Telangana High Court
Commissioner Of Central Excise vs M/S.Shriram Refrigeration Industries on 19 March, 2024
Author: P.Sam Koshy
Bench: P.Sam Koshy, N.Tukaramji
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N.TUKARAMJI
CENTRAL EXCISE APPEAL Nos.57, 58, 59, 60, 61, 62, 63, 64,
65, 66 and 67 of 2005
COMMON JUDGMENT :
(per Hon'ble Sri Justice P.SAM KOSHY) These are eleven appeals where the question of law agitated and the assessee is also common. Therefore, we proceed to decide all the appeals together by a common order.
2. Heard Mr. Dominic Fernandes, learned Senior Standing Counsel for CBIC appearing for the appellant/Department and Mr. Narendra Dave, learned counsel representing Mr. Lakshmi Kumaran Sridharan, learned counsel for the respondent/assessee.
3. The challenge in all these appeals is to the order passed by the Customs Excise and Gold (Control) Appellate Tribunal (for short, 'the Tribunal') whereby the appeals preferred by the assessee challenging the common Order-in-Original (OIO) passed by the Commissioner of Central Excise & Customs, Hyderabad, dated 15.02.1999 has been set aside vide impugned order dated 29.08.2003.
4. The brief facts relevant for decision of these appeals are that the appellant are the manufacturers of compressors, condensing units used in the air conditioners and refrigerators. One of the essential components used by the appellant is stators. It was the case of the 2 Department that the appellant were in the business of manufacturing stators as well at their Service Centre which were used captively in the repair of compressors and that no duty under the Central Excise Act, 1944 (for short 'the Act') on such stators were being discharged.
5. Show cause notices with demand of duty for the period from 01.01.1987 till 01.01.1998 were issued. Subsequently, the OIO was passed holding that the stators received from job workers had all essential characteristics of fully manufactured goods and hence no new product emerged even if it underwent the process of shaping, varnishing and baking.
6. The Department filed an appeal before the Tribunal and the Tribunal reversed the OIO and held that the process undertaken on such stators received i.e. the process of shaping, varnishing and baking amounted to manufacture. The said order was challenged before the Hon'ble Supreme Court and the Hon'ble Supreme Court vide it judgment dated 05.05.2004 which is reported in (2004) 6 SCC 30 affirmed the finding of the Tribunal holding that since the stators was subjected to process of pressing or shaping by hydrolic press so as to ensure it to get fitted and used in compressors. So also it was held that the process of varnishing also becomes necessary process to ensure insulation and without the process of pressing and varnishing these stators cannot be used by the assessee. Hence, it was held to be 3 an activity of manufacture confirming the demand in so far as the stators are concerned.
7. The matter which travelled to the Hon'ble Supreme Court stood decided by the aforementioned judgment was for the period from May, 1992 till January, 1998. The show cause proceedings initiated in respect of the demand of duties and further in respect of penalties under Rule 9(2), 57(A) and 173Q of the Central Excise Rules finally stood decided vide common order dated 15.02.1999 by the Commissioner, Central Excise vide Order-in-Original (Denovo) C.Ex.No.6 to 16/99. Vide the said order, the Commissioner, Central Excise, confirmed a demand of Rs.7,22,93,324.00/- towards duty not paid and in addition, a penalty of Rs.75,00,000/- was also imposed. It was this order which was subjected to challenge in an appeal before the Tribunal by the assesse and the Tribunal vide the impugned order dated 29.08.2003 allowed the appeal setting aside the order of the Commissioner holding that the stators used in compressors by the assessee would not attract Central Excise Act. There was no sufficient material to show that it was a manufactured product at the hands of the assessee. Initially, the Department challenged the order of the Tribunal by way of a Central Excise Appeal before the High Court and the High Court vide its judgment dated 02.05.2008 held that the appeal filed by the Department would not be maintainable under Section 35G of the Act and that it had ought to have been challenged before the Hon'ble Supreme Court under Section 35L of the Act. 4
8. Thereafter, the Department went in for appeal before the Hon'ble Supreme Court vide Civil Appeal No.2589-2599 of 2011. The Hon'ble Supreme Court vide order dated 08.09.2022 has set aside the order of the High Court holding that the appeals were maintainable under Section 35G of the Act and remanded the matters back to the High Court for a fresh consideration of the appeals treating it to be appeals under Section 35G of the Act. Thus, appeals are now being taken up and decided pursuant to the order of remand made by the Hon'ble Supreme Court on 08.09.2022.
9. If we read the first order of the Hon'ble Supreme Court, the issue stands conclusively established that so far as the stators undergoing the process of shaping, varnishing and baking at the Service Centre of the assessee would get attracted as a manufactured good within the meaning of Section 2(f) of the Act. The substantial reason why Hon'ble Supreme Court took the said view was that without the process of pressing for shaping, varnishing for insulation it cannot be used by the assessee in the course of manufacturing or repair of the compressors and therefore, the entire process of undertaking has to be held as an activity of manufacture. There is no quarrel by the learned counsel for the assessee also that the process of shaping, varnishing and baking of the stators would attract the definition of manufactured goods under Section 2(f) of the Act. However, what was being contended by the learned counsel for the assessee in support of the order of the Tribunal was that the assessee 5 had stopped undertaking the work of shaping, varnishing and baking of the stators after 01.05.1992.
10. It was also contended by the learned counsel for the assessee that after 01.05.1992, the assessee started getting the work of shaping, varnishing and baking by awarding job work and as such it stood outsourced to the job workers. Thereby the use of stators in the compressors would not attract the levy of Central Excise. It was in this context that the learned counsel for the assessee supported the order of the Tribunal stating that there was no material produced by the Department to show that beyond 01.05.1992 shaping, varnishing and baking process was undertaken at the units of the assessee or at their Service Centre. In the absence of any cogent material to substantiate this fact, the order of the Tribunal does not warrant interference.
11. At this juncture, learned Senior Standing Counsel for CBIC appearing for the Department contended that even if we hold that the process of shaping, varnishing and baking was being outsourced by way of job work, there were other incidental and ancillary activities carried out with the stators before it was affixed to the compressors making it usable and therefore the other activities carried out other than shaping, varnishing and baking at the Service Center has to be taken note of enabling them to be brought within the definition of Section 2(f) under the Act.
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12. However, when we look into the findings of the Commissioner, vide OIO dated 15.02.1999, the finding is predominantly so far as the stators being subject to undergo the process of shaping, varnishing and baking is concerned. The OIO does not reveal an iota of material or evidence dealing with any other activity or manufacturing process other than shaping, varnishing and baking is concerned. The OIO is also silent on the aspect whether beyond 01.05.1992 the assessee still continued the process of shaping, varnishing and baking at the Service Center. The OIO also did not mention whether or not beyond 01.05.1992, the work of shaping, varnishing and baking being carried out by the assessee by job work that too outside the premises of the Service Center. It is in this context that the finding of the Tribunal in the course of setting aside the OIO passed by the Commissioner deserves to be appreciated which for ready reference is being reproduced herein under:
"(c) We are reinforced in coming to a finding that the appellants submissions as regards the fact whether the activities of shaping, varnishing and baking were discontinued at the Service Centre from May 1992 and transferred to the job workers was true on facts or not, from the report of the Commissioner submitted to this Tribunal on the directions of the Tribunal dated 20.8.1999 and the Tribunal observation thereon that prima facie the claim that activities were transferred from May 1992 to job workers could be upheld.
(d) From para 11.3 of the adjudicator's findings, it is observed that it is admitted that at the stage of hearing, a statement on job work quantity, quantity received from factory and quantity fit for re-use and used was produced and submitted at the hearing. This statement has been rejected only on the grounds that it was not produced earlier to the hearing. When Reconciliation statements 7 produced in defence are not being considered and being rejected on flimsy grounds, the issue of non-reconciliation cannot be now raised. We fail to understand this. From the statement now produced by the appellant and the Show Cause notices, it is apparent that the demands have been made, based on letters and details supplied by the appellants as regards the total quantity of stators used, in the Service Centre, the total number of stators received from outside parties (job workers), as against the total compressors repaired in different series during different periods of time. The plea of the SDR to raise and confirm demands on such stators which might have been rewound in the Service Centre cannot be upheld, since it is the case of the appellant that they shifted the entire operations to job workers and after 01.05.1992 and that has been found to be acceptable. Once the appellants have shifted the entire operations outside to job workers, it would be unreasonable to accept that they carried it out the same at their premises also simultaneously, since it was fairly submitted by the Advocate for the appellants that this Out Servicing was done on advice and understanding of the appellants to keep the Service Centre out of the purview of Central Excise Officers. We find force in that. The submission of SDR to order confirmation of duty on 'Stators' simultaneously coming into existence in the Service Centre is to be rejected since there is no evidence, to that effect, produced."
13. At this juncture, the learned Senior Standing Counsel for CBIC contended that in addition to the job work which the appellant have been given for shaping, varnishing and baking of stators which they were undertaking prior to 01.05.1992, the assessee also is retrieving certain old stators from old scrap compressors which the Service Centre is receiving and the assessee has been subjecting those stators undergo a certain process by which the action can be brought within the purview of manufacturing under the Central Excise Act. Thus, to the aforesaid extent, the impugned order needs to be interfered with. 8
14. However, perusal of the pleadings and the records would reveal that the order of assessment and the other materials available with the appellant do not indicate that the nature of the process undertaken at the assessee's Service Centre in respect of the so-called retrieving old stators from old compressors received by the assessee and mere using of old stators and subjecting the old stators to some process and renewing the same would not be sufficient. Moreover, all these allegations and contentions raised by the learned Senior Standing Counsel for CBIC would amount to be factual in nature. Therefore, in the course of exercising the powers under Section 35G of the Act, this Court cannot interfere with the finding of facts unless there is any strong substantial question of law or perversity made out. On this very ground, we do not find any merits in the appeals preferred by the appellant.
15. In the teeth of the aforesaid finding by the Tribunal and that no sufficient material available with the Department to negate the said finding given by the Tribunal, we also find it difficult to interfere with the said finding of the Tribunal. All these appeals filed by the Department therefore being devoid of merits, deserves to and are accordingly rejected.
16. There is yet another ground which we find on which the appeals would not sustainable, is the fact that as on date, the appeals are hit by the circular of the CBIT whereby the monetary limit for pursuing 9 an appeal before a Court of law, particularly the High Court, has been has been raised at Rs.1crore and the tax liability in each of the appeals is less than the monetary limit fixed by CBIT. For this reason also, we are not inclined to entertain the appeals and the same stands rejected.
17. No order as to costs.
18. Consequently, miscellaneous applications pending if any, shall stand closed.
___________________ P.SAM KOSHY, J ___________________ N.TUKARAMJI, J Date: 19.03.2024 GSD