1. The impugned order-in-appeal was a combined order passed by the Appellate Collector in respect of two orders in original bearing Nos.
114/81 dated 23-10-81 and 117/81 dated 31-10-81: The appellants, however, filed only one appeal. The said appeal is being disposed of through this order in relation to the first mentioned order in original. The appellants were directed to file a supplementary appeal in relation to the other order in original by 26-8-1983.
2. So far as the present appeal is concerned, the facts in brief are that the appellants manufacture certain components of drafting mechanism of ring frames or inter frames. These components are already excise controlled under Item 68. In addition, they obtain certain other duty paid components of drafting mechanism from M/s. S.K.F. They get contracts from textile mills for converting or upgrading drafting mechanism of ring frames and inter-frames already installed in the Mills. In pursuance of the contract, they take their own manufactured parts as well as the duty paid parts bought out from M/s. S.K.F, go to the customer textile mill and with the help of the two sets of parts replace the existing drafting mechanism of the ring frame with a view to increasing the yarn packaging capacity of the ring frame. The appellants state that they do not do any processing on the bought out parts in their factory. But take them to the customer mill in the original S.K.F. packaging . There is no dispute about the dutiability of their own manufactured parts. The dispute is whether the value of the bought out parts should be clubbed with the value of their own parts so as to determine their eligibility for the small scale industry exemption notification No. 176-77-C.E., dated 18-6-77. The Assistant Collector held that the appellants were assembling the two sets of parts "into a machine part viz. S.K.F. drafting at the premises of buyers and hence that type of transaction has to be treated as clearance of machine parts in knocked down condition". The Appellate Collector upheld the Assistant Collector's finding and observed further that since as per condition (7) of the Agreement dated 21-2-63 the conversion job and installation were required to be done by the appellants and not by their customers, the Assistant Collector was correct in including the value of the bought out parts for computing the total value of the clearances of the appellants for the purpose of exemption notification. The Appellate Collector, however, gave some relief to the appellants by allowing deduction of transportation expenses and by setting aside the portion of the demand for duty which was time-barred. The appellants stated during the hearing on 16-8-83 that though they had pleaded for deduction of erection charges and packing charges in their written appeal memorandum, they would not press for the same, without, however, giving up that point. They pressed for their main plea that the installation work undertaken by them at site in textile mills did not amount to manufacture as no new goods emerged. What they did was to change certain parts of an existing installed machinery. This did not amount to manufacture of a new article. For this, they relied on orders reported at. 198.1 E.L.T.-720 (G.O.I.) (case of M/s. Otis Elevators) and 1982 E.L.T.-77(C.B.E.C.) (case of M/s. Nair's Arkimetal Pvt. Ltd.). In the first mentioned Order, the Central Govt. held that lifts, escalators and elevators erected and installed by the manufacturers became a part of immovable property and hence were not goods liable to duty. However, various parts would be liable to appropriate rate of duty according to their nomenclature at the time of their removal from the respective factories. The appellants argued that ring frames installed in textile mills were immovable property and the parts thereof replaced by the appellants were already duty paid separately in their factory and in M/s S.K.F.'s factory and hence there was no further liability on the appellants. In the second mentioned Order, the Board held that glass panes and panels purchased from the market and installed in customer's premises had to be treated as duty paid and, therefore, their value was not includible in the assessable value of doors and windows manufactured by the petitioners, otherwise it would lead to double taxation on them. The appellants stated that this Order squarely applied to them in respect of their bought-out S.K.F. components.
3. The Department's representative stated that the Department's case was that the appellants were clearing an entire conversion unit in C.K.D. condition and hence the total value of the unit had to be assessed. He argued that the Govt. of India Order and Board's Order cited by the appellants were distinguishable inasmuch as the Department did not seek to assess the entire ring frame but only its drafting mechanism while in the Otis case the dispute was whether the complete lift was chargeable to duty. So far as the Arkimetal case was concerned, there could be no parallel between simple articles like doors and windows on the one hand and drafting mechanism on the other.
The plea of double taxation was not valid in the appellants' case as it was open to them to take proforma credit of duty already paid under notification No. 201/79-CE. He stated that the impugned Order-in-Appeal had not dealt with the point of inclusion of erection charges in the assessable value of the drafting mechanism. Finally, he stated that he was not pressing for the cross-objection filed by the Respondent Collector.
4. We have carefully considered the matter. We find force in the appellants' plea that they were manufacturing only certain parts and not a new machine identifiable as such. What the appellants were doing is to replace certain existing parts of a ring frame which is already installed (fixed to the ground) in the customer mill. The drafting mechanism is not a separate machine as such but only a part or section of the ring frame and it comes into being only when all the parts are mounted on the ring frame. This work is done at site. From their factory, the appellants clear only certain parts, partly their own duty-paid parts and partly S.K.F. duty-paid parts. We hold that in the facts and circumstances of this case, what the appellants are doing is only a conversion or modernisation or upgradation job on an existing installed machinery and not the manufacture and clearance of a new machine. There is, therefore, no justification for including the value of bought-out parts in the value of their clearances for determining their eligibility under notification No. 176/77-CE. Accordingly, we allow this appeal with consequential relief to the appellants.