REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6866 OF 2000

lM/s. Usha Rectifier Corpn. (I) Ltd. l[Presently known as M/s. Usha (I) Ltd.]      …. Appellant

Versus

Commissioner of Central ...Respondent Excise, New Delhi

JUDGMENT

Dr. 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 & Gold [Control] Appellate Tribunal [for short  

‘CEGAT’] demanding duty of                     Rs. 4,92,566.28  

from  the  appellant  on  the  plant  and  machinery  including  

testing equipments manufactured by them.

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  

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.

3. A show cause notice was issued to the appellant directing them  

to show cause as to why central  excise duty 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 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 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 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  

Section  3  of  the  Central  Excises  and  Salt  Act,  1944  the  

imposition  of  excise  duty  is  on  the  act  of  manufacture  or  

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.  

4. The Additional Collector, Central Excise under order-in-original  

No.  6/92-93  dated  27.5.1992  after  consideration  of  the  

contentions confirmed the demand of duty amounting to Rs.

4,92,566.28 and imposed a penalty of Rs. 50,000/- holding  

that  in  view  of  the  documentary  evidence  and  the  balance  

sheet  it  had  been  proved  beyond  doubt  that  they  had  

manufactured plant 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  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 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  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 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 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  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.

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 in the  

company by capitalisation of the expenditure on (i) raw material,  

(ii) stores and spares and (iii) salary/wages and other 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: -

“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,

(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 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 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, 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.  

9. From the aforesaid own admission of the 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 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 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 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 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 levied unless it is shown that  

they were taken out from the factory premises is without any merit.

12. Submission  was  also  made  regarding  use  of  the  extended  

period limitation contending inter alia that such extended period of  

limitation  could  not  have  been  used  by  the  respondent.  The  

aforesaid contention is also found to be without 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 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.

.......................................... ...J

       [Dr.  Mukundakam  Sharma]

     .............................................J [  Anil  R.  Dave ]

New Delhi January  13, 2011.