M/S. TECUMSEH PRODUCTS INDIA LTD.versusCOMMISSIONER OF CENTRAL EXCISE, HYDERABAD

A             MIS. TECUMSEH PRODUCTS INDIA LTD.
                              v.
          COMMISSIONER OF CENTRAL EXCISE, HYDERABAD

                                  MAY 5, 2004
B
              [RAJENDRA BABU, CJ. AND G.P. MATHUR, J.]

         Central Excise Act, 1944-Levy of excise duty-Invocation of
  extended period of limitation-Replacement of stators while repairing
  defective compressors--Company receiving stators from job workers and
C shaping, varnishing and baking stators to fit it into compressor housing-
  Collector initiating proceedings for levy of tax holding the activity to be
  manufacture-Company pleading that stators received from job workers
  being in complete technically functional state, job workers are manufacturers
  of stators-On appeal, held : Separate activities carried out by the
D company in respect of stators for making ready for the purpose of using
  in repairing of compressors were identical to the ones carried out in
  respect ofnew stator, thus, results in manufacturing activity and proceedings
  for adjudication of tax justified-Further, invocation ofextended period of
  limitation not justified as it is not clear if stators made ready to be used
E for the purpose of repairing compressors would amount to manufacture-
  Section JJA.

        Initially the appellants used to manufacture stators in their
  factory for repairing the defective compressors. Thereafter, the Service
F Centre started taking materials required for replacing the stators on
  payment of duty from the appellant and gave it to job workers for
  making the stators. On receipt of the stator from job worker, appellant
  undertook the shaping, varnishing and baking of such stator into the
  compressor housing. Collector of Central Excise held that the activity
  carried on by the appellant resulted in manufacture and initiated
G proceedings for adjudication of tax. Appellant contended that as the
  stators are received from the job work1:rs in complete technically
  functional state, the job workers are manufacturers of stators and also
  challenged the invocation of the longer period oflimitation. Adjudicating
  Authority held that the job workers are the manufacturers of the stator
H and the extended period of limitation cannot be invoked. On appeal,
                                        202
             TECUMSEH PRODUCTS INDIA LTD. v. C.C.E.                   203

the Appellate Tribunal held that the appellants are manufacturers of A
the stators because they undertook the· process of shaping, varnishing
the baking and then only the marketable goods came into existence;
that these activities were identical to the ones carried out for new
stators; and that the extended period of limitation was invokable.
Hence the present appeals.
                                                                             B
     Partly allol\'.ing the appeals, the Court

      HELD : I. Jn the instant case, several steps were taken in respect
of the stator, and the Tribunal rightly held that separate activities were C
carried on by the appellants which were identical to the ones that was
carried out in respect of new stator and, therefore, the activity of the
stator being made ready for the purpose of using in the repairing of
compressor is an activity of manufacture and the Tribunal has
confirmed the demand only in respect of "Stators." (206-A-B)
                                                                             D
     Shriram Refrigeration Industries Ltd. v. Collector of Central Excise.
Hyderabad, (1986) 26 E.L.T. 353 and CCE, New Delhi v. Karna
Industries, (1992) 42 ECR 522, distinguished.

     2. The Tribunal was not justified in invoking extended period of E
limitation provided under Section llA of the Central Excise Act
because it was not clear whether stators made ready to be used for the
purpose of repairing compressors would amount to manufacturing
activity or not. In fact, the Tribunal on a detailed analysis and lifter
going into several processes carried out by the appellant, concluded F
that the stators used in the repairing of the compressors involved
manufacturing activity. Therefore, to the extent the authorities invoked
Section llA and imposed penal interests and other penalties is set aside
and the order of the Tribunal is modified to that extent. [206-C-E)

     CIVIL.APPELLATE JURISDICTION : Civil Appeal No. 1477 of G
1998.

     From the Judgment and Order dated 24.11.97 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, South Zonal Branch at
Madras in F.O. No. 3003/97 in A. No. E.257/93.                         1-1
    204                SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.

A                                      WITH

          C.A. No. 1513 of 1998.

          V. Lakshmikumaran, Alok Yadav and V. Balachandran for the
B Appellant.
        Raju Ramachandran, Additional Solicitor General, Sanjiv Sen and
    Ms. Vibha Datta Makhija for the Respondent.

          The Judgment of the Court was delivered by
c         RAJ END RA BABU, CJ. : 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
D   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.
E   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.
F
            The appellant contended that the job workers are manufacturers of
    stators and not the appellant as stators are received from the job workers
    in complet~ technically functional state. The activities undertaken by the
    appellants are only to use the stator and not manufacture the stators. The
G   appellants also challenged the invocation of the longer period oflimitation,
    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
H manufacturer of the stator and not the appellants and that the extended
     TECUMSEH PRODUCTS INDIA LTD. v. C.C.E. (RAJENDRA BABU, CJ.) 205

  period of limitation cannot be invoked. On appeal to the Appellate A
· Tribunal, it was held that the appellants are manufacturers of the stators
  and. not the job workers because they undertook the process of shaping,
  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.
                                                                              B
        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 C
 Court in Civil Appeal Nos.I 029 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, D
 in the case of 'Karna', the Tribunal took the view that the defective
 compressors received if repaired by putting in the nesessary 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 E
 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. F
 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 th;) same G
 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 H
    206                SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.

A 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
B   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
C provided under Section l l A 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 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
D   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 11 A 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.

    N.J.                                                Appeals partly allowed.