TMI Blog2011 (6) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... of excise duty and further the value of bought out items has to be added. As regards subsequent to 1-7-2000 assessment has to be based on transaction value. In this case the value has been brought down by the method adopted by the appellant by which they have been supplying bought out items separately under a separate invoice. Since the value of the complete centrifugal machine erected at site has to be arrived at it becomes necessary to add the value of bought out items charged by the appellant to their customer to the value of centrifugal machine. We find that observation of learned Commissioner that the conditions in the purchase order clearly suggested that in addition to the centrifugal machine, the appellant was responsible for specification of the control panel and the electric motor which were supplied with the centrifugal machine. Further the appellant was to give guarantee for the performance of the electric motor and the control panel. As already observed by us, the appellant was also required to ensure that the warranty for items supplied with the centrifugal machine is co-terminus with the warranty for the centrifugal machine. In view of the observations made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. May 2005 to March 2006 35/CEX/07, dated 31-3-2008 PIII/243/08 dated 24-12-2008 3,56,978 4,20,980 6. March 2007 to Feb. 2008 11/CEX/09-10, dated 3-11-2009 89,68,079 89,68,079 2. The brief facts of the case are as follows : 2.1 The appellants are engaged in the manufacture of Electric Centrifugal Machines falling under Chapter 84 of the Central Excise Tariff Act, 1985 since 1960. The Centrifugal Machines are of two types (a) Recycling Batch machines and (b) Continuous Centrifugal Machines. The Centrifugal Machines operate on the principle of centrifugal force i.e. force due to rotation. One of the main applications of the said machine is to separate the fluids from solid. The said machines are used in sugar industries to separate molasses from sugar from the mixtures (massecuite). The power for operating the said machines can be either electric power or hydraulic power or pneumatic power or it can also be operated manually. 2.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty was also imposed. 5. Heard both the sides. 6. The learned counsel on behalf of the appellants made detailed submissions and after hearing both the sides, the Bench had directed the appellants to make written submissions. Accordingly, written submissions have been filed by the appellants which is reproduced below : 6.1 The admitted factual position in this case is that the centrifugal machines manufactured and cleared by the appellants are complete in all respects when they are cleared from their factory. The centrifugal machines manufactured and cleared by the appellants are tested for its technical performance for dry run at the appellants factory and the same are sent to the site for installation. The bought out items are not manufactured by the appellants. The suppliers of such goods have manufactured and cleared the said bought out items on payment of central excise duty. Excise duty is a tax on manufacture. Once the appellants have not manufactured the bought out items, no duty can be demanded on such goods. In Electronics Corporation of India Ltd. - 2004 (167) E.L.T. 420 (T), this Tribunal held that excise being a levy on manufacture, duty liability will be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chines manufactured by the appellants. This fact is also not in dispute. Hence, the value of bought out items (electric motor and control panel) cannot be included in the assessable value of the centrifugal machines. 6.4 The main plank of attack in the instant case against the appellants is that the electric motors and control panel are necessary to make the centrifugal machines functional. The finding against the appellants is that centrifugal machines cannot be functional without the electric motor and control panel. The centrifugal machine is complete only with the electric motor and control panel. According to the Revenue, unless the drive is given in the form of electric motor, the Centrifugal Machines is a non-functional unit. According to the Revenue, centrifugal machines are not functionally complete without electric motor and control panel and hence, the value of the electric motor and control panel has to be included in the assessable value of the machine. There is no substance in this case of the Revenue. 6.5 There is absolutely no basis or evidence placed on record by the department to show that the bought out items are essential part of centrifugal machine manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht out items. The Commissioner does not hold that the said decision is not applicable in the facts of the present case. The ld. Commissioner chooses not to follow this decision solely on the ground that appeal filed by the Revenue before the Supreme Court is pending. This cannot be a valid reason for not following a binding precedent. 6.9 In CCE v. Kishor Pumps Pvt. Ltd. - 1997 (91) E.L.T. 91 (T), this Tribunal dealt with an identical issue. In that case, the assessee was engaged in the manufacture of Power-driven pumps and Agitators (PD Pumps). The assessee was also supplying electric motors along with PD Pumps. The issue under consideration was whether the value of electric motors was includible in the assessable value of Agitators and PD Pumps. Electric Motors were supplied along with Agitators or PD Pumps only at the request of buyers. The assessee was also clearing Agitators and PD Pumps without Electric Motors in cases where buyers did not require the latter. The Tribunal held that Electric Motor cannot be regarded as a component or integral part of a pump. The Tribunal also took note of the fact that without electric power a pump cannot be operated (barring cases of small ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the value of the goods cleared from the factory. 6.13 The above view is supported by decision of the Bombay High Court in the case of Reliance Textile Industries Ltd. v. Union of India - 1993 (63) E.L.T. 67 (Bom.), para 7 thereof. 6.14 A clarification to similar effect has been issued by the C. B. E. C. vide Circular No. 139/08/2000, dated 3-1-2001. 6.15 The above legal position has not been altered by the amendment made to Section 4 of the Central Excise Act with effect from 1-7-2000. Even under the transaction value era, the goods manufactured and cleared from the factory, which are the subject matter of assessment, have to be looked into. Goods not manufactured but purchased and sold cannot be subject to central excise duty. The Revenue cannot tax the trading margin of manufacturer-cum-trader by including the value of the traded goods in the value of the manufactured goods. 6.16 In any event, the centrifugal machine after they are erected at site and connected with the motors and control panel becomes immovable property. Therefore, if the contention of the department that the electric motors, control panels, etc., are parts of centrifugal machine is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed and Massecuite condition 2117 2000 HP-700 700 1220x762 16 to 18 2117 2000 V-1000 1000 1250x1000 18 to 20 2360 2000 V-1250 1250 1350x1000 18 to 20 2360 2100 V-1500 1500 1395x1100 18 to 20 2450 2150 V-1750 1750 1500x1150 18 to 20 2450 2150 6.19 As can be seen from the above that each machine carries different charge per cycle and accordingly, the number of cycles varies. This is precisely the performance guarantee referred to in clause (5) above. Thus, it is clear that the performance guarantee is for the centrifugal machine only. 6.20 Secondly, assuming it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case, the electric motors, control panels, etc., are not cleared from the factory of the appellants along with the centrifugal machine. Further, the motors and control panels are of standard size. The said goods are not made to order or specifications. Hence, the facts of the present case are distinguishable from the facts of that case. 6.24 Similarly, the reliance placed on the decision of the Supreme Court in the case of MIL India Ltd. - 2007 (210) E.L.T. 188 (S.C.) is of no help to the Revenue. In that case, the Supreme Court held that whether value of bought out items would be included in assessable value would depend on the facts of each case. In the undisputed facts of the present case, as already shown above, the value of the electric motor, control panels, etc., is not includible in the assessable value of the centrifugal machine. 6.25 In any event, credit of duty paid on the bought out items needs to be adjusted against the duty demand in the present case and re-computed after allowing Cenvat credit. This benefit has been extended to the appellants by the Commissioner himself vide order of 18-12-1989 which has not been challenged by the Revenue. 6.26 The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal dated 3-11-2009 and submitted that the Commissioner has considered all aspects of the matter in her order and therefore the order has to be sustained. 8. We have considered the submissions made by both the sides and also have gone through the various records and the documents filed to us. 9.1 The first submission made by the appellant was that duty liability has to be restricted to the goods manufactured by an assessee and not the goods supplied by the assessee. The appellants relied upon the decision of the Tribunal in the case of Electronics Corporation of India Ltd. in this regard. In MIL India case, the Hon ble Supreme Court considered the issue as to whether the value of bought out items are to be included in the soaps/detergents and allied industries plant which was manufactured by MIL India Ltd. The Tribunal had taken the view that the department was not entitled to add the value of the bought out items in the assessable value of the goods manufactured by the appellants and allowed the appeal. In that case also, the bought out items were directly sent to the site and were never received in the factory premises of the appellants. In fact the fatty acids plant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime was consumed on issues which had no relevance to taxability of the goods. In the circumstances we reduce the demand from ₹ 94,03,500 to ₹ 23,56,000 which shall be paid within eight weeks failing which department would be entitled to levy interest at 9% p.a. 9.2. As can be seen from the above, the Hon ble Supreme Court took note of the fact that the appellant had a composite contract by which manufacturer have agreed to supply the equipment but also agreed to provide datawise information. The Hon ble Supreme Court observed that the erection of a plant by assembling certain items at site could constitute manufacture under the excise law. The above decision of the Hon ble Supreme Court would require us to have a look at the type of the contract, the process of manufacture and consider whether value of bought out parts have to be included or not. It has to be taken note of that nowhere in the decision of the Hon ble Supreme Court the necessity or the essentiality of the component or item has been discussed. The one aspect that emerges very clearly from the decision of the Supreme Court is that fact as to whether a particular bought out item was manufactured or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrol panel. The noticee have also mentioned that before dispatch of the centrifugal machine from their factory the same is tested without load. For such testing motor and control panel are necessary. In any case either at factory testing or for functioning at site the centrifugal machine requires electric motor and control panel. There is no doubt whatsoever that the centrifugal machine is complete without the prime mover (in the form of electric motor or otherwise) and a control mechanism (in the form of control panel) to control the prime mover for varying load condition on the centrifugal machine. Unless the drive is given in the form of electric motor the centrifugal machine is non-functional unit. To control the output of the motor as per the varying load conditions of the centrifugal machine, control panel is required. If the electric motor and control panel are not essential and integral parts of the centrifugal machine, then why the customers are placing order for supply of such motor and control panel to suit operation of the centrifugal machine and why the noticee is supplying them is not answered by the noticee. Hence I observe that the centrifugal machine is functional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase order/contract submitted by the appellants is that of L.H. Sugar Factories Ltd. dated 30-3-1994. This contract is also for supply of one Centrifugal machine without Bharat Bijlee make electric motor drive system thyrister control panel, push bottom station, electronic console, hydraulic power pack, cables, etc. It is strange that the contract is made specifically for supply without Bharat Bijalee make electric motor drive system thyrister control panel, push bottom station, electronic console, hydraulic power pack, cables, etc. Normally one would except the purchaser to say he wants it without a motor. The warranty in this case is for machine and accessories for 12 months from the date of commissioning. One would imagine that accessories would include items like electronic console, hydraulic power pack, push bottom station, etc., for which no order has been placed with the appellant. The purchase order does not specify which are the accessories for which warranty is required. Further the purchaser also requires the appellant to guarantee for the quality of machinery and for its performance as mentioned in the technical specifications. 13. The next contract that we have see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he centrifugal machine is co-terminus with the warranty for the centrifugal machine. 16. The study and grievance of various purchase orders available to us on record shows that whenever electric motors control panels, etc., were supplied by the appellants themselves, they have undertaken to ensure that those items are according to the requirements, will perform satisfactorily, their equipment will perform satisfactorily, the warranty for those purchased items are co-terminus with the warranty for the equipments supplied by them and they have also given performance guarantee. In the case of purchase orders where electric motor, etc., are not supplied by them, the guarantee is limited to the equipment supplied by them and they are not required to provide any warranty for the performance of electric motor, control panel, etc. 17. A dry run is conducted in the factory of manufacture using a standard electric motor and electric panel before supply would show that centrifugal machine is assembled in the factory and tested. Thereafter the same is disassembled and supplied. While supplying the centrifugal machine in disassembled form, naturally the electric motor, electric panel woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve cited the example of typewriter ribbon in the case of Kores India Ltd. we don t think the case of the typewriter ribbon is applicable to the present one. A typewriter ribbon is a consumable and it has to be kept on being replaced unlike electric motor and electric panel in this case. Similarly, the decision of the Hon ble Bombay High Court in the case of Koron Business systems Ltd. cited by the appellant is also of no help to them. Admittedly photoconductive plates are also consumables and after taking a few photographs they have to be changed and they are similar to typewriter ribbons. However another decision relied upon by the learned Commissioner in her order is applicable to the present case. That is the decision of Bombay High Court in the case of Koron Business System Ltd. - 1992 (58) E.L.T. 48 (Bom.). In that decision the Hon ble High Court considered the includibility of the value of bought out items like timer and the lens for the camera used in the photocopier and held that the same are includible. The Hon ble Supreme Court also had considered the issue of inclusion of value of plates and black shield in the value of photocopying machine and held that the same are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and machinery erected at site or not and it has to be decided on the basis of facts and circumstances of each case. This is the reason why we have proceeded to examine different purchase orders made available in the records by the Revenue as well as the appellants. 22. As regards the submission that department has not produced any evidence to show that the centrifugal machine is complete without the electric motor and control panel, we find that the very process of manufacture, supply and the process of fulfilment of purchase orders shows that the centrifugal machine is assembled in the factory, tested with an electric motor and electric panel, disassembled and afterwards supplied. This process itself shows that electric centrifugal machine is incomplete without electric motor and control panel. Whether it is supplied with electric motor and control panel or without them, the assessment has to be treating the same as centrifugal machine. As regards valuation, we have to depend upon the provisions of Section 4 of Central Excise Act, 1944 and the fact that centrifugal machine is incomplete or complete with the electric motor and panel does not help the appellant. This is cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the warranty should be co-terminus in one of the contracts goes against the appellants. 25. The submission that the reliance of learned DR on the decision of the Tribunal in the case of Peterplast Synthetics Private Limited is not appropriate also cannot be accepted. In this case we have already noticed that without electric motor and control panel centrifugal machines cannot work and even within the factory, the dry run is conducted by using electric motor and electric panel. Therefore, the decision of the Peterplast Synthetics Private Limited case squarely applies. 26. The dispute involved in this case covers the period prior to 1-7-2000 and subsequent to 1-7-2000, 1-7-2000 being the date on which the new Section 4 came into existence. 27. For the period earlier to 1-7-2000, valuation has to be done as per Section 4 as it existed during the relevant time. According to Section 4 during the relevant time, when duty was to be calculated with reference to value, such value was deemed to be the normal price. During the relevant time therefore the value was a deemed value and the normal price which was the price at which goods or article was sold in the course of wholesale tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court taking facts and circumstances into account. 30. The claim of the appellant for the benefit of treatment of amount realized as cum-duty amount also needs to be considered favourably. 31. We agree with the submissions of the learned counsel that no penalty is imposable on the appellants. In fact the very first order dated 18-12-1989 had taken the view that no penalty was imposable and extended period was not invocable. In this case the dispute was a continuing dispute and therefore we do not consider it appropriate that penalty should be upheld. In view of the fact that it was a question of interpretation of law and there was an ongoing dispute, we set aside the penalties imposed on the appellants in various orders challenged before us. 32. In view of the observations made by us that the cum-duty benefit has to be extended and while calculating differential duty, duty paid on bought out material supplied has to be adjusted, the matter is required to be remanded to the original adjudicating authority once again for this limited purpose of re-computation of differential duty after taking into account the duty paid on bought out items and treating the value as cum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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