MS Frame Parts, Tanks Built To Customer Drawings Not Articles of Iron & Steel; CESTAT Ahmedabad Sets Aside Excise Duty Demand

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that MS frame parts, gland plates and MS tanks manufactured as per buyer-specific drawings for use in transformers cannot be treated as general articles of iron and steel.

The Tribunal set aside the demand for differential excise duty of Rs.3.69 lakhs  raised against Gayatri Engineering, along with interest and penalty.

A coram of Judicial Member Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh examined whether MS frame parts, gland plates, and tanks manufactured strictly in accordance with drawings and specifications supplied by transformer manufacturers for specific capacities could be classified as articles of iron and steel under CTH 73269099 or as parts of transformers under CTH 85049010.

Gayatri Engineering was engaged in the manufacture of “MS frame part” and “tank” for transformers. The goods were produced as per drawings and specifications supplied by buyers and were cleared by classifying them under CTH 85049010, with excise duty paid at the applicable rate.

During audit, the department took the view that the goods were not fitted with any motor or mechanical/electrical devices and therefore were not classifiable as parts of electric transformers. It proposed classification under CTH 73269099 as articles of iron and steel attracting duty at 12%, and issued a show cause notice demanding differential duty of Rs. 3,69,311/- along with interest and penalty.

The Tribunal examined the purchase orders, drawings and certificates issued by buyers as well as the certificate dated 09.04.2018 issued by a Chartered Engineer. It noted that the buyers had certified that the MS tanks and accessories procured from the appellant were exclusively used in transformers and had no other use.

After considering the material on record, the bench observed:

“We therefore, are of the view that the goods manufactured by the appellant are parts of transformers and not the articles of iron and steel. The say of the appellant is also supported by the certificate given by both the buyers who have certified that the goods so procured from the appellant have been used in the manufacture of transformer and not elsewhere. The certificate given by the independent Chartered accountant reinforces the above.”

The tribunal held that the goods were correctly classified under CTH 85049010.

On limitation, the Bench further observed:

“we observe that the appellant has clearly shown in their ER-1 returns that they are clearing MS frame parts and MS tanks for transformer under CTH 85049010 and paid excise duty @ 10%. Therefore, manufacture of MS frame parts and MS tanks for transformer and it's clearance under CTH 85049010 was in the knowledge of the department right from the beginning and it was never questioned by the revenue authorities. During audit conducted during April to June, 2007, this point was raised by the officers which culminated in present demand.”

Holding that the classification adopted by the appellant was correct and that invocation of the extended period was not available to the revenue, the tribunal set aside the impugned order and allowed the appeal with consequential relief.

For Appellant: Advocate Devashish K Trivedi

For Respondent: Superintendent, A. R. Kanani