SUPREME COURT OF INDIA

Before:- Arijit Pasayat and S.H. Kapadia, JJ.

Appeal (Civil) 5421 of 1999. D/d. 2.3.2005.

Tata Iron and Steel Co. Ltd., Bihar - Petitioner

Versus

Collector of Central Excise, Patna - Respondent

Central Excise Act, 1944 Sections 5A, 11A, 35A and 35B Central Excise Rules, 1944, Rule 8(1) - Notification No. 281/86-CE dated 24.4.1986 - Excise-Exemption notification - Benefit of exemption available if excisable goods are manufactured in workshop; goods are intended to use in the said factory or in any other factory of same manufacturer; goods are intended for use for repairs or maintenance of machinery installed in the other factory and Chapter X procedure is followed if goods are used in the factory different from the factory of production-Submission that wagon and trucks are quite heavy, used in factory premises and placed on fixed rails they can be said to be placed in position and movement does not dilute the position that they have been installed - Whether machines are installed or not - Tribunal overlooked certain vital aspects-Matter remitted to Tribunal to record positive findings, keeping in view the decision in Mir Mohammad's case and definition of words discussed - It shall also consider the effect of the absence of words "installed in the factory" in the Head note of Notification - Authorities proceeded on the basis that case is covered by section 11A but Tribunal introduced a new case of Rule 196 without affording opportunity of hearing to assessee - Question pertains to Chapter X also not property considered - Matter remitted.

[Paras 27 to 29 and 34 to 39]

Cases Referred :-

Commissioner of Income Tax v. Sri Rama Vilas Service (Pvt.) Ltd., (1960) 38 ITR 25 at 27.

Commissioner of Income Tax (Central) Bombay v. Saraspur Mills Ltd., (1959) 36 ITR 580 at 581).

Commissioner of Income Tax v. Mir Mohammad Ali, AIR (1964) SC (1693) at (1697) : (1964) 53 ITR 165.

Sundaram Motors (P) Ltd. v. C.I.T., (1969) 71 ITR 587, 593 (Mad.).

Engineering Industry Training Board v. Foster Wheeler John Brown Boild Ltd., [1970] 2 All England Reporter 616, 619 (CA).

State v. Jones, 89 S.E.2d 129, 131, 242 N.C. 63.

Smith v. Kappas, 12 S.E.2d 693, 697, 218 N.C. 758.

King v. Elliott, 147 S.E. 701, 704, 197 N.C. 93.

De Merritt v. Forbes Milling Co., 216 P.1086, 114 Kan. 62.

Metzler v. Thye, 124 P.721, 722, 163 Cal.95.

JUGMENT

Arijit Pasayat, J. - These three appeals under Section 35L of the Central Excise Act, 1944 (in short the 'Act') are directed against three separate orders passed by the Customs, Excise and Gold (control) Appellate Tribunal, New Delhi (in short the 'CEGAT').

2. Civil Appeal No. 5421/1999 relates to the issue whether the benefit of Notification No. 281/86 dated 24.4.1986 is available to parts of loco wagon and rolling stock manufactured by the assessee-appellant. It concerns show cause notices issued in 1987 to Growth Shop at Adityapur, alleging breach of the terms and conditions mentioned in the aforesaid Notification. The notice relates to the consignor i.e. the Growth Shop. The CEGAT's decision which is impugned in the said appeal is also based on certain findings recorded in the CEGAT's order which forms the subject-matter of challenge in C.A. No. 5836 of 1999. There also the issue related to the question of eligibility for benefit of exemption of Notification No. 281/86 dated 24.4.1986 in respect of parts of rolling stock manufactured in the appellant's factory (Growth Shop) at Adityapur and brought to the main steel works at Jamshedpur for use in repair and maintenance of transport equipments used for moving the materials and products within the factory. In the third appeal i.e. C.A. 5209 of 2001 the issue relates to the confirmation of demand of central excise duty amounting to Rs. 44,78,167.02 and imposition of penalty of rupees five lakhs. Here again, the show cause notices proposing imposition of duty and penalty were on the basis that the benefit of aforesaid Notification was not available to the assessee-appellant. The dispute relates to adjudication for alleged contravention of procedures contained in Chapter-X by the consignee, namely, the Main Plant at Jamshedpur. Allegation was that consignee had failed to intimate the actual use of goods received from the Growth Shop at Adityapur. The show cause notice is dated 14.5.1991.

3. The assessee-appellant had applied for permission under Rule 192 of Central Excise Rules, 1944 (in short the 'Rules') for getting parts of loco engine and rolling stock falling in Chapter 86 of the Schedule from the growth shop without payment of duty claiming the benefit of the aforesaid Notification. Permission was refused, as according to the revenue, the products were not found to be covered under the provisions of the Notification. Show cause notices were issued requiring the appellant to show cause as to why the duty should not be demanded under Rules 9(2) and 196(1) of the Rules read with proviso to Section 11A(1) of the Act.

4. Assessee's stand was that it was fully covered under the Exemption Notification. Revenue on the other hand was of the view that the crucial word used in the Notification was 'installed'. As the goods involved were not relatable to machinery installed in the factory, the benefit was not available.

5. The Assistant Collector (hereinafter referred to as the 'Adjudicating Authority'), the Collector (Appeals) (hereinafter referred to as the 'First Appellate Authority') as well as the CEGAT held that the Notification had no application as the machinery for which the parts were meant had not been installed in the factory. In the third appeal, the basic issue was whether the show cause notices were issued beyond the prescribed period of limitation. Though the show cause notice indicated that the same was issued in terms of Section 11A(1) (proviso) of the Act, the CEGAT held that it is not Section 11A(1) of the Act which is really relevant but Rule 196 and since no period of limitation is prescribed therein, the show cause notices were issued within time.

6. Mr. A.K. Ganguli, learned senior counsel appearing for the appellant submitted that the Notification No. 281/86 exempts the excisable products used for repairs and maintenance of machinery. It does not distinguish between locomotive and any other machineries and the trucks and other transport equipments which undisputedly are covered by the expression "machinery", were exclusively used within the factory for the purpose of carrying raw materials, semi finished goods etc. Parts for maintenance of such trucks and locomotives would definitely qualify for exemption. It was submitted that there is no serious dispute raised by the revenue that the trucks and other transport equipments were machinery. What the revenue has tried to project is that they were not meant for machinery which was installed. The term 'installation' does not mean that it should be embedded to the earth only, but it is used in the sense of introduction or induction. It in essence means to set up or fix in position for use or service. It was further submitted that the CEGAT made out a new case relating to applicability of Rule 196 for the purpose of limitation ignoring the fact that the show cause notice and the orders of the Adjudicating Authority and the First Appellate Authority proceeded on the basis that the action in terms of Section 11A(1) (proviso) was being taken. The assessee-appellant was, therefore, deprived of presenting its case. In addition, to invoke the extended period of limitation something more than alleging infraction is necessary. There must be an element of mens rea or wilful disregard. In any event, Rule 196 and Section 11A(1) operate in different fields which are to be harmonised. Even if it is accepted for the sake of argument that no period of limitation is indicated in Rule 196, it cannot be conceived that the Legislature permitted action after unusually long period, thereby unsettling the settled position. There was no wilful mis-statement and in fact the assessee-appellant had disclosed the factual position in all relevant documents, applications and lists.

7. In response, learned counsel for the revenue submitted that the revenue authorities as well as the CEGAT have clearly held that the parts were in fact not used for repair or maintenance of machinery installed. Even in the common parlance the word "installed" means embedded to the earth with no possibility of movement from one place to another. Therefore, the conclusions cannot be faulted.

8. So far as the question of limitation is concerned, it is submitted that both Rule 196 and Section 11A(1) operate in different fields. The fact that in Rule 196 there is no prescribed period of limitation goes to show that the legislature never intended to restrict the period under which action can be taken. There was clandestine removal and since the assessee availed concession, it means that there is short payment or non-levy of the duty. The factory i.e. Growth Shop at Adityapur is at a distance of about 8 K.Ms. from the main steel works situated at Jamshedpur. That being so, there is no question of any installation and, therefore, the CEGAT rightly denied the benefit and imposed duty and penalty.

9. The Exemption Notification which is crucial for the first two appeals reads as follows:

"Exemption to all excisable goods produced and used within the same factory or other factory of same manufacturer for repairs or maintenance of machinery. In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts all excisable goods manufactured in a workshop within a factory and intended for use in the said factory or in any other factory of the same manufacturer, for repair or maintenance of machinery installed therein from the whole of the duty of excise leviable thereon which is specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986). Provided that where such use is in a factory of a manufacturer, different from his factory where the goods have been manufactured, the exemption contained in this notification shall be allowable subject to the observance of the procedure set out in Chapter X of the Central Excise Rules, 1944".

10. The said Notification has been issued in exercise of powers conferred by sub-rule (1) of Rule 8 of the Rules. The Notification consists of two parts. The first part relates to excisable goods manufactured in a workshop within the factory and intended for use in the said factory. The second part relates to use in any other factory of the same manufacturer for repair or maintenance of machinery installed therein. The expression 'therein' obviously relates to the other factory of the manufacturer. It is significant to note that heading of the Notification does not refer to installation aspect while body of the Notification does it. In the instant case, there is no dispute that the goods were intended to be used for the purpose of repairs or maintenance of machinery in the other factory of the assessee-appellant. The basic issue, therefore, is whether these machineries were installed in the factory.

11. As per Black's Law Dictionary (Fifth Edition), the word 'install' means ''to place in a seat, give a place to; to set, place, or instate in an office, rank, or order, etc. To set up or fix in position for use or service.

12. As per T.P. Mukherjee's Law Lexicon, Fifth Edition, the word 'installed' itself has not been statutorily defined. In view of the extended statutory definition of the word 'plant' in Section 10(5) of the Income Tax Act, 1922 it seems clear that the word 'installed' in relation to the machinery or plant, must be construed to mean such installation as that plant is capable of.

13. The meaning of the word "installed" as given in Webster's New International English Dictionary is "to set up or fix in position for use or service as to install a heating or lighting system." The Shorter Oxford Dictionary in English gives as one of the meanings "to place an apparatus, a system of lighting, heating, or the like in position for service or use." Much the same meaning is given in Fund and Wagnall's New Standard Dictionary "to place in position for service or use as to install hot water system"

14. In Commissioner of Income Tax v. Sri Rama Vilas Service (Pvt.) Ltd., (1960) 38 ITR 25 at 27 it was held, putting aside the examples given in the dictionary meaning to explain the scope of the word "installed", that "installed" would certainly mean "to place an apparatus in position for service or use". A bus or a lorry is a plant within the meaning of Section 10(2) (vi-b) of the Income Tax Act, 1922. Whether, when a bus or a lorry is purchased and is also put on the road in the course of the business that the assessees carried on, it could be said that the requirement of installation has been satisfied? That the bus or lorry has been set up for use or service when it is put on the road seems clear and in that sense buses or lorries were installed. The statutory test of installation was satisfied by the assessee because such installation as the buses and lorries were capable or was completed.

15. The assumption that the expression "installed" must necessarily mean "fixed in Position" at the time when the plant is worked or used does not, seem to be justified. The expression "installed" is also used in the sense of "inducted or introduced", and if that be the sense in which that expression is used, there is nothing inconsistent in the context in which that word is used which will justify in holding that the word "plant" in Section 10, sub-section (2), clause (vi-b) of the Income Tax Act, 1922 was not intended to include vehicles. [(See Commissioner of Income Tax (Central) Bombay v. Saraspur Mills Ltd., (1959) 36 ITR 580 at 581)].

16. As per P. Ramanatha Aiyar's Law Lexicon, Second Edition 1997, the expression "installed" did not necessarily mean "fixed in position", but was also used in the sense of "intended or introduced". As held in Commissioner of Income Tax v. Mir Mohammad Ali, AIR (1964) SC (1693) at (1697) = (1964) 53 ITR 165, installed would certainly mean 'to place an apparatus in position for service or use'. When an engine is fixed in a vehicle it is installed within the meaning of the expression.

17. The said decision was rendered while interpreting Section 10(2) of the Income Tax Act, 1922. The provisions involved were Section 10(2)(vi) and (via). The issue involved in the said case was whether extra depreciation is admissible under the provisions of Section 10(2)(vi) and Section 10(2) (via) of the Act in respect of diesel oil engines fitted to the motor vehicles in replacement of the existing engines. It was held that the expression 'installed' did not necessarily means fix in position but was also used in the sense of inducted or introduced. It was also held that 'installed' would necessarily mean to place an apparatus in position for service or use. It was therefore held that when any engine is fixed in a vehicle it is installed with the meaning of the expression in clauses (vi) and (via) of Section 10(2) of IT Act 1922.

18. If the plant in combination with other appliances in the business effectuates and perpetuates, the trade of commerce, then, in relation to such plant, as defined in Income Tax Act, 1961 "installed" means such induction or introduction whereby the plant may be placed in a position for service or use in the business. (See Sundaram Motors (P) Ltd. v. C.I.T., (1969) 71 ITR 587, 593 (Mad.).

19. The word 'installation' means the bringing of an entire piece of plant on to a site and putting into position on the site. It does not mean that putting together of parts, piece by piece, pipe by pipe, bolt by bolt, weld by weld, until it gradually becomes one whole. (See Engineering Industry Training Board v. Foster Wheeler John Brown Boild Ltd., [1970] 2 All England Reporter 616, 619 (CA).

20. As per Corpus Juris Secundum, Vol. XLIV, the word "install" means generally, to place or set in a seat or give a place to; to set, place, or instate in an office, rank, or order; to establish one in a place or position.

21. In Builders' terminology, to set in place, to connect up, and fix ready for use; and, specifically applied to machinery, the word has a technical meaning, which is to set up or fix in position for use or service; to place machinery in that position where it will reasonably accomplish the purposes for which it is set up; to set or fix for use or service, as to install a lighting system.

22. As applied to machinery, the word has a technical meaning, and refers to the whole of a system of machines, apparatus, and accessories set up and arranged for working, as in electric lighting, transmission of power, etc. In this sense "installations" may be synonymous with "appliances".

23. As per Words and Phrases, Permanent Edition, Vol. 21-A the word 'install' means to set up or fix. (See State v. Jones, 89 S.E.2d 129, 131, 242 N.C. 63). "Installed" means to set or fix, as a lighting system, for use or service. (See Smith v. Kappas, 12 S.E.2d 693, 697, 218 N.C. 758). The word "install" meant to set up or fix in position for use or service. (See King v. Elliott, 147 S.E. 701, 704, 197 N.C. 93).

24. Where a contract for the sale of a cleaning attachment to a steam boiler allowed the buyer 60 days after it was installed in which to make a trial of its effectiveness, installation is held to have been complete when the cleaner was affixed to the boiler, although by reason of the plant not being operated no test of it was made until later. (See De Merritt v. Forbes Milling Co., 216 P.1086, 114 Kan. 62).

25. Notwithstanding Civ. Code, pp.1645, 1654, 1656, providing that technical words in contracts must be interpreted as understood by persons in the business to which they relate, and that in cases of uncertainty a contract must be interpreted most strongly against the party causing the uncertainty to exist, and that all things necessary to carry a contract into effect are implied therefrom, a lease, which required the lessee to "install a sidewalk elevator from the basement to the sidewalk" in front of the premises, does not require the lessor to prepare the premises for the installation of the elevator; but the lessee must provide a suitable lift with the usual accessories connecting the basement with the sidewalk; the word "install" meaning to set up or fix in position for use or service. (See Metzler v. Thye, 124 P.721, 722, 163 Cal.95).

26. As the words 'install' or 'installed' go to show, much would depend upon the context in which the expression is used in a particular statute and no generalisation can be done.

27. The benefit of the exemption is available under the exemption notification if (1) excisable goods are manufactured in a workshop within the factory; (2) goods are intended to use in the said factory or in any other factory of the same manufacturer; (3) goods are intended for use for repairs or maintenance of machinery installed in the other factory; and (4) Chapter X procedure is followed if goods are used in the factory different from the factory of production.

28. The CEGAT in the first two appeals was of the view that the machinery which is installed has to be placed or put or fix in a position. A locomotive or rolling stock wagon or bogies are not so placed in position. According to the CEGAT the machines may have moved parts and they may move to make the machine functional, but such machines themselves do not have to move. The locomotives and other items involved are moving items and cannot be said to have been installed in the factory. They must be used in the factory for moving or carrying the materials. It was held that the Notification applied to machinery installed in the factory and not to the machinery used in the factory.

29. As noted above, the expression has to be read in the context of the statute keeping in view the factual position. It was submitted by learned counsel for the assessee-appellant that the wagon and the trucks which were quite heavy are used in the factory premises on fixed rails and they are not taken out of the factory premises. In that sense when they were placed on rails they can be said to be placed in position. Merely because there is some movement it does not dilute the position that they have been installed. We feel some more factual details are necessary to be recorded in this regard to come to a definite conclusion as to whether the machineries were installed or not. Further, the Notification No. 281/86-CE dated 24.4.1986 has a Head Note which has been quoted above. It indicates exemption to excisable goods produced and used within the factory for repairs and maintenance of machinery. It does not use the expression "machinery installed in the factory". This aspect has not been considered by the CEGAT. Therefore, it would be appropriate for the CEGAT to hear the matter afresh and record a positive finding on the factual aspects, keeping in view the decision in Mir Mohammad's case (supra) and the definitions noted above. It shall also consider the effect of the absence of words "installed in the factory" in the Head note of the Notification. We make it clear that we have not expressed any opinion on the factual aspects of the case.

30. The residual question is, even if it is held that the benefit under the Exemption Notification is not available whether the notices issued can be said to be within the period of limitation. Undisputedly, the Adjudicating Authority and the First Appellate Authority proceeded on the basis as if Section 11A(1) was applicable to the facts of the case. The CEGAT on the other hand was of the view that there was no warrant to impose limitation under Section 11A(1) of the Act for raising a demand under Rule 196. That is the subject-matter of dispute in Civil Appeal No. 5209 of 2001.

31. This issue needs to be carefully considered. Rules 192, 196 and Section 11A(1) as they stood at the relevant point of time read as follows:

"Rule 192- Application for concession - Where the Central Government has, by notification under rule 8, or section 5A of the Act, as the case may be, sanctioned the remission of duty on excisable goods other than salt, used in a specified industrial process, any person wishing to obtain remission of duty on such goods, shall make application to the Commissioner in the proper form stating the estimated annual quantity of the excisable goods required and the purpose for and the manner in which it is intended to use them and declaring that the goods will be used for such purpose and in such manner. If the Commissioner is satisfied that the applicant is a person to whom the concession can be granted without danger to the revenue, and if he is satisfied, either by personal inspection or by that of an officer subordinate to him that the premises are suitable and contain a secure store room suitable for the storage of the goods, and if the applicant agrees to bear the cost of such establishment as the Commissioner may consider necessary for supervising operation in his premises for the purposes of this Chapter, the Commissioner may grant the application, and the applicant shall then enter into a bond in the proper form with such surety or sufficient security in such amount and under such conditions as the Commissioner approves. Where for this purpose, it is necessary for the applicant to obtain an Excise registration certificate, he shall submit the requisite application along with the proof for payment of registration fee and shall then be granted a registration certificate in the proper form. The concession shall unless renewed by the Commissioner cease on the expiry of the registration certificate."

Provided that, in the event of death, insolvency or insufficiency of the surety, or where the amount of the bond is inadequate, the Commissioner may, in his discretion, demand a fresh bond; and may, if the security furnished for a bond is not adequate, demand additional security.

32. Rule 196- Duty leviable on excisable goods not duly accounted for-

(1) If any excisable goods obtained under Rule 192 are not duly accounted for as having been used for the purpose and in the manner in the application or are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during transport from the place of procurement to the applicant's premises or during handling or storage in the premises approved under rule 192, the applicant shall, on demand by the proper officer, immediately pay the duty leviable on such goods. The concession may at any time be withdrawn by the Commissioner if a breach of these rules is committed by the applicant, his agent or any person employed by him. In the event of such a breach, the Commissioner may also order the forfeiture of the security deposited under rule 192 and may also confiscate the excisable goods, and all goods manufactured from such goods, in store at the factory.

(2) Where the duty becomes chargeable in terms of sub-rule (1) on any excisable goods, the rate of duty and the tariff valuation, if any, applicable to such goods shall be the rate and valuation in force-

(i) in the case of actual removal of goods from the premises, on the date of such removal;

(ii) in the case of loss of goods in transit during transport from the place of procurement to the applicant's premises, on the date on which the goods are received in the applicant's premises;

(iii) in the case of goods while in storage or during handling in the premises approved under rule 192, on the date on which such loss is discovered by the proper officer or made known to him;

(iv) in all other cases, on the date on which the notice for demand of duty is issued or on the date on which duty is paid, whichever is earlier.

33. 11A(1): Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded - (1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:

Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, for the words "six months" the words "five years" were substituted.

Explanation

Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be.''

34. As the heading of the Rule 196 itself goes to show it relates to duty leviable on excisable goods not duly accounted for. Rule 192 speaks of application for concession. Rule 196 provides that if any excisable goods obtained under Rule 192 are not duly accounted for as having been used for the purpose and in the manner stated in the application or are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during transport from the place of procurement to the applicant's premises or during handling or storage in the premises approved under Rule 192, the applicant shall on demand by the proper officer immediately pay the duty leviable on such goods. It further provides that the concession may be withdrawn if a breach of the rules is committed by the applicant, his agent or any person employed by him. In the event of such breach, power is given for forfeiture of the security deposited under Rule 192 and for confiscation of the excisable goods and all goods manufactured from such goods in store at the factory. In other words, Rule 196 deals with a situation of withdrawal for a concession. If any concession has been wrongly or illegally availed Rule 196 permits the proper officer to demand payment of duty leviable on the concerned goods.

35. Section 11A on the other hand deals with recovery of dues not levied or not paid or short levied or short paid or erroneously refunded.

36. In the instant case, the authorities themselves proceeded on the basis that the case is covered under Section 11A. The CEGAT introduced a new case of Rule 196 without affording any opportunity to the assessee to have its say on this score.

37. We find that the whole issue has been considered bypassing the real issue. The show cause notice refers to adjudication for contravention of Chapter-X procedure by the Main Plant at Jamshedpur (hereafter referred to as the 'consignee'). According to the show cause notice, the said consignee had failed to intimate the actual use of goods received from Growth Shop, Adityapur.

38. It has to be noted that the show cause notices of 1987 dealt with breach of Exemption Notification by the consignor whereas the show cause notice dated 14.5.1991 dealt with breach of terms and conditions of license issued in favour of the said consignee who failed to intimate the actual use of the inputs in question. Even if it is accepted for the sake of arguments that Growth Shop was entitled to exemption under the above Notification, the crucial question is whether the Department can proceed against the said consignee for not following the procedure under Chapter-X if there was any violation of the terms and conditions of Central Excise License No. 6 issued in favour of the Main Plant. This crucial issue has not been considered in the proper perspective by CEGAT. The basic question is whether the Main Plant, Jamshedpur failed to account for the goods received from Growth Shop, Adityapur.

39. The matter is remanded to CEGAT for fresh adjudication keeping in view the legal position indicated supra.

40. The appeals are disposed of accordingly with no order as to costs.

.