1. The captioned appeal was originally filed as a Revision Application before the Central Government which, under Section 35-P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal, for disposal as if it were an appeal presented before it.
2. The facts of the case, in brief, as seen from the records, are that the appellants are manufacturers of the Carbon/Zinc elements falling under Item No. 68 of the Central Excise Tariff Schedule (C.E.T.). They supply complete sets of A.D. Cells type AW4 and AW C with accessories in an assembled condition" to the Railways. During the period 18-6-1977 to 21-12-1979 they cleared 6413 such Cells with accessories in an "assembled" condition without having filed classification lists and without payment of duty on such cells except on the value of the carbon/zinc elements despatched along with the cells. It appears (that from the Memorandum of Association of the Company, its primary objective was to manufacture A.D. Wet Cells. The Assistant Collector, therefore, issued a notice to the appellants alleging violation of Central Excise Rules, 173B, 173F, 173G punishable under Rule 173Q. They were charged with suppression of the fact of manufacture of A.D. wet cells and misdeclaring to the department that they manufactured only the component elements. They were also asked to show cause why differential duty of Rs. 28,763.84 in respect of the clearances made upto 21-12-1979 and the duty payable on the clearances after 21-12-1979 should not be demanded from them under Rule 10 read with Rule 173J. The company denied all the allegations. They stated that they were not manufacturing complete cells or all the parts constituting the cells.
Of the several constituent items, the company said, they were manufacturing only the carbon and zinc elements and the remaining items viz. glass jar, porcelain cover, caustic soda, oil etc. were procured from the market and supplied to the Railways. They further stated they did not assemble and bring into existence the finished product, the wet cell. The Railways assembled the parts and made up the cells. The company was, therefore, bound to pay duty only on the carbon/zinc elements which they manufactured in their factory and this they had done. Finally, they said there was no suppression of the facts-there had been periodical inspection and audit by the department and the proposed recovery of duty would be time-barred under Rule 10. In his order dated 20-11-1980, the Assistant Collector stated as an undisputed fact that the parts of the A.D. cells were sent by the company in unassembled condition. However, said the Assistant Collector, this did not mean that the company need not pay duty on the A.D. cells in an assembled condition. He held the clearances of the parts of the cells as clearances of the cells in knocked down condition. The contention regarding limitation was rejected as the company had, said the Assistant Collector, suppressed facts. So the longer period of 5 years would apply. The Assistant Collector demanded the differential duty as set in the show cause notice under Rule 10(2) and directed the company to pay duty on subsequent clearances for the entire assembly. On appeal, the Appellate Collector held that a cell in an unassembled condition or completely knocked down (C.K.D.) condition would fall within the term of "A.D. Cell". The Railways placed orders for cells, accepted the unassembled cells in C.K.D. condition as cells and made payments accordingly. As regards limitation, he held that the department was in the know of things and that there was neither clandestine removal nor suppression of facts. He, therefore, directed that the demand should be limited to six months from the date of receipt of the show cause notice by the appellants. It is this order that is now under challenge before us.
3. In the hearing before us, it was argued by the counsel for the appellants that, apart from the manufacture of the carbon elements, no manufacture of the A.D. wet cells took place. The bought-out components and materials were, together with the duty paid carbon elements, despatched to the Railways in the required numbers. While it was true that the order was for, and the supply was of, complete sets, the sets as assembled cells did not come into existence in the appellants' factory. In this connection, reliance was placed on the Bombay High Court decision in Commissioner of Sales Tax v. Trinity Products reported in Volume 35 S.T.C. 1975 page 502. In that case the respondents purchased from different registered dealers glass bottles, rubber nipples, and plastic caps and put them loose in a packing carton and sold the same as "auto feeders". The question was whether this activity amounted to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act, 1959. The Court held that it was not sufficient for an activity to amount to manufacture "for the goods purchased to be sold under a different label or trade name, even if that label or trade name is known in the market as a separate commercial commodity different from that by which the goods purchased are known in the market. What was essential was that a commercially different commodity should come into being as a result of one of the activities described in Clause 17 of the Section 2, namely, producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods. In the case before the court, it was held that there was no manufacture. Even if it was held that the appellant manufactured the cells, the counsel submitted, no power was used in the manufacture. No doubt, power was used in the manufacture of carbon elements but that would not mean that power was used in the manufacture of cells.
4. Opposing the appeal, the Departmental Representative urged that the appellants supplied cells in an unassembled condition to the Railways.
A completely knocked-down article was as good as the article itself. In this context, reliance was placed on the Madras High Court decision in T.I. Cycles of India, Madras v. Union of India and Anr. -1983 E.L.T.681 (Mad.) wherein it was held that cycle in C.K.D. condition was a cycle classifiable under Item 35 C.E.T. Applying the ratio of the decision to the present case, it was urged that the C.K.D. cell was a cell falling under Item 68 C.E.T.5. We have carefully considered the submissions of both sides. It is not in dispute that the carbon elements were manufactured with the aid of power by the appellant who paid duty thereon under Item 68 C.E.T. It is also not in dispute that the appellant bought the other items from the market and supplied A.D. wet cells in unassembled condition to the Railways. The only dispute is whether such unassembled cells are liable to duty under Item 68 C.E.T. The appellants say that they do not subject to bought-out items to any manufacturing process and do not manufacture the complete cells. They supplied the cells in unassembled condition. The department's case is that the unassembled cells fall under Item 68 C.E.T. While the appellants question his stand, their alternative stand is that even if it be assumed that they were manufacturing complete cells, they would still be not liable to pay any duty thereon because goods falling under Item 68 C.E.T. manufactured without the aid of power are exempt from payment of duty and the appellants do not use any power in the operations (save into the manufacture of carbon or zinc elements) leading to the supply of cells in unassembled condition. This claim is based on Central Excise Notification No. 179/77, dated 18-6-1977, which exempts all Item 68 goods in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power. In the present case, admittedly, power is used in the manufacture of carbon and zinc elements. In the context of the expression, "in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power", it cannot be ' said that no power is used in the manufacture of cells, since power is used in the manufacture of carbon and zinc elements which are necessary components of the cells. The appellant's contention in this behalf is not tenable. But the question remains whether the appellants manufactured complete cells i.e. whether there has been "manufacture" of A.D. wet cells in the appellant's premises.
The appellants supplied complete sets of cells admittedly in unassembled condition. The order is for complete sets. The supply is as stated above. The appellants have also submitted a photo copy of their instruction sheet for the assembly of the cell. If they had assembled the cells the benefit of exemption under Notification No. 179/77, would not be admissible. The question, then, really boils down to this : does the supply of the different components of the cells-admittedly in unassembled condition-amount to manufacture of the complete cells. The Departmental Representative has relied upon 1983 E.L.T. 681 (Mad.) in this connection. In that case, taking into account the exigencies of manufacture, package and transport and the consumer understanding of the trade and commercial community, the court held that a cycle despatched in a C.K.D. condition was a cycle within the meaning of Item 35 C.E.T. The appellant in that case was T.I. Cycles, a well known cycle manufacturer who, presumably manufactures most, if not all, of the parts that go to make up a complete cycle. Here, on the evidence available on record the appellant manufactures only carbon and zinc elements and paying duty thereon under Item 68 C.E.T. He procures all the remaining components and materials from outside and supplies the cells in unassembled condition. There is no assembly of the cells nor manufacture of the components and materials other than the carbon and zinc elements, undertaken by the appellants. The ratio of the decision in the T.I. cycles case is not, therefore, applicable to the facts of the case.
In the case Calicut Refrigeration Co. v. C.C.E. Cochin and O/x--1982 E.L.T. 106 (Ker.) (referred to by the Madras High Court in 1983 E.L.T.68 the supplier of the different components of the ice-cream combination cooler (purchased by him from the market), the framework and the cutting and bending of the coils being done by the supplier at his own workshop, assembled the components at the premises of the purchaser, the only question being whether having regard to the nature of the assembly, the assembled unit could be termed as a 'ready assembled unit' under Item 29A C.E.T. Such is not the case here-there was no assembly of the complete cell at the premises of the Railways by the appellants. In 1980 E.L.T. 280 (Bom.) Blue Star Ltd. v. Union of India and Anr., the petitioner undertook an elaborate process of setting up and assembly of a walk-in-cooler at the buyer's premises from out of the bought-out components and the panel assembly and some other item of work undertaken at the petitioner's factory. The Bombay High Court held that the cooler could not said to be a ready-assembled unit of walk-in-cooler offered for sale by the petitioner. The assembly and installation work was not a matter of merely getting together the parts and components with nuts and bolts. Again, it has to be noted that, in the present case, there has been no assembly of the components by the appellants in the Railway's premises.
In the view which we have taken, we have not found it necessary to refer to and discuss the Bombay High Court decision in (35) S.T.C. 1975 page 502. Apart from this consideration, that decision was given in the context of Section 2(17) of the Bombay Sales Tax Act, 1959 which is not pari materia with Section 2(f) of the Central Excises and Salt Act.
6. In the state of the evidence and submissions before us, we hold that the appellants did not manufactured complete cells. The appeal succeeds and is allowed.
1. It is not clear to me why the Assistant Collector issued the demand dated 5-6-1980. The demand says that M/s. Carbon Industries Pvt. Ltd. manufactured complete cells i.e. wet air depolarised cells and sold the same to Indian Railways from 18-6-1977 to 21-12-1979. The manufacturer cleared 6413 such complete cells and failed to pay the appropriate duty on them. The demand, however, does not say what was the appropriate rate of duty and what was the tariff item for such complete cells.
However, it appears to me that the Assistant Collector proceeded as if the complete cell was also assessable under Item 68 under which the factory had been paying duty on the elements, and that the differential duty was the difference between the duty for the elements only, and the duty for the complete parts of the cell under Item 68. In other words, the Assistant Collector held that full duty under Item 68 should have been paid on the entire cell and not only on the elements.
2. The Assistant Collector says in his order dated 20th November, 1980 that it was not disputed that the parts of the A.D. wet cells were sent in unassembled condition. However, this did not mean that they did not need to pay central excise duty on the A.D. cells type AW4 and AW C with accessories in an assembled condition. The clearance of the parts of the A.D. wet cell is only done in knock down condition, and therefore, the entire cell has to bear duty. There is not a word in this order about any other item of the tariff to which the complete cell would be attracted by virtue of all the parts that constitute such a complete cell having been provided in the assembly. Evidently, therefore, the demand of the Assistant Collector was for duty under Item 68.
3. The order of the Appellate Collector dated 6-5-1981 proceeds on the same basis. He states that the factory was paying central excise duty under Tariff Item 68 till 25-1-1979 for the cell as such. Thereafter, it paid duty only on the carbon and zinc elements excluding the bought-out items. In another part of his order, he says that "to state that only fully assembled A.D. cells are not manufactured to attract Tariff Item 68 is totally incorrect". This order also is silent about any other tariff item that would be the appropriate item for the complete unassembled cell. It is clear from this that the Appellate Collector also held Item 68 to be the correct item for the entire cell.
4. There is a serious flaw in the lower authorities' proceedings. A complete electric battery is not assessable under Item 68. The only item for such a battery is Item 31 of the Central Excise Tariff. It is not clear to me why duty under Item 68 should be paid again on the purchased parts, because there is no allegation that these purchased parts had not paid duty when they were brought to this factory.
Articles bought in the market cannot be charged duty again unless it is shown that they had not paid the duty that they should have paid. In the absence of allegation to this effect, one must take it that the purchased parts of the battery had paid whatever duty was leviable on them. That duty may be either under Item 68 or under some other item.
If it is Item 68, there is no case for collecting the duty again when they are taken out by this factory, namely, M/s. Carbon Industries Pvt.
Ltd., if they have not been subjected to any manipulation or process to change their composition or use or other essential character. If the appropriate item was some other item, we have not been told what that heading is. And it is no answer to charge duty under Item 68 when the appropriate rate of duty was some other item. In any case, since the central excise say that the factory had not paid the appropriate rate of duty on those parts and then proceed to collect duty under Item 68, we can take it that duty under item 68 was the appropriate rate in the eyes of the central excise. There is, therefore, no case for charging duty under Item 68 again.
5. It is not disputed that the sales represent parts of complete cells.
The appellants, of course, say that they do not sell complete cells as they are dispatched in unassembled conditions. But such parts of complete cells will have to be classed as complete cells in knocked down conditions. A battery cell is not assessable under Item 68. There has been no demand or proceedings to recover duty on the complete unassembled battery cell under Item 31 which covers electric batteries and parts thereof. The parts on which duty is now demanded are not required to pay duty a second time in their individual character as they have retained such original character. For all these reasons, the demand cannot be allowed to take effect and so is set aside.