By TIOL News Service

MUMBAI, JAN 02, 2014: THIS is a Revenue appeal against the order of the CCE, Pune-I dropping a total Central Excise demand of Rs.19.22 crores raised against the assessee.

And the best part of the proceedings is that the Revenue has WON the case, albeit for the normal period of demand. But a victory is a victory!

Now, for the facts of the case -

The assessee is engaged in activities involving purchase of various parts of Loaders, Backhoe Loaders, Road Rollers from different suppliers in India and abroad, repacking these parts with new packing material and affixing their Logo, fixing of MRP and selling under their own brand name.

Notification No. 11/2006-C.Ex. (N.T.) dated 29th May, 2006 issued u/s 4A notified the goods of the following description -

On 24 th December, 2008, above Notification was replaced by Notification No. 49/2008-C.E. (N.T.). However, there was no change in the description of entry except that abatement percentage was reduced from 33.5% to 30%, and was listed as entry no. 108.

The Notification No. 49/2008-C.E. (N.T.) was amended vide Notification No. 9/2010-C.E. (N.T.) dated 27.02.2010 and the said entry was replaced as:-

The said Notification was again amended vide Notification No. 19/2010- C.E. (N.T.) dated 29.04.2010 and a new entry 109 was inserted which read as:-

However no amendment was carried out in the corresponding entry in the Third Schedule to the Central Excise Act and so by the Finance Act, 2011, these entries were inserted in the Third Schedule with retrospective effect i.e. w.e.f 29/04/2010.

According to Appellant Revenue, w.e.f. 01.06.2006 goods dealt by the appellant are covered under the Third Schedule to the Central Excise Act, 1944 and in view of Section 2(f)(iii), activities of the appellant would amount to manufacture and, therefore, appellant is liable to pay Central Excise duty. The duty, liability is to be computed as per Section 4A read with Notification No. 2/2006-C.E. (N.T.) dated 01.03.2006 as amended by Notification No. 11/2006-C.E. (N.T.) dated 29 th May, 2006, or as per Notification No. 49/2008-C.E. (N.T.) dated 24.12.2008.

Whereas it is the submission of the Respondent that goods being dealt by them are not covered under the Third Schedule to the Central Excise Act, 1944 or the notifications issued u/s 4A of the CEA, 1944 till May, 2010 and hence activity carried out by them does not amount to manufacture, and therefore they are not liable to pay any excise duty.

Nonetheless, it is agreed by the respondent that after May, 2010 the goods are chargeable to duty and liable for assessment u/s 4A.

So, the demands raised were for the periods from June 2006 to July 2009 and from August 2009 to May 2010 and involve a total Central Excise duty of Rs.19.22 Crores.

Both the demands were dropped by the CCE, Pune-I. In the matter of the case laws cited in notice, the adjudicating authority held that in all the decisions the conclusion was in the context of exemption and not classification of the goods. Furthermore, a new entry was introduced in the budget - 2010 implied that items covered by new entry were not covered earlier. The Commissioner also referred to Finance Minister's Budget speech on this aspect. Another reason advanced is that the Supreme Court in the case of Goodyear India Ltd. Vs. UOI = (2002-TIOL-786-SC-CT) held that tyres of the size 1800 and above meant for fitment to heavy moving vehicles such as dumpers and earth movers mainly used at construction site are not classifiable as tyres for motor vehicles. Commissioner also relied upon Rajasthan High Court Judgement in the case of Commissioner of Income Tax Vs. Gotan Line Stone Khangs Ltd. - 2008 (113) GTX-0443-RAJ wherein the High Court allowed investment allowance to hydraulic excavators considering these to be non-transport vehicles. In view of above as also Board's clarifications dated 14/07/87, 11/07/90 & 16/12/2008, the Commissioner dropped the demands.

As mentioned, Revenue has filed an appeal before the CESTAT.

The question sought to be answered is whether the goods involved are covered under the Third Schedule and consequently the activity is to be treated as manufacture u/s 2(f)(iii) of the CEA, 1944 and duty thereon is to be paid in terms of the notification(s) issued u/s 4A of the CEA, 1944.

Before the CESTAT, it is the submission of the Revenue that Loaders, Backhoe Loaders, Road Rollers require registration with Road Transport authorities under Rule 2 (Ca) of the Central Motor Vehicles Rules, 1989 as "construction equipment vehicle"; as per Rule 126B of the Central Motor Vehicle Rules, 1989 (CMVR, 1989), prototype of every construction equipment vehicle is to be subjected to test by any of the agencies referred to in Rule 126 of CMVR, 1989 for granting certificate; Appellant have taken such certificates from Automotive Research Association of India, Pune for Loaders & Backhoe Loaders; Section 2 of the Air (Prevention and Control of Pollution) Act, 1981 defines the term "Automobile" as follows:2(e) "automobile" means any vehicle powered either by internal combustion engine or by any method of generating power to drive such vehicle by burning fuel;Section 2(28) of the Motor Vehicle Act, 1988 defines a ‘motor vehicle or ‘vehicle' to mean any mechanically propelled vehicle adapted for use upon roads.

It is also submitted that from the details available on the website of the appellants different types of attachments are fitted with the chassis e.g. buckets to carry loads, road sweeper /sweeper collector, grabs & grapples, backhoe, loader, muck fork & grab, patch planer, quickhitch, trencher, shovel, earth drill, hammer, kergmaster stump grinder, concrete skip, snow blade etc. and these attachments indicated that the goods are motor vehicles which have the capabilities to perform versatile and multiple functions on road as well as off the road. Various case laws are also relied upon to support their submission that goods in question are Parts, components and assemblies of automobiles. In the matter of the Board Circular dated 11/07/90 & its reference made in the Circular dated 16/12/2008 relied upon by the adjudicating authority, it is submitted that the Circular 11/07/90 has been negated by the Tribunal based on SC decisions and, therefore, needs to be ignored. Inasmuch as it is a settled law that interpretation given by SC/HC/Tribunal has to prevail over Board's interpretation.

The respondent submitted that as per the dictionary meanings, automobile is usually a four-wheeled automotive vehicle designed primarily for passenger transportation and commonly propelled by internal combustion engine using a volatile fuel and, therefore, items like loader, backhoe loader and road rollers are not automobiles. It is further emphasized that the department's understanding is clear from Circular dated 14.07.1987, 11.07.1990 and particularly dated 16.12.2008 that construction/earth moving machinery are not automobile and, therefore, department now cannot take a contrary stand.

The Bench observed that in view of the fact that all the items in question viz. Loader, Backhoe Loader and Road Roller are self-propelled, work with internal combustion engine using fuel such as diesel, have four wheels and are rubber tyred (road roller may have two rubber tyres and one roller, or only rollers) and also move also on roads, they have all the characteristics of motor vehicles and in addition, these items have attachments which enables to execute and move earth, mud etc. from one place to another and in case of road rollers, it helps in compacting and setting the road due to vibrating techniques in compaction jobs. The Bench also noted that the Loader, Backhoe Loader and Road Roller require registration under Motor Vehicle Act, 1988 and are also required to be examined/tested by specified institutions regarding suitability to ply on road etc. and based upon the appropriate certification, motor vehicles are allowed on the road and registration under Motor Vehicle Act is granted thereafter only; that the appellant had approached the Automotive Research Association of India, Pune who after examination has granted the requisite certificate; that the items in question are considered as Automobiles and requires to meet Air Pollution norms and under the Air (Prevention and Control of Pollution) Act, 1981.

The CESTAT also took note of the Supreme Court decisions in Bose Abraham Vs. State of Kerala & Anr., M/s. Central Coal Fields Ltd. & Madras HC decision in Ashok Leyland Ltd. etc. and opined that the inevitable conclusion from the facts as also various judicial pronouncements is that Loader, Backhoe Loaders & Road Rollers are motor Vehicles. Inasmuch as the reasoning of the adjudicating authority that these case laws are in the context of exemption and not of classification was not appreciated by the Bench.

It was also held that parts, components and assembles of Loader, Backhoe Loaders & Road Rollers are to be treated as those of Automobiles more so since the term "automobiles" has not been defined in the CEA or the CETA. The Bench also held that the aforesaid conclusion reached is supported by the changes made in February/April 2010 which apparently were done in haste and then rectified by the retrospective legislation. It was, therefore, held that a holistic look at the amendments supports the view that Parts, components and assembles of automobiles included that of Loader, Backhoe Loader & Road Roller and were covered from June, 2006 onwards in the Third Schedule.

The Bench also held that the Circular dated 16/12/2008 has not been issued under section 37B of the CEA, 1944 and, therefore, is not binding on the officials. Moreover, since the Circular was issued without taking into consideration the judicial decisions, the same is not binding in view of the Supreme Court decisions on the subject matter.

In fine, the Bench held that the Revenue appeal succeeds on merit i.e. Parts, components and assemblies of Loader, Backhoe Loader and Road Rollers are covered by "parts, components and assemblies of Automobiles."

Nonetheless, taking a view that in the facts and circumstances of the case, ingredients to invoke the extended period of limitation are absent, the CESTAT held that the demand within the normal period of limitation can only be upheld and that no penalty is imposable u/s 11AC or rule 25 of CER and confiscation of goods is also not permissible. Inasmuch as penalties and confiscation were set aside.

The appeal was allowed in above terms.

(See 2013-TIOL-09-CESTAT-MUM)