9911796707
TMI Blog2011 (6) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 PIII/074/06 dated 8-5-2006 42,92,081 2,15,000 3. Sept. 2003 to June 2004 12/CX/ADJ/05, dated 25-10-2005 PIII/036/06 dated 7-2-2006 1,20,874 50,000 4. April 2006 to Feb. 2007 116/CEX/ADC/07, dated 24-12-2007 PIII/161/08 dated 17-7-2008 11,15,765 11,15,765 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of such bought out items are includible in the assessable value. In all the cases excepting the first one, penalty 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted motors in various industries and applications. They are capable of being used for other machines apart from the centrifugal machines 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be included in the assessable value of flushing cistern even though the said flushing cistern cannot be made functional without the said bought 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 compone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess done on the goods (which does not amount to manufacture or otherwise) after their clearance from the factory is totally irrelevant and extraneous for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 performance guarantee for the machines along with the bought out items even then it does not take a case of the Revenue any further. A trader can guarantee the performance of the goods purchased and sold by him. 6.21 Thirdly, such type of performance guarantee is given by the appellants even in case where the appellants supply only centrifugal machines without electric motor. One such illustrative purchase order has been placed by M/s. Ghaghara Sugar Ltd. vide order dated 29-5-1999 (Refer clause 10 thereof). In terms of the said purchase order, appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 appellants are also entitled to benefit of cum-duty. The demand needs to be re-computed after extending the said benefit. 6.27 No penalty is imposable on the appellants under Section 11AC of the Central Excise Act. There is no suppression of facts on part of the appellants with intent to evade payment of duty. This has been held by the Commissioner vide order dated 18-12-1989 which has been upheld by this Tribunal vide order dated 3-9-1998. In any event, the dispute involved in the present case is one of interpretation and valuation. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 the film sulphonation plant were to be erected and commissioned not by the appellant in that case but by a contractor. However, the department demanded the duty on the bought out items supplied directly to the site. The Hon'ble Supreme Court's observations are available in paragraph 5 of this order and the same are reproduced : "5. We do not wish to remand the matter. This matter has undertaken a chequered history. In the present case vide order dated 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is not the only factor to determine the duty liability of the final product manufactured by the appellant. Therefore the reliance of the appellant on the case of Electronics Corpn. of India Ltd. to submit that duty liability has to be restricted to the goods manufactured by the assessee and not the once supplied by the assessee cannot be sustained. 10.1 The next submission made by the appellant is that the bought out items like electric motors, control panel, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) 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 functionally not complete without the electric motor and control panel." 11. At this juncture it would be worthwhile to look into some of the purchase orders which are part of the records. In the purchase order placed by Aghara Sugar Ltd. dated 21-5-1999, the purchase order is without including electric motor. The purchase order specifies that the contract for erection/commissioning will be given to a competent contractor respectively for proper erection rests with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 seen is that of the Seksaria Biswan Sugar Factory Ltd. dated 30-8-1998. This is also another purchase order without electric motor, control panel and order also specifies that it should be supplied without a drive motor and control panel. Unfortunately only the first page of the purchase order was available. 14. In the purchase order of Ponni Sugars and Chemicals Ltd. dated 20-7-1988 the appellant is required to guarantee the satisfactory performance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rform 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 would be separated from the centrifugal machine in addition to the other components and accessories which are assembled and packed separately. There is no dispute that without electric motor and electric panel centrifugal machine "manufactured" by the appellant cannot work. Apparently the machine has to be designed differently or may be some other requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 parts of photocopying machines and hence their value is not includible. In this case electric motor and electric panel have to be held as parts because without them centrifugal machine cannot function. 19. The appellants have submitted that the decision of the Bombay High Court in Koron Business System Ltd. in respect of plates and black shield w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence 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 case according to Rule 2(a) of Interpretative Rules of the Tariff, even a machine incomplete or unfinished, has to be treated as the finished product if it has attained the essential characteristic. From the facts and circumstances of the case, it is quite clear that the centrifugal machine manufactured by the appellant can be called centrifuga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 trade to an unrelated buyer. Therefore once a normal price is available, that price could be applied to different transactions even where the value was different. There were exceptions to this rule such as goods sold to different class of buyers or sold at different time and different place. We have already taken a view that valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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-duty value as requested by the appellants. Needless to say before finalizing the amounts, appellant shall be given reasonable opportunity to present their case with regard to the amount computed by the Revenue. 33. In view of the above observations, the impugned orders are set aside and the matter remande ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
