IMPORTANT POINT
Saleable and marketable equipment, even if used for captive consumption, are liable to excise duty.

JUDGMENT

Dr. Mukundakam Sharma, J. —

1. By this judgment and order we propose to dispose of the appeal which is filed by the appellant herein being aggrieved by the judgments and orders passed by the authorities including the Customs, Excise & Gold [Control] Appellate Tribunal [for short ‘CEGAT’] demanding duty of Rs. 4,92,566.28 from the appellant on the plant and machinery including testing equipments manufactured by them.

2. The appellant herein is a manufacturer of electronic transformers, semi-conductor devices and other electrical and electronics equipments. During the course of such manufacture the appellant also manufactured machinery in the nature of testing equipments to test the final products of the assessee company costing Rs. 31,27,405/- as per Note 6 of the Schedule ‘Q’ page 15 of the balance sheet for the year ending December, 1987. The aforesaid position was further reiterated in the Director’s report appearing at page no. 2 of the Annual Report for the year ending December, 1988.

3. A show cause notice was issued to the appellant directing them to show cause as to why central excise duty should not be levied on it along with interest and penalty. The appellant submitted its reply to the aforesaid show cause notice wherein they took a stand that no manufacture of plant and machinery of the nature alleged had taken place during the year to warrant levy of central excise duty. It was further stated that for research and development wing of the company and to carry out trials, experiments and for undertaking development job based on the latest technology available worldwide or through their own resources it had bought out items, parts, components, etc., and for that purpose such items were assembled in the factory. It was also stated that after research is so done, and if it was not successful, the same was disassembled. It was contended that the job that was carried out in that process was purely for research and developmental works and it was not manufacture of testing equipments. In the said reply it was also stated that project to develop the aforesaid testing equipment for use within the factory was undertaken to avoid importing of such equipment from the developed countries with a view to save foreign exchange but since the project failed, no serious effort had since been made to complete the manufacture of the said testing equipments. It was further contended that under Section 3 of the Central Excises and Salt Act, 1944 the imposition of excise duty is on the act of manufacture or production and when there is no manufacture or production, there cannot be any duty so leviable, particularly, when the aforesaid processed material was not marketable.

4. The Additional Collector, Central Excise under order-in-original No. 6/92-93 dated 27.5.1992 after consideration of the contentions confirmed the demand of duty amounting to Rs. 4,92,566.28 and imposed a penalty of Rs. 50,000/- holding that in view of the documentary evidence and the balance sheet it had been proved beyond doubt that they had manufactured plant and machinery/testing equipments worth Rs. 31.26 lacs. Being aggrieved by the said order, an appeal was filed before the Collector (Appeals), who dismissed the said appeal. Still aggrieved, the appellant filed an appeal before the CEGAT which was also rejected after hearing the counsel appearing for the parties and after extensively going through various facets arising in the case. Thereafter, the appellant has filed the present appeal on which we have heard the learned counsel appearing for the parties.

5. It was submitted by the counsel appearing for the appellant that the appellant have their own research and development wing in which trials and experiments are undertaken from time to time for the developmental jobs based on latest technology and that during the course of such trials and experiments they bought out various parts and components which were assembled by them and that after the research