CCS INFOTECH LTD., M.A. HASAN Vs. CCE

JUDGEMENT

(1.) M /s. CCS Infotech Ltd. (appellants in Appeal No. E/872/2006) are aggrieved by a demand of duty of Rs. 5,07,24,688/ - and imposition of equal amount of penalty. Shri M.A. Hasan Abdul Kader and Shri H. Ratna Kumar (appellants in Appeal Nos. E/873 and 874/2006) are Directors of the said company and are aggrieved by imposition of penalties. They are also partners of a firm viz. Consolidated Computer Services [CCS for short]. The firm was constituted in the year 1993 and was engaged in trading and servicing of computers and peripherals thereof since then. M/s. CCS Infotech Ltd. [CCSIL for short] are a public limited company incorporated in the year 1997 with a Board of Directors including S/Shri Hasan Abdul Kader and Ratna Kumar. The company acquired the business of the firm under a Deed of Acquisition dated 2.4.2001, but this acquisition was nullified in an Arbitration Order dated 28.8.2003 which was not challenged by any of the parties. In the impugned order, learned Commissioner found that, during the period from August 1998 to March 2000, M/s.CCS clandestinely manufactured computers and cleared the same without payment of duty and that M/s. CCSIL also indulged in similar activity during the period from December 1999 to 19.7.2001 and accordingly liability for payment of duty of Rs. 1,80,90,358/ - and Rs. 3,26,34,330/ - was fixed on M/s. CCS and M/s. CCSIL respectively. However, the entire amount of duty totaling to Rs. 5,07,24,688/ - was demanded from the company. The proviso to Section 11A(1) of the Central Excise Act was invoked to demand this amount of duty from the company on the ground of 'wilful suppression of material facts with mala fide intention to evade duty'. Equal amount of penalty was imposed on the company on the same ground under Section 11AC of the act. The aforenamed Directors of the company were found to have rendered the goods liable for confiscation, by their "omissions and commissions in respect of the goods", and accordingly penalties were imposed on them under Rule 209A of the Central Excise Rules, 1944 / Rule 26 of the Central Excise (No. 2) Rules, 2001.

(2.) IN their appeal, the case of M/s. CCSIL is that (a) they have no liability to pay any duty of excise leviable from the firm which was a separate and independent entity, the acquisition of whose business by the company was nullified in arbitration proceedings; (b) the fixation of duty liability on the firm without issuing any show -cause notice to them is illegal; (c) they [CCSIL] did not 'manufacture' any computer during the period of dispute and were only engaged in trading activities; (d) the activity of upgrading a computer by enhancing memory or processing speed or enhancing the capacity of hard disc drive did not amount to manufacture under Section 2(f) of the Central Excise Act, nor did the activity of affixing brand name to such computer amount to 'manufacture' under the said provision of law, and the Commissioner's finding that they were engaged in the assembly of computers out of bought -out components is arbitrary and contrary to his own observations recorded in the impugned order; and (e) they had believed bona fide on the basis of the CBEC's Circular No. 454/20/99 -CX dated 12.4.99 that upgradation of computer was only a trading activity which did not amount to 'manufacture' under Section 2(f) of the Central Excise Act and therefore they were not liable to pay any duty of excise on the goods in question, and therefore the larger period of limitation was not liable to be invoked against them. Learned Counsel for the appellants has reiterated these contentions.

(3.) LEARNED SDR has filed written submissions on behalf of the respondent, wherein it is stated that all second sales of computers by the company and the firm were excluded from demand of duty and that the demand is only on computer systems assembled out of bought -out components and cleared by the company and the firm. The written submissions contain references to Order Notebook, System Inward Register or Installation Register, Customer Call Report, Stock Journal Register, Job Card etc., and claim that these documents conclusively prove assembly of computers by M/s. CCSIL. It is also claimed that the printouts taken from the CPUs of the company corroborate other documentary evidence against the company. These written submissions are accompanied by 2 annexures, "ANNEXURE - F" [EVIDENCES FOR CLEARANCE OF COMPUTER SYSTEMS AS AVAILABLE IN DOCUMENTS RECOVERED FROM M/S. CCSIL] and "ANNEXURE: S -I" [DETAILS OF COMPUTER PERIPHERALS PURCHASED BY CCS/CCSIL]. Learned SDR has submitted that the computer systems specified in ANNEXURE - F were assembled out of the components mentioned in ANNEXURE -S -I. Referring to the Board's Circular relied on by learned Counsel, learned SDR has submitted that that circular is applicable only to old and used computer systems and not applicable to new computer systems like the ones manufactured and cleared by the appellants. In this connection, she has also contested the appellant's plea of bona fide belief.