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Daya Ram Metal Works Pvt. Ltd Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)(20)ELT392TriDel
AppellantDaya Ram Metal Works Pvt. Ltd
RespondentCollector of Central Excise
Excerpt:
.....detailed explanation, to the effect that certain heads had to be excluded from the assessable value of goods, which are detailed as under :-(i) supervision and erection charges . . rs. 76,000.00(ii) packing charges . . rs. 38,755.00(iii) conversion charges . . rs. 40,500.00 3. they accordingly contended that the total value of their sales of excisable goods came to rs. 28,85,755.75 and that the audit note had wrongly held it to be rs. 32,36,532.00. they seemed to have further pleaded during personal hearing (as copy of written submissions supplied at page 16 of the paper book indicate), that post manufacturing expenses like supervision and conversion charges should not be added to the clearance value, and that excluding these, the clearance value as shown in their records was rs......
Judgment:
1. The appellants effected clearances of the goods manufactured by them without payment of excise duty during the years 1977-78 and 1978-79 claiming benefit of exemption under Notification No. 176/77-CE, dated 18-6-77, on the ground that the goods manufactured by them fell under T.I. 68 of the Central Excise Tariff (CET for short) and, further, that the value of the clearances effected by them remained within the respective limits, as stipulated in the aforesaid Notification.

However, proceedings were initiated by means of notice to show cause issued by the Superintendent of Central Excise, Bilimora Range-II on 16-12-1980 on the allegations that value of the clearances made by them during the period 1977-78 had exceeded the limit of Rs. 30 lakhs for the whole of the year and also that of Rs. 4 lakhs for the period 1-4-77 to 17-6-77, and that of Rs. 24 lakhs during the period 18-6-77 to 31-3-78. Asa result, duty on clearances in excess of Rs. 24 lakhs during 18-6-77 to 31-3-78, was held payable, as also on whole of the clearances effected in 1978-79. This duty amount was determined at a total of Rs. 2,52,959/-, without specifying the details for reaching the conclusion as to value of clearances. This notice was followed by three corrigenda, from time to time, and culminated in a revised show cause notice bearing the original date of 16-12-80 but, apparently, sometime after 6-6-81 inasmuch as the last corrigendum preceding it was of the aforesaid date. The cumulative result of all these corrections was that the duty amount alleged to be payable was determined at Rs. 11,281.00 for 1977-78 and Rs. 2,41,678.00 for 1978-79 ; making the aggregate of Rs. 2,52,959.00.

2. The appellants repudiated the charge by means of reply dated 18-4-81, claiming that their clearances at all material times remained within the ceiling contemplated in the Notification No. 176/77, and offered their detailed explanation, to the effect that certain heads had to be excluded from the assessable value of goods, which are detailed as under :-(i) Supervision and Erection charges . . Rs. 76,000.00(ii) Packing charges . . Rs. 38,755.00(iii) Conversion charges . . Rs. 40,500.00 3. They accordingly contended that the total value of their sales of excisable goods came to Rs. 28,85,755.75 and that the audit note had wrongly held it to be Rs. 32,36,532.00. They seemed to have further pleaded during personal hearing (as copy of written submissions supplied at page 16 of the paper book indicate), that post manufacturing expenses like supervision and conversion charges should not be added to the clearance value, and that excluding these, the clearance value as shown in their records was Rs. 29,85,757.75. They also contended that since they have been clearing the goods with full knowledge of the Excise authorities, without ever trying to evade Central Excise duty or hide any information, the notice to show cause, issued beyond the period of six months from the date when duty was payable, was barred by time and, so, the demand was not enforceable in view of the provisions of Section 11A of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act).

4. The Assistant Collector adjudicated this show cause notice and, in pursuance of order recorded on 29-12-81, held the notice to show cause, as thereby withdrawn.

5. The said order was taken up for review by the Collector of Central Excise, Baroda, by means of a notice issued on 24-6-82, under the provisions of Section 35A(2) of the Act. After taking note of the fact of total value declared by the party, and the items deducted by them from the total assessable value, he tentatively expressed the view that the Assistant Collector had erred in allowing the deduction of Rs. 83,144.00 from the total value of goods as being value of 'bought out items', and also by excluding a sum of Rs. 67,000.00 on account of supervision and erection charges, and Rs. 40,500.00 as conversion charges.

6. He further observed that the Assistant Collector's order also suffered from an error by allowing plea of the party that the notice to show cause, having been issued after expiry of six months, was barred by time. He further opined that the rate of duty for the goods, found to be liable to pay excise duty, had to be, in this case, not with reference to the date on which removals were, effected but as provided under Rule 9A(5) of the Central Excise Rules, 1944 (hereinafter referred to as 'the Rules'), namely, the rate in force on the date on which the duty is paid. He, therefore, called upon the appellants to show cause as to why said order of the Assistant Collector be not reviewed.

7. This Review Notice was, disposed off by order dated 10-6-83, after considering all the submissions made by the party by means of their reply filed before him, as also the submissions made during personal hearing. The Collector held, by means of this order, that the plea of the party for exclusion of value of the bought out items' (Rs. 83,144;00), erection and supervision charges (Rs. 76,000/-), and conversion charges (Rs. 40,500/-), was not sustainable and that, since after taking into account these heads, the value of clearances exceeded Rs. 30,00,000/- during 1977-78, duty was payable on the amount in excess of the exempted limit during that period, as also on the whole of the clearances during 1978-79. He also rejected party's contention that the notice to show cause, as issued by the Assistant Collector, was barred by time by holding that there was, certainly, suppression of material information and, accordingly, the extended time limit of 5 years would be available. He also rejected the contention that Review Notice was without jurisdiction as being beyond his powers, by virtue of change in law, holding that the said amendment had become operative only with effect from October 1982 and, so, at the time the Review Notice was issued, he had all the authority to do so. He further held that the provisions of Rule 9A (1) (ii) are attracted only if the clearances were effected in accordance with law, and not in such cases, as the present, where there was lack of full disclosure and, as such, the duty would be leviable at the current rate of duty for T.I. 68 goods.

8. This order is assailed in the present appeal filed before the Tribunal where the appellants contend, after narrating facts of the case, that the Collector has erred by holding that the original show cause notice was within time even though it was issued after the expiry of six months of the period when the duty could be payable, and by further holding that the rate of duty would be in terms of Rule 9A(5) of the Rules, as prevalent at the time of payment thereof. They reiterate that inasmuch as they had been effecting clearances after filing necessary declarations before the Central Excise authorities, the notice to show cause was barred by time and that no material had been disclosed to them to justify extension of the period of limitation. It is also contended that the Collector had gone wrong in taking into account the invoice value of the goods when they had not opted for the procedure as contemplated under Notification No. 120/75.

On facts, the contention is that value of the goods, shown and separately invoiced by them as 'bought out items', as also that of erection and supervision charges, ought not to have been included in the total value, nor the amount of conversion charges as well as of packing charges, and that excluding the amounts on the aforesaid counts, the value remains well within the prescribed limits, in terms of Notification No. 176/77.

9. During the hearing before us, Shri G. Koruthu, Consultant, appearing for the appellants, at the outset, wanted to raise objection as to the Review Notice itself being barred by time but did not press the objection when the dates of the Assistant Collector's order and that of the Review Notice were put to him. He then argued on merits, briefly pointing out that after a show cause notice having been issued on 16-12-80, there were corrigenda issued subsequently and again a final notice, and that after considering all their submissions made in reply, the Assistant Collector had felt satisfied that the appellants had rightly availed of the benefit of Excise Notification No. 176/77, dated 18-6-77. According to Shri Koruthu, the Collector had committed a basic error in founding his conclusions on the basis of invoice value, although it was very clear that the appellants had never opted for application of Notification No. 120/75 and, as such, the assessable value had to be determined in terms of the principles contained in Section 4 of the Act. He. argued that the 'bought out' parts were brought from different dealers after payment of duty and were supplied separately, in original packing, to the customers under a separate invoice and the amount covering these 'bought out' items could never be treated as a part of the manufacturing cost of their product, which he described as distillation plant assessable under T.I. 68 of the GET. He placed reliance on a CEGAT decision in support of his plea reported as 1983 ELT 2480, Machine Products India Pvt. Ltd., Ahmedabad v. C.C.E., Ahmedabad. He also cited some other decisions of the Tribunal in this respect; they being 1985 (19) FXT 435 (Tribunal) Carbon Industries Pvt.

Ltd. v. C.C.E., Madras), and 1984 (18) ELT 14 (Tribunal) CEGAT (Maharashtra Agro-Industries Development Pvt. Ltd., Pune v. C.C.E., Bombay). He further placed reliance on a decision of the Central Board of Central Excise & Customs, as reported in 1982-ELT-page 77, in support of his contention that supervision and erection charges could not be considered part of assessable value. So far as packing charges, amounting to Rs. 38,755.00 were concerned, Shri Koruthu's contention was that they were not regular packing in the usual sense and that their machinery was quite huge and bulky, and question of wrapping the same did not arise in the sense 'packing' is normally understood, and all that they were doing was that for the facility of transport, large planks and logs of wood were placed in the truck so that the machinery did not shake or fall during carriage. Though he pressed his objection as to the original notice to show cause being barred by time, he conceded that the fact of the installation charges, or value of 'bought out items' being excluded from the total value of goods as declared to the Excise authorities, was not indicated in the declarations. He concluded his arguments by urging that, in any case, the rate of duty, if any payable, would be the rate as prevalent on the date of removals, and that Collector's view, that provisions of Rule 9A(5) would be attracted, was wholly erroneous.

10. Shri V. Lakshmikumaran, SDR, replied to the contentions canvassed by the learned Counsel, by asserting that insofar as there was no disclosure of the relevant facts, which would have been relevant according to the Excise authorities in determining the total value of clearances, there was certainly suppression, to justify application of the extended period of 5 years. He cited a CEGAT decision in support of this contention, reported as 'The Structural^ & Machinery, Bukaro Pvt.

Ltd. v. C.C.E., Patna' in 1984 (17) ELT-page 127. This decision he also cited to support the Collector's view that value of conversion charges will form part of the manufacturing cost in terms of the First Proviso to Notification No. 176/77. He relied in support of this contention on another CEGAT decision, being Order No. 626/84B dated 21-8-84 {M/s.

Hanuman Metal Industries, Jagadhri v. C.C.E., Delhi).

11. Shri V. Lakshmikumaran vehemently defended the impugned order of the Collector for inclusion of 'bought out items' in the assessable value on the contention that these parts were acquired for completion of the machines which the appellants were manufacturing and supplying to the customers and that the bare fact that they were brought duty-paid by the appellants would not make any difference. He conceded, however, that appellants, having not opted for invoice value, assessable value within terms of Section 4 of the Act shall have to be taken into consideration. He quoted judgment of High Court of Madras in favour of inclusion of 'bought put items' arguing that the Madras High Court had held in case: reported as T.R. Cycles of India v. Union of India (1983 ELT 681), that even though goods are supplied in CKD condition without being assembled before clearances, they have to be treated as fully manufactured cycles for the purposes of excise duty.

He also relied on Calcutta High Court decision, reported as Union of India and Ors. v. Free India Dry Accumulators (1983 ELT 733), that cost of raw material, even when supplied by the customer, was includible in the manufacturing cost of resultant article; Insofar as the issue of packing charges is concerned, Shri Lakshmikumaran contended that having regard to the fact that the placement of planks or logs in the truck was meant to ensure safe carriage of the goods, these would be deemed to be primary packing within the meaning of the term, elucidated by the Supreme Court in 'Union of India and Ors. v. Bombay Tires International Ltd., 1983 ELT 1896).

12. We have given our earnest thought to the respective issues thrown up for decision in this appeal. We find that the main issue is as to whether certain amounts could be excluded from the assessable value as claimed by the appellants so as to hold them entitled to the benefit of exemption notification; the first and foremost head in this regard is that of 'bought out items'.

13. We observe that neither the show cause notice issued finally on 16-12-80 nor the revised one, set out any grounds for holding that value of clearances effected by the appellants has exceeded the permissible limits in all regards. However, the appellants in their reply to show cause notice referred to an Audit Note. This Audit Note, though not indicated to have been an enclosure to the show cause notice but, apparently, was conveyed to the appellants by means of an earlier letter dated 15-10-80, addressed by the Superintendent concerned to the appellants, and copy of the said Audit Note (page 3 of the Paper Book) reveals that value of 'bought out items' was not an issue at that time, and only three heads, which were considered liable to be included, were those of (i) supervision and erection charges, (ii) packing charges, and (iii) conversion charges. The Assistant Collector, having by a very short order dropped the proceedings, there is no indication as to what reasoning prevailed with him but the Review Notice reveals that the Assistant Collector had allowed benefit of 'bought out items' to the extent of Rs. 83,144.00, having been claimed by the party in reply to show cause notice and that of Rs. 76,000/- on account of supervision and erection charges. This Review Notice further reveals that party's claim for conversion charges to the tune of Rs. 40,500/- was dissallowed even by the Assistant Collector. This shows that the issue of packing charges was neither considered by the Assistant Collector nor raised by the Collector while issuing Review Notice. The review order passed by the Collector, which is subject-matter of this appeal, also does not advert to the question of inclusion of packing charges.

In view of the fact that the appellants had, in their supplementary reply sent to the original show cause notice on 11-12-1981, explained in detail that the equipment manufactured by them did not require any packing to cover it during transport, and that whatever they described as 'packing' was in the nature of wooden planks or logs used as 'supports' to hold the machinery during transport, and since the Assistant Collector has not passed any comments in respect to this head nor did the Collector, while issuing Review Notice, rake up this issue as indicated in the Audit objection, nor has made any reference to the same in the Review Order itself, the clear inference is that this dispute, as to inclusion of packing charges, does not survive for determination before us and it is to be presumed that this part of the appellants' contention stands conceded at the lower levels.

14. The points of dispute does revolve on three beads: namely, that of (i) bought out items, (ii) installation and supervision charges, and (iii) conversion charges.

15. So far as 'bought out items' are concerned, we find that no material has been placed on record to show as to what was the nature of the contract between the parties and in what form the equipment was to be supplied or as to whether the 'bought out items' were essential parts of the machinery, or optional ones. There being no plea at any stage that these items were by way of optional equipment and, on the other hand, it being stated, unequivocally, in the written submissions filed by the appellants subsequent to the filing of appeal to us (pages 103-105 of the paper rule) that these 'bought out items' were supplied alongwith the equipment manufactured by the appellants to ensure that correct items were purchased as required under their specifications, and that they are fitted in the machinery at the time of erection of equipment at the site; we have no hesitation in holding that in the absence to any evidence to the contrary, these bought out items have to be taken to be necessary to complete the equipment which the appellants manufactured and supplied.

16. In face of this finding, the authorities relied upon by the appellants cease to have any application because all the cases, relied upon by the learned Counsel Consultant for the appellants, as referred to above, deal with cases where it had been held that the activity of the concerned party did not amount to manufacture of goods or resulting in manufacturing activity. As against that, we find no dispute that appellants are manufacturing excisable goods falling under T.I. 68, which they themselves describe as 'distillation plant'. The ratio of the Tribunal judgment in case of M/s. Machine Products India Pvt. Ltd. (supra) would not apply because that was a clear case where the party was not bringing into existence any new machine as such, but only undertaking job of conversion or modernisation of up-gradation of an existing machinery installed in the premises of certain textile factories.

17. For the same reason, the ratio of other CEGAT decisions relied upon by the learned Consultant; namely, in the case of M/s. Carbon Industries Pvt. Ltd. and the Maharashtra Agro-Industries Corporation Pvt. Ltd., would not apply because in both the cases, it was found as a fact that the concerned parties were not manufacturing complete units as manufactured goods. We find, on the other hand, that it was held by Calcutta High Court in U.O.I v. Free India Dry Accumulators (supra) and Madras High Court in T.R. Cycles of India v. U.O.I, (supra) that once completely manufactured goods are supplied to the customer, the simple fact that some parts by way of raw material were supplied even by the customers or where the manufactured articles were supplied not after assembly, but in CK.D condition, would not make any different to the question and that the value of entire raw material, or all parts which go into the making of a manufactured article, shall have to be taken into account. We also find observation in another CEGAT decision (Structural & Machinery Bukaro Pvt. Ltd.) (supra) that in given situation, even work carried out by a party may amount to manufacture or manufacturing activities.

18. We, therefore, find on cumulative consideration of the facts before us and the appellants having failed to show the exact nature and function of the 'bought out items' vis-a-vis the machine manufactured by them and in view of the fact that we find an averment by the appellants themselves that the 'bought out items' were, as per their specifications, required to be fitted in the equipment supplied by them, which they admit to be excisable goods and a manufactured article, we think that the value of these 'bought out items' has to be treated as part of the cost of the manufacture of the finished goods, and the simple fact that the appellants invoiced them separately would not make any difference.

19. So far as erection and supervision charges are concerned, we find that as per record this practice has been only in relation to one customer,; namely, Gujarat Chem Distillery, Bilimora. This suggests that this erection at the site or supervision is not an essential part of the manufacturing activity but dependent upon the preference of the buyer and has certainly to be treate.4 as a.post-manufacturing activity. The appellants have in their favour an order passed by the Central Board of Excise & Customs on 1-10-81 reported in 1982 ELT 77 In re : Nair's Arki-metal Pvt. Ltd., New Delhi; holding categorically that 'installation charges were in the nature of post-manufacturing expenses'. In the absence of any decision to the contrary and on facts and circumstances of this case, we are inclined to adopt the reasoning given by the Board in the aforesaid decision and endorse the said view to the effect that installation and supervision charges are to be treated in the nature of post-manufacturing expenses, and not part of the manufacturing cost, so as to be included in the assessable valne.

20. Coming lastly to the head of conversion charges, here the argument seems to be, though not highlighted during hearing before us, that the items, even after conversion remained as steel pipes which were separately exempted from excise duty by virtue of another exemption notification (Notification No. 69/73-CE, dated 1-3-73); and thus, their value was not to be added to the assessable value of the goods, under reference. Although there is also plea in the grounds of appeal that this conversion activity is not tantamount to manufacture/production of new goods, but we do not find any light being thrown on this aspect during arguments and, in view of the plea taken at initial stages that this value was not to be included for the reason that the steel pipes, even after conversion, remained as such and, thus, entitled to exemption from excise duty; we take this as the ground, for exclusion of the value of conversion charges from the assessable value. We find, however, on the clear wording of First Proviso to Notification No.176/77 that to earn benefit of exemption under this Notification, the total value of all excisable goods during the relevant period ought not to exceed Rs. 30 lakhs. The view is well-settled by now that by virtue of being exempted under a notification, the given class of goods does not go out of the category of 'excisable goods', once they find a place in or under an item of the CET. (Vishalandhra Industries v. Union of India- 1983 ELT 2265 (Del.). We are, therefore, of the view that claim of the appellants for exclusion of conversion charges is not tenable.

21. In view of the undisputed position that while filing declaration for clearances free of duty by virtue of Notification No. 176/77, the fact of 'bought out items' or conversion charges or other disputed heads has not been disclosed; this by itself can, undisputedly, be considered as suppression within the meaning of Proviso to Section 11A of the Act, thereby extending the period of limitation for issuance of show cause notice to 5 years. We find support for this view; namely, when full necessary particulars have not been furnished by the party, then the extended period of limitation of 5 years is applicable in the judgment of the Tribunal reported as Structural & Machineries Bukaro Pvt. Ltd. (supra). We, therefore, find the plea of 'time barred' as not sustainable.

22. We, therefore, partly allow the contentions, with the finding that value of 'bought out items' and 'conversion charges' can be included in computing the assessable value of goods whereas the value of packing charges as already allowed by the lower authorities, and that of installation and supervision charges as now held by us, is to be excluded. The computation of the value of clearances in order to enable the appellants to avail of benefit of this exemption has to be with reference to these factors; namely, as to whether the value of clearances between 18-6-77 and 31-3-78 did or did not exceed Rs. 24 lakhs; and that during the whole of the year: 1977-78 this should not exceed Rs. 30 lakhs. The demand raised by revised show cause notice dated 16-12-80, as per P. 11 of the Paper Book, reveals that the total value of goods for the year 1977-78 was fixed at Rs. 31,87,777/-. After making allowance for Rs. 76,000/- as erection and supervision charges, and Rs. 38,755/- on account of packing charges, and making a deduction of Rs. 85,519/- as value of scrap, as indicated in the notice, the value of clearances comes down to below Rs. 30 lakhs for the whole of the year, and that of Rs. 24 lakhs during 18-6-77 to 31-3-78. The appellants would, thus, become entitled to the benefit of this Notification No. 176/77'-CE, dated 18-6-77.

23. Though, in view of our above finding, the question has become academic but nevertheless we advert to this issue of rate of duty also.

We find a manifest error in Collector's approach in this regard, as we do not find any concept in Rule 9A(5), as introduced by the Collector to the effect that when the clearances are not in accordance with law, then the current rate as prevalent on the date of payment of duty would be applicable. We are thus unable to subscribe to the Collector's view that in such circumstances, provisions of Rule 9A(5) would apply. We, therefore, hold that in case any duty was leviable, it would have been in terms of Rule 9A(1)(ii) of the Rules.


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