Commissioner of GST & Central Excise Vs Thermodyne Technologies Pvt Ltd (CESTAT Chennai)
CESTAT Chennai held that boiler in unassembled form is removed in several lots on different dates doesn’t mean that parts only and not the whole boiler is cleared from factory. The parts are to be classified as complete machine under 8402.10. Hence, exemption vide Sl.No.84 of Notification No.6/2006-CE dated 1.3.2006 as amended duly available.
Facts- The assessee-company, viz. M/s.Thermodyne Technologies P. Ltd. is having different units in and around, Ranipet Tamil Nadu.
In the course of verification of the ER-1 returns filed by units, it was noticed by the department that assessee has claimed to have been manufacturing Agro Waste Fired Boilers and clearing the same without payment of duty by claiming exemption vide Sl.No.84 of Notification No.6/2006-CE dated 1.3.2006 upto 16.03.2006 and vide Sl.No.332 of Notification No.12/2012-CE dated 17.03.2006 from 17.03.2012 onwards.
On verification of the invoices, it was seen that each unit was clearing parts of Boilers and not the Boiler itself. The units had not manufactured the entire Water Tube Boiler / Agro Waste Fired Boiler in their factory and only certain parts of such Boilers were cleared without payment of duty availing the above exemption notification.
Show cause notices were issued proposing to deny the exemption of the notification to demand duty with interest on the parts of boilers cleared by them. Penalties were also proposed.
After due process of law, the original authority confirmed duty demand on merits for the normal period and set aside the duty demand for the extended period.
Conclusion- In the case of CCE Pune I Vs Thermax Bobcock & Wilcox Ltd. the issue was the classification of pressure parts of boiler removed in several consignments whether to be regarded as a boiler in complete form and whether classifiable as boiler under 8402.10 or under 8402.90 as parts. The Tribunal held that fact that boiler in unassembled form is removed in several lots on different dates itself does not mean that parts only and not the whole boiler is cleared from factory for the reason that, the assessee has a contract to erect and commission a boiler. It was held that the parts are to be classified as complete machine under 8402.10, by upholding the application of Rule 2(a) of Interpretative Rules.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The issue involved in all these appeals being the same and connected, they were heard together and disposed of by this common order. The parties are hereafter referred to as ‘assessee’ and ‘department’ for the sake of convenience.
2. Brief facts are that, the assessee-company, viz. M/s.Thermodyne Technologies P. Ltd. is having different units in and around, Ranipet Tamil Nadu. Each unit was registered with the Central Excise Department separately for the manufacture of excisable goods. The different units are engaged in the manufacture of various types of boilers and boiler components falling under Chapter 84 of First Schedule of Central Excise Tariff Act, 1985.
3. In the course of verification of the ER-1 returns filed by units, it was noticed by the department that assessee has claimed to have been manufacturing Agro Waste Fired Boilers and clearing the same without payment of duty by claiming exemption vide Sl.No.84 of Notification No.6/2006-CE dated 1.3.2006 upto 16.03.2006 and vide Sl.No.332 of Notification No.12/2012-CE dated 17.03.2006 from 17.03.2012 onwards. On verification of the invoices under which the alleged boilers were cleared, it was seen that each unit was clearing parts of Boilers and not the Boiler itself. The units had not manufactured the entire Water Tube Boiler / Agro Waste Fired Boiler in their factory and only certain parts of such Boilers were cleared without payment of duty availing the above exemption notification. The parts manufactured by each unit did not constitute a full boiler. Further, it appeared that appellant had not consumed the parts of Agro Waste Fired Boilers in the manufacture of entire boiler and had only cleared to their customer for which the exemption is not eligible. The units had classified the parts of boiler as Boiler itself under CETSH 84021200, instead of CETSH 84029020 (for parts).
4. On such verifications and facts, the department entertained the view that the assessee units had intentionally suppressed facts of manufacture and removal of parts and components of Boilers, by mentioning the goods cleared in their monthly ER-1 return and invoices as “Agro Waste Fired Boilers”. Show cause notices were issued separately to each unit (5 units) proposing to deny the exemption of the notification to demand duty with interest on the parts of boilers cleared by them. Penalties were also proposed. After due process of law, the original authority confirmed duty demand on merits for the normal period and set aside the duty demand for the extended period. The assessee has thus filed appeals E/42249/2013, E/42250/2013, E/42251/2013 & E/42252/2013 aggrieved by the confirmation of demand, interest and penalties for normal period. The department has filed appeals E/42207/2023, E/42208/2013, E/42209/2013 & E/42211/2013 against that part of the order which set aside the demand for the extended period. The assessee has also filed cross objections in the appeals filed by the department.
5. The Ld. Counsel Sri M.N. Bharathi appeared and argued for the assessee. The Assessee company purchased one unit which was already functioning at 14, SIDCO, Industrial Estate, Ranipet, for manufacture of boilers and got registered with Central Excise Department on 18.02.2003. This unit started manufacture of different types of boilers depending on the orders received. To cater to the volume of orders received by assessee company and hence, it was found necessary to take more areas. The Industrial Estate provided ready-built factory sheds with fixed dimensional area. As there was no scope to identify a large vacant area and then build a factory in the same industrial estate, and as the available power capacity could not be enhanced to meet the additional requirement, assessee-company had to hire the sheds offered by SIDCO in the Industrial Estate. Accordingly, one more shed was taken at 29, SIDCO Industrial Estate Ranipet which was falling within the jurisdiction of the same Superintendent of Central Excise, Range-IV, Ranipet. This unit also got registered with Central Excise department informing the department the intention of assessee-company to have a new premises for manufacturing excisable goods. Since even with the addition of this shed, there was space constraint, assessee company had to take another premises at 4/3, Musiri Road, Thenkadapanthangal Village, Walajapet 632 513 within the jurisdiction of Superintendent of Central Excise, Ranipet, Range I, Ranipet. This unit, which is Unit V was also registered (by merger of unit IV & Unit V) with the Central Excise on 08.10.2009. One another Unit, which is Unit II was functioning within the jurisdiction of Superintendent of Central Excise, Range IV and operations in this unit was stopped in March 2009. Thus, 3 out of 4 units are within the jurisdiction of the Superintendent of Central Excise, Range IV, while one falls within the jurisdiction of the Superintendent of Central Excise, Range I, but all within the jurisdiction of the same Assistant Commissioner of Central Excise, Ranipet Division, Ranipet. These details would show that the assessee company had taken new premises for manufacture after informing the department and taking registration as required under law. Further all units fall within the jurisdiction of the same Asst. Commissioner of Central Excise, Ranipet Division.
6. It is emphasized by the Ld. Counsel that though all units have taken registration separately, the Central Excise registration certificate is in the name of one company (the assessee company) which is, Thermodyne Technologies Pvt. Ltd. The assessee company receives purchase order from the customer for supply of boiler on turnkey basis. The units individually do not receive any purchase orders. Each unit has to do the manufacture of parts / components as instructed by the assessee company. The sale proceeds is received by the assessee company only. The manufacturer of the boiler is the assessee company and registration is taken for the different premises only as per requirement of Rule 9 of Central Excise Rules. The supply and clearance from each unit is made by quoting the same purchase order by all units. The manufacture and clearance from different units/premises is only due to constraints of space and logistics. The assessee has availed the exemption from payment of excise duty in terms of notification 6/2006 and later notification 12/2012. The Trade Notice No.40/92 dt. 6.06.1992 supports the contention of the assessee that exemption is eligible, if parts of boilers are removed for assembling at customer’s site.
7. The Assistant Commissioner of Central Excise visited one of the units in September, 2012 and observed that the said unit was clearing only parts of boilers and not full boilers and hence the exemption under the notifications are not available to the goods cleared from the said unit of the assessee. Pursuant to this visit, the Superintendent of Central Excise, Range IV, Ranipet issued three letters OC No.240, 241 and 242, all dated 26.12.2012 asking the assessee to give the details of clearances of the goods made from all different units. Likewise, the Superintendent of Central Excise, Range I, Ranipet issued the assessee unit a letter OC NO.562 dated 26.12.2012 asking for similar details in respect of Unit V for the last one year period. The assessee then approached the Commissioner of Central Excise, Chennai III Commissionerate and vide letter dated 3.1.2013 explained the legal position. However, the assessee were asked to furnish details of all the clearances along with invoices for the last 5 years. The assessee furnished all details. Based on the details furnished, and the copies of the invoices submitted by assessee, these show cause notices have been issued to the different units. The facts being identical and the manufacturer being one and the same, namely, M/s.Thermodyne Technologies P. Ltd., the assessee filed common reply to all the notices.
8. In the impugned order, the adjudicating authority has held that the assessee units had cleared only parts of boilers and not complete boiler and therefore is not eligible for the exemption from payment of duty, under the notification. However, it was held that there is no misstatement or suppression of facts and thereby restricted the confirmation of demand to the normal period.
9. The Ld. Counsel explained that it is the assessee company and not the units which receives orders for supply and erection of Agro waste fired boilers/ Water tube boilers from their customers. These boilers are classifiable under chapter heading 8402 12 00 of the Schedule to Central Excise Tariff Act, 1985. On receipt of each such order from the customers, in the Head Office at No.18, Ayodhya Colony, Velachery, Chennai 600042, the design and drawings are prepared. Each part/component/assembly/sub-assembly is assigned a specific part number. A delivery schedule is prepared specifying the part numbers and a copy is given to the customer. Each unit of the company is capable of manufacturing the pressure parts and components/parts/assembly/sub-assembly of the boiler. Accordingly, the unit which has spare time/capacity is assigned manufacture of any of the above and once they are ready, they are despatched to the customers. The customers check/monitor the receipt with reference to the delivery schedule and make payment to the company. In other words, the company receives orders on a turn key basis for manufacture, supply and additionally erection of boilers. The company receives the payment for the same. The units of the company execute the orders as per the directions of the company. Section 6 of the Central Excise Act, 1944 read with the relevant rules requires every person carrying out manufacturing activity to be registered. Thus each unit was registered with the Central Excise Department to comply with law. Otherwise, there was no need to register each unit separately. In such circumstances, the manufacturer is the assessee company itself and the clearances have been made by the assessee company. The learned adjudicating authority has not appreciated this fact but has considered the clearances made from individual units and dealt with the issue unit-wise, instead of analysing whether the clearances are for the company or not. In view of this approach, the Commissioner has treated the clearances in an isolated manner and erred in holding that the units have cleared only parts and not complete boilers. On the other hand, the clearances from each unit have to be treated as made from the assessee company. Since the clearances so made when assembled at the site of the customer constitute a full boiler, the company has rightly availed the exemption under Notification No.6/2006-CE dated 1.3.2006, as amended, and Notification No.12/2012-CE dated 17.03.2006
10. The size of a typical industrial boiler is huge. It is practically impossible for any manufacturer to manufacture the entire boiler under one roof. Boiler manufacturers would mostly manufacture the pressure parts and certain parts and buy the other parts from others. Such bought out items may be supplied along with the items manufactured or may be ordered to be delivered at the site of the customers. Even while manufacturing the boilers, they are manufactured in different phases part by part over period of time and dispatched to the site of customers on completion of each part. This is because all the parts cannot be manufactured at a time. Their storage and transport will pose problems. Recognizing the difficulty, the HSN Notes very clearly states in Part V under Section XVI “For convenience of transport many machines and apparatus are transported in an unassembled state. Although in effect the goods are then a collection of parts, they are classified as being the machine in question and not in any separate heading for parts. The same applies to an incomplete machine having the features of the complete machine presented unassembled. However unassembled components in excess of the number required for a complete machine or for an incomplete machine having the characteristics of a complete machine are classified in their own heading”.
11. It is submitted that, on the very same allegation an earlier SCN dt. 27.6.2003 was issued for the period January 2003 to March 2003. The assessee herein had given detailed reply stating the reason as to why parts have to be cleared separately to the customer’s premises and later assembled at the site. The original authority after verification of purchase order, invoices held that the purchase order, is for the supply of complete equipment, and commission of the said equipment, and that the assessee though has raised invoices for clearance of parts has cleared the same in CKD / SKD condition only for the purpose of transportation. The duty demand proposed in the SCN was then dropped (OIO NO.19.2004 dt. 27.2.2004). Against this order, the department filed appeal before the Tribunal and, vide decision of Tribunal reported in Commissioner of Central Excise, Trichy Vs BHEL 2009 (247) ELT 263 (Tri.-Chennai) the appeal of department was dismissed. The department filed further appeal before the Hon’ble Apex Court and vide judgment reported in 2018 (10) GSTL 3 (SC), the Hon’ble Apex Court dismissed the department appeal affirming the order passed by the Tribunal. The issue therefore stands settled in favour of the assessee. The adjudicating authority has declined to follow the said decision observing that at the relevant time the assessee company had only one unit and at present they are having more than one unit. The Ld. Counsel submitted that though there was only one unit the practice adopted was to clear the parts from the unit to the customer’s site and assemble and commission the boiler at the customer’s site. Even though the number of units have increased now, so as to meet the order requirement, the practice followed is the same. The Trade notice which was relied by the adjudicating authority at the relevant time is still applicable.
12. In the case of CCE, Pune I vs Thermax Bobcock and Wilcox Ltd – 2005 (182) E.L.T. 336 (Tri.-Mumbai), the Mumbai Bench also held that the different parts cleared in different lots shall be deemed to be a boiler. “ Essential parts of boiler are cleared from the factory as it is not possible to clear a complete boiler in one go. Even when one considers that some of the parts removed from the factory are of auxiliary nature, one has to agree that an incomplete boiler in unassembled form is cleared. That the boiler in an unassembled form is removed in several lots on different dates itself does not mean that parts but not the whole are cleared from the factory, in view of the fact, that the respondent has a contract to deliver a boiler. Parts removed in several consignments will have to be deemed to be a boiler in complete form”. It is argued by the Ld. Counsel that the adjudicating authority ought to have followed the ratio of these judgments and held that the goods (parts) removed are only boilers, particularly so when the assessee is executing an order for supply of Agro Waste fired boilers/water tube boilers. The exemption availed by assessee ought to have been held as correct and the proceedings dropped.
13. The Ld. Counsel adverted to Rule 2 (a) of the General Rules for Interpretation of the First Schedule to the Central Excise Tariff Act, 1985. According to this any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or failing to be classified as complete or finished by virtue of this rule), presented as unassembled or disassembled. This submission made by the assessee was rejected by the lower authority holding that no evidence was produced as to how these parts possessed the essential character of the complete boiler. It is a settled law that the burden is on the department and not on the assessee. The adjudicating authority has not given any legally sustainable reasons to reject the above claim of the appellant. On the same footing, the adjudicating authority has rejected the claim put forward in terms of Note 2(b) of Section XVI. The Ld. Counsel argued that since these goods are manufactured in terms of a design and drawing specifically for making a complete boiler, applying the above rule and section Note 2(b), the adjudicating authority ought to have held these as boilers and are eligible for exemption.
14. The Ld. Counsel submitted that the classification is not relevant to avail the exemption. As per Sl.No.332 of Notfn 12/2012, goods falling under any chapter heading if satisfies the description of goods in column three of the table is eligible for exemption. As per Sl.No.84 of Notification 6/2006 also if the goods fall under any chapter would be eligible for exemption.
15. What is relevant is to examine whether the goods are Non-conventional Devices/systems producing energy. The word ‘device’ is not defined in the notification or in the Act/Rules. Hence one has to go by the ordinary meaning. The word ‘device’ means a contrivance, invention, thing adapted for a purpose (Oxford English Dictionary). All the different parts/components/boiler/pressure parts etc are nothing but devices designed for production of energy from non conventional sources. The impugned order does not say that the goods cleared are not devices. This plea of the assessee has been vaguely rejected by putting the onus on the assessee. The company received orders for supply of a complete Agro Waste Fired Boilers. On receipt of such order, the design and drawings were prepared which are customer specific and thereafter, manufacture took place. Proof from some customers confirming receipt of Agro Waste Fired Boilers was submitted by the assessee. The learned adjudicating authority ought to have accepted these evidences instead of brushing aside the submissions made by assessee by merely saying that the assessee has not let in any evidence. Each part is a device producing energy and hence eligible for the exemption.
16. It is argued that the adjudicating authority has also failed to take note of the practice in this Industry. Usually, boiler is manufactured as different parts and cleared as and when each part is manufactured, but describing them as ‘boiler’ only. Reliance was placed on the following judgments: (a) Commissioner of Central Excise, Trichy Vs. BHEL (b) Commissioner of Central Excise, Pune I Vs. Thermax Babcock Wilcox Ltd and a few other cases. It is submitted that adjudicating authority has chosen not to refer and rely on these decisions.
17. Again, based on representation from Trade, CBEC had issued clarification as Trade Notice 40/92 dated 15.06. 1992 by Collector (as per the designation of Commissioner, then) of Central Excise, Madras. A perusal of this clarification would make the context very clear. The trade represented their difficulty that boiler manufacturers manufacture only certain parts and outsource the remaining and the field officers were denying the exemption under notification 205/1988 dated 25.05.1988 (forerunner to notification 6/2006-CE dated 1.3.2006). In this context it was clarified that the exemption should not be denied so long as it is proved that by different supplies the manufacturer has in fact supplied a full boiler. In the assessee’s own case, such a verification was undertaken by the Additional Commissioner before he dropped the proceedings in his order C.No. V/15/84/8/2004 CX.Adj.III dated 11.03.2004. The adjudicating authority ought to have followed the instructions of the Trade Notice. Instead he has rejected the assessee’s contention stating that only if the goods were cleared in CKD/SKD condition, the exemption will be available. Since the ground realities are different, the Board has issued the clarification as above. When the trade notice permits exemption benefit when the goods are sent directly to site, the same benefits should also be allowed when the goods are manufactured and cleared from assessee units located at different places but within the same Central Excise Division. The real purport of the clarification has not been taken note while rejecting the plea of the assessee. It is a settled law that Board’s clarifications are binding on the departmental officers as held in UCO Bank Vs CIT, W.Bengal – 1999 (111) E.L.T. 673 (S.C.); UOI Vs. Madras Steel Re-rollers Association – 2012 (278) E.L.T. 584 (S.C.); CCEx, Vadodara Vs. Adarsh Re-rolling Mills – 2002 (143) E.L.T. 533 (Tri.-LB). The Commissioner ought to have followed the instructions of the Board and dropped the proceedings.
18. The goods cleared from different units are nothing but energy producing devices and they form a complete Agro waste fired boilers/Water Tube Boilers and rightly covered under Sl.No. (16) of the List 5 or List 8 of the relevant notifications referred supra. Accordingly, the assessee is entitled for the exemption under the above notifications.
19. The Ld. Counsel argued that it is common knowledge that the Government of India has been emphasizing and taking steps to augment the power production. In that direction, the usage of non-conventional sources are encouraged. This is to achieve twin objectives of (i) putting the agro-waste to productive purposes and (ii) prevent pollution of the environment. Accordingly the exemption is given to agro-waste fired boilers, when the agro waste is used for producing power. This exemption is in vogue for more than two decades. By giving a narrow interpretation, the beneficial notification has been denied. It may not be out of place to mention that such an interpretation will defeat the purpose for which the Government granted the exemption and the notification will be rendered a nullity, in so for as this particular entry is concerned.
20. The practice followed in this industry is to manufacture the boilers in different lots, clear and assemble at the site of the customers. The assessee has also followed the same and all along, the department has not questioned the correctness. The units have been visited by a number of officers from time to time; the audit parties have periodically conducted audit in all the units. In response to queries from the department, the procedure followed has been informed. In fact, in the impugned order, adjudicating authority has held that there is no suppression. Having said so, in fact if the authorities wanted the assessee to change the practice, it can be only prospective, provided it is legally sustainable. Accordingly, confirmation of duty even for the one year period is not warranted. Suddenly, a contra view cannot be taken by the department, when there is no change in the legal provisions. The assessee has manufactured pressure parts/essential parts, including boilers and supplied along with the balance parts manufactured by the other units of the company. These were assembled at the site of the customers to make a complete Agro Waste Fired boilers/ Water Tube Boilers. The customers have confirmed receipt of the same. The Inspector of Boilers, a statutory authority has certified these as boilers. The impugned order has erred in holding them as parts of boilers. These have been rightly classified under chapter heading 8402 12 00 as boilers and the order holding them as parts of boilers and classifying them under 8402 90 20 is not correct.
21. In regard to the appeals filed by the department, the Ld. Counsel submitted that as the units were continuously visited by audit team, including CERA, the allegation of suppression of facts mentioned in the notice is without factual basis. The adjudicating authority has rightly held that the extended period is not invocable. The Ld. Counsel prayed that the assessee appeals may be allowed and the cross objections filed in departmental appeals may be considered.
22. The Ld. A.R Shri Rudra Pratap Singh appeared and argued for the department. It is submitted that the onus to prove the eligibility of exemption is on the assessee and not on the department. Para 14 of the impugned order was adverted to by the Ld. A.R to argue that as per the invoices, the goods cleared were parts intended for erection of boilers. It is for the assessee to prove and substantiate by evidence. The assessee has failed to produce evidence as to how the goods cleared would constitute a complete boiler from a particular manufacturing unit.
22.1 In regard to OIO dt. 11.03.2004 decided in the assessee’s own case, the Ld. A.R submitted that the said decision was rendered when the assessee had only one manufacturing unit. In the Trade Notice No.40/92 dt. 15.6.1992, the goods are eligible for exemption only if cleared in SKD / CKD condition for the purpose of convenience of transportation. In the present case, the parts are removed from different units to the customers premises. Such parts cleared from individual units cannot be considered as clearances in SKD / CKD conditions. The Trade Notice is of no support to the assessee.
22.2. The grounds in the appeals filed by department was reiterated in regard to the issue on limitation. The Ld. AR prayed that the department appeals may be allowed and the assessee appeals may be dismissed.
23. Heard both sides.
24. The two issues that arise for consideration are (i) whether the assessee is eligible for exemption of the Notification 6/2006-CE dt. 1.3.2006 – amended Notification 12/2012-CE dt. 17.03.2012 ? (ii) whether the extended period is invocable?
25. To analyse the issue as to whether the assessee is eligible for the benefit of exemption under Notification No.6/2006-CE and subsequent notification 12/2012 it would be convenient to extract the relevant part of these notifications which read as under :
TABLE
