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CASE NO.: Appeal (civil)  1477 of 1998

PETITIONER: M/S Tecumseh Products India Ltd.

RESPONDENT: Commissioner of Central Excise, Hyderabad

DATE OF JUDGMENT: 05/05/2004

BENCH: CJI & G.P. MATHUR.

JUDGMENT: J U D G M E N T

(WITH C.A. No. 1513/1998)

RAJENDRA BABU, CJI:

       The question raised for our consideration in these  appeals is whether while repairing the defective  compressors any part such as stators replaced by the  appellant involves manufacturing activity attracting  duty under the Central Excise Act. The appellant in the  process of repairing scraps some components which  cannot be repaired and one such component is stators.   The stators were earlier manufactured in the factory of  the appellants for repairing of the compressors.  Later,  the materials required for replacing the scrapped  components are received on payment of duty from the  factory of the appellant.  The Service Centre sends  these materials to outside job workers for making the  stators.  Thereafter the appellant undertook the  shaping, varnishing and baking of such stator to fit  such stators into the compressor housing.  The  Collector having felt that the activity of shaping,  varnishing and baking done by the appellant on receipt  of the stator from the job workers results in  manufacture and initiated proceedings for adjudication  of tax.   

       The appellant contended that the job workers are  manufacturers of stators and not the appellant as  stators are received from the job workers in complete  technically functional state.  The activities undertaken  by the appellants are only to use the stator and not  manufacture the stators.  The appellants also  challenged the invocation of the longer period of  limitation, which was available to the appellants only in  case of suppression of fraud, coalition or willful  statement or contravention of rules to the payment of  duty.   

       The Adjudicating Authority held that the job  workers is the manufacturer of the stator and not the  appellants and that the extended period of limitation  cannot be invoked.    On appeal to the Appellate  Tribunal, it was held that the appellants are  manufacturers of the stators and not the job workers  because they undertook the process of shaping,

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varnishing and baking and then only the marketable  goods came into existence and it also held that the  extended period of limitation was invokable.  Hence   this appeal.

       Somewhat similar questions had arisen for  consideration in Shriram Refrigeration Industries  Ltd. v. Collector of Central Excise, Hyderabad,  1986 (26) E.L.T. 353 and in CCE, New Delhi V. Karna  Industries, 1992 (42) ECR 522. It appears that the  appeal filed against the order made in the Shriram  Refrigeration case (supra) to this Court stood dismissed  by this Court in Civil Appeal Nos.1029 of 1987 and  connected matters on merits.  In that case the meaning  of ’repairs’ as differentiated from the term  ’manufacturer’ had been examined thoroughly by the  Tribunal and, therefore, took the view that the repair,  recondition or remake in the process of repair  employed would not amount to manufacture.  Similarly,  in the case of ’Karna’, the Tribunal took the view that  the defective compressors received if repaired by  putting in the necessary parts which had worn out or  scrapped then there is no manufacturing activity  involved.

       It is clear that the Tribunal, however, in the order  under appeal took the view that while the job workers  carried out the job work of winding of the stator, but  such stator would not be ready for use in the  compressor and would be subject to the processes of  pressing for shaping by hydraulic press.  This would go  to show that the stator as such could not have been  fitted and used in the compressor for which purpose it  has been formed.  Further, varnishing was to be done  by the appellants and the same was done to provide  necessary insulation and it became a finished product  only in the hands of the appellants.  Therefore, the  activity carried on by the appellant was considered to  be one of manufacturer because they were carrying out  the full range of processes for bringing into existence  the ’stator’ and this range of process carried out by  them was exactly the same are the ones which are  carried out for the stators which were manufactured  out of new stack of laminations.

       The situation that is considered and examined  either in the ’Shriram Refregeration’ or ’Karna  Industries’ was entirely different.  In the present case,  what was looked into examined and found was the  several steps taken in respect of the stator and so far  as the stators were concerned, it has been rightly held  by the Tribunal that separate activities were carried on  by the appellants which were identical to the ones that  was carried out in respect of new stator and, therefore,  to the extent of the stator being made ready for the  purpose of using in the repairing of compressor must  be held to be an activity of manufacture and the  Tribunal has confirmed the demand only in respect of  "Stators".

       But, insofar as the application of extended period  of limitation provided under Section 11A is concerned,  we do not think that the Tribunal is justified because it  was not clear as to whether if any part is used for the  purpose of repairing a machinery would amount to

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manufacture. In fact, the Tribunal on a detailed  analysis and after going into several processes carried  out by the appellant, came to the conclusion that the  stators which were used in the repairing of the  compressors involved manufacturing activity.  This  circumstance itself shows that there was bona fide  dispute between the parties in regard to the question  whether stators made ready for the purpose of use of  compressors involved any manufacturing activity or  not.  Therefore, to the extent the authorities invoked  Section 11A of the Act and imposed penal interests and  other penalities shall stand set aside and the order  made by the Tribunal stands modified to that extent.  

       These appeals are partly allowed accordingly.