Pranav B Prem

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi Bench, comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), has held that industrial sewing machines equipped with in-built motors are not eligible for excise duty exemption under Notification No. 6/2006-CE dated 1.3.2006 (S. No. 15) and its successor Notification No. 1/2011-CE dated 1.3.2011 (S. No. 97). The Tribunal clarified that the exemption applies only to sewing machines without in-built motors, and the mechanism of power transmission—whether by belt or shaft—does not alter the classification or eligibility for exemption.

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Background

The appeal was filed by M/s Swarup Mechanical Works (Unit 1), Ludhiana, challenging an order by the Additional Director General (Adjudication), Directorate General of GST Intelligence, New Delhi, which confirmed a demand of ₹8.48 crore in excise duty under Section 11A of the Central Excise Act, 1944, along with an equal penalty under Section 11AC. The dispute centered on whether industrial sewing machines manufactured by the appellant—used for stitching bags and fitted with electric motors—were entitled to the excise duty exemption applicable to “sewing machines other than those with in-built motors.” The appellant argued that while the machines had motors attached, they could not be deemed “in-built” because the power was transmitted through a belt and pulley mechanism, not directly via a shaft. Therefore, it claimed eligibility for exemption under the said notifications.

Tribunal’s Findings

The Bench observed that the notifications provide exemption only for sewing machines without in-built motors, and do not specify any particular method of power transmission. “The notification does not stipulate any particular mechanism of transmission of power from the motor to the sewing mechanism. So long as there is an in-built motor in the sewing machine, it is not eligible for exemption, and if there is no in-built motor, it is eligible for exemption,” the Tribunal held.

The Tribunal emphasized that the ordinary meaning of “in-built” refers to a component that forms an integral part of the final product. Quoting the Oxford Advanced Learner’s Dictionary, it noted that “in-built” means “included as part of something and not separate from it.” “Each sewing machine of the appellant had a motor within it and the motor, the sewing mechanism as well as the belt and pulley were all cased in a housing within the sewing machine. Anyone buying the sewing machine would buy it as one with an in-built motor,” the Bench said. The Tribunal distinguished the appellant’s reliance on prior rulings, such as Collector of Central Excise v. ALCO Industries and Singer India Ltd. v. CCE, Delhi-I, noting that those cases involved machines sold without motors, which were later attached externally. The Bench instead followed the precedent set in Gabbar Engineering Co. v. CCE, Ahmedabad, where it was held that machines fitted with motors, pulleys, and belts as integral components are not eligible for exemption.

Other Issues

On the issue of the “suspension unit with hook”, which the appellant claimed as a part of the sewing machine, the Tribunal rejected the argument, holding that it was an optional accessory and not an integral part of the machine. “By no stretch of imagination can this be called a part of the sewing machine. It is an optional accessory available to those who want to buy it,” the Bench clarified. Regarding the extended period of limitation, the Tribunal held that there was no evidence of suppression or wilful misstatement to justify invocation of the extended period. The appellant had been filing its excise returns regularly, and any delay in detection was attributable to departmental inaction rather than any deliberate concealment. “None of the elements necessary to invoke the extended period of limitation was present in this case. Therefore, the demand for the extended period deserves to be set aside,” the Bench ruled. Since the penalty under Section 11AC was based on the same grounds as the extended limitation, it was also set aside.

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The Tribunal partly allowed the appeal, holding that excise duty exemption was not available for industrial sewing machines with in-built motors but set aside the demand for the extended period of limitation and penalty under Section 11AC.

Appearance

Shri R.K. Hasija, Advocate for the appellant.

Shri Rakesh Agarwal, Authorized Representative for the Department

Cause Title: M/s Swarup Mechanical Works (Unit 1) v. Additional Director General (Adj.), Director General of GST Intelligence

Case No: Excise Appeal No. 52049 Of 2022

Coram: Justice Dilip Gupta (President), P.V. Subba Rao (Technical Member)