TMI Blog1987 (7) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... to 31-7-1978. The respondents in the reply urged that they were following the procedure prescribed by the Assistant Collector, Bombay for the movement of TOP imported by M/s. Voltas Ltd. There was no objection to such a procedure since 1968. They have been submitting the price list for the hermetic Stator/Rotor sets manufactured by them for supply to M/s. Voltas Ltd. exclusive of the value of TOP since this was an optional accessory and the price lists have been passed by the Excise authorities without objections. 3. The Assistant Collector in the Order-in-Original dated 13-3-1979 held that the cost of the TOP was not included in the Contract Price though they were normal prices under Section 4 of the Central Excises and Salt Act, 1944. The Adjudicating authority held that the TOPs were cleared duly fitted to the Hermetic Electric Motor and as such the assessable value of the Electric Motor would go up to the extent of the cost of the TOP. He confirmed the demand of differential duty. The respondents preferred an appeal and the Appellate Collector vide his Order dated 10-11-1981 held that the TOP was an additional device to cut off the current when it exceeded particular volta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessing charges alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of Section 4 of the Act. He also referred to 1986 (26) E.L.T. 284 (Tribunal) [Collector of Central Excise, Bhubaneshwar v. Orissa Concrete Products (P) Ltd.], where the Tribunal has held that :- The intrinsic value of the articles sought to be assessed should be taken into consideration irrespective of the fact that the manufacturer or the processor of the article did not pay for the cost of some of those components. 6. Shri A. Hidayatullah, Senior Counsel for the respondents argued that the manufacturer s pamphlet described the parts as device providing a range of protection from small room air conditioning compressors to 3-1/2 hp air-conditioning and heat pump units. In this pamphlet it is mentioned as follows :- These protectors are selected for use in a compressor by varying the disc and heater resistance and the disc temperature setting. The disc remains in a closed position during normal operation of a compressor and snaps open during overheating conditions such as running overload ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red parts or components of forklift trucks so as to justify their inclusion of their value in the assessable value of forklift trucks. In 1986 (8) ECR 25 (CEGAT) [Bridge and Roofs Co. (I) Ltd. v. Collector of Central Excise, Calcutta], the Tribunal has repelled the contention of the revenue to include the value of the wheel sets, coupler sets and axle boxes, supplied by the Railways for the manufacture of the wagons. The Tribunal observed as follows :- We are of the view that appellants have paid duty on the invoice value which does not include the value of the materials supplied by the railways free of cost. It was urged on behalf of the appellants that these parts were fitted to the wagons when they left the factory. The manufacture of the wagons was complete even without these fittings but these items were fixed with a view to afford greater efficiency to the manufactured product. There was no sale of these items by the appellants to the railways. These items were to be fixed even at the time of the manufacture and there is no proof that they could have been fitted subsequent to the manufacture. 8. Shri A. Hidayatullah referred to us to the Purchase Order of Voltas Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator can function even without these units. The TOP is thus a device to increase the effectiveness of the stator or rotor. In other words, it is an accessory and cannot be considered an integral part of the motor. If it is to be considered as an integral part, then it must of such an essential character that the motor could not function without these attachments. On the present facts, it is clear that the TOP is only an internal protector against overloading and is merely an accessory. Applying the ratio of ruling reported in the case of International Tractors, Jyoti Ltd., Baroda and Mahindra Mahindra, one can safely conclude that the TOPs are only accessories and their value cannot be added to the rotors or stators. 10. It is true that the intrinsic value of the articles should be taken into consideration for the purpose of assessment. But, the test would be whether the item concerned had become an integral part of the machinery. The facts of the present case show that these additional attachments are only for the purpose of improving the efficiency of the machines and would not become an intrinsic part of the same. The decision in 1986 (25) E.L.T. 556 (cited supra) has consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llector has held the demand to be time barred except for the period after 5-6-1978. The review show cause notice does not touch on this aspect. However, in that view taken by us on the main question, we held that the review notice is not justified. The appeal is dismissed and the review action is quashed. 13. [per : H.R. Syiem, Member (T)]. - In the Bombay Tyre International judgment 1983 E.L.T. 1896 the Supreme Court, dealing with the question, of what contributes to the assessable value of a product, observed at Paragraph 49 : Now the price of an article is related to its value (using this term in a general sense), and into that value have poured several components including those which have enriched its value and given to that article its marketability in the trade. Therefore, the expenses incurred on account of several factors which have contributed to its value up to the date of sale, which apparently would be the date of the delivery, are liable to be included. 14. Value is used in this sentence in the general sense and I understand this to mean that it is the value of the article rather than its cost, in terms of money, to the manufacturer. The assessees would say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verload protector is only an accessory and is not essential to the rotor/stator set. The motor assembled from the rotor/stator set can run perfectly well even if there were no overload protector in it. This is correct, but it does not answer the question that is raised here. 19. The printed paper of the KLIXON MOTOR PROTECTOR (of Texas Instruments Incorporated) which was read by the learned counsel emphasises at the number of places that the protectors were devices and they were only protectors. There is no disputing the fact that these protectors are devices; but when they are installed they are installed in such a way that they integrated fully and completely into the system winding, becoming part of the motor. The paper thus records KLIXON On-Winding Motor Protectors are linebreak, automatic reset devices wired in series with, and mounted on, the motor windings . 20. However and whatever the method of their installation, if the protectors are wired in series, they will inevitably form part of the circuit in the winding. Now without such integral and componential installation, it will not be possible for make-and-break action of the unit to operate whenever the load factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses, said that all expenses and components that have enriched the value of the article must have their expenses contribute to its value and that factors which have contributed to that value on the date of the delivery are-liable to be included in the assessable value. It is not just a value in term of monetary expenses: as specified in the Empire Industry judgment, it is the intrinsic value that must be counted. 24. I am led to my conclusion by these words of the Hon ble Supreme Court which show clearly how one should proceed in assessing the value of an article. Furthermore, I am also led to this conclusion by the thought that exclusion of the value of such so-called accessories would be a risk that the revenue cannot afford to run. For these reasons I respectfully differ from my learned brother and rule that overload protectors should have their values included in the assessable value of the rotor/stator set. But the six month bar will operate on the demand. 25. [Order per : S. Venkatesan, President]. - The two learned embers who heard the above appeal differed on the following point :- Whether in the facts and circumstances of the case the value of Thermal Overload Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case it had been done as per a special design of the customers, who had thus ordered a special type of motor. A motor with TOP fixed was not a normal or standard motor. 31. In para 10 of his order, Member Shri Santhanam, had observed that the TOP would not become an integral part of the machinery. This was not correct. By affixing the TOP, the character of the goods, namely the motors, had been changed. 32. The learned Member had observed that the ratio of the Supreme Court decision in the Bombay Tyres case would not apply, since. that case was in respect of post-manufacturing expenses. Smt. Zutshi, submitted that this observation was not correct. 33. In para 12 of his order Member Shri Santhanam had referred to the Tribunal s decision in the case of Machine Products (I) Ltd. (1983 ECR 1359 Cegat). The Tribunal had held that in the case there was no justification for including the value of the bought-out parts in the value of the machinery. That decision was not applicable to the present case, which was not one of upgradation. On the other hand, the case was covered by the Tribunal s decision in the case of Orissa Concrete Products (Para 4 supra) 34. Smt. Zutshi refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Para 9A in Member Shri Santhanam s order. (There are two Paragraphs Numbered as 9. For convenience, the second of these is referred to as Para 9A). It had been observed in this para that the rotor or stator could function even without the TOP. Accordingly, it was only an accessory. 42. Shri Hidyatullah referred to Para 21 of Shri Syiem s order wherein reference had been made to the consequences if the claim of the manufacturers were to be accepted. He submitted that the learned Member had adopted a wrong approach in the matter of interpretation. He should have considered what the correct interpretation was, without being swayed by its possible consequences. His reference to a voltage stabilizer had no relevance. Although the learned Member had accepted that the TOP was an accessory, and therefore should have allowed the appeal, he had come to the different decision on the basis of the consequences to the revenue. 43. Further, Shri Syiem s observations were contrary to the decisions of the Tribunal, thus, in Vardhaman Co. v. Collector of Central Excise [1984 (15) E.L.T. 426] it had been held that a stabilizer was an accessory and its value should be excluded from the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TOP could be anywhere on the finished article. He referred to one of the illustrations of the leaflet of the manufacturers, showing wound stators awaiting final electrical testing , where the TOPs could be seen projecting from the inside of the stator. 49. The learned Member had argued that one should see the article as it left the factory premises. This was contrary to the decision of the Bombay High Court in the case of International Tractor Co. of India Ltd., which had also been confirmed by the Division Bench [1977 E.L.T. 133 and 1985 (22) E.L.T. 780]. In Para 22 it had been observed that the real test would be to find out at what point of time the petitioners could be said to have manufactured a tractor with all its essential parts. It was at that point of time that it would be excisable to attract excise duty. Again, in Para 25 of the judgment it had been observed as follows :- Although it may be correct to say that the assessable value of a manufactured article is to be ascertained at the time of the article leaving the licensed premises, the excise duty could be levied only on the excisable goods, in this case a tractor . However, when it is admitted in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed by the two learned Members, and the arguments advanced from both sides. 56. To begin with, some minor points may be got out of the way. Shri Hidyatullah had argued that Member Shri Syiem had also accepted the view that the TOP was an accessory. This argument was based on Para 18 of Shri Syiem s order. A reading of that paragraph would however show that the learned Member s observation This is correct applied only to the argument that the motor could run perfectly well even if there were no overload protector in it. The learned Member has followed the above observation by adding but it does not answer the question that is raised here . To say that Member Shri Syiem had agreed that the TOP was an accessory requires drawing an inference from what he said, and not relying on what he actually said. 57. Shri Hidyatullah also found fault with Member Shri Syiem for taking into account the revenue implications of the view advanced by the appellant. I would agree that every case has to be decided according to law and not on the basis of the consequences to the revenue. It would however be clear from Para 24 of the order that Shri Syiem s conclusion was not dependent on the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a ceiling fan. While doing so the Andhra Pradesh High Court took note of, and differed from, the earlier decision of the Delhi High Court [1981 E.L.T. 284 (Del.)] to the effect that the special regulator was not an integral or indispensable part of the electric fan. It would not therefore be correct to assume, as Shri Hidyatullah would like the Bench to do, that the judicial decisions on this issue are all to one effect. 60. In my view, the present case raises a general question and a restricted question. The general question is whether and to what extent it is open to a manufacturer who puts a particular product into the market, to contend that certain of its parts should be ignored for the purpose of arriving at the assessable value of the product, on the ground that they are accessories and are not integral or essential to the main article. The restricted question, which might in itself be sufficient for deciding the present case, is whether the TOP could be considered as an accessory in the sense in which this term has been interpreted by the Courts. I shall deal with the general question first. 61. In Para 22 of his order Shri Syiem has taken the example of a moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is support in judicial decisions for the view I have expressed. Member Shri Syiem had placed reliance on the observations of the Supreme Court in Para 49 of its monumental judgment in the Bombay Tyre International case. Shri Hidyatullah had argued that the Bench was precluded from considering these observations as applicable to the present issue, in view of certain observations by another Bench in the case of Mac Neill and Magor Ltd. I shall come to that judgment later. But I would observe that the Bombay Tyre International judgment and the situation that led to it would have relevance to the present case, from a different angle. The Bombay Tyre International judgment had the effect of setting at rest a controversy which started as a result of certain observations of the Hon ble Supreme Court in the well-known Voltas case. Basically, what was decided in the Voltas case was that the Excise authorities were not entitled (where the transaction was at arm s length) to make an addition to the actual price to wholesalers on the ground that it was not a wholesale cash price . However, certain observations made by the Hon ble Supreme Court in the course of its judgment were invoked by as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir precise function, a motor car without those parts would not be a motor car as ordinarily known and accepted in the market. 66. The above view finds support even from some of the judgments on which reliance has been placed on behalf of the appellant. In the case of International Tractor Co. [1977 E.L.T. 133], the Court took this aspect into consideration. In Para 21 of the judgment reference has been made to affidavits of traders and purchasers. It has been observed that the two accessories in question were not essential parts of the tractor, nor would the people in the trade reject the same as a tractor without the said accessories or one of them being fitted to it (Emphasis added). 67. Again, in the judgment of the Gujarat High Court in the case of Jyoti Ltd., Baroda (1979 E.L.T. 546), stress was placed on the test of common parlance. The Court observed as follows :- 6. It is well settled law that in cases like the present one when questions of interpretation of items or entries in excise schedules arise, the test to be applied is the test of how it will be understood by those who are accustomed to deal with power driven pumps in their ordinary avocations. It is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tractor at the option of the purchaser subsequent to the tractor as such being manufactured by the petitioners. The reasoning of the Single Judge was upheld by a Division Bench on appeal in a brief judgment [1985 (22) E.L.T. 780 (Bom.)]. 72. In the case of Jyoti Ltd., Baroda v. Union of India and Another [1979 E.L.T. 546 (Guj.)], the Gujarat High Court considered a short but interesting question as to what is the meaning of the word pump occurring in Item 30A of the Schedule to the Central Excises and Salt Act, 1944. The petitioners were manufacturers of power-driven pumps. It was noted that what the petitioners manufactured and what was loosely called a pump, felt into three divisions, namely, the bowl assembly , column assembly and discharge head assembly . According to the Department, all the three assemblies were parts of the power-driven pump. According to the petitioners, only the bowl assembly which housed the impellers, comprised the power driven pump , and the column assembly, through which water or liquid would go up, and the discharge head assembly, through which water or liquid is discharged and passed on to the distribution system, were merely accessories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was the case of the Department that the goods fell under the residuary Tariff Item 68. Apparently, classification under Item 34A was more favourable to the petitioners than classification under Item 68. 74. The Court took into account the definition of accessories as followed by the Supreme Court in the case of Annapurna Carbon Industries Co. (Vide Para 47 supra). It held that the implements could be considered as accessories of agricultural tractors. In the result, the petition was allowed, the implements were held classifiable under Item 34A, and the Department directed to make the consequential refund. 75. It appears that in this case the implements were being cleared and sold separately from the tractors. Thus, no question as in the present case arose. Further, the question which did arise was not whether the implements should be classified as parts of tractors or accessories of tractors. The question was whether they were parts and accessories falling under T.I. 34A, or goods not elsewhere specified , falling under T.I. 68. Whether the implements were classified as tractor parts or as tractor accessories would have made no difference to the petitioners, but woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph 49, nor could the present Bench do so. 1 find it difficult to accept that we are so precluded. As already mentioned, the present issue was not examined on its merits in the Mac Neill Magor case. In fact, that case was about a totally different article. The observations made by the Bench with reference to Para 49 of the Supreme Court judgments in the Bombay Tyre International case, were only by way of additional support to the view already taken by it that the Department was not at liberty to agitate before the Bench an issue which was already settled. It does not appear that the observations made by the Bench in this context, which were not material to its decision in the case before it, should preclude us from considering the true effect of the observations of the Hon ble Supreme Court and their bearing on the case before us. 80. Reference was also made to the decision of the Tribunal in the case of Bridge and Roof Co. (I) Ltd. v. Collector of Central Excise, Calcutta [1986 (24) E.L.T. 671 = 1986 (8) ECR 25 CEGAT]. That was a case where the appellants manufactured structural fabrications and goods wagons out of raw materials supplied by other parties and paid duty only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in the assessable value. It is not, however, necessary to dwell on this aspect because Shri Hidyatullah understandably did not argue this point, but based himself entirely on the argument that the TOPs were only accessories (of Para 23 supra). 83. Shri Hidyatullah had also referred to the decision of the Tribunal in the case of Vardhman Spinning General Mills Ltd. v. Collector of Customs, Bombay [1984 (15) E.L.T. 426]. That was a customs case where the appellants imported various articles including a computer and a voltage stabilizer to be used with the computer. The Department contended that the voltage stabilizer and the computer were to be treated as one unit. The Tribunal rejected this argument. It held that the voltage stabilizer was an item of goods in its own right, and that it would not be appropriate to classify the same along with the computers with which it was to be worked. 84. This decision also does not have much relevance to the present case. It related to a question of classification under the Customs Act, and not to valuation under the Central Excises and Salt Act. Again, the article in question, the voltage stabilizer, was clearly separate from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, even if a different view were to be taken as regards the general question, it appears to me that the examination of the restricted question, that is, whether the TOP was an accessory or not as interpreted in judicial decisions, would lead to the same result. 90. There is no doubt that the function of the TOP is to protect the motor in the event of excessive temperatures and currents in the winding. The literature of the manufacturers, M/s Texas Instruments Incorporated, shows that the TOP is not a simple safety device like a fuse. According to the leaflet, as a result, you can choose a protector combination that will allow the motor to be safely rated to its maximum capacity. ......They (the TOPs) may also be used in commercial motors which must function in destructive environments such as chemicals, fuels and water . 91. It is clear from the above that by incorporating a TOP in the motor, its range of functioning is improved. Thus, instead of keeping a prudent margin of safety in giving the rating of a motor, the use of a properly chosen protector combination will allow the motor to be safely rated to its maximum capacity. The TOP not merely comes into play when the m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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