our deep concern on the conduct of the two Benches of the Tribunal deciding appeals in the cases of IVRCL Infrastructures & Projects Ltd, (supra) & Techni Bharathi Ltd. (supra). After noticing the decision of a coordinate Bench in the present case, they still thought it fit to proceed to take a view totally contrary to the view taken in the earlier judgment, thereby creating a judicial uncertainty with regard to the declaration of law involved on an identical issue in respect of the same Exemption Notification.

It needs to be emphasised that if a Bench of a Tribunal, in identical fact situation, is permitted to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on earlier occasion, that will be destructive of the institutional integrity itself. What is important is the Tribunal as an institution and not the personality of the members constituting it. If a Bench of the Tribunal wishes to take a view different from the one taken by the earlier Bench, the propriety demands that it should place the matter before the President of the Tribunal so that the case is referred to a Larger Bench, for which provision exists in the Act itself. In this behalf, the following observations by a three Judge Bench of this Court in Sub-Inspector Rooplal & Anr. v. Lt. Governor & Ors. are quite apposite :

"At the outset, we must express our serious dissatisfaction in regard to the manner in which a Coordinate Bench of the Tribunal has overruled, in effect, an earlier judgment of another Coordinate Bench of the same Tribunal. This is opposed to all principles of judicial discipline. If at all, the subsequent Bench of the Tribunal was of the opinion that the earlier view taken by the Coordinate Bench of the same Tribunal was incorrect, it ought to have referred the matter to a Larger Bench so that the difference of opinion between the two Coordinate Benches on the same point could have been avoided. It is not as if the latter Bench was unaware of the judgment of the earlier Bench but knowingly it proceeded to disagree with the said judgment against all known rules of precedents. Precedents which enunciate rules of law form the foundation of administration of justice under our system. This is a fundamental principle which every presiding officer of a judicial forum ought to know, for consistency in interpretation of law alone can lead to public confidence in our judicial system. This Court has laid down time and again 8 S.I. Rooplal and Another Vs. Lt. Governor Through Chief Secretary, Delhi and Others, that precedent law must be followed by all concerned; deviation from the same should be only on a procedure known to law. A subordinate court is bound by the enunciation of law made by the superior courts. A Coordinate Bench of a Court cannot pronounce judgment contrary to declaration of law made by another Bench. It can only refer it to a Larger Bench if it disagrees with the earlier pronouncement."

We respectfully concur with these observations and are confident that all the Courts and various Tribunals in the country shall follow these salutary observations in letter and spirit."

It is submitted by the learned counsel for the appellant that in the facts and circumstances, in which a similar notices and same facts and evidence was involved, the only course open to CESTAT, New Delhi, if it wanted to disagree with the opinion of CESTAT, Bangalore, was to refer the matter to a Larger Bench.

S.P. Kesarwani, learned counsel for the respondent-department submits that both the adjudicating authorities acted in their own territorial jurisdiction, and that the CESTAT, New Delhi, levied duty and penalty on the facts and evidence, as they were placed and as considered by the adjudicating authority. He submits that there is nothing wrong in the judgement of the CESTAT, New Delhi, where it discarded the contention of the appellant, after considering the reasons given by CESTAT, Bangalore, that the activities of the Company will fall within the meaning of manufacturing.

We are informed that an appeal against the order of the CESTAT, Bangalore is pending in the Supreme Court, in which no interim orders have been passed.

We have considered the respectful submissions, and find that there are contrary opinions expressed by the Tribunals on the same facts and evidence, which were placed before them. Even if the CESTAT, New Delhi did not agree with the reasoning given by the CESTAT, Bangalore, in similar proceedings on the same facts, it should have followed the practice of referring the matter to a Larger Bench. Apart from institutional integrity, we also find that the same Company, in respect of same period in the same activities, could not be subjected to different opinions expressed by the Tribunal, causing doubts and confusion over the liability. Such conflicting opinions by different benches of the Tribunal are not conducive to business and trade and can cause adverse effect on the economy of the country.

The Supreme Court in Gammon India Ltd. (supra), has relied upon three Judges Bench of the Supreme Court in S.I. Rooplal and Another Vs. Lt. Governor Through Chief Secretary, Delhi and Others, , in which it was held that a Coordinate Bench of a Court cannot pronounce judgment contrary to declaration of law made by another Bench. It can only refer it to a Larger Bench.

For the reasons given above, we set aside the order of the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi dated 30-11-2010 and remit the matter back to the Tribunal to decide the matter in accordance with law. If the bench of CESTAT, New Delhi does not agree with the reasons given by the CESTAT, Bangalore in its order dated 9-11-2009, it may refer the matter to the President of the Tribunal to be referred to a Larger Bench. The Central Excise Appeal is allowed, and the matter is remanded to CESTAT, New Delhi, to decide the matter afresh in the light of the directions given in this judgment.