CCS INFOTECH LTD. Vs. COMMISSIONER OF C. EX.

JUDGEMENT

(1.) THE impugned order has demanded duty of over Rs. 5 crores from the appellants for the period August 1998 to July 2001 in adjudication of show -cause notice dated 4 -9 -2000 by invoking the extended period of limitation. It has also imposed a penalty of equal amount on the party under Section 11AC of the Central Excise Act, besides another penalty of Rs. 1.25 crores on them under various rules. The demand of duty is on computers. The assessee, namely, M/s. CCS Infotech Ltd., a public limited company, has been held to have manufactured computers through assembly of bought -out components or through upgradation of bought -out computers. The company was carrying out activities like (a) enhancing memory of the system (b) upgradation (c) enhancement of the speed of the processor (d) adding floppy drives (e) adding CD drives (f) adding/enhancing the capacity of hard disc drive and (g) adding/enhancing the capacity of the display card on bought -out computer systems. A partnership firm namely "Consolidated Computer Services" (CCS, for short) was also engaged in similar activity since 1990. This firm was acquired by the company under a Deed of Acquisition dt. 2 -4 -2001. The firm had been clearing computers under their own brand -name viz. "SPACE". All rights of the firm (including the right to use the brand name) and liabilities stood transferred to the company under the above deed. In the impugned order, learned Commissioner treated the clearances made by the firm during August 1998 to March 2000 also as clearances of the company for the purpose of demanding duty. The case of the appellants is that the acquisition of the firm by the company was nullified in an arbitration order dt. 28 -8 -2003 and, therefore, the firm should have been treated as a separate entity for the purpose of demand of duty for the period August 1998 to March 2000. The SCN in this case was issued in September'03, after nullification of the above acquisition by the arbitrator. But, no notice was issued to the firm. On the substantive issue, it is the case of the appellants that none of the aforesaid activities, nor affixing of brand -name amounted to "manufacture" of a computer, in the absence of any Chapter Note or Section Note in the Tariff treating such activity as amounting to "manufacture". It is their case that the Board's Circular No. 454/20/99 -CX. dt. 12 -4 -99 had clarified this point and, therefore, it was not open to the Commissioner to treat the assessee's activities as amounting to "manufacture" of computers and not to treat the same as "trading activity". This case of the assessee has been reiterated by their Counsel. The demand of duty is also challenged on the ground of limitation. It is submitted that the assessee was under the bona fide belief that they were not required to pay duty on the activities performed by them on bought -out computers and components thereof.

(2.) LD . SDR on the other hand, submits that the Board's Circular did not pertain to brand -new computer systems. The assessee was engaged in purchasing such systems and upgrading the same and selling the same under a brand -name. Ld. SDR has reiterated other findings of the Commissioner also.

(3.) AFTER considering the submissions, prima facie, we are of the view that the Board's circular would encompass not only old and used computer systems but also obsolete computer systems which required upgradation and enhancement of value to attract customers. If, at the time when the Commissioner passed the impugned order, when the Commissioner passed the impugned order, 'Pentium III' represented the most advanced grade of a computer, an unused computer with 'Pentium I' or 'Pentium II' would not be of any demand in the market, not because it was old and used but because it was obsolete. Upgradation, thus, was required for such computers. This, prima facie, was the field of activities of the assessee. The view taken by the Board in the circular should have been taken cognizance of by the Commissioner and benefit thereof given to the assessee. The circular dated 12 -4 -99 was clarificatory and should have been given effect to for the previous period also. One reason stated by ld. Commissioner for not giving the benefit of the circular to the assessee is that they did not cite case law. We find that it was the definite case of the assessee that the Central Excise Tariff did not contain any material to suggest that any of the aforesaid activities amounted to "manufacture" of a computer. Statutory law was placed before learned Commissioner, but he was in search of case law. The plea of limitation also requires to be examined in view of the submission that the assessee had believed bona fide that their activities did not amount to "manufacture" for the purpose of levy of duty of excise on the computers assembled/upgraded/branded by them. It was also pointed out by them that neither any Section Note nor Chapter Note worked against them so as to disapprove the above plea. Though learned Commissioner asked for case law on the point, he did not find any case law to the contrary either. In the circumstances, the plea of limitation also seems to be forceful.