Holding

Assembly of the imported kits into finished VTRs/colour monitors constitutes manufacture, attracting excise duty; the longer period of limitation under Section 11‑A is applicable; and the Collector lawfully issued the additional notice.

Summary

M/s B.P.L. India Ltd. imported 100 kits of VTRs with colour monitors in semi‑knocked‑down condition and paid countervailing duty under tariff item 68. It then assembled the kits into finished VTRs/colour monitors at its factory and cleared them without paying central excise duty, without intimating the authorities and without complying with excise formalities. The Superintendent and later the Collector issued successive show‑cause notices demanding duty on the finished product. The Tribunal held that the assembly constituted manufacture, that the longer period of limitation under Section 11‑A applied, and that the Collector could issue a further notice. The appellant challenged these findings before the Supreme Court. The Court held that the assembly transformed the imported kits into a new, distinct commercial product, thereby qualifying as manufacture under Section 2(1) of the Central Excises and Salt Act, 1944, making the appellant liable to excise duty; the longer limitation period was correctly invoked; and the Collector had jurisdiction to issue the additional notice. The appeal was dismissed.

Issues considered

Whether assembly of imported SKD kits of VTRs and colour monitors amounts to 'manufacture' within the meaning of Section 2(1) of the Central Excises and Salt Act, 1944, attracting excise duty.
Whether the demand for excise duty is barred by the ordinary limitation period or whether the extended period of limitation under Section 11‑A applies.
Whether the Collector was empowered to issue a further show‑cause notice in continuation of the earlier notices issued by the Superintendent.

Legislation cited

Central Excises and Salt Act, 1944s. 11-A, s. 2(1), s. 35-F

Subjects

excise dutymanufactureassemblySKD kitslimitation periodshow cause noticecountervailing dutycentral excise

Judgment

A M/S. B.P.L. INDIA LTD.
v.
COMMISSIONER OF CENTRAL EXCISE, COCHIN

MAY 7, 2002

B [N. SANTOSH HEGDE AND SHIVARAJ V. PATIL, JJ.]

Central Excises and Salt Act, i 944-Section 2(/)-Excise duty-levy
of-On assembly of imported kits of components into VTRslcolour monitors
C by using fastners-Countervailing duty already levied under Tariff item 68
on disassembled kits-Held, duty leviable on the end product since the
process of assembly constituted the process of manufacture.

Section ii A-Notice-issuance of-limitation-Plea that extended
period not available-Held, in view of the conduct of assessee longer period
D Qf limitation available.

100 Kits of VTR with colour monitors were imported by appellant-
assessee in disassembled condition and the same were subjected to

E
countervailing duty under tariff item 68.

Appellant assembled the goods into VTRs and colour monitors at their
factory and cleared the sets without payment of duty, without intimation and
-
without observing central excise formalities.

Superintendent issued show cause notices asking the appellant as to why
duty be not levied on the sets. Thereafter another show cause notice was issued
F by Collector. Appellant replied the same.

Collector confirmed the demand. Appeal before Customs, Excise and Gold
(Control) Appellate Tribunal was dismissed on the ground that the appellant
was liable to pay duty on the end product as assembly or imported kits of
G components into VTRs/colour monitors constituted the process of manufacture.
In view of delay in giving necessary intimation to the department, before
clearing the products, it held that longer period of limitation was available.

In appeal to this Court, appellant contended that fastening disassembled
VTRs/colour monitors did not amount to manufacture within meaning of Section
H 834
B.P L. INDIA LTD. 11. COMMISSIONER OF CENTRAL EXCISE 835
2(Qof Central Excises and Salt Act, 1944; that once countervailing duty was A
paid by them, they were not liable to pay the duty on the end product; that demand
of duty was barred by limitation and extended period of limitation was not
available to the Revenue; and that Collector could not have issued more notices
on the same sets of facts when earlier proceedings were not completed.

Revenue contended that in view of the process involved in assembly, B
appellant manufactured VTRs with colour monitors; that their conduct in
avoiding or delaying in giving reply to the show cause notices and not
intimating the manufacture and clearance of the goods without completing
Central Excise formalities lacked bona fide; and that since the third notice
was in continuation of the earlier two notices, it could not be said that Collector C
had no jurisdiction to continue the proceedings and pass adjudicatory orders.

Dismissing the appeal, the Court

HELD: I.I. A question as to when a manufacture of product takes place
within the meaning of Section 2(0 of the Central Excises and Salt Act, 1944 D
is a mixed question of law and fact. The nature and thC extent of processes
may vary from case to case. When a change takes place and a new anadistinct
" article comes into existence known to the consumers and the commercial
community as a commercial product, which can be no longer regarded as the
original commodity, such a change constitutes a process of manufacture. E
(839-G(

Union of India v. Delhi Cloth and General Mills, (1977) I ELT (JI 99)
referred to.

1.2. The Collector as well as the Tribunal has rightly recorded a finding F
of fact based on the material placed on record that the assembly of imported
kits of components into VTRs/colour monitors by using the fasteners
constituted the process of manufacture. The imported kits of components of
VTRs and colour monitors in SKD condition were items falling under Item 68
for levy of countervailing duty. By the process undertaken by the appellant a
change is brought about facilitating the utility of the product for which they G
were meant. In other \Vords, pursuant to the process, a transformation has
taken place at the hands of the technical experts of skilled persons and not by
laymen, which made the product to have a distinct character and use. Such
product ofVTR/colour monitor as finished product was classified under Item
37 BB. The Tribunal was right in its conclusion that the appellant was liable H
836 SUPREME COURT REPORTS [2002] 3 S.C.R.

A to pay duty on the end product. 1840-C; 839-H; 840-A, Bl

Mis. Narne Tulaman Manufacturers (P) ltd. v. CCE, Hyderabad, (1989)
2 ECR 129 (SC) referred to.

2. Contention advanced on behalf of the appellant on the question of
B limitation is untenable having regard to facts and circumstances of the case.
The Collector as well as the Tribunal on detailed examination of facts and
looking to the conduct oft!:~ appellant in delaying to give reply to the show
cause notices and not giving necessary intimation to the Department before
clearing the products manufactured by them, have held that the longer period
C oflimitation was available. 1842-E; 841-Fl

3. The contention that the Collector could not have issued one more notice
on the same set of facts when the proceeding initiated pursuant to the show
cause notices issued by the Superintendent earlier were not completed, is
untenable. The notice issued by the Collector subsequent to the issuance of
D notices by the Superintendent was only in continuation of the earlier two
notices, ~hich fact is evident from the n<;>tice itself. Further even issue of notice
by the Superintendent earlier could not take away the jurisdiction and authority
of the Collector in issuing a notice and passing the order of adjudication.
1842-E,G)

E CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2243 of 1999.

From the Judgment and Order dated 6.3.97 of the Customs Excise and
Gold (Control) Appellate Tribunal at Madras in A. No. E/2029/87-8 in F.O. No.
626 of 1997.

F Raju Ramachandran, C.N. Sreekumar, Ms. Deepa S. and Ms. Shyjatha for
the Appellant. E

Soli J. Sorabjee, Attorney General, Jaideep Gupta and B. Krishna Prasad
for the Respondent.

G The Judgment of the Court was delivered by

SHIVARAJ V. PATIL, J. The appellant imported 100 kits ofVTR with
colour monitors in disassembled condition. These items were described in
invoices and bills of entry as "sets of assembly, sub-assembly and other
hardware items for assembly of complete VTR and colour monitors". The said >
H goods were subjected to countervailing duty @ 8% ad valorem falling under
B l'_L_ lNDIA LTD. r. COMMISSIONER OF CENTRAL EXCISE ISJ-llYARAJ V. PATIL, 1.J 837

tariff item No. 68. During the period 2.12.1981 to 26.2.1982, the appellant A
started asse1nbling these goods into VTRs and colour monitors at their factory
at Palghat and cleared the sets without payment of duty, ;ithout intimation
and without observing the Central Excise formalities.

The Superintendent of Central Excise, Range-II, Pal ghat, while perusing
advice notes of the factory observed that certain VTRs and colour monitors B
were 1nanufactured and cleared by the appellant during the period June, 1982
to August, 1982 and issued letter dated 12.8.1982 asking the appellant to
furnish details of the sets cleared and to explain why duty should not be
demanded on such sets and why action should not be taken for contravention
of Ce:itral Excise rules. However, the appellant did not furnish the required
information. Thereafter, the Superintendent issued a show cause notice dated C
6.12.1982 asking the appellant why a duty of Rs. 5,58,000 due on 56 sets of
VTRs and colour monitors should not be demanded under Section 11-A of
the Act and another show cause notice dated 2.4.1983 was issued for
Rs. 1,78,500 due on 17 sets of VTRs and colour monitors. The appellant in
response gave replies by letters dated 31. l.1983 and 11.2.1984 respectively. D

On 9.6.1983, the Central Excise Officers searched the factory of the
• appellant and on 14.6.1983 the Offices of the Directorate of Anti-Evasion
searched the factory premises on 20, K.H. Road, Bangalore. 20 Nos. ofVTRs
were detained which were reported to have been brought there from the
factory of the appellant at Palghat. The Manager was not able to produce any E
document to show that the Central Excise Duty had been paid on these sets.
In subsequent investigations, it was found that the appellants had
manufactured and cleared VTRs and colour monitors without disclosing details
thereof to the Department and without observing the Central Excise formalities.
Evidence to show actual price at which VTRs and colour monitors were sold F
to independent wholesale buyers was also collected during the course of
investigation. One more notice was issued on 20.2.1986 by the Collector,
Central Excise, in continuation of show cause notices dated 6.12.1982 and
2.4.1983 issued earlier giving the detailed facts asking the appellant why
Central Excise duty of Rs. 9,43,884.38 on JOO VTRs and 100 colour monitors
cleared without payment of duty should not be demanded. In reply dated G
7.4.1986 given on behalf of the appellant, it was stated that two show cause
notices were already issued and replies were furnished and request was made
to dispose of the earlier show cause notices before deciding the last one. A
further reply dated 14. 7.1986 was furnished by the appellants.

The stand of the appellant was that assembly of components imported H
838 SUPREME COURT REPORTS [2002] 3 S.C.R.

A in Semi Knocked Down (SKD) condition into VTRs/colour monitors did not
amount to manufacture for the purpose of levy of excise duty. According to
them, the imported components in SKD condition were only put together by
using fasteners; that no manufacturing activity or use of power was involved
in the process; the show cause notice dated 2.4.1983 was hit by limitation in
respect of the clearances effected prior to 3.10.1982. Extended period of
B limitation under Section 11-A was not available to the Revenue. The appellant
also took up the stand that the valuation adopted was not correct. Further,
without completing the proceedings pursuant to the two earlier show cause
notices issued, the Collector could not have issued the third notice and
proceeded against the appellant in confirming the demand for Rs. 9,43,884.38
C and directing the appellant t~ pay the said duty and imposing a penalty of
Rs. 3,00,000.

The Collector, after considering all aspects, by his detailed order dated
24. 7 .1987 rejected all the contentions raised by the appellant and confinned
' the demand. The appeal filed by the appellant before the Tribunal (CEGA T)
D challenging the said order of the Collector dated 24. 7 .1987 was dismissed on
6.3.1997. The application filed by the appellant under Section 35-F of the Act
for reference was also rejected on 1.9.1998. Hence, this appeal. •
Before us, Mr. Raju Ramachandran, learned senior counsel urged that
E (1) fastening imported disassembled VTRs with colour monitors did not amount
to manufacture within the meaning of Section 2(t) of Central Excise & Salt Act,
1944; the fasteners had also been imported alongwith disassembled VTRs and
colour monitors; VTRs with colour monitors were not liable for payment of
excise duty as the countervailing duty applicable to the same at the time of
import under tariff item had been paid; (2) the demand of duty was grossly
F barred by limitation; the Commissioner and Assistant Commissioner could not
issue separate show cause notices; the very fact of Assistant Collector
issuing notices earlier clearly shows that the Department was fully aware of
the import of the disassembled VTRs alongwith the colour monitors and
assembling of the same and selling them; there is no averment in the show
cause notice of any wilful suppression of any material fact or fraud or
G misrepresentation. Hence, the extended period of limitation could not be
invoked.

Per contra, the learned Attorney General supported the impugned order •
stating that the Collector as well as the Tribunal have considered all aspects.
H In the light of the contentions raised by the appellants, a finding of fact is
B.P.L. INDIA LTD. l'_ COM!VllSSIONER or CENTRAL EXCISE [Sl-IIVARAJ V. PATIL, J.] 839
recorded looking to the process involved that the appellant manufactured A
VTRs with colour monitors and cleared them without inti1nation to excise
authorities and without payment of duty. He pointed out that all was not well
with the appellant in replying to the show cause notices. They were trying
to avoid or delay in giving reply to show cause notices; when they themselves
did not intimate as to when they manufactured the goods and when they
cleared without completing the Central Excise formalities, they lacked bona B
fides. The third notice issued by the Collector on 20.2.1986 was issued only
in continuation of the earlier two notices; merely because earlier notices were
' issued by the Assistant Commissioner, it could not be said that the Collector
had no jurisdiction to continue the proceedings and pass adjudicatory order.

We have carefully considered the submissions made by the learned
c
counsel for the parties. According to the appellant the imported kits of VTR
and colour monitors in SKD condition were only assembled by using fasteners
and as such no manufacturing activity was involved in bringing out VTRs/
colour monitors so as to attract the excise duty as demanded. But the
contention of the Revenue is to the contrary. D

• This Court in Union of India v. Delhi Cloth and General Mills. [1977]
EL T J 199 defined manufacture thus "The word 'Manufacture' used as a
verb is generally understood to mean as 'bringing into existence a new
substance' and does not mean merely 'to produce some change in a
substance'." Following passage from an American Judgment, quoted in E
Permanent Edition of Words and Phrases Vol. 26, reads thus: -

"Manufacture implies a change but every change is not
manufacture and yet every change of an article is the result of
treatment, labour and manipulation. But something more is necessary F
and there must be transformation, a new and different article must
emerge having a distinctive name, character or use."

It is well settled that a question as to when a manufacture of product

- takes place within the meaning of Section 2(t) of the Act is a mixed question
of law and fact. The nature and the extent of processes may vary from case G
to case. When a change takes place and a new and distinct article comes into
existence known to the consumers arid the commercial community as a
commercial product, which can be no longer regarded as the original commodity,
' such a change constitutes a process of manufacture.

It is not disputed that the imported kits of components of VTRs and H
840 SUPREME COURT REPORTS [2002] 3 S.C.R.

A colour monitors in SKD condition were items falling under Item 68 for levy
of countervailing duty. It is clear from the material placed on record that by
the process undertaken by the appellant a change is brought about facilitating
the utility of the product for which they were meant. In other words, pursuant
to the process, a transformation has taken place at the hands of the technical
experts or skilled persons and not by laymen, which made the product to have
B a distinct character and use. Such product of VTR/colour monitor as finished
product was classified under Item 3788.

The Collector as well as the Tribunal recorded a finding of fact based
on the material placed on record that the assembly of imported kits' of
C components into VTRs/colour monitors by using the fasteners constituted
the process of manufacture and rightly so in our opinion. We have no good
reason to take a contrary view on this finding of fact. The Tribunal in the
impugned order has recorded thus: -

"It is seen that the appellant imported component part in SKD condition
D . and the finished product was VCR with colour monitor. The VCR and
the colour monitor were cleared together. Classifn. of the VTR is u/
i 68 of the erstwhile tariff. But after undergoing the process of
manufacture for the assembly, the product at the time of clearance •
from the factory was classifiable u/i 3788. Therefore, a transformation
in the character of the imported goods took place and the new product
E is emerged. It is, therefore, seen that the product kit of VCR at the time
of import was trailable and notionally was classified u/i 68 of the
erstwhile tariff and after assembly and at the time of clearance the
resultant product was classified u/item 3788 and the product therefore,
can be removed only on payment of duty. Similarly the kits for colour
monitor is also classifiable under item 68 of the erstwhile tariff whereas
F
after assembly, the product at the time of clearance was classifiable J
u/i 33A or 3788 when sold in combination with VCR. The invoices
of the appellaat bearing 245s and 246 and 171 and 172 mentioned in
the SCN showed the basis of the value adopted in the case of VCR
and colour monitor."
G
The contention advanced on behalf of the appellant, that once
countervailing duty was paid by them on the same items they were not liable
to pay the duty again on the VTRs/colour monitors, was rejected by the
Tribunal relying on the decision of this Court in Mis. Narne Tulaman ,. t,..
Manufacturers (P) Ltd v. CCE, Hyderabad, [ 1989] 2 ECR 129 SC. Para 3 of
H the said judgment reads: -
B.P.L INDIA LTD. v. COMMISSIONER OF CENTRAL EXCISE [SHIVARAJ V. PATIL, J.] 84 J

"3. The appellant's contention before the Tribunal was that it was A
-. only preparing a part and that part is dutiable as a separate part. The
appellant, however, did the work of assembling. As a result of the

• work of the appellant a new product known in the market and known
under the excise item "weighbridge" comes into being. The appellant
will become a manufacturer of that product and as such liable to duty. B
That is precisely what the Tribunal found on the facts of the case.
The appellant seems to have been obsessed by the idea that as a part
of machine is liable to duty then the whole end product should not
be dutiable as separate excise goods. That is mistake, a part may be
goods as known in the excise 1.aws and may be dutiable. The appellant
in this case claims to have manufactured only the indicator system. c
If the indicator system is a separate part and a duty had been paid
on it and if the rules so provide then the appellant may be entitled
to abatement under the rules. But if the end product is a separate
product which comes into being as a result of the endeavour and
activity of the appellant then the appellant must be held to have D
manufactured the said item. When parts and the end product are
separately dutiable both are taxable."
~

This being the position, in our view, the Tribunal was right in its
conclusion that the appellant was liable to pay duty on the end product. The
decisions cited before us by the learned counsel for the appellant in support E
of his stand were considered by the Tribunal and rightly distinguished on
facts. We do not think it necessary to consider them again.

The Collector as well as the Tribunal on detailed examination of facts
and looking to the conduct of the appellant in delaying to give reply to the
show cause notices and not giving necessary intimation to the Department F
~
before clearing the products manufactured by them, have held that the longer
period of limitation was available. In this regard the Collector in his order, in
para 11, has stated thus: -

"11. The stand taken by the assessee vice their reply dated 11.2.84 in
response to the SCN dt. 2.4.83 was that the clearances effected prior G
to 3.10.82 would be hit by time bar, and the basis of value adopted
by the Supdnt. was not correct. I would have accepted the first
objection provided Mis BPL had produced any evidence to show that
they had declared to the dept. either by letter or through the documents
(CL returns to be furnished by the assessee every month (like RT 121 H
842 SUPREME COURT REPORTS [2002] 3 S.C.R.

A GP) the details of manufacture/clearance. In this connection, I want to
make it clear beyond any shadow of doubt that, !in intimation regarding
the total no. of kits imported by M/s. BPL could not be deemed to be
an intimation in this regard as the liability to pay duty arises only after
the ntanufacture is complete and clearance takes place. Since M/s.
BPL have not produced any evidence to show that they had furnished
B the details of removal to the Supdnt. in time even in spite of specific
request made vide OC No. 2786/82 dt. 17.9.82, M/s. BPL have no right
to 'Claim that the demand notice dt. 2.4.83 is barred by limitation."

Agreeing with the finding of the Collector on the question of limitation the
C Tribunal also in para 13 of the judgment recorded thus: -

"13. The next point of the appellant is that longer period of limitation
is not invokable in this case. It is seen that the appellant having
manufactured the product in question and removed the same without
any intimation to the dept. which clearly goes to show that their
action was with intent to evade payment of duty. There cannot be any
D
bonajide belief on the part of the appellant in this regard. In these •>
circumstances the contention of the appellant that the removal of the
goods without payment of duty was not with intent to evade payment
of duty cannot be accepted. Therefore, the. duty demanded by invoking
the longer period of limitation is in accordance with law."
E
Under these circumstances the contention advanced on behalf of the
appellant on the question of limitation is untenable having regard to facts and
circumstances of the case.

The contention, that the Collector could not have issued one more
F notice on the same set of facts when the proceeding initiated pursuant to the
show cause notices issued by the Superintendent earlier were not completed,
is equally untenable. The notice issued by the Collector subsequent to the
issuance of notices by the Superintendent was only in continuation of the
earlier two notices, which fact is evident from the notice itself. Further even
issue of notice by the Superintendent earlier could not take away the
G jurisdiction and authority of the Collector in issuing a notice and passing the
order of adjudication. The Tribunal was right in rejecting this contention also.

Thus, we find no merit in this appeal. Hence it is dismissed. No costs.

K.K.T. Appeal dismissed.