The appellants are engaged in assembling of CNG kits for cars. For undertaking the said activity, the appellant import ECUs (Electric Control Units), regulators, injectors, filters, etc. on payment of appropriate customs duty and CNG cylinders, High Pressures pipes and gauge and hoses, etc. are procured from domestic manufacturers. Moreover, the appellant do not manufacture any of the above items.
For making a CNG kit, the appellants put the various imported and indigenously procured items in a box called CNG Kit and they also provide a diagram/blue print manual showing as to how the CNG kit is to be fitted in a particular vehicle. It is these CNG kits, which are sold by the appellant to individual customers and also installed in the vehicles. In some cases, the appellant sell the packaged CNG kits to independent traders as well.
The department was of the view that this activity viz. making CNG kit out of different components eitherimported or indigenously procured amounts to manufacture and would attract central excise duty. For the period from 2007 to October 2011, a CE demand of Rs.4.94 crores was issued and the same was gleefully confirmed by the CCE, Delhi with penalties galore and the amount of Rs.25 lakhs paid during investigation was also appropriated. Interestingly, a penalty of Rs.50 lakhs was imposed on Jong Sung Kim, the Managing Director of the company u/r 26 of the CER, 2002.
Incidentally, the appellant had taken Service Tax registration and were paying service tax on the amount charged by them from their customers for installation of the CNG kits in their vehicles. And on the value of the CNG kit, they paid the Value Added Tax (VAT) or central sales tax (CST).
The appellant is before the CESTAT with a Stay application and an appeal.
The Bench observed that only a “short issue” is involved and, therefore, took up the appeal itself for disposal.
The appellant submitted that they are simply procuring the various items of the CNG conversion kits from different sources and packing them in a box for sale and while they are paying sales tax on the sale of kits, in case of installation into the customer’s vehicles they are also paying service tax on the installation charges. Inasmuch as since the activity conducted by them does not bring into existence any new product, it cannot be connoted as manufacture under the CEA, 1944 and, therefore, the demand is not sustainable. The judgments in XL Telecom 1999 (105) ELT 263(A.P.) ,Dalmia Industries 1999 (112) ELT 305(T) & TI Diamond Chain Ltd. 2000 (126) ELT 790 (T) were relied upon in support of their stand.
The Revenue representative defended the order passed by the CCE, Delhi by citing the Tribunal decision in Transenergy Ltd. VS. CCE, Chennai, wherein it was held that CNG conversion kits manufactured and cleared by the assessee are classifiable under heading no. 8409 of the Tariff as parts suitable for use wholly and principally with engines of headings 8407 and 8408.
The Bench observed that the Tribunal in the case cited by the Revenue had not gone into the question as to whether mere packing of different items required for CNG conversion kit into a box would amount to manufacture and hence that case law is not applicable to the instant case.
The CESTAT further held that the activity engaged by the appellant is similar to the activity of making cable jointing kit and which has been held as not amounting to manufacture in the case of XL Telecom Ltd. and similar decisions Dalmia Industries & TI Diamond Chain Ltd.
The order was set aside and the appeal was allowed.
In passing : A gaseous demand! Perhaps a refresher course on ‘manufacture’ would be welcome. And hopefully the appellant should get back the amount paid during investigation as consequential relief.