Custom, Excise & Service Tax Tribunal
M/S Kores (India) Ltd vs Commissioner Of Customs & Central ... on 7 November, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/3004/04 (Arising out of Order-in-Original No. 41-48/COMMR/CEX/IND/2004 dated 7.7.2004 passed by the Commissioner of Customs &Central Excise, Indore). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s Kores (India) Ltd. Appellant Vs. Commissioner of Customs & Central Excise, Indore Respondent Appearance: Shri Ramesh Nair, Advocate for Appellant Shri Navneet, Addl. Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 07.11.2013 Date of Decision: .2013 ORDER NO. Per: Anil Choudhary
This appeal arises out of Order-in-Original No. 41-48/COMMR/CEX/IND/2004 dated 7.7.2004 passed by the Commissioner of Customs &Central Excise, Indore.
2. The brief facts of the case are as follows: -
(i) The appellant, M/s Kores (India) Ltd., are engaged in the manufacture of Drilling Rig and Mud Pump and cleared the said drilling rigs on payment of full excise duty on the value of the same in accordance with Section 4 of the Central Excise Act. The appellant also manufactured certain goods which were not part of the rigs, but were drilling tools, accessories or operating equipment to be used in conjunction with the rig on payment of duty. They also purchased and sold certain goods which were not parts of the rigs, but were drilling tools, accessories or operating equipment and were used in conjunction with the rig. These are goods such as drill pipes, drill bits, substitutes, slips, spiders/spider bushings, drill collars, casing elevators, fishing tools, traveling blocks, generator/welding sets etc. The same were separately invoiced by the appellant to the buyer as drilling accessories, were not included in the invoice for the rig. The said drilling rigs were commercially complete, marketable and were bought and sold in the market without the said bought out items. Most of the said bought-out items form part of what is known as the drill string assembly. The said items do not amount to integral parts of drilling rigs and are drilling tools, accessories or operating equipment used in conjunction with the said rigs in carrying out drilling operations. Customers purchasing rigs from the appellant were not under any obligation to purchase the said bought out items from the appellant and were free to procure the same from other suppliers. The appellant has also occasionally supplied such items on their own to buyers and not along with the supply of such rigs. As the said bought-out items did not amount to parts of the said rigs for excise purposes, the appellant did not include the value of these items in the assessable value of the said rigs while paying excise duty on the rigs.
(ii) The department issued a show-cause notice dated 11.12.1992 alleging that the said bought-out items amount to essential parts of drilling rigs and mud pumps manufactured by the appellant and the value of the said items was liable to be added to the value of the rigs and excise duty was recoverable on the same. It was also alleged that the appellant has suppressed the fact that the said items amounted to essential parts of rigs and had cleared the same in the guise of accessories to evade payment of excise duty. The appellant was therefore called upon to show cause as to why excise duty of Rs.86,16,363/- for the period December, 1987 to September, 1992 should not be recovered under the proviso to Section 11A and why penalty should not be imposed. Thereafter, the department issued 8 more show-cause notices between June, 1993 and January, 1997 on similar allegations and seeking to recover excise duty of Rs.10,90,571/-(in aggregate) on the said bought-out items on the same ground.
(iii) The appellant contested the said show-cause notices contending that the said drilling rigs were commercially complete and marketable without the said bought-out items and the said items could not be considered integral parts of such rigs for excise purposes, therefore, value of such items could not be included in the value of the rigs and excise duty cannot be recovered thereon as proposed in the show-cause notices.
(iv) The adjudicating authority by an order dated 11.6.1997 adjudicated the show-cause notices and confirmed a demand of duty of Rs.99,08,934/- along with interest thereon and also imposed a penalty of Rs.43 lakhs holding that the said bought-out items amounted to essential parts of rigs and value of the same was liable to be included in the value of the rigs.
(v) Aggrieved by the order of the Commissioner, the appellant preferred an appeal before the Tribunal and the Tribunal vide order dated 17.11.2003 set aside the impugned order and allowed the appeal by way of remand holding that the appellant manufactured crown block, traveling block(double sheave or single sheave), mast, hoist plug, sandreel dram, mud pump, hoist drum, some slips, spider base, drill head, chuck, water swivel, bits imported delivery hose, stand pipe, suction hose, drill collar, drill pipe and drag bits, subs, bits, spider bush, spider, slips, Kelly, drive bush, elevators, fishing tools, rotary chain tongs and wrenches. The appellant cited copy of ISI specification (IS:78206 Part-I 1986) specifying general requirement of direct required for motor drilling. Among the items it shows that parts of a rig are a mast. The cost of mast therefore would be included. However, the delivery hose, stand pipe, suction hose, bush, those goods which are classifiable as parts of rig falling in chapter heading 84.31, the cost of the goods could be included in the value of the rig, unless the appellant were able to show that they were supplied not incorporated in the rig but as spare part, the value of such was not included in the price of the rig. The price of the goods which are clearly not required for the manufacture of the rig would not be included. We think it appropriate that the precise determination of the value of the rig can be carried out by the adjudicating authority by applying the principles that we have set out above to various items in questions. The matter is remanded to the Commissioner for this purpose.
(vi) Pursuant to the remand order, the appellant appeared before the learned Commissioner and made oral and written submissions which are on record, which are reproduced as under: -
(a) It was submitted that as far as drill pipes, drill bits and tools are concerned, the Tribunal has clearly held that these items are not includible in the value of the goods, inter alia, in view of its earlier decision in the case of Ingersoll Rand Vs. CCE 1994 (69) ELT 737 (T) which had been upheld by the Hon'ble Supreme Court in 1999 (106) ELT 549 (SC).
(b) So far as pipes are concerned, the position is clear. The counsel for the appellant cited from the explanatory notes to show that such items as tools also could not form part of the rigs. Clearly, and tools meant for repair two and maintenance of a rig could not be classifiable as parts of such rigs. The same conclusion that we have arrived at with regard to pipes would apply to such tools.
(c) It was submitted that all these items are also in the nature of operating equipment or accessories which are to be used in conjunction with the rig and cannot be considered parts of the same.
(vii) The learned Commissioner also took notice of the ruling of this Tribunal in the case of Ingersoll Rand Vs. CCE 1994 (69) ELT 737 (T) which was confirmed by the Hon'ble Apex Court in Civil Appeal No. 4371 of 1994 vide order dated 5.3.1998 wherein the Hon'ble Apex Court held that drill rods/pipes and drill tools etc. are not to be treated as part of the drill rig and value thereof not includable in the assessable value of the drill rig, thereby upholding the decision of the Tribunal.
(viii) In view of the order in the Ingersoll Case as confirmed by the Hon'ble Apex Court, the learned Counsel stated in the impugned order that out of total original demand of duty of Rs.99,08,934/-, after making correction for clerical errors, the correct demand comes to Rs.83,37,892/-. Out of this amount, demand of Rs.78,05,109 relating to drill pipes and drill bits, which were held to be not sustainable in view of the ruling of the Ingersoll case, duty of Rs.5,32,783/- pertaining to fishing tools, wrenches and chain tongs was also found not sustainable being in the nature of tools. But as regards the other items, the duty was confirmed on five items like - (i) substitutes, (ii) slips, (iii) spider/spider bushing, (iv) drill collar & (v) travelling block. A penalty of Rs.25,000/- was also imposed under Rule 173Q.
Being aggrieved, the appellant is before this Tribunal.
3. The learned Counsel for the appellant has challenged the confirmation of duty specifically on part namely, substitutes, slips, spider/spider bushing, drill collar & traveling block, being clearly in the nature of tools, accessories or operating equipments which are to be used in conjunction with the rig and cannot be considered as integral part of the same.
3.1 The learned Counsel also filed pictorials sheet showing the nature of use of the rigs and placement of the aforementioned parts. From perusal of the same and from the explanation given, it is evident that the same do not part of the rig, but are in the nature of the tools and other equipments.
4. The learned Addl. Commissioner (AR) appearing for the Revenue reiterates the findings of the Commissioner and also relies on the ruling in the case of Commissioner of Central Excise, Pune Vs. Thermax Bobcock & Wilcox Ltd. 2005 (182) ELT 336 (Tri-Mum), wherein, in the case of boiler, pressure parts of boiler were removed in several consignments, to be regarded as boiler in incomplete form and classifiable as boiler being essential parts of boiler, as it is not possible to clear the complete boiler in one go.
5. Having considered the rival submissions, we find that ruling of Thermax Bobcock & Wilcox Ltd. (supra) relied upon by the learned AR for the Revenue, is clearly distinguishable because boiler is not cleared in its assembled form as such but cleared in several consignments part by part and assembled, whereas in the facts of the present case, the drill rig is complete when removed or cleared from the factory, and thus, the ruling of Thermax Bobcock & Wilcox Ltd. is not applicable in the present case.
5.1 Further, we find that the law laid down in the case of Ingersoll case (supra) is squarely applicable in the present case, wherein it has been held that though drilling rigs have necessarily to be used in conjunction with items such as Drill rods/pipes and bits etc., these items do not constitute parts of such machines which are complete items in themselves. Thus, the five items in question are not integral parts of drilling machines, but are in the nature of tools and other equipments.
6. In view of the foregoing, the impugned order is set aside and the appeal is allowed with consequential relief, if any.
(Pronounced in Court on .. )
(P.R. Chandrasekharan) (Anil Choudhary)
Member (Technical) Member (Judicial)
Sinha
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