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
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
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.
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
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.
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
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.
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
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
