[Order per : B.S.V. Murthy, Member (T)]. - M/s. Prem Fabricators, the appellant is engaged in manufacture and clearances of structures of iron and steel viz. beams, channels, pillars, columns, canopy, portals, trusses etc. During the period between December, 2006 to February, 2007, the appellants manufactured and cleared the structures of iron and steel valued at Rs. 5,50,28,186/- from their factory premises to Central Warehousing Corporation, Mundra (CWC for short) without payment of Central Excise duty claiming benefit of Notification No. 58/03-C.E., dated 22-7-03 as amended. The notification provides for exemption from duty to all excisable goods manufactured by a unit when supplied to unit located in SEZ.

2. A show cause notice was issued by the Revenue to the appellant requiring to show cause as to why exemption should not be denied to them since the conditions in the Notification No. 58/03-C.E, have not been fulfilled. Besides demand of duty with interest, penalty was also proposed under Section 11AC of CEA, 1944. After adjudication process, the impugned order has been passed whereby the duty demand for Rs. 89,80,600/- with interest as applicable has been confirmed and a penalty equal to duty amount has been imposed under Section 11AC of CEA, 1944. The Commissioner in the impugned order also negated the claim of the appellant that there was no manufacture of the goods in the factory and the goods manufactured by them were not at all excisable and held that if the exemption under Notification No. 58/03 was not available, they were liable to pay the Excise duty on the goods.

3. Learned advocate on behalf of the appellant submitted that the appellant had a bona fide belief that the goods sent to CWC were exempted under Notification No. 58/03 and accordingly they had supplied the same. As soon as they were advised by the department that they were not eligible for exemption, they had surrendered all the original ARE-1 forms used for clearance during the period from Dec. 06 to Feb. 07 and also intimated the department that they had not manufactured any excisable goods and therefore they did not need/utilise the benefit of ARE-1. He also submitted that contrary to the observations of the Commissioner in the impugned order, they had not manufactured the structural items classifiable under CETH 7308 at all. They had simply purchased steel sheets, cut them to size, drilled holes and ground them and the same were taken to CWC warehouse where they were converted into columns, rafters. The structural items manufactured at site are exempted from payment of Excise duty under Notification No. 3/05. He also submitted that the description of the goods in ARE-1 was ‘structure’. He also submitted that the columns and other parts required for building CWC shed came into being at the site only. The Commissioner has relied upon the ARE-1 form and the commercial invoices for his conclusion. He submits that their claim that if the electricity consumption at site was considered, the Commissioner could have easily come to the conclusion and could have easily noticed the electricity consumption at site was much higher than the electricity consumption in the factory. The very fact that there was high electricity consumption, compared to that in the factory, shows that the manufacturing activity actually took place in the warehouse under construction and not in the factory. He also submits that the appellants are entitled to the benefit of Cenvat credit of duty paid on the raw materials etc. and also the treatment of price as cum-duty-price both of which have been denied by the Commissioner in the event of their claim that the goods are not excisable, is not acceptable. He also cited several decisions of the Tribunal in support of his contention.

4. Learned SDR, on the other hand, submits that the Commissioner has relied upon the ARE-1 forms and the commercial invoices issued by the appellant. It was the appellant who described the goods in the ‘description’ column of ARE-1 form as “structure/structure consists of columns, portal, canopy, truss”. In the Central Excise invoices issued by the appellant, the same description has been repeated. He submits that the Commissioner has gone through all the ARE-1 as well as invoices issued by the assessee and has found that in all the invoices/ARE-1 forms, the same description has been shown and nowhere it has been mentioned that the goods were parts of columns, portals, canopy, or truss. He submits that the department took up the issue in May, 07 when appellant failed to submit evidence to show that they have fulfilled the conditions of Notification No. 58/03. The clearance of the goods was completed by that time and all of them had reached CWC premises. Therefore, there was no way to department could have verified the actual position and further there is no basis or support in the form of document or evidence submitted by the appellant to show that the goods were different compared to invoices prepared by them.

5. We have considered the submissions made by both sides. Admittedly, the appellant cleared the goods under ARE-1 claiming benefit of exemption Notification No. 58/03 during the period from Dec., 06 to Feb., 07. The notification No. 58/03 exempts all excisable goods produced/manufactured by a unit from whole of the duty of Excise leviable, when cleared to unit in SEZ subject to the following conditions :

(i)      that such goods are removed from the factory or warehouse, as the case may be, in accordance with the procedure specified in Rule 11 of CER, 2002;

(ii)    that the said goods are supplied against bill of export duly assessed by the customs authorities of SEZ or against a domestic procurement certificate issued to the SEZ unit by the customs authorities in the SEZ;

(iii)   that the proof of export, duly certified by the Deputy Commissioner of Customs or the Assistant Commissioner of Customs in the SEZ, is submitted to the officer-in-charge of the Central Excise range concerned, within a period of one month from the date of removal of such goods from the place of manufacture or production.

6. It was found by the Revenue that the appellants failed to fulfil the conditions (ii) and (iii) above and the Range Supdt. in his letter dated 11-5-07, requested the appellant to furnish proof of export and otherwise pay Central Excise duty. Further, the Assistant Commissioner made an enquiry with the Development Commissioner, Kandla SEZ on 17-7-07 and he received a reply on 1-8-07 that there was no unit by name as ‘CWC Kandla’ functioning as SEZ unit in Mundra. He also clarified that even if CWC is functioning in SEZ, it had not acquired the status of SEZ unit to be eligible for tax concession. There is no dispute that the appellants are not eligible under the above notification as claimed and the goods were cleared under ARE-1 as well as invoices by the appellant.

7. It is the appellant’s claim that subsequently they realized that it was a mistake on their part to have obtained registration and cleared the goods under ARE-1 and invoices to claim exemption under Notification No. 58/03 and actually the goods were not at all excisable. This claim was made before the original adjudicating authority after a show cause notice was issued by the Revenue requiring them to show cause as to why the duty with interest should not be recovered from them and why penalty should not be imposed upon them. The Commissioner has taken the claim into consideration and has elaborately discussed the issue in the impugned order and has come to the conclusion that the goods supplied by the appellant to CWC were actually manufactured and are classifiable under CETH 7308 and are liable to duty.

8. It is the appellant’s claim that the goods were not at all manufactured. In support of this, the learned advocate submitted that in ARE-1 they had mentioned only ‘structure ‘ in the column of description. However, we find that it is the Commissioner’s finding that in ARE-1 as well as invoices, the description of the goods given was ‘columns, portal, canopy, truss. The Commissioner has also said that he has gone through all the ARE-1s and invoices. In the appeal memorandum submitted by the appellant, not a single copy of ARE-1s or invoices has been submitted. In the appeal memorandum, the appellant has stated that in the ARE-1, they had mentioned as “Supplying at site steel work in built up square and rectangular closed hollow sections structures, trusses including cutting, welding and applying a priming coat of approved steel primer welded and bolted including special shape washers etc.” instead of mentioning steel plates in the ARE-1s. The submission of the appellant is that ARE-1 did not represent identity of the goods but the same was shown for ease of understanding further activity at the site. The explanation given by the appellant is not at all convincing. The invoices issued by the appellant covers the goods while being transported from the factory to the CWC. Therefore, it is normal and appropriate to assume that the correct description of the goods would be given in the invoice. It has to be noted that there is no need to alter the description to make an understanding easy for activity at site since the activity on the site and activity in the factory both are undertaken by the same company and the whole design and design of each and every part of the structure in the form of drawing has already been given by the buyer viz. CWC and therefore this explanation cannot be accepted.

9. Further, the appellants also relied upon a certificate issued by CWC in support of their contention that there was no manufacture at the site. The CWC certificate says that CWC has awarded the contract to the appellant for the work of fabrication of trusses of hollow section and plate structure at their site. The fabrication work of hollow sections, trusses and plate structure are being carried out at their site by the appellant against above mentioned work order since 18-11-06 as per their instructions and specifications.

10. When we see the work order issued to the appellant by CWC, in the first work order, it was mentioned that order was for supplying and stacking of pre-engineered steel system for warehouse in super structure including roof sheeting, wall cladding and canopy. While releasing the order, it has been stated in the second paragraph “You are requested to start the supply immediately and ensure completion of supply as per Programme mentioned in terms and conditions of Schedule of Quantity which is enclosed herewith.” Further, the Schedule of Quantities also shows the quantity as 18,750 sq. mtrs. and the description starts with the words “Supplying of fabricated pre-engineered steel structures” which also proceeds and says that it includes supply of columns, steel rafter, ties, bracing, purlins, sag rods, nuts and bolts, washers etc. Further, in the Terms & Conditions, the CWC has clearly mentioned that rate shall be quoted by the contractor for supplying at site and is inclusive of all necessary applicable taxes. Further, it is also stated that no water and electricity will be supplied by the department to the contractor/supplier.

11. The second work order, issued on the same date 18-10-06, which is made for supply of trusses. In this order also, the appellants have been requested to start the supply immediately and ensure completion of supply as per Programme mentioned in terms and conditions. In this case also, the description of the items of works starts with the words “Supplying at site, steel work in built up square and rectangular closed hollow sections structures”. In this case also, in terms and conditions, it has been stated that all materials will be received at site as per specifications and in sound condition.

12. When we look at the work orders and ARE-1 and invoices, they are in harmony with each other. Nowhere, the work order or contract speaks of fabrication at site. The order is for supply and not for fabrication at site. The certificate issued by the CWC is also carefully worded and certificate says clearly that the appellants have completed the work as per the work order. It has to be noted that both the work orders include several items whereas certificate covers only two items. Therefore, the certificate issued by CWC is not of any help to the appellant in the face of document and records which are clearly against their claim.

13. Learned advocate relied upon several decisions of the Tribunal. In CCE, Hyderabad v. M/s. Deepak Galvanising Engg. Indus. P. Ltd., (Tri.-Bang.), the Tribunal held that cutting of duty paid angles, rods, channels, plates as per specification and then drilling of holes to the cut pieces to facilitate fastening with bolts and nuts while erecting towers, does not amount to manufacture since the item remains the same even after carrying out the process. It is not the case of the appellant that they had purchased angles, rods, channels, plates etc. and drilled holes in them. Therefore, on facts, this decision is not applicable.

14. Another decision cited by the learned advocate was in the case of CCE, Pune v. M/s. TELCO Ltd., (Tri.-Mumbai). I find that this decision is also not relevant in view of the facts as explained in the order which are totally different and not comparable to the present case.

“....assessee are bringing duty paid aluminium corrugated sheets and aluminium plain sheets and other aluminium material. These sheets are used for the purpose of covering the structure of the factory shed and to provide proper outlet for rain water and flashings at the corner ends of the structure respectively. The corrugated sheets are used by the assessee by cutting the sheets to the required length/width wherever required. Similarly other aluminium materials are shaped/sized and attached to the roof structure for providing necessary drainage. This activity which merely involved cutting of sheets for the purpose of covering the shed cannot be considered as a manufacture and the decision in the Mahindra & Mahindra case cited by learned S.D.R. is not relevant as none of these items comes into existence here.”

As may be seen, M/s. Telco was manufacturing only roof structures by cutting the sheets.

15. On the other hand, learned SDR has relied upon the decision of Hon’ble Supreme Court in case of CCE, Jaipur v. M/s. Man Structurals Ltd., (S.C.), Tribunal’s decision in the case of M/s. Aarti Steels Ltd. v. Collr. of C.E., Chandigarh - (Tri.-Del.) and Larger Bench decision of the Tribunal in case of Mahindra & Mahindra Ltd. v. CCEs, (Tri.-LB). The decision of the Larger Bench is very relevant to the facts of the present case and is applicable. The relevant portion of the said Larger Bench decision is extracted below :

“10.... In the making of an immovable structure or building are used a variety of movable. Raising iron and steel structures like sheds involves fabrication work and many of the articles used in raising the structure come into existence through fabrication as per the pre­determined design to be fitted into the structure that is to be raised. For example, roof frame may be fabricated for the roof structure of a shed. Such fabrication of frames may be done at the construction site or at some factory premises. The iron and steel frames fabricated at the factory premises away from the site of construction would be brought to the site for their use in erecting the structure. The frames prefabricated and brought at the site and frames fabricated the site of erection both are goods manufactured. There will be variety of parts of structures of iron and steel, that can be fabricated either at the site or at some factory premises away from the site. The iron and steel raw material, such as angles, plates, tubes, etc., are used in making parts of structures and they acquired a distinctly different shape to suit the structural designs. For example, if iron or steel angles and plates are cut to make a steel table or chair which can be dismantled, it cannot be said that there are no goods manufactured because the iron and steel angles or plates remain such angles and plates though of different sizes, and merely holes are punched and screws fitted. Unlike in liquid mixtures, the raw material of iron and steel or wood will retain their identity, but it is precisely their being cut, and designed, punched and fitted to make an article commercially known that involves manufacture of an article distinct from the angles, sheets, tubes etc. used in it. Mere drilling holes or mere cutting jobs in isolation may not by themselves involve manufacture of an article, but, converting raw material like angles, tubes, plates etc. to bring about a distinct commodity will surely amount to manufacture as it is not “mere” drilling holes or cutting, but the activity is aimed, at bringing about a distinct commodity. Thus, making of porta cabin from iron and steel angles with, roof frame-work i.e. trusses, doors, windows, ladders in it made by drilling holes and cutting the raw material, will be a movable structure having identity as a distinct marketable commodity. When the porta cabin is dismantled it nonetheless remains the manufactured products i.e. porta cabin dismantled or disassembled. The material such as angles, rods, shades, sections plates, tubes, etc. of such designed, structure in their pre-assembled or disassembled form are prepared for use in the said structure, namely porta cabin. One cannot, with any conviction or authority, say that these dismantled parts of the structures are raw material used in its original form and that mere cutting or drilling holes has made no difference. The items in the parenthesis of Heading 7308 described as excisable goods include roofs, roofing frame-work, doors, windows and their frames, thresholds for doors, shutters, pillars, column, balustrades pillars, sheets of iron arid steel, each one of these items has a complete distinct identity.

11......when a truss is fabricated a distinct article is brought into existence different from mere raw material, namely angles or lubes used in making of the truss.”

16. We, therefore, find no reason to set aside the impugned order and the decision of the Commissioner regarding clarification and excisability are upheld. However, we find that the appellant had a bona fide belief that they were eligible for exemption and therefore cleared the goods under Notification No. 58/03. Subsequently, when the show cause notice was issued, they have tried to claim that the goods were not excisable. Basically, the dispute involves interpretation of law and applicability of exemption notification and therefore we find that there is no justification for imposition of penalty under Section 11AC of CEA, 1944. We also find that the claim of the appellant for Cenvat credit should have been considered by the Commissioner and therefore, we direct that the appellants may be given the benefit of Cenvat credit admissible subject to production of necessary documents. We also allow the claim for treatment of price charged by the appellant as cum-duty-price.

17. Appeal is partially allowed in above terms.

(Pronounced in Court on 3-9-2009)