Supreme Court of India
M/S. USHA RECTIFIER CORPN. (I) LTD. (PRESENTLY KNOWN AS M/S. USHA (I) LTD.)versusCOMMISSIONER OF CENTRAL EXCISE, NEW DELHI
- Citation
- 2011 INSC 40
- Decided
- 13 January 2011
- Disposal
- Dismissed
- Bench
- MUKUNDAKAM SHARMA
Holding
Duty is payable on the testing equipment as an excisable, marketable good, and the department was right to invoke the extended limitation period due to the assessee’s non‑disclosure.
Summary
The appellant, a manufacturer of electronic equipment, fabricated testing machines worth Rs 31.27 lacs to test its own products and claimed they were for captive consumption and R&D, not liable to excise duty. The department issued a show‑cause notice and, after the appellant’s admissions in its balance sheet and reply, demanded duty on the testing equipment, imposing penalty. The appellant argued that the equipment was not ‘manufactured’ for sale, was dismantled after use, and that the extended limitation period could not be invoked. The Supreme Court held that the admissions proved the equipment was manufactured, saleable and marketable, making it an excisable good, and that the explanations to Rules 9 and 49 deem such goods as removed from the premises for consumption. It also affirmed that the department was justified in invoking the extended period of limitation due to the appellant’s non‑disclosure and lack of an L‑4 licence. Consequently, the appeal was dismissed.
Issues considered
- Whether central excise duty is payable on testing equipment manufactured for captive consumption when the equipment is saleable and marketable.
- Whether the explanations to Central Excise Rules 9 and 49 deem such goods as removed from the factory premises and thus liable to duty.
- Whether the department could invoke the extended period of limitation owing to the assessee’s non‑disclosure, suppression of facts and failure to obtain an L‑4 licence.
Legislation cited
- Central Excise Act, 1944s. 11A
- Central Excise and Salt Act, 1944s. 3
- Central Excise Rules, 1944s. Rule 49, s. Rule 9
Subjects
central excisecaptive consumptiontesting equipmentduty liabilityRule 9Rule 49extended limitation periodL‑4 licencemarketable goodsmanufacturingsuppression of facts
Judgment
[2011] 1 S.C.R. 347
M/S. USHA RECTIFIER CORPN. (I) LTD. (PRESENTLY A
~·
KNOWN AS M/S. USHA (I) LTD.)
v.
COMMISSIONER OF CENTRAL EXCISE, NEW DELHI
(Civil Appeal no.6866 of 2000)
JANUARY 13, 2011 B
[DR. MUKUNDAKAM SHARMA AND
-r ANIL R. DAVE, JJ.)
Central Excise Rules, 1944: rr.9 and 49, explanation - c
Captive consumption - Manufacture of testing equipment by
assessee for testing its own final products - Testing equipment
manufactured within the factory- Admission by assessee that
the import of testing equipment was avoided to save foreign
exchange and parts and components were purchased to D
develop the testing equipment - Demand of duty on testing
equipment - Held: Duty payable on the testing equipment -
- It was admitted by the assessee that they had undertaken
such manufacturing process of the testing equipments to
avoid importing of such equipment - Such a statement E
confirmed the position that such testing equipments were
saleable and marketable - Explanations to Rule 9 and 49
provides that excisable goods manufactured and consumed
or utilized within the factory premises as such are deemed to
have been removed from the premises immediately for such
F
consumption or utilization and duty is leviable on such
excisable goods.
Central Excise Act, 1944: s. 11 A - Demand - Limitation
- Suppression of relevant facts - Non-payment of duty on the
' -r- testing equipment manufactured for the purpose of testing the G
final products - L-4 licence not obtained by the assessee nor
the fact of manufacturing of the said equipment disclosed to
the department - The said knowledge of manufacture
acquired by the department only subsequently- Held: In view
347 H
348 SUPREME COURT REPORTS (2011] 1 S.C.R.
A of non-disclosure of such information by the assessee and
suppression of relevant facts, the extended period of limitation
was rightly invoked by the department.
The appellant-assessee, a manufacturer of
·-
electronics equipments, manufactured a machinery in the
8
nature of testing equipments costing Rs.31.27 lacs to test
its final products. A show cause notice was issued on the
assessee demanding duty on the plant and machinery
including the testing equipments manufactured by them.
After considering the reply of the assessee, the
C authorities confirmed the demand. The CEGAT dismissed
the appeal filed by assessee. The instant appeal was filed
challenging the order of the CEGAT.
Dismissing the appeal, the Court
D HELD: 1. The demand for payment of central excise
duty in the instant case was made on the basis of
statement made by the appellant-assessee in their
balance sheet to the effect that there was an addition to
plant and machinery including testing equipments worth
E Rs. 31.26 lacs which were made in the company by
capitalisation of the expenditure on raw material, stores
and spares and salary/wages and other benefits. The
said statement and details were mentioned in Schedule
'Q' appended to notice of balance sheet and profit and
F loss account of the appellant for the year ending
December, 1987. The said position was further
corroborated by the Director's report appearing in the
Annual Report for the year ending December, 1988,
wherein it was mentioned that during the year the
G company developed a large number of testing
equipments on its own for using the same for the testing
of semi-conductors manufactured by it. Once the
appellant had themselves made admission in their own
balance sheet, which was not rebutted and was further
H substantiated in the Director's report, they could not later
"
USHA RECTIFIER CORPN. (I) LTD. v. COMMNR. OF 349
CENTRAL EXCISE
turn around and make submissions contrary to their own A
admissions. Moreover, they also clearly took a stand in
their reply to the said show cause notice that they bought
various parts and components to develop the testing
equipments for use within the factory and that such steps
were undertaken to avoid importing of such equipments B
from the developed countries with a view to save foreign
exchange. Even if the testing equipments were used for
captive consumption and within the factory premises,
considering the fact that they were saleable and
marketable, duty was payable on the said goods. The fact c
that the equipments were marketable and saleable was
also an admitted position as the appellant has admitted
it in their reply to the show cause notice that they had
undertaken such manufacturing process of the testing
,..__ equipments to avoid importing of such equipments. Such D
a statement confirmed the position that such testing
equipments were saleable and marketable. The provision
of Explanations to Rule 9 and 49 of the Central Excise
Rules are very clear as it provides that for the purpose
of the said rules, excisable goods manufactured and
E
consumed or utilized as such would be deemed to have
been removed from the premises immediately for such
-- consumption or utilization. Jherefore, the contention that
no such duty could be levied unless it is shown that they
were taken out from the factory premises is without any
merit. [Paras 7 to 11] [352-G-H; 353-A-B-D-H; 354-D] F
Calcutta Electric Supply Corpn. v. CWT (1972) 3 SCC
222 - relied on.
~
2. The appellant had not obtained L-4 licence nor
G
they had disclosed the fact of manufacturing of the said
goods to the department. The said knowledge of
· manufacture came to be acquired by the department only
subsequently. In view of non-disclosure of such
information by the appellant and suppression of relevant
facts, t~e extended period of limitation was rightly H
350 SUPREME COURT REPORTS [2011] 1 S.C.R.
A invoked by the department. [Para 12] [354-F-G]
Case Law Reference:
(1972) 3 sec 222 relied on Para 8
B CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6866 of 2000.
From the Judgment & Order dated 10.08.2000 of the
Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT),
_New Delhi in Excise Appeal No. 5496/92-8.
c
Vinod K. Shukla, Shiv Kumari Suri for the Appellant.
R.P. Bhatt, B. Krishna Prasad, Gautam Jha for the
Respondent.
D The Judgment of the Court was delivered by
.. OR. MUKUNDAKAM SHARMA, J. 1. By this judgment
and order we propose to dispose of the appeal which is filed
by the appellant herein being aggrieved by the judgments and
orders passed by the authorities including the Customs, Excise
1E & Gold -[Control] Appellate Tribunal [for short 'CEGAT']
. demanding duty of Rs. 4,92,566.28 from the appellant on the
1 plant and machinery including testing equipments manufactured
by them.
F 2. The appellant _herein is a manufacturer of electronic
transformers, semi-conductor devices and other electrical and
·electronics equipments. During the course of such manufacture
the appellant also manufactured machinery in the nature of
testing equipments to test the final products of the assessee
G company costing Rs. 31,27,405/- as per Note 6 of the Schedule
'Q' page 15 of the balance sheet for the year ending December,
1987. The aforesaid position was further reiterated in the
- Director's report appearing at page no. 2 of the Annual Report
for the year ending December, 1988.
H 3. A show cause notice was issued to the appellant
USHA RECTIFIER CORPN. (I) LTD. v. COMMNR. OF 35{
CENTRAL EXCISE [DR. MUKUNDAKAM SHARMA, J.]
directing them to show cause as to why central excise duty A
should not be levied on it along with interest and penalty. The
appellant submitted its reply to the aforesaid show cause notice
wherein they took a stand that no manufacture of plant and
machinery of the nature alleged had taken place during the year
to warrant levy of central excise duty. It was further stated that B
for research and development wing of the company and to carry
out trials, experiments and for undertaking development job
based on the latest technology available worldwide or through
their own resources it had bought out items, parts, components,
etc., and for that purpose such items were assembled in the c
factory. It was also stated that after research is so done, and if
it was not successful, the same was disassembled. It was
contended that the job that was carried out in that process was
purely for research and developmental works and it was not
manufacture of testing equipments. In the said reply it was also
D
stated that project to develop the aforesaid testing equipment
,....._ for use within the factory was undertaken to avoid importing of
such equipment from the developed countries with a view to
~ save foreign exchange but since the project failed, no serious
effort had since been made to complete the manufacture of the
said testing equipments. It was further contended that under E
Section 3 of the Central Excises and Salt Act, 1944 tt\e
imposition of excise duty is on the act of manufacture br
production and when there is no manufacture or production,
there cannot be any duty so leviable, particularly, when the
aforesaid processed material was not marketable. ~ d
F.
4. The Additional Collector, Central Excise under orderl
in-original No. 6/92-93 dated 27 .5.1992 after consideration· 6f
the contentions confirmed the demand of duty amounting to Rs:
4,92,566.28 and imposed a penalty of Rs. 50,000/- holding that G
in view of the documentary evidence and the balance sheet it
+ had been proved beyond doubt that they had manufactured pl~nt
.: _ and machinery/testing equipments worth Rs. 31.26 lacs. Being
"'· aggrieved
. by the said order, an appeal was filed before the
Collector (Appeals), who dismissed the said appeal. Still
H
352 SUPREME COURT REPORTS (2011) 1 S.C.R.
A aggrieved, the appellant filed an appeal before the CEGAT
which was also rejected after hearing the counsel appearing
for the parties and after extensively going through various facets
arising in the case. Thereafter, the appellant has filed the
present appeal on which we have heard the learned counsel
s appearing for the parties.
5. It was submitted by the counsel appearing for the
appellant that the appellant have their own research and
development wing in which trials and experiments are
undertaken from time to time for the developmental jobs based
C on latest technology and that during the course of such trials
and experiments they bought out various parts and components
which were assembled by them and that after the research is
done the same were disassembled and, therefore, such
research and development process undertaken by them cannot
D be said to be manufacturing process by any stretch of
imagination. It was also submitted by the counsel that the
aforesaid equipments were not taken out from the factory
· premises of the appellant and rather they were dismantled and,
therefore, the respondent acted illegally in levying tax on the
E said goods. He also submitted that the department was also
not entitled to invoke the extended period of limitation inasmuch
as there was no cause for invoking the provision of extended
limitation.
6. The aforesaid submissions of the counsel appearing for
. F
the appellant were however refuted by the counsel appearing
for the respondent. We have very carefully scrutinized the
records and examined the submissions of the counsel
appearing for the parties in the light of the said records.
G 7. The demand for payment of central excise duty in the
present .case appears to have been made on the basis of
statement made by the appellants in their balance sheet to the
effect that there is an addition to plant and machinery including
testing equipments worth Rs. 31.26 lacs which have been made
H in the company by capitalisation of the expenditure on (i) raw
' ,,
USHA RECTIFIER CORPN. (I) LTD. v. COMMNR. OF 353
CENTRAL EXCISE [DR. MUKUNDAKAM SHARMA, J.]
material, (ii) stores and spares and (iii) salary/wages and other A
benefits. The aforesaid statement and details were mentioned
in Schedule 'Q' appended to notice of balance sheet and profit
and loss account of the appellant for the year ending December,
1987. Serial No. 6 of the said Schedule reads as follows: -
B
"Addition to plant and machinery includes testing
equipments worth Rs. 31.26 lakhs fabricated in the
company by capitalisation of following expenditure:-
.,.- (i) Raw material Rs. 26.31 lakhs,
~ c
(ii) Stores and spares Rs. 0.02 lakh, and
(iii) Salary/wages and other benefits Rs. 4.93 lakhs (On the
basis of estimated time spent)"
8. The aforesaid position is further corroborated by the D
Director's report appearing at page no. 2 of the Annual Report
for the year ending December, 1988, wherein it was mentioned
that during the year the company developed a large number of
testing equipments on its own for using the same for the testing
of semi-conductors. Once the appellant has themselves made E
admission in their own balance sheet, which was not rebutted
and was further substantiated in the Director's report, the
appellant now cannot turn around and make submissions which
- are contrary to their own admissions. (See: Calcutta Electric
Supply Corpn. v. CWT, (1972) 3 SCC 222 para 8). Moreover,
F
they have also clearly taken a stand in their reply to the aforesaid
show cause notice that they bought various parts and
components to develop the testing equipments for use within · '
.
the factory and that such steps were undertaken to avoid
importing of such equipments from the developed countries with
a view to save foreign exchange.
G
-·~
9. From the aforesaid own admission ofthe appellant and
from the facts brought out from the records it is clearly proved
and established that the appellant had manufactured machines
in the nature of testing equipments worth Rs. 31.26 lacs to test H
_,
354 SUPREME COURT REPORTS [2011] 1 S.C.R.
I
A the final products manufactured by them .
10. Even if such equipments were used for captive
consumption and within the factory premises, considering the
fact that they are saleable and marketable, we are of the view
that duty was payable on the said goods. The fact that the
B equipments were marketable and saleable is also an admitted
position as the appellant has admitted it in their reply to the show
cause notice that .they had undertaken such manufacturing
process of the testing equipments to avoid importing of such
equipments from the developed countries with a view to save
C foreign exchange. Such a statement confirms the position that
such testing equipments were saleable and marketable.
11. The provision of Explanations to Rule 9 and 49 of the
Central Excise Rules are very clear as it provides that for the
0 purpose of the said rules excisable goods manufactured and
consumed or utilized as such would be deemed to have been
removed from the premises immediately for such consumption
or utilization. Therefore, the contention that no such duty could
be levi~d unless it is shown that they were taken out from the
E factory premises is without any merit.
~ 12. Submission was also made regarding use of the
extended period limitation contending inter a/ia that such
extended period of limitation could f'.lOt have been used by the
respondent. The aforesaid contention is also found to be without
F any merit as the appellant has not obtained L-4 licence nor they
had disclosed the fact of manufacturing of the aforesaid goods
to the department. The aforesaid knowledge of manufacture
came.to be acquired by the department only subsequently and
in view of non-disclosure of such information by the appellant -
G and suppression of relevant facts, the extended period of
limitation was rightly invoked by the department.
13. Consequently, we find no merit in this appeal, which
is dismissed without any order as to costs .
H D.G. . Appeal dismissed.
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