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TMI Blog1993 (12) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... om their customers on separate invoices. The assessee were availing of the benefit of Notification No. 120/75-C.E., dated 30-4-1975. The provisions of the said notification were applicable only when the goods were cleared from the place of removal on sale, and it was provided in that notification that the Central Excise duty was to be calculated on all the charges recovered on the invoices, except duty and taxes. It was mentioned in those show cause notices that the designing and engineering, erection and commissioning charges etc. were the charges which constituted the value of the products under consideration, and were assessable to Central Excise duty. Central Excise duty amounting to Rs. 1,14,990.71 was demanded vide these notices. 3. The Assistant Collector of Central Excise, Pune, who adjudicated these show cause notices observed under his separate orders dated 3-5-1985, 17-5-1985 and 1-6-1985 that the goods under consideration could not be called as immovable and fixed to the earth; the expenditure on designing and engineering charges were the expenditure incurred on the goods produced and were part and parcel of the value of these goods. As regards erection and commissioni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee had filed memorandum of Cross Objections under Section 35B of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act'), praying as under :- (1) The order holding erection/installation/commissioning charges relating to the activities at site excludible from the assessable value, be upheld as correct; and (2) The designing and engineering charges being relatable to erection and installation at site, the question of determination of duty liability thereof, did not arise. They prayed that the order of the Collector, Central Excise (Appeals) requiring the Assistant Collector, Central Excise to redetermine the duty liability on this account be set aside. They submitted that the drawing/designing/engineering charges did not relate to product manufacturing or erection at site. (3) The duty on the plant erected at site was not payable if they were fixed to the ground as a permanent fixture, and was not ordinarily intended to be removed from the place of installation; and (4) The demand was time-barred as copies of all invoices and the contracts were made available to the department. 7. As regards the appeal filed by the assessee, it may be mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 12-8-1987 wherein the details of the design and engineering charges charged for these years had been given. 9. The Collector, Central Excise, Pune analysed the show cause notice dated 4-8-1987, and the assessee's reply dated 31-12-1987 in detail, and came to the following findings :- (1) the assessee manufactures complete boiler equipment, process heat equipment etc. (Para 1.3); (2) the assessee negotiates with their customers usually on complete contract and not on the basis of itemwise prices (Para 1.3); (3) the itemwise prices were determined by the assessee to derive maximum tax benefits out of contract prices (Para 1.3); (4) Industrial boilers and allied process heat equipment were manufactured in the assessee's factory (Para 1.12); (5) Drawing and designing charges recovered by Thermax Pvt. Ltd. were only for the boilers (Para 1.13); (6) Spliting up the value on drawing, designing, engineering charges, technical service charges, including commissioning charges with reference to bought out items, and factory-made components, did not arise (Para 1.13); (7) Assessee had not declared and disclosed the facts relating to the various charges, and thus it is a case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as regards technical services and training charges were concerned, the Collector had already dropped the charges. In support of his arguments, the learned Advocate relied upon the decision in the case of Collector, Central Excise v. Intercon Engineers Pvt. Ltd., 1987 (28) E.L.T. 458 (Tribunal), wherein it has been observed that the erection and service charges realised by the respondents for installation and maintenance of the machinery at the customer's premises, are not includible in the assessable value of the machinery. 14. The learned Advocate submitted that they were working under invoice value assessment when the goods were falling under Item No. 68 of the old Tariff, and were availing of the exemption under Notification No. 120/75-C.E., dated 30-4-1975. The department was aware of their activities and the system of their payments. The copies of the contracts had also been given to the department. In the circumstances, the extended period of limitation was not invokable. In this regard, reliance was placed on the following decisions :- (1) Andhra Pradesh State Electricity Board v. Collector, Central Excise -1988 (35) E.L.T. 199 (Tribunal) - Limitation to count from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) = 1987 (13) ECR 1044 (Tribunal); (4) Nima Ltd. v. Collector, Central Excise, 1989 (21) ECR 94 (Tribunal) Para 5 - Sliding Storage System fabricated in a factory and installed at site are not immovables. They are goods; (5) Anil Ice Factory v. Union of India, 1984 (15) E.L.T. 333 (Gujarat) - Para 2 - Constructing a manufacturing unit by purchasing different duty-paid parts or other material, would amount to manufacture. 17. As regards designing and engineering charges, the learned SDR referred to the following decisions :- (1) Collector, Central Excise v. Sunray Computers Pvt. Ltd., 1988 (33) E.L.T. 787 (Tribunal) - para 3; (2) I.A.E.C. Bakers Pvt. Ltd. v. Collector, Central Excise, 1990 (48) E.L.T. 388; (3) Collector, Central Excise v. Wipro Information Technology Ltd., 1989 (39) E.L.T. 113 (Tribunal) - Technical service charges separately recovered by the assessee from their customers but not declared to the department, were a part of cum-duty price of the computers; (4) Til Ltd. v. Collector, Central Excise, 1991 (52) E.L.T. 602 (Tribunal) - Relied upon the decisions in the cases of Collector of Central Excise, Bangalore v. Intercon Engineers Pvt. Ltd., 1987 (28) E.L.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree Engineering Company Pvt. Ltd. v. Collector, Central Excise, 1989 (39) E.L.T. 449 (Tribunal) - When there was mis-description of the goods, the intention could only be to suppress information about the correct nature and description of the goods from the department with a view to avoid proper classification and evade payment of duty at the correct rate. It was of no avail that during the period, visits were being paid by the Central Excise officers and that they were aware of the production of the goods in question and that they were a party to their incorrect classification; (3) Jaisliree Engineering Company Pvt. Ltd. v. Collector, Central Excise, 1989 (40) E.L.T. 214 (S.C.) - Whether there was any fraud, collusion, wilful misstatement or suppression of facts for the department to be justified to claim duty beyond a period of 6 months, was a question of fact. The fact that the department visited the factory of the appellant and they should have been aware of the production of the goods in question were no reason for the appellant not to truly and properly describe the goods. Penalty was imposable if there was deliberate suppression or wrong statement; (4) British India Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing process. These preparatory steps were necessary to fit in the goods produced with the requirements to be made for their use. It is why before negotiating the price of the total supplies, the appellants had to take into account various factors including those relating to customers' site, nature/requirements of the jobs to be undertaken etc. (Para 3 of the memo of appeal). While calculating the figure for the factory-made goods, raw material cost, conversion costs including the drawing, designing and engineering for the manufacture of goods in their factory, were taken into account (Para 5). These activities were undertaken with reference to the goods produced, and the relevancy of the site was only to the extent that the goods were not the ordinary consumer goods but highly sophisticated engineering products with modern technological inputs, and were to be used at a place outside the place of production. In the nature of things, the job of the manufacturer was over only after the property in the goods was finally handed over to the customers, and the unit started working to their satisfaction. Although the goods were inspected by the representatives of the customers in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that this plea is devoid of any merit. The Collector has discussed this point in paras 1.19 and 1.20 of his order. Further, we find that in the case of UP Lamination v. Collector, Central Excise, 1988 (35) E.L.T. 398 (Tribunal), the matter has been discussed by the Tribunal and in para 13 of their order they had held that the Collector was competent to exercise the powers of the Assistant Collector and to adjudicate. Para 13 is extracted below :- ****** 27.1 A point has been made that since the price lists were approved finally after filing the copies of the contracts, the provisions of Section 11A of the Act could not have been invoked. This point has been discussed by the Gujarat High Court in the case of Alembic Glass Industries Ltd. v. Union of India, 1992 (59) E.L.T. 207 (Gujarat), wherein it has been held in paras 23, 24, 25 and 26 that price lists approved can be re-opened under Section 11A of the Act in case of short levy, non-levy or erroneous refund, and that it was neither necessary nor practical to have the price lists approval set aside in appeal or revision first. 27.2 It has been submitted that the demand of duty was time-barred as earlier show cause notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investigation, second show cause notice was not barred by res judicata. In any case, the impugned order in appeal and the 3 show cause notices out of which the 3 appeals by revenue had originated, are open for decision by us. 27.4 In para III.4 of their reply, they had stated that "Many times, the execution of the contract may extend even for 2 years or even more." In view of this position, obviously the initial assessments could not be termed as final. In this connection, the procedure as outlined by the Collector in para 1.4 of his Order-in-Original had to be followed, and was not followed. 27.5 In the case of Vinod Paper Mills Ltd. v. Collector of Central Excise -1989 (39) E.L.T. 105 (Tribunal) = 1988 (19) ECR 275 (Tribunal), it has been held that when total sale value was not disclosed to the department, extended period of limitation was applicable (Para 8). 27.6 In case of UP Lamination v. Collector, Central Excise, 1988 (35) E.L.T. 398 (Tribunal) in para 15 of their order, the Tribunal have held that extended limit of 5 years was invokable when suppression of facts was established. Visits of excise officers to manufacturer's factory would not absolve the manufacturer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been mentioned against inspection as under :- "The unit will be offered for visual inspection at our works prior to despatch at an mutually agreed date." "We shall offer the unit for visual inspection dimensional check to your representative at our factory prior to despatch. The performance test of your boiler will be given at the actual site after commissioning of the boiler." 29.2 In para VI.3.18 of their reply, they had admitted that the boiler equipment is cleared by them in CKD (Completely Knocked Down) condition. 29.3 Thus, the contention that they were not assembling the boilers is negatived by their own orders/submissions. 30. In the grounds of appeal, the question regarding applicability or otherwise of Notification No. 120/75-C.E. has not been specifically raised. In any case, as there was no outright sale of goods at the point of removal from the factory, the provisions of Notification No. 120/75-C.E. were not applicable, and the value was required to be determined under Section 4 of the Act after following the procedure as applicable for contract prices in respect of the goods which are supplied over a period of time. In this connection, they had quoted in para VI. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x were in different models, operated on coal/oil/lignite/husk etc., and were supplied with various ancil-laries/accessories and auxiliaries. M/s. Thermax Pvt. Ltd. also supplied water softners, chemical solution, doser pressurised economiser etc. The scope of their supplies included main boiler, ancillaries, soft water service tank, booster pump, bracets and structures for water line, refractory piping and duct work, mountings and fittings, instruments, controls and safties, chemicals feed water treatment etc. 33.5 The terms and conditions of the orders placed by the customers on M/s. Thermax Pvt. Ltd., read as a whole, indubitably lead to the conclusion that what the customers were interested in was the purchase of boilers and other related equipment, and what M/s. Thermax were concerned with was the manufacture and sale of boilers and other related equipment. The boilers had to be manufactured and installed keeping in view the safety aspect. The Indian Boilers Act, 1923 provides mainly for the safety of life and property of persons from the dangers of explosion, prevention of accidents and the achievement of uniformity of practice in regard to the operation, inspection and maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that it was not possible to manufacture a machine without doing drawing, designing and technical specification work for it in advance. They held that "drawing and designing is actually the first stage of manufacture itself. It is at this stage that the manufacturer plans as to what exactly he is going to manufacture." 33.11 In the case of Collector, Central Excise v. Sunray Computers Pvt. Ltd., 1988 (33) E.L.T. 787, the Tribunal had observed that pre-manufacturing research, planning and designing are directly connected with the manufacture of the goods and form a part of the manufacturing cost. 33.12 In the case of IAEC Bakers Pvt. Ltd. v. Collector, Central Excise -1990 (48) E.L.T. 388 (Tribunal), the Tribunal had observed that if "any cost relating to drawing, designing and technical specification of the boilers is included in the contract price, the same would form part of the assessable value of the boilers". It was also observed that "if any materials required for erection of the boilers at the site of the customer were manufactured by the appellants in their factory, duty on the value of the same at the rates prevailing on the dates of clearances from the factory is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bled, manufactured and installed only in the workshop. To the shop, the order had been placed for designing, manufacturing, assembling and supplying the cranes with all structurals and mechanical components. The Patna High Court observed that a crane is a distinct identifiable object in the commercial world and that large equipments are always supplied to buyers in knocked down condition and that the supply in that condition does not mean that no excisable article has come into existence. As regards the plea that no crane could work without a gantry, the High Court observed that gantry is no part of a crane. 35.3 In the case of Paharpur Cooling Towers Pvt. Ltd. v. Collector, Central Excise, 1986 (24) E.L.T. 611 (Tri) = 1987 (13) ECR 1044 (Tribunal), it has been held that industrial fans fixed to the ground are not immovables and are excisable since they are marketable and capable of being dismantled and are identifiable as fans even in a CKD condition. It has also been held that assessable value of industrial fans has to include the value of gears which are important components. 35.4 In the case of Kirloskar Brothers v. Union of India, 1992 (59) E.L.T. 3 (S.C.) = 1992 AIR SCW 132 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. 36.2 The assessees have pleaded "that the services rendered and relatable to erection and commissioning are not includible in the assessable value." 36.3 On the issue relating to erection and commissioning charges, the Collector, Central Excise, Pune in para 1.16 of his adjudication order has observed that "engineers employed for supervision are their own employees of process heat division which has undertaken manufacture of such equipment. Hence, no extra cost has been incurred for their services except perhaps for their travelling allowance which only works out to 20.4% (at the rate of Rs. 1000/- per month out of Rs. 4900/- per month per employee). I, therefore, allow deduction of only 20.4% of the erection and commissioning charges." 36.4 In the matter before us, we find that the goods involved were not ordinary goods. They were high tech engineering items which could not be sold out of shelf. The contracts involved not only the supply of the boilers and other related equipment but also their commissioning at site. The proper commissioning was mandatory for obtaining a completion certificate from the boiler inspector. Although separate charges were shown in some of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see that there is no attempt at diverting a part of the true price of the goods to service charges." 37.1 To our mind, in a case of this nature, so far as the erection and commissioning charges are concerned, the correct procedure should be to take the total receipts towards such erection and commissioning charges (including the charges recovered through supplementary bills etc.) claimed by the manufacturer as the basis and then to arrive at the value of the goods involved in such erection and commissioning by deducting expenses incurred by the manufacturer for providing labour and other services from such total receipts; of course freight charges for transporting goods from the place of manufacture to the site, if borne by the manufacturer and included in such receipts towards erection and commissioning charges, will be eligible for deduction. In this connection, reference may be made to the Supreme Court decisions in the Sales Tax cases of (1) Cannon Dimkerly and Company v. State of Rajasthan, 1992 (3) SCALE 173 and (2) Builders Association of India v. State of Karnataka, 1993 AIR SCW 152. m those cases, the Hon'ble Supreme Court had laid down the principles as how to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the final price to arrive at the assessable value, as contended by the assessee in para X read with Annexure XIV of their reply to the show cause notice, and as held by the Tribunal in the case of Collector, Central Excise v. V.S.T. Industries -1991 (52) E.L.T. 59 (Tribunal). Paras 24 and 25 of that decision are extracted below :- * * * * * * 41. Thus, in the circumstances of the case and in the light of our above observations, the Central Excise duty demanded has to be re-calculated, and for this purpose, the matter has to be remitted back to the adjudicating authority. Accordingly, for the purposes of re-calculation of Central Excise duty and for redetermining the quantum of penalty, if any, we remand the matter back to the Collector, Central Excise, Pune. Within two months from the receipt of this order, the manufacturers will furnish all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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