MAHINDRA AND MAHINDRA LTD. Vs. CCE

JUDGEMENT

(1.) THE above appeal arises out of the order of the Commissioner of Central Excise, Mumbai, who has confirmed the duty demand of Rs. 9,43,43,035/ - on cowl and chassis fitted with engines captively consumed for the manufacture of motor vehicle cleared to UN agencies at nil rate of duty claiming exemption of under notification No. 108/95 dated 28.8.1995 during the period November 1995 to February 1997 on the ground that the products in dispute (intermediate products) are not covered by exemption under Notification 67/95 dated 16.3.1995 as the final products i.e. motor vehicles were cleared at nil rate of duty and imposing penalty of an amount equal to duty upon the appellant.

(2.) WE have that show cause notice dated 28.11.2000 invokes the extended period of limitation of five years under the proviso to Section 11A of the Central Excise Act, 1944. The charge of suppression in the show cause notice is that the appellant did not file any classification declaration under Rule 173D and price declaration under Rule 173C for the intermediate products captively consumed in the manufacture of motor vehicle with a view to avail inadmissible benefits under Notification 67/95 and to evade payment of duty on such captive consumption. Further charge is that although the appellant availed of the exemption under notification 108/95 for clearances of final products without payment of duty to UN agencies, they had failed to claim the exemption vide their classification list dated 8.5.1995, with a deliberate intention to evade payment of Central Excise duty. In the reply to the show cause notice, the appellant rebutted the charge of suppression by stating that the process of manufacture of motor vehicles including the emergence of cowl and chassis fitted with the engine was within the knowledge of department, as seen from the correspondence exchanged between the assessee and the department and that the department had issued a show cause notice in November 1996 itself demanding duty on such chassis captively consumed in the manufacture of motor vehicle manufactured and cleared under notification 108/95. The Commissioner's findings on the issue of limitation are reproduced hereunder below: -

(3.) FROM the above, it is clear that the department was fully aware of the emergence of the intermediate products during the course of manufacture of motor vehicle. It is also clear that the department had knowledge that motor vehicle (in this case, jeeps) were being cleared to UN agencies without payment of duty by availing the benefit of exemption under notification 108/95. Therefore, the number of cowls and chassis fitted with the engine on which the duty has been confirmed by the Commissioner could have been obtained by the department from the RT -12 returns filed for the motor vehicles cleared under notification 108/95, and the notice issued within the normal period of limitation. We have also perused the correspondence between the assessee and the department in this regard. In November 1987, the Assistant Collector rejected the request for permission to remove partially processed motor vehicles under Rule 57F(ii) of the Central Excise Rules on the ground that partially processed vehicles i.e. cowls and chassis are neither input nor semi -finished goods. In October 1990, a show cause notice was issued to the appellant wherein it was observed that the appellant had manufactured cowl and chassis in their factory and cleared them on payment of duty to the body builders (Ld. Counsel for the appellant states that the earlier practice of clearance of cowl and chassis to outside body builders was subsequently discontinued and that the appellant themselves started to build bodies in their factory premises). In July 1991 demand for duty on cowl and chassis was raised by the department. The appellant's application in August 1991 for removal of chassis and cowls under 56B was rejected by the Superintendent of Central Excise in September 1991. We also find that in an earlier appeal by the revenue to the Tribunal, it has been specifically mentioned that chassis and cowls were manufactured by the appellant and cleared on payment of duty to body builders (during the period when cowl and chassis were sent to outside body builders). All these shows that all along the department was aware of the emergence of cowl and chassis fitted with the engine in the course of manufacture of motor vehicles. We also find that the RT -12 returns filed for the manufacture from November 1995 onwards included those vehicles cleared by availing exemption under Notification 108/95. The returns record reversal of credit and as seen from the letter dated 13.3.1996 of the Superintendent of Central Excise to the appellant, the clearances of jeeps to UN agencies under notification 108/95 was recognised. We also note that excise invoices showing the details of clearances under notification 108/95 were filed with the RT -12 returns. The above facts establish the knowledge of the department of both the emergence of cowls and chassis fitted with the engine as intermediate products in the appellant factory for the manufacture of motor vehicles and clearance of motor vehicle to UN agencies without payment of duty by availing of the benefit of the exemption in terms of notification 108/95. We also note that during the relevant period the department itself was of the view that reversal of modvat credit on inputs used in the manufacture of exempted final products amounts to sufficient fulfilment of the provisions of law. In other words, even when the final product namely motor vehicle was being cleared without payment of duty, there was no demand of duty on products emerging at intermediate stage, but there was only requirement of reversal of modvat credit as seen from the letter dated 23.3.1993 (at page 272 of the paper book).