Custom, Excise & Service Tax Tribunal
Indo Berolina Industries Pvt. Ltd vs Commissioner Of Central Excise, ... on 7 September, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL Nos. E/1105 & 1106/05-Mum (Arising out of Order-in-Original No. 02/2005 dated 28.1.2005 passed by Commissioner of Central Excise, Mumbai-IV) For approval and signature: Honble Mr. P.K. Jain, Member (Technical) and Honble Mr. S.S. Garg, 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 :
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?
====================================================== Indo Berolina Industries Pvt. Ltd. Appellant IBI Chematur (Engg. & Consultancy) Ltd. Vs. Commissioner of Central Excise, Mumbai-IV Respondent Appearance: Shri V.S. Sejpal, Advocate, for appellant Shri V.K. Agrawal, Additional Commissioner (AR), for respondent CORAM: Honble Mr. P.K. Jain, Member (Technical) Honble Mr. S.S. Garg, Member (Judicial) Date of Hearing: 18.8.2015 Date of Decision: 7.9.2015 ORDER NO Per: P.K. Jain
Brief facts of the case are that appellant No.1 viz. Indo Berolina Industries Pvt. Ltd. (IBI) entered into a contract with EID Parry India Ltd. for supply of various equipments in connection with setting up of an acetaldehyde/acetic acid plant. Appellant No.2 viz. IBI Chematur (Engineering & Consultancy) Ltd. (IBIC) is another company who is engaged in the engineering and project consultancy service relating to acetaldehyde/acetic acid. In brief, appellant No.2 did the whole of the project consultancy including designing of various pipings equipments etc. for the said plant and thereafter the said equipments, pipings etc. were manufactured by appellant No.1 and supplied to EID Parry India Ltd. EID Parry India Ltd. paid certain amounts to appellant No.1 for the equipment supplied by them and also paid certain amounts to appellant No.2 for the engineering, consultancy and designing. The case of the Revenue is that the amount paid to appellant No.2 will form part of the assessable value of the equipment supplied by appellant No.1. This is based upon the fact that it is only based upon the engineering, consultancy and designing and the drawings given by appellant No.2 to EID Parry India Ltd. who in turn gave the same to appellant No.1 that the appellant has been able to manufacture the said goods and supplied to EID Parry India Ltd.
2. Similarly, appellant Nos. 1 and 2 entered into a contract with another company viz. Triveni Engg. Works Ltd. for the manufacture and supply of similar equipment and took certain advances. However, before the project could be implemented, the order was cancelled. Appellant Nos.1 and 2 retained the advances as the demurrage/liquidation charges. Thereafter appellant No.1 found a new customer, Vamorganic Chemicals Ltd. who after discussion, asked appellant No.1 to modify the plant. Thereafter appellant No.1 asked appellant No.2 for redesigning and modification of consultancy and paid certain amounts to appellant No.2 and based upon the modifications, re-modified the plant and sold to Vamorganic Chemicals Ltd. Revenues case is that the engineering, designing and consultancy charges received by appellant No.2 from Triveni Engg. Works Ltd. will also form part of the assessable value of the goods supplied by appellant No.1 to Vamorganic Chemicals Ltd. The reasoning is exactly similar to the one in the previous case. The case has been adjudicated by the Commissioner vide the impugned order which has been passed in pursuance of this Tribunals order No. A/686, 687/WZB/2004/C-II dated 22.7.2004 with certain directions. Aggrieved by the said order, the appellants are before this Tribunal.
3. Learned counsel for the appellant submitted that the adjudicating authority has failed to consider the directions of the CESTAT. It was submitted that the period involved is before 1.7.2000 i.e. under the old Section 4 and old Central Excise Valuation Rules, 1975. It was submitted that as regards the supplies made by IBI to EID Parry India Ltd., the burden and onus of preparing shop level and operating level drawings and designs of the machines so manufactured and supplied was on IBI and all the elements in connection with manufacturing of the said capital goods are forming part of the assessable value. Appellant No.1 i.e. IBI has not received any amount or any additional consideration over and above their sale price. Further, appellant No.1 has manufactured and supplied the equipment to EID Parry India Ltd. on principal to principal basis for which they were provided with only mechanical equipment engineering drawing. It was submitted that as per agreement between EID Parry India Ltd. and IBIC, IBIC would provide only general drawing for fabricated equipment for fabricator to make shop drawings. Learned counsel submitted that the said drawings are only providing broad specification of the machines and equipments by the project consultant i.e. appellant No.2 and IBI i.e. appellant No.1 as manufacturer is further required to make their own shop level/operating level drawings for manufacture of capital goods. Thus the generic drawings and broad specification provided by EID Parry India Ltd. cannot be considered as an additional consideration flowing to IBI and, therefore, there is no reason to include the value for the same. It was further submitted that alternatively, even if it is presumed that some additional consideration is flowing, still the correct quantification of the same is required to be carried out. It was submitted the detailed break up of the scope of work group wise with billing break up and project consultancy break up of various amounts received by IBIC to substantiate the proportionate amount of the drawing and engineering consultancy amount which is in relation to mechanical machines so manufactured by IBI could only be part of it. It was further submitted that the Commissioner should include only Rs.22 lakhs received by appellant NO.2 relating to mechanical equipment. The Commissioner has erred in confirming the duty corresponding to the total amount of Rs.91 lakhs by excluding only the civil works.
4. As far as the supplies made by appellant No.1 to Vamorganic Chemicals Ltd. are concerned, it was submitted that appellant No.1 fails to understand as to how consideration received by appellant No.2 from Triveni Engineering Works Ltd. can be included in the assessable value of the goods sold by appellant No.1 to Vamorganic Chemicals Ltd. The said amount was forfeited by appellant No.2 from Triveni Engineering Works Ltd. as claimed against damages i.e. liquidation charges and there is no excise duty involvement on the same. Learned counsel also referred to the following case laws:-
(i) Naran Lala Metal Works Ltd. vs. CCE reported in 2003 (156) ELT 281 (Tri.-Mum.);
(ii) CCE vs. Statfield Systems (Coating) Pvt. Ltd. reported in 1996 (87) ELT 510 (Tri.);
(iii) Alfa Laval India Ltd. vs. CCE reported in 1998 (100) ELT 502 (T);
(iv) CCE vs. Bharat Forge Ltd. reported in 2000 (122) ELT 169 (T);
(v) CCE vs. Luna Agro Industries Pvt. Ltd. reported in 2009 (242) ELT 130 (Tri.-Mum.);
(vi) Eastman Crusher Company (P) Ltd. vs. CCE reported in 2008 (224) ELT 86 (Tri.-Kol.).
4.1 It was further submitted that the whole issue pertains to the interpretation of the statutory provisions and there are no grounds to presume or allege that the same was with intention to evade duty and larger period under Section 11A cannot be invoked. It was also submitted that the adjudicating authority has imposed penalty under Rule 173Q for supplies to EID Parry India Ltd. and penalty under Section 11AC for supplies to Vamorganic Chemicals Ltd. There are no grounds to justify heavy penalty on appellant No.1 and, therefore, these penalties should be set aside.
4.2 As far as appellant No.2 is concerned, it was the submission that at the time of first adjudication, the penalty imposed was only Rs.1 lakh which has been increased to Rs.10 lakhs in the present adjudication order without any justification. It was also submitted that in view of this Tribunals decision in the case of Sarjoo Sahkari Chini Mills Ltd. vs. CCE reported in 2008 (226) ELT 211 (Tri.-Del.), the penalty imposed cannot exceed the penalty imposed originally. It was further submitted that appellant No.2 is neither manufacturer nor a buyer or trader of any goods and they have not dealt with any goods under reference. They are only engineering consultants and they only assist their customer in successfully implementing the project and in view of this, no penalty can be imposed on them. The learned counsel also referred to the following two case laws:-
(i) Kamdeep Marketing Pvt. Ltd. vs. CCE reported in 2004 (165) ELT 206 (Tri.-Del.);
(ii) Amit Industries vs. CCE reported in 2004 (165) ELT 177 (Tri.).
5. Learned AR, on the other hand, submitted that appellant No.2 as per the agreement entered into with EID Parry India Ltd., has separately charged for the activities of process designing, mechanical equipment, civil engineering, electrical piping, measuring and control instrumentation and insulation. The learned AR further submitted that as far as civil works are concerned, the Commissioner has already excluded the same but other activities are integrally connected with the manufacturing of the equipment supplied by appellant No.1 and, therefore, expenditure incurred on those activities would be considered as an additional consideration and would form part of the assessable value. He further submitted that it would be seen from the impugned order that there are some activities within the above mentioned broad categories which may not be integrally connected with the manufacture of the equipment but since the separate value for such activities are not available, the Commissioner had no option but to include the entire amount for each of the above mentioned activities. The learned AR took us through the findings of the Commissioner to support the contention. It was further submitted that as per the agreement between appellant No.2 and EID Parry India Ltd., appellant No.2 was required to ensure successful performance guarantee run for six months. Thus, appellant No.2 was required to ensure the successful performance of the goods manufactured by appellant No.1. Appellant No.2 was also required to supervise all the works of appellant No.1 as also erection etc. Such activities of appellant No.2 are related to manufacture of machinery, equipment by appellant No.1. Under these circumstances, the amounts paid to appellant No.2 are required to be added to the assessable value. It was further submitted that these facts were suppressed from the department and were not mentioned in the relevant price declaration etc. and, therefore, extended period of limitation is invokable.
5.1 As far the contract between appellant No.1 and Vamorganic Chemicals Ltd. is concerned, learned AR submitted that the amount paid by Triveni Engg. Works Ltd. to appellant No.2 were exactly for the same purpose. It is immaterial that the said amount was later on forfeited by appellant No.2 as liquidation charges. It was submitted that for the same reasons as in the first case, the amounts recovered will form part of the assessable value. Learned AR further submitted that all the case laws submitted by the learned counsel for the appellant are not relevant to the issue as a perusal of each of these orders would indicate that the charges were relating to erection and commissioning of equipment at site which is a post manufacturing activity while in the present case, the engineering, drawings were the basic drawings based on which appellant No.1 fabricated or manufactured various parts and equipments of the plant. Learned AR further submitted the following case laws in support of his contention:-
(i) CCE, Jamshedpur vs. Tata Motors reported in 2009 (237) ELT 147 (Tri.-Kolkata);
(ii) CCE, Bangalore-III vs. Wintac Limited reported in 2011 (263) ELT 273 (Tri.-Bang.).
6. We have gone through the rival submissions. The basic point to be seen in these cases is whether the charges paid to appellant No.2 by EID Parry India Ltd. or Triveni Engineering Works Ltd. were relating to the engineering, designing and various equipment before manufacturing or these charges are relating to post manufacturing activity. We have gone through the findings of the Commissioner. The Commissioner in his order has given his findings as under:-
After examining each of the- process break up of each item given in the billing schedule my findings are as follows:-
1. PROCESS DESIGNING It is seen from the Annexure IBIC V of agreement between M/s. IBIC and M/s. EID that the process includes plant design, basis specifying plant capacity, raw material and utility, quality and quantity and included diagram equipment identified by item number including title and shown in their approximate elevations, equipment for utilities, package-units as block diagrams, identification of heating and insulation of process pipes, vessels and heat exchangers, main items of instrumentation illustrated and control function required for the process, final numbering of instrumentation, indication of interlocks as required for safe operation of the process plant, final indication of utility lines, values, instrument. It is further specified at A-3 equipment list specifying the item number, name of the equipment, principal materials: of construction to be used, main dimensions and the capacity. These activities are directly attributable to manufacture of machine and equipment manufactured by M/s. IB1. Without these specification they would not be in a position to manufacture machine and equipment. Although the process includes certain other activities with reference to start up operation and normal operation of the plant, however, the assessee has not given any break up of the same. In absence of the same the entire amount of Rs. 22 Lakhs attributable to process as per billing schedule is to be included in the assessable value.
2 MECHANICAL EQUIPMENT As per pars D, D.I of annexure 1BIC-V mechanical equipment, engineering equipment includes equipment description, working conditions, design 'conditions, materials of construction, insulation requirement, fabrication and design notes, nozzle data number and size, nozzles orientation, general drawings for fabrication equipment for fabricator to make shop drawings, specifications for bought-out items. The assessee also admits that the amount attributed towards these items is includibie in the assessable value Rs.22 Lakhs, attributed to these items of "work is includibie in the assessable value.
3. CIVIL ENGINEERING.
I have already discussed the same above.
4. ELECTRICAL.
As per para G Annexure IBIC-V electrical equipments includes motor list, single line diagram, motor control center specifications, safety classification of building and rooms, earthing plan and lightning protection, lighting. installation, interlocking block diagrams, with description of the interlocking conditions, material take of list etc. These activities are directly attributable to manufacture of machine and equipment manufactured by the assessee, as it include motor list, single line diagram, motor control center specifications, which are directly connected to machines and equipments manufactured by the assessee. Assessee has not given break up of these activities, therefore, the entire amount of Rs. 11 Lakhs attributed to these items of work is includibie in the assessable value.
5. PIPING.
As per para E to the annexure IBIC-V piping equipments includes line number operating data, design conditions, designations, material of construction, flange rating and facing, maximum working limits, gasket specifications, insulation requirements, valve type IO be used. These activities are directly attributable to manufacture machine and equipment by the assessee. Piping also includes other activities such as piping plant drawing and piping isometrics, pipe support list, piping material take-off list, valve specification and material take-off list etc. But the assessee has not given any break up of the same. The entire amount of Rs. 32 Lakhs attributed to these items of wok is includible in the assessable value.
5. MEASURING AND CONTROL INSTRUMENTS.
As per para F to annexure IBIC-V specifying control instruments which includes instrument reference number, quantity, lint- size, fluid in contact, working conditions, materials of construction, connection rating, dimensions, allowable pressure drop, fluid flow rate and conditions, relief valve parameters, specification, alarm settings, control ranges, interlocking diagram and description, identification of failure position, draft of instrument arrangement in panel, instrument loop diagram, instrument, material take-off list. These activities arc directly attributable to manufacture machine and equipment by the assessee. The entire amount of Rs.21 Lakhs attributed to these items of wok is includible in the assessable value.
6. INSULATION.
As per para H to the annexure SB1C refers general specification of the insulation indicating the operating temperature and type of insulation for equipments and piping. As discussed above the equipment and piping design and drawing were related to manufacture of machine and equipment by M/s. IBI. It is also seen from processed head in IBIC V referes to machine and equipment for which insulation requirement was part of mechanical engineering. The entire cost of Rs. 3 Lakhs attributed these items of work is therefore, includible in the assessable value.
It is further seen from the agreement between M/s. IBIC and M/s. EID that M/s IBIC was also to ensure successful performance guarantee runs for 6 months. In other words M/s. IBIC were to ensure successful performance regarding the goods manufactured by the assessee. M/s. IBEC was also to undertake inspection of the machine and equipment supplied by the assessee during the erection and also to supervise all the work. Also the inspection regarding machinery manufactured by M/s. IBI. All these activities were carried out by IBIC are related to the manufacture of machinery and equipment by the assessee. Further M/s. IBIC also undertook to ensure that the plant equipment supplied by the manufacturer was in conformity with the description, the technical specifications and was in accordance with the agreement. Agreement also shows that M/s IBIC was to ensure that the production capacity of products, yield and other production figures under regular operating conditions should not be less than the figures shown in IBIC-II and 1BIC-I11 and that the quality of the products shall be confirm to IBIC-IV. It is clearly shows that machines and equipments manufactured by M/s IBI were to confirm the capacity, quality of products, yield and other production figures under regular operating condition.
It is also seen that the consultant i.e M/s. IBIC were not only to supply technical documentation of machines and equipment but also to coordinate the supply of machinery. The consultant was responsible for the supplies made to M/s IBI. Consultancy charges received by M/s. IBIC are therefore directly related to manufacture of plant and machinery by M/s. IBI. It is seen that all machines and equipment listed in annexure-I of the agreement the equipment were to be manufactured by M/s. IBI. In view of the above discussions various argument made by the assessee to show that the charges relating to process, electrical, piping, instrumentation, insulation were not related to manufacture of machinery and equipment manufactured by them cannot be accepted.
7. We have also gone through Annexure 5 of the agreement between appellant No.2 and EID Parry India Ltd. and we find entirely in agreement with the findings of the Commissioner that most of the activities are relating to pre-fabrication, engineering and design stage. It is on the basis of this designing that the appellant is fabricating various equipment, instruments, pipings, insulations etc. The expenditure on such activities would, therefore, form part of the assessable value of the machinery and equipment manufactured by appellant No.1. In fact without these engineering drawings, it was not possible for appellant No.1 to fabricate and manufacture the equipments which they have supplied. We also note that in some cases there are some activities which may not be necessary at the manufacturing stage. However, since no separate amount has been indicated for such post manufacturing activities, the entire amount is required to be added. During the course of the hearing, the Bench has queried from the counsel for the appellant the list of the equipments or other items which have been purchased by EID Parry India Ltd. directly from other vendors. However, the learned counsel could not supply any such information. From the agreement, to us it appears that the whole plant was fabricated and assembled by appellant No.1 as per the engineering design by appellant No.2. Keeping in view all these facts, we are of the considered view that the amounts paid to appellant No.2 would form part of the assessable value. We also note that these critical facts were not submitted along with the price declarations and, therefore, the extended period of limitation has been correctly invoked. As far as the demand relating to supplies made to Vamorganic Chemicals Ltd. is concerned, we find that the Revenue has added the engineering design charges for the same reasons. It is immaterial that those engineering and design charges were recovered from Triveni Engg. Pvt. Ltd. initially for the said purpose and later on as damages. It was based upon the engineering designs and drawings supplied by appellant No.2 at the initial stage that appellant No.1 fabricated those equipments. For the reasons which are applicable to the supplies made to EID Parry India Ltd., these amounts will also form part of the assessable value. Here again, the extended period of limitation is correctly invoked and the penalty imposed under Section 11AC is correct. As far as penalty under Rule 173Q on appellant No.1 is concerned, keeping in view the overall facts and circumstances of the case and the fact that some of the activities are post manufacturing activity for which separate amounts are not available, in our view, the penalty imposed under Rule 173Q is on the higher side and we reduce the same to Rs.1,00,000/-. Similarly, the penalty imposed on appellant No.2 under Rule 209A is also on the higher side and the same is reduced to Rs.1,00,000/-. The contention of the learned counsel for appellant No.2 that they have not dealt with the goods is rejected as they were instrumental in the designing as well as ensuring the proper functioning and running of the equipment and they were concerned at every stage of the manufacture and supply.
8. The appeals are rejected except the modification of the penalty amounts as above.
(Pronounced in Court on 7.9.2015) (S.S. Garg) Member (Judicial) (P.K. Jain) Member (Technical) tvu 1 15