Holding

The Tribunal is competent to entertain the appeal on dutiability and the High Court erred in holding that the earlier Commissioner’s order had become final on the merits.

Summary

Mis Mil India Ltd, a manufacturer of plant and equipment for soaps and detergents, entered into composite contracts with Godrej Soaps Ltd and Galaxy Surfactants Ltd to supply both its own equipment and duty‑paid bought‑out items such as motor‑pumps and heat exchangers directly to the sites. The Central Excise Department issued a show‑cause notice demanding excise duty on those bought‑out items, leading to a series of assessments, remands and appeals. While the Commissioner (A) initially held that the value of the bought‑out items was includable in the assessable value and later confirmed the duty demand, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that no duty was payable and allowed the appellant's appeal. The High Court set aside the Tribunal’s decision, holding that the earlier Commissioner’s order had become final on the merits and that the Tribunal could not revisit the dutiability issue. The Supreme Court held that the Tribunal is the highest authority to decide questions of excisability and may entertain the appeal on dutiability despite the earlier order, and consequently reduced the duty demand from Rs 94,03,500 to Rs 23,56,000. The appeal was therefore partly allowed, setting aside the High Court judgment.

Issues considered

Whether the question of dutiability of bought‑out items can be raised before the appellate Tribunal after an earlier appellate order has become final on merits.
Whether the value of bought‑out items should be included in the assessable value of the manufactured plant and equipment.
Whether the appellant is entitled to MODVAT credit in respect of the duty demanded.
Whether an order of assessment under the Central Excise Act becomes final before the adjudicating authority or remains appealable.

Legislation cited

Central Excise Act, 1944s. 35, s. 35A, s. 35B, s. 35G
Central Excise Tariff Act, 1985

Subjects

excise dutydutiabilitybought‑out itemsMODVAT creditappellate tribunalassessmentremandcomposite contractquantification disputeCentral Excise Act

Judgment

MIS. MIL INDIA LTD.
A
v.
COMMISSIONER OF CENTRAL EXCISE, NOIDA f

MARCH I, 2007

B (S.H. KAPADIA AND B. SUDERSHAN REDDY,JJ.]

Central Excise Tariff Act, 1985; S.H. 8479.90:

Assessee manufacturing plants and equipments for soaps/detergent- I -~

c Entering into an agreement with other companies for supply of equipments
and also other items directly bought ji·om market-Levy of excise duty on
bought out items-Challenge to-Held: Excisability is a matter ofprinciple-
Tribunal is the highest authority to decide on facts about excisability of
goods-Thus, High Court erred in holding that the Tribunal could not have
examined the question of dutiability, once on merits, the order of appellate
D authority became final-An order of assessment under the taxing law does
not become final before the adjudicating authority, it is subject to appeal
before the appellate authority-When the principle of law is involved, an
appeal also lies to the appellate Tribunal under the provisions of the Act -
Hence, assessee could agitate the question of dutiability before the Tribunal-
E Though the appellate authorities directed to reduce the demand of duty for
a period of 6 months while remanding the matter lo adjudicating authority
for quantification but the adjudicating authority did not reduce the demand
of duty accordingly-Hence, demand of duty reduced ji·om Rs.94,03,500 lo
Rs. 23,56,000-Assessee is entitled to benefit of MODVAT credit-Central
Excise Act, 1944-s.35.
F
Appellant-assessee is engaged in the manufacturing of plant and
equipments for soaps, detergents and allied industries falling under Chapter .,.
Sub-Heading 8479.90 of the Central Excise Tariff Act, 1985. It had entered
into a composite contract with other companies for supply of various
equipments manufactured by it. In addition, various duty paid bought out items
G
were also agreed to be supplied by it to the companies. A show cause notice
was issued by the Revenue authorities to the assessee demanding duty on the
various bought out items supplied by the assessee directly to the other
companies in terms of the agreement. The adjudicating authority confirmed
..
•
the demand of additional excise duty. Aggrieved, the assessee filed an appeal
H 476
MIL INDIA LTD. r. COMMNR. OF CENTRAL EXCISE, NOIDA 477
ioo
before the appellate authorities. The authorities held that the value of the A
" bought out items was includible in the assessable value of the equipments
manufactured by the assessee. However, the matter was remanded to the
adjudicating authority for quantification of the duty liability. In the quantum
dispute the adjudicating authority confirmed the same amount of duty, although
the period for which the assessee was liable to pay the duty was reduced to 6
months. Aggrieved, the assessees once again moved the adjudicating authority. B
The appellate authorities confirmed the duty demanded on the ground that
the assessee had failed to produce evidence to disprove the quantification made
, .\ by the authorities. Assessees filed an appeal before the Tribunal. The Tribunal
held that no duty was payable on the bought out items; that the assessees were
entitled to raise the issue of dutiability of bought out items even though in
the earlier round of litigation they did not challenge the order of the appellate
c
authorities on merits; that the Revenue was not entitled to add the value of
the bought out items in the assessable value of the goods manufactured by
the assessees. Aggrieved, the Revenue preferred an appeal before the High
Court under Section 35G of the Central Excise Act, 1944, the High Court
held that the Tribunal was not competent to entertain the appeal preferred by D
the assessee against the later order of the appellate authorities. Hence the

., present appeal.

Partly allowing the appeal, the Court
•
HELD: 1.1. The High Court had erred in holding that the Tribunal could
E
not have examined the question of dutiability, once on merits, the order of the
appellate authority became final. One must understand that excisability is a
matter of principle. The Tribunal is the highest authority in hierarchy to
decide on facts whether the bought out items were dutiable or not The Tribunal
was not bound by the decision of the appellate authority on the question of
dutiability or excisability. By order dated 22.3.2000 appellate authority had F
remanded the matter to the adjudicating authority on the question of
y
quantification. Therefore, it was open to the assessee to appear before the
adjudicating authority and submit contentions on quantification of duty
liability. In the present matter in the second round oflitigation, the appellant
appeared before the adjudicating authority and pointed out in the alternative
that the duty demanded from them at the rate of Rs.94,03,500 was erroneous G
as they were entitled to the benefit of MODYAT credit. Thus, it cannot be said
~ .j that the question of excisability or dutiability had become final. !Para 41
1481-A, B, q

1.2. An order of assessment under the taxing law does not become final
before the adjudicating authority in every matter. It is subject to appeal before H
478 SUPREME COURT REPORTS [2007] 3 S.C.R.
......
A the appellate authority. The authority can even add or subtract certain items
from the order of assessment made by the adjudicating authority and that order > '
of the appellate authority could also be treated as an order of assessment. In
complicated cases where costing is involved the adjudicating authority 'can
also refer the matter to an expert. The Act also makes provision for special
audit However, when the principle oflaw is evolved an appeal lies to the appellate
B Tribunal. [Para 4) [481-D, E, F[

1.3. In fact, the power of remand by the appellate authority has been
taken away by amending Section 35A of the Central Excise Act, 1944 with
!.-
effect from 11.5.2001 under the Finance Bill, 2001. Under the Notes to clause '

c 122 of the said Bill it is stated that clause 122 seeks to amend Section 35A
so as to withdraw the powers of the appellate authority to remand matters
back to the adjudicating authority for fresh consideration. Therefore, the
appellate authority continues to exercise the powers of the adjudicating
authority in the matters of assessment. Under Section 35B any person
aggrieved by the order of the Commissioner as an adjudicating authority is
D entitled to move the Tribunal in·appeaL Section 35B indicates that the decision
of order passed by the appellate authority shall be treated as an order of an
adjudicating authority. In the circumstances the High Court had erred in
holding that the assessee was not entitled to agitate the question of dutiability ~
in appeal before the Tribunal. (Para 4) (481-F, G, H; 482-A)

E 2.1. Whether the value of the bought out items should be added for
computing the assessable value would depends on the facts of each case. Even
erection of a plant by assembling certain items at site could constitute
'manufacture' under the excise law. (Para 5[ (482-D)

2.2. In the present case, however, the quantification done by the
F department needs to be modified. Revenue had demanded duty .of Rs.94,03,500
for the period April 1996 to March 1997. However, even after issuance of the )'
corrigendum dated 6.6.1997, whereby the period for which the demand of the
duty was made stood reduced to 6 months, the demand continued to be to the
tune ofRs.94,03,500. This was not possible. Moreover, even if bought out items
G were dutiable the assessee was entitled to the benefit of MODY AT credit. In
the circumstances, the demand of duty is reduced from Rs.94,03,500/- to
Rs.23,56,000/-. (Para 5) [482-E, F)
~..,

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6988 of2005.

H From the Judgment and Final Order dated 5.11.2004 of the High Court
-
MIL INDIA LTD. r COMMNR OF CENTRAL EXCISE NOIDA [KAPADIA,J.] 479
of Judicature at Allahabad in Central Excise Appeal No. 28 of 2004. A
V. Lakshmi Kumaran, Alok Yadav and Rajesh Kumar for the Appellant.

V. Shekhar, Shalini Kumar, Sudhir K. Sajwan and BK Prasad for the
Respondent.
B
The Judgment of the Court was delivered by

KAPADIA, J. I. The short question which arises for determination in
this civil appeal is whether the Customs Excise and Service Tax Appellate
Tribunal (for short 'CESTAT') was right in entertaining the assessee's appeal
on dutiability against the order passed by Commissioner (A) dated 9.4.2003 C
in the Quantum Dispute, particularly when in the earlier round oflitigation the
Commissioner (A) had concluded vide order dated 22.3.2000 that the bought
out items were dutiable and which order had become final.

2. The appellants are engaged in the manufacture of plant and equipments
for soaps, detergents and allied industries falling under Chapter Sub-Heading D
8479.90 of the Central Excise Tariff Act, 1985. The manufactured equipments
were cleared by the appellants on payment of duty. The dispute relates to
dutiability of certain bought out items like motor-pumps, heat exchangers etc.
The appellants had entered into a composite contract with Mis Godrej Soaps
Ltd. and Mis Galaxy Surfactants Ltd. for the supply of various items which E
formed part of the fatty acid plant. Under the contract, in addition to the
supply of the equipments manufactured by the appellants, various duty paid
bought out items were directly supplied by the appellants to the site of Ml
s Godrej Soaps Ltd. and Mis Galaxy Surfactants Ltd. These items were never
received in the factory premises of the appellants. The fatty acids plant and
the film sulphonation plant were to be erected and commissioned not by the F
appellant but by Mis K.S. Krishnan Associates Pvt. Ltd .. On 23.5.1997 a
show cause notice was issued by the department to the appellants demanding
duty on the various bought out items supplied directly to the site of Mis
Godrej Soaps Ltd. and Mis Galaxy Surfactants Ltd. The demand was for the
period April 1996 to March 1997. By a corrigendum dated 6.6. 1997 the period G
was reduced to November 1996 to March 1997 (6 months). However, the duty

-.
amount was not correspondingly reduced. In reply the appellants contended
that no duty was payable on various bought out items which were directly
sent to the site. In the alternative they submitted that maximum duty payable,
if any, would be Rs. 23,21,500 since the period was ~estricted to six months.
By order dated 1.5.1999 the adjudicating authority confirmed the demand on H
480 SUPREME COURT REPORTS [2007] 3 S.C.R.

A the bought out items on the ground that the same was necessary for the
manufacture of the fatty acid plant at the site of Mis Godrej Soaps Ltd. and
...
Mis Galaxy Surfactants Ltd. Aggrieved by the order dated I .5.1999 the matter r '
was carried in appeal to the Commissioner (A). By order dated 22.3.2000 the
Commissioner (A) held that the value of the bought out items was includible
in the assessable value of the equipments manufactured. However, the
B Commissioner (A) remanded the matter for quantification of the duty liability
on the ground that the demand stood restricted for 6 months. In the quantum
dispute the adjudicating authority confirmed once again the duty demand
amounting to Rs.94,03,500 although the period stood reduced to 6 months.
Aggrieved by the said order of the adjudicating authority the appellants once ~
'
c again moved the Commissioner (A). Vide order dated 9.4.2003 the Commissioner
(A) confirmed the duty demanded on the ground that the appellant had failed
to produce evidence to disprove the quantification made by the department.
The Commissioner (A) did not consider the claim ofMODVAT credit made by
the appellants on the ground that the appellants had not followed the
prescribed procedure for claiming MODVAT credit. Accordingly, he dismissed
D the appeal and also the contention of the appellants that the net duty liability
would be only for Rs.20,42,993. Aggrieved, by the order passed by the
Commissioner (A) dated 9.4.2003 the matter was carried in appeal by the
appellants to the Tribunal. By judgment and order dated 3. I0.2003 the Tribunal
held that no duty was payable on the bought out items. The Tribunal further
E held that the appellants were entitled to raise the issue of dutiability of
bought out items even though in the earlier round of litigation the appellants
did not challenge the order of the Commissioner (A) dated 22.3.2000, on
merits. The Tribunal concluded that the department was not entitled to add
the value of the bought out items in the assessable value of the goods
manufactured by the appellant. Accordingly, the Tribunal allowed the appeal.
F Aggrieved by the decision of the Tribunal the department preferred Central
Excise Appeal No. 28 of 2004 in the High Court under Section 35G of the
Central Excise Act, I944. By the impugned judgment dated 5. I 1.2004 the High
Court held that the order of the Commissioner (A) dated 22.3.2000 had become
.,,
final on merits since that order was never challenged by the assessee, and
G therefore, in the quantification dispute (quantum dispute) the only question
to be decided was regarding the quantum of duty liability. Jn the circumstances
the High Court held that the Tribunal was not competent to entertain the
appeal preferred by the assessee against the later order of the Commissioner
(A) dated 9.4.2003 in the second round of litigation on the question as to ~ ....
whether the bought out items were dutiable. By the impugned judgment the
H High Court set aside the order of the Tribunal.
48 J

-
MILINDIA LTD. v. COMMNR OF CENTRAL EXCISE. NOIDA [KAPADIA,J.l

3. Hence this appeal by the assessee. A
4. In our view the High Court had erred in holding that the Tribunal
could not have examined the question of dutiability, once on merits, the order
of the Commissioner (A) dated 22.3.2000 became final. Firstly, one must
understand that excisability is a matter of principle. The Tribunal is the
highest authority in hierarchy to decide on facts whether the bought out B
items were dutiable or not. The Tribunal was not bound by the decision of
the Commissioner (A) on the question of dutiability or excisability. By order
dated 22.3.2000 the Commissioner (A) had remanded the matter to the
adjudicating authority the question of quantification. Therefore, it was open
to the appellant to appear before the adjudicating authority and submit C
contentions on quantification of duty liability. In the present matter in the
second round the appellant appeared before the adjudicating authority and
pointed out in the alternative that the duty demanded from the appellants at
the rate of Rs.94,03,500 was erroneous as the appellants were entitled to the
benefit of MODVAT credit. From this it cannot be said that the question of
excisability or dutiability had become final. The conclusion of the Commissioner D
(A) in his order dated 22.3.2000 was not binding on the Tribunal. Further one
needs to understand the concept of assessment. An order of assessment
under the taxing law does not become final before the adjudicating authority
in every matter. It is subject to appeal before the Commissioner (A). The
Commissioner (A) can even add or subtract certain items from the order of E
assessment made by the adjudicating authority and that order of the
Commissioner(A) could also be treated as an order of assessment. In
complicated cases where costing in involved the adjudicating authority can
also refer the matter to an expert. The Act also makes provision for special
audit. However, when the principle of law is evolved an appeal lies to the
appellate Tribunal under the said Act. In fact, the power of remand by the F
Commissioner (A) has been taken away by amending Section 35A with effect
from 11.5.2001 under the Finance Bill, 200 l. Under the Notes to clause 122 of
the said Bill it is stated that clause 122 seeks to amend Section 35A so as
to withdraw the powers of the Commissioner (A) to remand matters back to
the adjudicating authority for fresh consideration. Therefore, the Commissioner G
(A) continues to exercise the powers of the adjudicating authority in the
matters of assessment. Under Section 35B any person aggrieved by the order
of the Commissioner as an adjudicating authority is entitled to move the
Tribunal in appeal. Section 35B indicates that the decision of order passed
by the Commissioner (A) shall be treated as an order of an adjudicating
authority. In the circumstances the High Court had erred in holding that the H
482 SUPREME COURT REPORTS [2007] 3 S.C.R.

A assessee was not entitled to agitate the question of dutiability in appeal
before the Tribunal.

5. We do not wish to remand the matter. This matter has undertaken a
chequered history. In the present case vi de order dated 9.4.2003 the
Commissioner (A) held that the assessee had failed to produce evidence
B regarding its entitlement for the MODY AT credit. However the fact remains
that even if the bought out items were dutiable, the department was still
required to give the benefit of MODY AT credit. At this stage we may note
that the appellants had a composite contract with M/s Godrej Soaps Ltd. and
M/s Galaxy Surfactants Limited under which the appellants not only agreed
C to supply the equipments to Mis Godrej Soaps Ltd. and M/s Galaxy Surfactants
Ltd., they also agreed to provide data/information in the format of drawings,
diagrams, charts, tables etc. It is in these circumstances that the department
sought to impose duty on the ground that the appellants under the composite
contract were to facilitate M/s Godrej Soaps Ltd. and M/s Galaxy Surfactants
Ltd. to set up their plant at given site. According to the department the
D bought out items were therefore necessary for the manufacture of the plant
at site which was erected and assembled by the above two companies through
their contractor. Whether the value of the bought out items should be added
for computing the assessable value would depends on the facts of each case.
Even erection of a plant by assembling certain items at site could constitute
E manufacture' under the excise law. In the present case, however, we are
satisfied that the quantification done by the department needs to be modified.
As stated above vide show cause notice dated 23.5.1997 the department
demanded duty of Rs.94,03,500 for the period April 1996 to March 1997.
However, even after the corrigendum dated 6.6.1997, whereby the period
stood reduced to 6 months ( 11/96 to 3/97), the demand continued to be to
F the tune of Rs 94,03,500. This was not possible. Moreover, even if bought out
items were dutiable the assessee was entitled to the benefit of MODY AT
credit. Unfortunately, in the present case time was consumed on issues which
had no relevance to taxability of the goods. In the circumstances we reduce
the demand from Rs.94,03,500 to Rs.23,56,000 which shall be paid within eight
G weeks failing which Department would be entitled to levy interest at 9% p.a.

6. Accordingly, appeal is partly allowed, the impugned judgment of the
High Court in Central Excise Appeal no. 28 of 2004 dated 05.11.2004 is set 1
....,
aside with no order as to costs.

H S.K.S. Appeal partly allowed.