- (1.) C.A. NO.6561 OF 2004 The present case raises an interesting question as to whether excise duty is payable on an intermediate product, namely, Transmission Assembly which comes into existence during the manufacture of tractors made by the appellant. The period involved is January 1996 to May 1998. The tractors that are manufactured have engines that are below 1800 CC and are covered by an exemption notification 162/1986. We are informed, however, that after 1.6.1998 this exemption has gone and even tractors of an engine capacity of less than 1800 CC now have to bear excise duty.
(2.) By a show cause notice dated 31.1.2001, the Department for the period aforesaid relied upon evidence in the form of statements made by various officers of the appellant and other documentary evidence to show that Transmission Assemblies of tractors was a commodity known to the market as such and, therefore, came into the category of excisable goods. The respondent by their reply dated 1.10.2001 denied this stating that no separate product known as Transmission Assemblies came into existence which is known to the commercial community as such and, therefore, there was neither manufacture nor marketability of the same. In the reply, however, various statements were made which, in fact, amount to admissions, that Transmission Assembly of a tractor is, in fact, known to the market as such. These admissions are set out hereinbelow: "16. It is submitted that transmission assemblies are in fact interchangeable. The Transmission Assembly can be used in both dutiable as well as exempt tractors, for example in Model No.325 (exempt tractor) and Model No.335 (dutiable tractor). Therefore, it serves as a common input for both tractors. Therefore, in terms of provisions of Rule 57CC MODVAT credit is admissible on the common inputs which form part of transmission assemblies in turn used in the manufacture of both types of Tractors. 47.1. The department has relied upon the case of M/s International Tractors Ltd., Hoshiarpur who are supplying transmission assemblies. (a) The Notice contends that M/s. Mahindra & Mahindra have not purchased any transmission assemblies for use in tractors from any other unit. Further, they have not supplied or transferred any transmission assemblies to any other person. However, they have been supplying the transmission assembly to their own units at Nagpur and Rudhrapur for manufacturing tractors. (b) It is submitted that this letter can at most lead to a conclusion that the transmission assembly made by M & M is marketable. 50. The show cause notice has placed reliance on certain other web site to contend that the Hoovers on-line web site and Carraro web site shows that transmission assemblies are marketed and sold. It is submitted that while there might be mass production of transmission assemblies marketed by Hoovers Carraro, etc., the product specific transmission assemblies of the noticees never come to the market and have never been sold. Hence, there can be no question of demanding duty on the transmission assemblies made on the assembly line and used for assembling the tractors in the noticees factory. These are not marketable and hence, are not goods and there is no removal under Rule 9 and 49."
(3.) The Commissioner by an order dated 4.10.2002 held as follows:- "41. I find that the issue has been well examined in the notice. Noticee's plea that the impugned transmission assemblies are not goods as transmission assemblies do not have independent existence is without merit. Noticee in fact itself clears such goods on payment of duty to ECEL, Transmission assemblies are well known in the commercial world and are very much dealt with as a commercial commodity. The end use as put forth in the notice amply proves it. To reiterate transmission assemblies are cleared by the noticee to ECEL; noticee company's sister concern (Farmtrac Division) imported transmission assemblies from Carraro Spa of Italy and also purchased transmission assemblies from Carraro India Limited, Pune; M/s TAFE, Chennai, International Tractors Ltd., Hoshiarpur, Mahindra & Mahindra all deal in transmission assemblies and further information regarding transmission assembly availability as such is also available on internet. 42. Noticee's submission that no identifiable transmission assembly emerges in their production of Tractors is also incorrect. They are manufacturing transmission assemblies for their tractors as well as for ECEL. Of course transmission assemblies meant for different models of machines/vehicles will be of slightly different specifications from each other but as a whole transmission assemblies are one identifiable commercial product as already discussed. I also note that the concerned persons of the noticee company themselves have admitted that transmission assemblies do emerge as identifiable goods. Statements of Sh. K.K. Kachroo, Manager Excise, Shri Vinod Ahuja, Plant Head, Sh. Ramesh Kumar Khurana, Chief Manager Production all admit this fact. Even otherwise manufacturing of the tractors in the noticee's factory cannot be accepted as such a continuous process in which raw materials are fed in the machine at one end and final product emerges at another. Only in such a case, can it be believed that there is no independent identifiable intermediate stage of goods. The procedure as adopted by the noticee is basically assembly of various parts & components and of course all these parts and accessories which are manufactured by the noticee in their factory as identifiable goods are excisable themselves. Therefore, the emergence of I.C. Engines is excisable and so also the emergence of the transmission assembly is also excisable. In fact in the case of Pratap Rajashtan Copper Foils Vs. CCE,1999 109 ELT 288 (T) it was held that duty is payable on intermediate products even if some minor processes were not carried to make the product marketable. 43. I also find that the noticee in their reply has laid great emphasis on their argument that their tractors are manufactured as a result of integrated manufacturing process on the assembly line and therefore there is no removal of intermediate goods, if any, in terms of Rule 9 or Rule 49. I have to reiterate that noticee's plea is inadmissible. In terms of Rule 9 and 49, intermediate goods emerging during such integrated assembly line production would be deemed to have been cleared for production and therefore liable to Central Excise duty. Besides facts of the case are entirely different as has been stated by the noticee company's concerned persons in their statements. Assembly of a vehicle or machine on line or otherwise still remains assembly i.e. various parts and components are either manufactured first by the assessee himself or procured from outside and then assembled to produce the resulting machine. All excisable goods emerging during such assembly or production are themselves excisable as intermediate goods meant for captive consumption unless or until specifically exempt. Transmission assembly is one such excisable intermediate product and therefore its duty liability is obvious. Therefore, I hold that these are independent, identifiable, commercial goods capable of being bought and sold in the market and, therefore, are excisable goods leviable to Central Excise duty under Section 3 of the Central Excise Act, 1944. That impugned transmission assemblies have been used captively in production of Tractors cleared at Nil rate of duty is not denied by the noticee. The captive consumption exemption Notification No. 67/95-C E dated 16.3.95, as amended, debars such intermediate products used in production of exempt final products, from the duty exemption under the notification. As the final product i.e. Tractors were exempt, the impugned transmission assemblies did attract Central Excise duty. I hold that all the observations in the show cause notice regarding excisability of the impugned goods are correct. I also note that as far as the classification of the product is concerned, the same has not been challenged by the noticee.";