Central Excise - Manufacture - Concurrent finding of fact on manufacture by all three lower authorities accepted: Supreme Court
By TIOL News Service
NEW DELHI, JULY 30, 2015: THE question of law which arises for consideration in the present case is whether the activity of mounting of Water Purification and Filteration System (WPFS) on a base frame carried out by the assessee amounts to manufacture or not.
One M/s Perfect Drug Limited (PDL) had been purchasing/importing various components of WPFS classifiable under Tariff Heading 8421. PDL, after importing these materials, supplied the same to the appellant herein. Job work was assigned to the appellant for the assembly of WPFS on behalf of PDL. Appellant takes job charges from PDL. Various parts which were supplied by the PDL to the appellant were as follows:
i) Filter Housing & Cartridge
ii) UV Units
iii) Timer
iv) Mounting Plate & screws
v) Tubings and Fittings
According to the Department of Revenue, the aforesaid work being carried out by the appellant, namely, assemble of the components resulted into a new product known as WPFS having different name and character and it amounted to "manufacture" as per Section 2(f) of the Central Excise Act, 1944 and, therefore, appellant was liable to pay excise duty. Show cause notice dated 13.05.1998 was served upon the appellant.
The appellant submitted its reply taking the defence that it was only carrying out the job work of WPFS on the base frame and, therefore, it did not amount to manufacture of any new product.
The appellant also submitted that WPFS are of three types:
i) WPFS with Dual Cartridges
ii) WPFS with Single Cartridge
iii) WPFS with Single cartridge & Electronic Control Unit
The filter housing and cartridge are imported by PDL through M/s Cuno Asia Pte Ltd, Singapore and UV based Filteration and Purification unit from Rathi Brothers/ IWT Poona.
The following types of Cartridges are used for the above:
i) Dirt and Rust Filteration Cartridge
ii) Triple Action activated Carbon cartridge.
It was submitted that the choice of cartridge depends upon the basis of filteration, the operating conditions and the customer's ability to afford the particular type of cartridge etc.
The explanation of the appellant was that this WPFS imported and mounted on a base plate by the appellants are used in various post mix vending machines installed at different locations by the customers. The water, before it is mixed with the soft drink concentrate, is passed through this WPFS and thereafter, this goes in the post mix vending machine where it gets mixed with the soft drink concentrate and thereafter, flows out of the vending machines as soft drink. Various items imported by PDL and sold to their customers can be mounted on a wall, near the water supply point, and connected to get the desired quality of water.
However only to avoid the inconvenience to the customers and avoid damage to the plaster on the wall these are mounted on a base frame and interconnected by simple method of tightening nuts. The customer is to simply place or affix the base frame near the water supply point and connect the WPFS to the tap to get the desired quality of water. This is akin to fixing a water filter on the Kitchen Wall near the tap.
The aforesaid explanation was not accepted by the Adjudicating Authority which passed Order-in-Original dated 30.11.1999 thereby confirming the demand raised in the show cause notice which was in the sum of Rs.6,04,624/- and a penalty was also imposed on the appellant. Appellant preferred an appeal to the Commissioner (Appeals) against the aforesaid order which was, however, dismissed by the Commissioner on 28.02.2002. This order was challenged by the appellant before Custom Excise and Service Tax Appellate Tribunal (CESTAT). CESTAT has also dismissed the appeal of the appellant.
The matter is in the Supreme Court.
The Supreme Court noted that the appellant has lost before all the fora below who have concurrently held that the activity undertaken by the appellant amounts to 'manufacture'.
The Supreme Court noted that a finding of fact is arrived at by all the three Authorities that the activity undertaken by the appellant amounts to "manufacture" within the meaning of Section 2(f) of the Central Excise Act, 1944, since the end result of the process or activity resulted in new and different commercial product.
Supreme Court was of the opinion that on the basis of the findings which are concurrent findings of all the Courts below, the correct legal principle has been applied.
The appeal is dismissed.
(See 2015-TIOL-158-SC-CX)
