2004 (97) ECC 666 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench : Bangalore

Dr. S.L. Peeran, Member (J) and Shri K.C. Mamgain, Member (T)

Boving Fouress Ltd., Hoskote

Versus

Commissioner of Central Excise, Chennai/Bangalore

Cross Appeal

Appeal No. E/1925/99, E/14/2001 & E/1060/2003

[Arising out of (1) & (2) Order-in-Original No. 20/99 dated 28.9.1999 passed by the Commissioner of Central Excise, Chennai and (3) Order-in-Appeal No. 202/2003 dated 31.7.2003, passed by the Commissioner of Central Excise (Appeals), Bangalore]

Final Order No. 1292-1294/2004, dt. 27.7.2004, Certified on 3.8.2004

Exemption (C. Excise)

Notification No. 205/88-CE dt.25.2.88 -- CKD/SKD condition or cleared components, parts and sub assemblies of turbine -- Turbine -- Whether they are eligible for exemption under Notification No. 205/88-CE dt.25.2.88 (No) -- Assessee Received -- Order for manufacture of complete turbine but they were manufacturing only parts and sub-assemblies of turbines in their factory and testing in their factory and other parts are bought out from the market and directly taken to site where turbine to be erected and commissioned. Therefore, turbine comes into existence only at site of the customer and not at the factory of the assesses. Therefore, they are not eligible for exemption on the parts and sub-assemblies of turbine as turbine in CKD condition r/w in terms of Rule 2(a) of the Interpretative Rules of the Tariff.

Demand (C. Excise)

Limitation -- Turbine -- When assessees were aware that other parts of turbine are bought out items and are directly taken to site where turbine come into existence is a clear cut suppression and mis-declaration of the facts with an intent to evade payment of duty. Therefore, extended period under proviso to Section 11A invocable -- Sec. 11A of CEA.

PRESENT :

Shri K.S. Ravi Shankar, Adv. for the Assessee.

Shri P.M. Saleem, SDR for the Revenue.

Cases Cited :

1. CCE, Chennai v. Conveyor Equipments (P) Ltd., 2001 (127) ELT 478 (Tri).......... [Para 2]

2. CCE, Delhi-III v. BHP Engineers, 2000 (119) ELT 599 (Tri)................................ [Para 2]

3. CCE, Madras v. Grasim Industries v. CCE, Madras, 1997 (68) ECR 152 (Tri)...... [Para 2]

4. Flat Products Equipments (I) Ltd. v. CCE, Mumbai-III, 2003 (155) ELT 629 (Tri).. [Para 2]

5. Linemaph Chemicals v. UOI, 1993 (44) ECC 79 (Mad)....................................... [Para 4]

6. Nalanda Pen Manufacturing Co. Pvt. Ltd. v. Collector, 1998 (102) ELT 289 (T).... [Para 2]

7. National Steel Industries v. CCE, Chandigarh, 1999 (111)
ELT 80 (Tri).................................................................................................. [Para 2]

8. Sulzer Flovel Hydro Ltd. v. CCE, Delhi II,
2004 (114) ECR 616 (Tri.-Del)........................................................................ [Para 2]

9. Tamilnadu Housing Board v. Collector, 1994 (74) ELT 9 (SC)............................. [Para 4]

10. Vinar Systems Ltd. v. CCE, Calcutta-II, 2001 (131)
ELT 578 (Tri.-Kol)......................................................................................... [Para 2]

11. Vishwa Industrial Co. (P) Ltd. v. CCE, Calcutta-II, 1999 (107) ELT 774 (Tri)...... [Para 2]

Per : K.C. Mamgain

The Appeal No. E/1925/99 is filed by M/s Boving Fouress Ltd., Hoskote, whereas the Appeal No. E/14/2001 is filed by the Revenue, against the common impugned Order-in-Original No 20/99 dated 28.9.1999, passed by Commissioner of Central Excise, Chennai and the Appeal No. E/1060/2003 is filed by the Revenue against the Order-in-Appeal No. 202/2003 dated 31.7.2003, Passed by the Commissioner of Central Excise (Appeals), Bangalore. Since the issue involved in all these Appeals is common, these were taken up together for hearing and are being disposed of by this common order.

E/1925/99

2. Shri K.S. Ravi Shankar, Ld. Advocate appearing for M/s Boving Fouress Ltd.(hereinafter referred to as M/s BFL) pleaded that the appellants are manufacturers of Turbines and were claiming benefit of Notification No. 205/88-CE dated 25.5.88. The turbines were cleared in CKD/SKD condition. The mega-wattage and size of the turbines are such that the same cannot be cleared in a fully assembled condition. These were dispatched in CKD condition to the locations from the appellant's factory in Hoskot in Bangalore. Some of the parts of the turbine are out-sourced by the appellants, tested in their factory and sent alongwith the manufactured goods to the site of the customer. However, the Officers of Directorate General of Anti Evasion (Central Excise), Bangalore, visited the appellant's factory and conducted investigations. Consequent to which a show cause notice was issued to the appellants. It was alleged that they have wrongly availed benefit of Notification No. 205/88-CE by claiming that turbines were manufactured and cleared by them whereas they were clearing parts of turbines. The Commissioner in his Order-in-Original No. 20/99 dated 28.9.1999 in Para 25 has observed that--

"25. Of course, there is no denying the fact that BFL are manufacturers of Turbines. Though all the essential components were manufactured only by BFL, the stage at which such goods were cleared from their factory, they can be called only as parts/sub-assembles of turbines and not as turbines. They do not satisfy the essentialities, in terms of Rule 2 (a) of the Interpretive Rules, of finished goods and hence they need to be classified only as parts and sub-assemblies of a turbine."

He accordingly confirmed the demand of Rs. 17,400 and imposed equivalent penalty. Ld. Advocate relied on the following decisions where goods were cleared in CKD condition but were classified as complete goods.

(i) Sulzer Flovel Hydro Ltd. v. CCE, Delhi II, 2004 (114) ECR 616 (Tri.-Del)

(ii) Vishwa Industrial Co. (P) Ltd. v. CCE, Calcutta-II, 1999 (107) ELT 774 (Tri)

(iii) CCE, Madras v. Grasim Industries v. CCE, Madras, 1997 (68) ECR 152 (Tri)

(iv) Flat Products Equipments (I) Ltd. v. CCE, Mumbai-III, 2003 (155) ELT 629 (Tri)

(v) National Steel Industries v. CCE, Chandigarh, 1999 (111) ELT 80 (Tri)

(vi) Vinar Systems Ltd. v. CCE, Calcutta-II, 2001 (131) ELT 578 (Tri.-Kol)

(vii) CCE, Delhi-III v. BHP Engineers, 2000 (119) ELT 599 (Tri)

(viii) CCE, Chennai v. Conveyor Equipments (P) Ltd., 2001 (127) ELT 478 (Tri)

He also referred to the order of the Board under Section 37B (Order No. 35/11/94-CX dated 7.9.1994) wherein the Board has clarified that --

"Benefit of Notification No. 78/90-CE dated 20.3.1990, as amended, will be available to all machinery, components, equipments, instruments, apparatus, etc. even when these are cleared in CKD and ISKD conditions from the factory of manufacture provided that evidence is produced that goods cleared for part of a complete pollution control equipment/system and the evidence is also produced for supply of such an equipment/system to the buyer."

It was further pleaded that it is not relevant whether the appellant sends all the goods required for the manufacture of turbines forthwith or after six months. It is a matter of commercial expediency and business requirement that the components of turbines be sent in stages after the completion of each stage rather than sending all the components at once. There is no requirement for the appellants to stock all the required components at the given point of time.

A turbine cannot be manufactured instantaneously. It takes a lot of time to complete the ingredients of the machinery and test the same. The specification of the turbines is to comply with the designs, drawings and layout at the site or factory of the customers and testing of the turbines with its critical components are done at the factory of the appellants. The only activity that takes place at the site will be assembly, erection and commissioning. The turbine is manufactured when it is designed and devised for the specific requirement for the buyer and tested by assembling certain crucial components for its functioning. Even if it is not accepted that the parts were cleared, the benefit of Notification No. 5/98-CE is still available to the appellants under serial No. 223 of the said exemption Notification. The description under serial No. 223 provides exemption to goods fall under heading 84.10 of CETA. The description being "Turbines for hydro electric equipment of a capacity not exceeding 15 MW". Once the parts are classified under chapter 8410.90, they remain eligible as the goods fall under heading 84.10 of the Central Excise Tariff Act. He also relied on the decision of the Tribunal in the case of Nalenda Pen Manufacturing Co. Pvt. Ltd. v. Collector, 1998 (102) ELT 289 (T) wherein it was held that where the notification exempts components, parts of components or sub parts of that part would also be eligible for the exemption. If the parts of turbines are cleared, exemption under Notification No. 5/98-CE would be available as the parts are cleared to the site of the appellants for use in the manufacture of turbines which is not disputed by the Department. Ld. Advocate pleaded that in Para 25 of the impugned order,

the Commissioner has given clear finding that there is no denying the fact that M/s BFL are manufacturers of Turbines. Though all the essential components were manufactured only by BFL, the stage at which such goods were cleared from their factory, they can be called only as parts/sub assemblies of turbines and not as turbines. The department has not proved that the entire turbine did not come into existence. They had received only order for the supply of the complete turbines and not for the parts of the turbines. He also referred to the statement of Shri J. Srinivasan, Chief Financial Controller, in reply to the question No. 10 where he submitted that the Company manufactures and dispatches hydro turbines for Hydel Projects. The manufacture of the assemblies for the hydro turbines are in accordance with the specification designed for individual projects. The turbine is designed as a whole and various assemblies are manufactured and shipped in knocked down condition for convenience for operational and transport purposes. Ld. Advocate also referred to the Statement dated 3.8.98 of Shri M. Venugopal Shetty, working as Manager Productions of M/s BFL, wherein he stated in reply to question No. 1 that the Turbine as a whole cannot be assembled since it has got huge volume and cannot be cleared as such. All the assemblies and sub-assemblies are manufactured and tested independently in the factory and cleared as assemblies from the factory. And in reply to question No 2, he stated that all the turbine sub assemblies will be installed at the site with B.F.L. Erection Engineers' supervision to make functional turbine. The necessary bought out items are directly received at site from the supplier. After the installation of entire project at site, trial runs will be made and after the satisfaction of customer, site will be handed over. He therefore pleaded that these are parts and sub assemblies of the Turbine which were cleared from the factory but for convenience of transport these were cleared in CKD condition. Therefore, these are eligible for exemption under Notification No. 205/88-CE.

3. Shri P.M. Saleem, Ld. SDR appearing for the Revenue pleaded that in all the clearance documents, the appellants have shown clearance of the parts of the turbine. The exemption notification is only for clearance of turbine. Even if the parts are cleared in CKD condition for manufacture of complete turbines and it has to be so mentioned in the clearance documents, then the benefit of notification will be available to the appellants. However, they have never shown in clearance documents that they are clearing turbine in CKD condition. Only the parts of the turbine which are cleared for captive consumption are exempted from duty. The parts cleared outside the factory are not exempted from duty under Notification No. 205/88-CE dated 25.5.88.

E/14/2001

4. This appeal is filed by the Revenue against the Order-in-Original of the Commissioner. The main contention in the appeal is that the Commissioner has wrongly concluded that the extended period of limitation is no applicable as there is no suppression of facts on the part of the assessee. It was pleaded on behalf of the Revenue that the allegation of the department is not of clandestine manufacture or clearance but it is that the assessee are guilty of having mis-declared the goods cleared by them as turbine whereas they cleared only parts of the turbine and not the turbine in CKD/SKD condition. It was pleaded that the Commissioner has held that the Respondent who are manufactures of turbine goes to show that they had projected the goods cleared by them as water turbine in CKD/disassembled condition in the Invoices/Gate passes made out by them while concealing the facts that they were actually clearing the parts of water turbine. The department was misled on the basis of such declaration. Only on a detailed investigation, the department could detect the mis-declaration. The Hon'ble High Court of Madras in the case of Linemaph Chemicals v. UOI, 1993 (44) ECC 79 (Mad) : 1993 (68) ELT 77 (Mad) has held that if the assessee deliberately mis-declared the description of the product manufactured regardless of the Department's knowledge about the same, the extended period is applicable for recovery of duty. The finding of the Commissioner that any change of the classification can only be prospective and demand can be made only for the past 6 months is not correct as there is no change in classification as pointed out by the Commissioner (Adjn). The department is not seeking re-classification of some goods. Water turbines and parts of water turbines fall under separate sub heading of the tariff. The Respondents have sought to classify the parts of water turbine as water turbine. When the department discovered the same and if classifies the goods under the respective heading; it does not amount to revision of classification. Since the appellants deliberately mis-classified the parts of turbine as turbines, therefore, extended period of limitation is fully applicable. In case of Tamilnadu Housing Board v. Collector, 1994 (74) ELT 9 (SC), the Apex Court has held that limitation of extended period is invocable, if suppression, fraud, etc. and intent to evade payment of duty are proved and once the department discharges the initial burden, it shifts on Respondents and then applicability of provision of Section 11A (1) of Central Excise Act, 1944 is to be construed liberally. It was pleaded that the order of the Commissioner may be set aside.

E/1060/2001

6. In the Revenue's appeal, it is mentioned that M/s BFL entered in to contract on turn-key basis with various State Governments and other agencies for erecting mini hydel projects which includes supply of hydro turbines, generator, electronic governor, etc. The contract also provides for supply of maintenance spares for a specific period, erecting and maintenance of the project. In the classification declaration No. 4/98-99 with effect from 1.3.99, they had declared "all goods other than parts falling under Chapter 8410.10 (Turbines dispatched in SKD condition), Turbines for Hydro Electric Equipment of a Capacity not exceeding 15 MW" and they have also declared ten items as parts falling under chapter 8410.90 namely--

(i) Hub Assembly comprising of Hub Body, piston Rod, Piston, Hub body bearings.

(ii) Runner blades

(iii) Guide vanes

(iv) Links and levers for guide apparatus

(v) Shaft sleeves

(vi) Coupling hub

(vii) Guide vane bushes

(viii) Runner

(ix) Nozzle and needle rod

(x) Deflector

It was pleaded by Ld. SDR that the Respondents, M/s BFL were clearing the goods in terms of Notification No. 5/99-CE dated 28.2.99 at concessional rate of duty applicable to the complete turbine. Differential duty was demanded from the Respondents as the said notification was not applicable for the parts and components of turbine manufacture and cleared. The Deputy Commissioner, Bangalore confirmed the demands raised by two show cause notice and classified the parts and sub assemblies of turbine under heading 8410.90 of the Central Excise Tariff Act and imposed penalty of Rs. 1 lakh on them. However, the Commissioner (Appeals) in his Order-in-Appeal No. 202/2003-CE dated 31.7.2000 allowed the appeal. Ld. DR pleaded that the order of the Commissioner (Appeals) is not correct as M/s BFL had declared the goods as components for turbine and they had not cleared complete turbine. Invoices of the goods cleared also did not specify that what was cleared is a turbine in CKD condition. The Commissioner (Appeals) stated that relevant documents produced before him were in respect of five customers and on verification of the said documents, he arrived at the decision that M/s BFL are entitled to benefit of Notification No. 5/99 dated 28.2.99. However, no such evidence was produced before the adjudication authority to prove that what was cleared was a complete turbine. They had produced quadruplicate copies of invoices bearing a rubber stamp to prove that what was cleared was a turbine in "knocked down" condition. These quadruplicate copies of invoices were rejected as "tampered" ones by the adjudicating authority. No evidence has been produced before the adjudicating authority to prove that what was cleared was a complete turbine. Allowing production of additional evidence in appeal by the Commissioner (Appeals) is in contravention of Rule 5(1) of the Central Excise (Appeals) Rules, 2001 in the absence of any of the circumstance as mentioned under clauses (a) to (d) thereto. The Commissioner (Appeals) has not recorded any reasons for admission of such addition evidence as required under Rule 5 (2) ibid. The Commissioner (Appeals) did not give any opportunity to verify those documents in terms of Rule 5 (3) ibid and therefore the order is in violation of principles of natural justice. The order of the Commissioner (Appeals) is not correct and legal as the complete turbine was assembled only at site utilizing the components and parts cleared from the factory with the bought out items. No evidence was produced that turbine came into existence in the factory and only for the sake of easy transport the same was disassembled and cleared to site. Clearance of different components/parts at different point of time cannot be taken to construe that a turbine was cleared in `knocked down' condition.

7. Ld. Advocate appearing for the Respondents re-iterated his submissions already made in their Appeal No. E/1925/99.

8. We have carefully considered the submissions made by both the sides. E/1925/99 -- We find that the main issue in this appeal is whether the appellants have cleared turbine in CKD condition or cleared components, parts and sub assemblies of turbine and whether they are eligible for exemption under Notification No. 205/88-CE dated 25.2.88. From the records we find that M/s BFL entered into contract and accepted purchase order with the buyers of Hydro Turbine for installation of Mini Hydel project. The scope of supply of incidental services to be provided by M/s BFL includes supply of E&M equipments for the project, supervision of erection, testing and commissioning of plant and include all parts and accessories which are essential for construction, operation and maintenance of turbo generator unit as a whole. On confirmation of contract, M/s BFL prepares drawing/designs of mini hydro turbines as well as drawings/designs of various assemblies to make the turbine as per customers' requirement. We find that the Commissioner in his Order-in-Original gave a finding that it was admitted by M/s BFL that turbine as a whole cannot be assembled in their factory and as such assemblies and sub assemblies after being tested in the factory were cleared to the site. Finally, turbine would be erected at the site with all cleared assemblies and bought out items. After considering the arguments of the appellants he came to the conclusion that the appellants M/s BFL have cleared parts and sub assemblies of turbine finally under heading 8485.90 for the period 1993-94 and 1994-95 and thereafter under sub heading 8410.90 of Central Excise Tariff Act, 1985. We find that the Order of the Commissioner is based on proper facts. The appellants have totally failed to establish that they have manufactured complete turbines in their factory and then same was cleared in `knocked down' condition. From the findings of the Commissioner, it is clear that although they have order for manufacture of complete turbine but they were manufacturing only parts and sub assemblies of turbines in their factory and testing in their factory and other parts are bought out from the market and directly taken to site where turbine to be erected and commissioned. Therefore, turbine comes into existence only at site of the customer and not at the factory of the appellants. Therefore, they are not eligible for exemption on the parts and sub assemblies of turbine as turbine in CKD condition. The Commissioner has also given a finding that in terms of Rule 2 (a) of the Interpretative Rules of the Tariff, the goods cleared by the appellants may not qualify as completely finished turbine in CKD condition. Therefore, whatever goods were cleared by them are only parts and not turbine in CKD/SKD condition.

9. We find that the decision relied upon by the appellants in their support are for treating the equipment as a whole when these are cleared in "knocked down" condition for the purpose of assessment. In the present case, the appellants have failed to establish that they have cleared the turbine in CKD/SKD form to assess it as a complete turbine. Since some major parts/components were purchased from outside and they were directly taken to the site where turbine was erected and commissioned, therefore whatever was cleared from the factory was not a turbine in CKD/SKD condition but these were only parts of the turbine. The invoices of the appellants show clearance of parts and sub assemblies only. Therefore, we do not find any merit in the appeal of the appellants and the same is rejected.

E/14/2001

10. We have already held that M/s BFL have not cleared the goods as turbine in CKD/SKD condition but they have cleared the parts of turbine. In their classification lists the appellants have declared turbines as a whole and also parts of turbines. Therefore, it was not possible for the Department to know that they had cleared parts of turbine as turbine in CKD/SKD condition. Only on investigation, the Revenue could found out that turbine as a whole was never manufactured by the Respondents but they have manufactured only parts of turbine and those parts which were cleared by them from their factory. Therefore, they have only cleared the parts of turbine and wrongly claimed it as turbine in CKD/SKD form and failed to pay proper duty for the parts of turbine. This act of the Respondents to pay duty on the parts of turbine as turbine in CKD/SKD condition specifically when they were aware that other parts of turbine are bought out items and are directly taken to site where turbine come into existence is a clear cut suppression and mis-declaration of the facts with an intent to evade payment of duty. Therefore, extended period under proviso to Section 11A is fully applicable for demanding duty. Therefore, the appeal of the Revenue is allowed and the case is remanded back to the Commissioner to work out the duty liability for the extended period and also to impose corresponding penalty on the Respondents.

E/1060/2003

11. In this appeal, we find that before the Commissioner (Appeals), the Respondents had produced documents of purchase order/contract in respect of five customers and also relevant Invoices. Each contract indicates that the turbines have to be manufactured and supplied. Therefore, on the basis of the contract, the Commissioner (Appeals) set aside the Order-in-Original No. 18/2001 dated 13.12.2001 and allowed the appeal of the Respondents. We find that the contract was taken by the Respondents for supply of complete turbine. Further, the Respondents have not supplied the turbine as a whole after clearance from the factory of the manufacture but they cleared parts of turbine and other parts were bought out from other manufactures and taken to the site of the customer to manufacture and commission the turbine. This fact was not examined by the Commissioner (Appeals). No doubt that if turbine is commissioned at site of the customer, no duty is being charged for such turbine. The duty was being demanded on the parts of the turbine cleared from the factory of the Respondents in the guise of turbine in CKD/SKD condition. Therefore, the Commissioner (Appeals) has not gone into the factual position that the appellants had cleared only parts of turbine from their factory and not the turbine as a whole as has been contracted with the customers. Therefore, the order of the Commissioner (Appeals) is not correct and the same is set aside and the case is remanded back to the Commissioner (Appeals) to examine the invoices and then give finding whether the parts cleared by the appellants form a complete turbine in CKD/SKD condition or not.

12. In view of our above findings, all the three appeals are disposed of in the above manner.

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