Tecumseh Products India Ltd. Vs. Commissioner of Central Excise, Hyderabad  Insc 359 (5 May 2004)
& G.P. Mathur.
C.A.No.1513/1998) RAJENDRA BABU, CJI:
question raised for our consideration in these appeals is whether while repairing
the defective compressors any part such as stators replaced by the appellant
involves manufacturing activity attracting duty under the Central Excise Act.
The appellant in the process of repairing scraps some components which cannot
be repaired and one such component is stators.
stators were earlier manufactured in the factory of the appellants for
repairing of the compressors. Later, the materials required for replacing the
scrapped components are received on payment of duty from the factory of the
appellant. The Service Centre sends these materials to outside job workers for
making the stators. Thereafter the appellant undertook the shaping, varnishing
and baking of such stator to fit such stators into the compressor housing. The
Collector having felt that the activity of shaping, varnishing and baking done
by the appellant on receipt of the stator from the job workers results in
manufacture and initiated proceedings for adjudication of tax.
appellant contended that the job workers are manufacturers of stators and not
the appellant as stators are received from the job workers in complete
technically functional state. The activities undertaken by the appellants are
only to use the stator and not manufacture the stators. The appellants also challenged
the invocation of the longer period of limitation, which was available to the
appellants only in case of suppression of fraud, coalition or willful statement
or contravention of rules to the payment of duty.
Adjudicating Authority held that the job workers is the manufacturer of the
stator and not the appellants and that the extended period of limitation cannot
be invoked. On appeal to the Appellate Tribunal, it was held that the
appellants are manufacturers of the stators and not the job workers because
they undertook the process of shaping, varnishing and baking and then only the
marketable goods came into existence and it also held that the extended period
of limitation was invokable.
similar questions had arisen for consideration in Shriram Refrigeration
Industries Ltd. v. Collector of Central Excise, Hyderabad, 1986 (26) E.L.T. 353
and in CCE, New Delhi V. Karna Industries, 1992 (42) ECR 522. It appears that
the appeal filed against the order made in the Shriram Refrigeration case
(supra) to this Court stood dismissed by this Court in Civil Appeal Nos.1029 of
1987 and connected matters on merits. In that case the meaning of 'repairs' as
differentiated from the term 'manufacturer' had been examined thoroughly by the
Tribunal and, therefore, took the view that the repair, recondition or remake
in the process of repair employed would not amount to manufacture. Similarly,
in the case of 'Karna', the Tribunal took the view that the defective
compressors received if repaired by putting in the necessary parts which had
worn out or scrapped then there is no manufacturing activity involved.
clear that the Tribunal, however, in the order under appeal took the view that
while the job workers carried out the job work of winding of the stator, but
such stator would not be ready for use in the compressor and would be subject
to the processes of pressing for shaping by hydraulic press. This would go to
show that the stator as such could not have been fitted and used in the compressor
for which purpose it has been formed. Further, varnishing was to be done by the
appellants and the same was done to provide necessary insulation and it became
a finished product only in the hands of the appellants. Therefore, the activity
carried on by the appellant was considered to be one of manufacturer because
they were carrying out the full range of processes for bringing into existence
the 'stator' and this range of process carried out by them was exactly the same
are the ones which are carried out for the stators which were manufactured out
of new stack of laminations.
situation that is considered and examined either in the 'Shriram Refregeration'
or 'Karna Industries' was entirely different. In the present case, what was
looked into examined and found was the several steps taken in respect of the
stator and so far as the stators were concerned, it has been rightly held by
the Tribunal that separate activities were carried on by the appellants which
were identical to the ones that was carried out in respect of new stator and,
therefore, to the extent of the stator being made ready for the purpose of
using in the repairing of compressor must be held to be an activity of
manufacture and the Tribunal has confirmed the demand only in respect of
insofar as the application of extended period of limitation provided under
Section 11A is concerned, we do not think that the Tribunal is justified
because it was not clear as to whether if any part is used for the purpose of
repairing a machinery would amount to manufacture. In fact, the Tribunal on a
detailed analysis and after going into several processes carried out by the
appellant, came to the conclusion that the stators which were used in the
repairing of the compressors involved manufacturing activity. This circumstance
itself shows that there was bona fide dispute between the parties in regard to
the question whether stators made ready for the purpose of use of compressors
involved any manufacturing activity or not. Therefore, to the extent the
authorities invoked Section 11A of the Act and imposed penal interests and
other penalities shall stand set aside and the order made by the Tribunal
stands modified to that extent.
appeals are partly allowed accordingly.