2002(1) ALL MR 787
IN THE HIGH COURT OF JUDICATURE AT BOMBAY(AURANGABAD BENCH)
B.H. MARLAPALLE AND N.V. DABHOLKAR, JJ.
Maharashtra State Electricity Board Vs. The Union Of India & Ors.
Writ Petition No.1612 of 1989
19th September, 2001
Petitioner Counsel: Shri. H.T.JOSHI
Respondent Counsel: Shri. R.G.DEO, Shri. B.G.DESHPANDE, Shri S.N.LOYA
Central Excise and Salt Act (1944), Ss.2(f),3 - Maharashtra State Electricity Board producing various items like clamps, brackets etc. in its work shops - These items produced either by its employees or through contract labour - Board contending that fabricated items were for its captive consumption - Levy of excise duty without considering matter is illegal.
When the levying power emanates from Section 3 of the Act. it was incumbent upon the Collector to record a finding regarding excisable goods and mere finding regarding manufacture of goods would not satisfy the statutory requirement to support the authority of the Revenue to levy the excise duty. If the assessee Board has contended that it was captive consumption, the issue was required to be investigated by the Revenue and further when the assessee contended that the subject items did not satisfy the test of marketability, that issue was also required to be adjudicated upon. Where an order of levy of duty is passed without considering all those matters, the order could not be sustained. [Para 15]
Sunflag Iron & Steel Company Limited Vs. Additional Collector of Central Excise, 2001(4) ALL MR 221=2001 (3) Mah.L.J.532 [Para 10]
Quality Steel Tubes (P) Ltd. Vs. Collector of Central Excise, UP 1995 (75) ELT 17 (SC) [Para 11]
Mittal Engineering Works (P) Ltd. Vs. Collector, Central Excise, Meerut 1996(88) ELT 622 (SC) [Para 11]
Triveni Engineering and Industries Ltd. Vs. Commissioner of Central Excise, 2000 (120) ELT 273 (SC) [Para 11]
Union of India Vs. Delhi Cloth and General Mills Co.Ltd., AIR 1963 SC 791 [Para 14]
Indian Cable Co. Ltd., Vs. CCE (1994) 6 SCC 610 [Para 14]
Moti Laminates Pvt. Ltd. Vs., C.C.E. (1995) 3 SCC 23 [Para 14]
2. In all these petitions, the common question of law for consideration is, whether the Maharashtra State Electricity Board (the petitioner - State undertaking) was liable to pay the excise duty on various items like clamps, brackets, top clips, 'V' cross arms, transformer belts, stay-sets and poles etc., which were being produced in its workshops, either by its employees or through the contract labours, and hence these petitions are being decided by a common judgment.
3. The petitioner board had undertaken expansion of its activities of generation, transmission and distribution of electricity and therefore, it decided to erect power stations and sub-stations, transmission towers, network of transmission and network of distribution lines. The fabrication work of transmission and distribution lines, poles and accessories involved in the execution of the said works was undertaken by the Board at its workshops at different places. The items like clamps, brackets, top clips, 'V' cross arms, transformer belts, stay-sets and poles etc. were fabricated by the petitioner from the duty paid steel structure members such as MS flat, MS channels, MS Bar, MS angles, RSJ girder poles etc. Said fabrication work was carried out at its workshops and it had obtained L-4 licence dated 18.11.1989 issued under Rules 174 and 178 of the Central Excise Rules 1994 ("Excise Rules" for short). It is also admitted that part of the said fabrication work was entrusted to other private parties on job work basis.
4. It is further contended that the Superintendent of Central Excise had visited the workshop premises and on inspection of the said record, he held that the items so fabricated were excisable. The Superintendent, accordingly demanded excise duty from the petitioner, which was paid from time to time, under protest, since July 1983. However, subsequently, the petitioner decided to discontinue the fabrication of various steel material such as transmission and distribution lines, poles and accessories, with effect from 31.12.1986 through its workshop and entire fabrication work was transferred/ entrusted to the contractors. Part of the fabrication work was directly undertaken by the petitioner through contract labour, in its workshops. In both the classes of contracts i.e. labour as well as job work, the operations that were involved were cutting, drilling, welding, bending and painting etc. The raw material for the purpose of the said fabrication was supplied by the petitioner to the Contractor or to the contract labours engaged by it and this work of fabrication was supervised by the Sub-Engineer of the petitioner. The fabrication work was required to be executed as per the specifications, drawings, designs and instructions furnished by the petitioner. The payment for the job work or the contract labour was made at the agreed rates on completion of the said work.
5. The Assistant Collector, Central Excise, issued a letter dated 13.12.1988 to the Executive Engineer of the petitioner Board stating that the petitioner was getting manufactured / fabricated certain goods like stay-clamps etc. through the contract labours or contractors and the petitioner was required to supply the information regarding the particulars of the labour contract, quantity fabricated, rate agreed, amount paid, name of the contractor and the indemnity bond for various purposes commencing from April 1984 to November 1988, as this information was required for further investigations. This letter was replied by the Executive Engineer on 22.12.1988, and it was submitted that the fabrication work of the steel items and the steel members was being done on job work basis as well as labour contract basis and the same did not amount to manufacturing of goods excisable. Further information was called by the Revenue vide communication dated 6.1.1989, which was furnished by the Board on 20.1.1989. On the same day i.e. on 20.1.1989, the Assistant Collector issued summons to the Executive Engineer under Section 14 of the Central Excises and Salt Act, 1944 (for short, the Act, hereinafter). The hearing so fixed was sought to be adjourned and on 8.2.1989, when the Board officers remained present along with its Advocate, the Assistant Collector did not allow the Advocate to present the case and it was made clear that only the Executive Engineer would present the case of the Board. Fresh summons were issued to appear in person on 9.2.1989. The petitioner all along maintained that the process of fabrication did not result into manufacturing or production of excisable goods.
6. On the basis of the enquiry conducted by the Assistant Collector, show cause notice dated 31.3.1989 came to be issued (in Writ Petition No.1612 of 1989) calling upon the petitioner and the private respondents to show cause why a sum of Rs.21,90,521.39 Ps. should not be confirmed under the provisio to Section 11-A(1) of the Act and should not be recovered from the petitioner. By the said show cause notice, the private respondents were called upon to show cause why they should not be penalised under Rule 209(A) of the Excise Rules read with Section 9 of the said Act. It is in these circumstances, the petitioner has approached this Court and challenged the show cause notice. The facts in other petitions are also similar.
"The Department is entitled to proceed with the show cause notice. The petitioner to cooperate. However, demand, if any, shall not be enforced against the petitioner during pendency of this petition."
8. The Revenue has filed Civil Application No.5232 of 2001 in Writ Petition No.1612 of 1989 and stated that the Collector, Central Excise has passed his final order on the show cause notice, in June, 1992.
9. On the basis of this subsequent order having been passed by the Collector, Shri Deo, learned Standing Counsel for the Union prayed for disposal of this petition with liberty to the petitioner Board to file an appeal as the order passed by the Collector is appealable order. He further admitted that the appeal period (60 days) has expired long time ago and it would be the discretion of the lower appellate authority to entertain the appeal beyond limitation by condoning the delay. There is no doubt that the Commissioner of Central Excise has powers to condone the delay upto 90 days beyond the initial appeal period of 60 days, whereas CEGAT has the powers to condone the delay even beyond 90 days. Nevertheless, these petitions are awaiting adjudication for the last about 12 years or so before us, and it would be therefore, necessary for us to decide the legality of the order passed by the Collector, subsequent to the show cause notice impugned in these petitions.
10. At the threshold, the assessee board has relied upon a recent judgment of the Division Bench of this Court in the case of Sunflag Iron & Steel Company Limited Vs. Additional Collector of Central Excise (2001(3) Mah. L.J. 532 : 2001(4) ALL MR 221) and submitted that the issues raised in these petitions are no more res-integra. In Sunflag case, fabrication and erection of the complete shed of the factory was given on contract and the petitioner had to provide duty paid iron and steel items like angles, channels, plates, joists, beams, etc. The fabrication was to be undertaken by M/s Bridge and Roof Company out of these duty paid iron and steel items. These fabricated items were embedded in the construction forming the columns and roofs of the factory shed.
In the second case, for facilitating the construction of the factory building, duty paid material in the forms of bar, columns, angles and so on were subjected to the process of cutting, drilling, welding, shaping and fabricated into structurals which were then embedded in the cement concrete for the purpose of construction of cold rolling mill plant. The Revenue had demanded excise duty and issued a show cause notice for recovery of the said duty. It was contended by the assessee that there was no manufacturing activity involved in the fabrication work that was undertaken for construction of the factory shed and therefore, no duty was leviable. However, the assessee's plea was turned down by the Assistant Collector, holding that the fabrication activity amounted to "manufacturing" within the meaning of Section 2(f) of the Act resulting in finished products which were commercially saleable and thus attracted excise duty under tariff entry No.7308.90. This order was challenged before this Court.
11. On referring to the decisions of the Supreme Court in the cases of Quality Steel Tubes (P) Ltd. Vs. Collector of Central Excise UP [1995 (75) ELT 17 (SC)], Mittal Engineering Works (P) Ltd. Vs. Collector, Central Excise, Meerut [1996(88) ELT 622 (SC)] and Triveni Engineering and Industries Ltd. Vs. Commissioner of Central Excise [2000 (120) ELT 273 (SC)], this Court held that,
(a) fabrication of structurals at the site of the Principal by using raw material supplied by the Principal did not amount to "manufacture".
(b) the goods were not saleable or capable of being brought to the market for being bought or sold, and
(c) in both the cases the fabrication was with the immediate purpose for using in the factory shed or steel cold rolling mill which were being constructed and there was never an intention to sell out in the market.
12. With the assistance of Shri Deo, learned Standing Counsel for the Union, we have perused the return filed by the Assistant Commissioner, Central Excise and Customs as well as the order passed by the Collector, demanding the payment of excise duty. The whole emphasis of the Revenue has been on the concept of "manufacture" and it has been held that the fabrication work undertaken by the Board in its workshops or outside, either through the contract labour or on job basis, amounted to manufacture within the meaning of Section 2(f) of the Act and therefore, the Board was liable to pay the excise duty and more so, when it had already submitted a classification list and was paying the excise duty till 1986 or so. Such a finding itself cannot be a sufficient reason to uphold the demand made by the Revenue and it was necessary for the Collector to record a further finding regarding the marketability of the goods so fabricated or where the goods were sold or were capable of being sold in the market. This has not been done and the impugned order as also the affidavit filed in reply are totally silent in this regard.
"(a) a duty of excise on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985, and
(b) a special duty of excise, in addition to the duty of the excise specified in clause (a) above, on excisable goods specified in the Second Schedule to the Central Excise Tariff Act, 1985 which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule........."
"These definitions make it clear that to become 'goods' an article must be something which can ordinarily come to the market to be bought and sold."
Subsequently, in the case of Indian Cable Co.Ltd. Vs. CCE [(1994) 6 SCC 610] the apex Court held that the provisions of the Act mandate that a finding that the goods are marketable is a prerequisite or 'sine qua non' for the levy of duty.
In the case of Moti Laminates Pvt.Ltd. Vs. C.C.E. [(1995) 3 SCC 23], the apex Court, after examining number of its earlier decisions, held;
(a) any goods to attract excise duty must satisfy the test of marketability. The Tariff Schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold.
(b) any goods produced or manufactured, do not attract duty unless they are marketable or capable of being marketed.
(c) the duty is not attracted by captive consumption of any article but it must be a goods within the meaning of the Act which apart from having a distinctive name and known as such must be marketable or capable of being marketed.
Same view has been reiterated by the apex Court recently in the case of Triveni Engineering (supra).
15. The Board has all along maintained that the fabricated items were not its captive consumption and it had never marketed them, either directly or through any agency or any third party, and even if it was presumed that the fabrication of such goods amounted to manufacture or production, the duty was not payable unless it was proved that these goods were marketed or were capable of being marketed. On this aspect, the Collector has done precious little. When the levying power emanates from Section 3 of the Act. it was incumbent upon the Collector to record a finding regarding excisable goods and mere finding regarding manufacture of goods would not satisfy the statutory requirement to support the authority of the Revenue to levy the excise duty. If the assessee Board has contended that it was captive consumption, the issue was required to be investigated by the Revenue and further when the assessee contended that the subject items did not satisfy the test of marketability, that second issue was also required to be adjudicated upon. It is for these reasons that the order passed by the Collector cannot be sustained.
16. In the case of Sunflag (supra), this Court has held that fabrication of structures made out of the steel items on which duty has been paid, does not amount to manufacture. We deem it expedient not to adjudicate upon the same issue and it would be safe to leave the issue to be adjudicated by the Collector on the basis of the said judgment, in the case of petitioner-board before us. Shri Deo, learned Standing Counsel also contended that it is possible for the Collector to undertake a de novo enquiry and adjudicate the issues as raised by the assessee. We do not deem it appropriate to take away such a power from the Revenue and we, therefore, grant liberty to the Revenue to conduct an enquiry afresh and decide the show cause notice after giving an opportunity to the assessee board of hearing, even through an Advocate.
17. In the result, the writ petitions are partly allowed and the impugned order passed by the Collector is hereby quashed and set aside. The Collector is directed to adjudicate upon the show cause notice afresh after giving due opportunity of hearing to the petitioner assessee board. This should be done as expeditiously as possible, and preferably within a period of six months.
21. So far as Civil Application No.3054 of 1993 is concerned, the same is allowed. Civil Applications Nos. 1555/1996, 5232/2001 and 5377/2001 do not survive, in view of the disposal of main writ petitions and they are accordingly disposed of.