Customs, Excise and Gold Tribunal - Delhi
G.E.C. Of India Ltd. vs Collector Of Central Excise on 1 June, 1992
Equivalent citations: 1993(63)ELT151(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. Brief facts of the case are as follows.
1.1 The appellants herein are manufacturers of transformers. They were found to have charged Rs. 29,86,334/- towards the testing charges for special tests carried on the transformers before their clearance on payment of duty. Such charges however were not included in the assessable value of the transformers. Prior to February, 1986, the appellants had been availing of the invoice value assessment under Notification No. 120/75, dated 30-4-1975 and after February 1986, until July 1986 they had filed the price lists but the charges towards special testing were not included in the assessable value nor the central excise duty was paid thereon. Accordingly, a show cause notice dtd. 8-7-1988 was issued to the appellants for the recovery of an amount of Rs. 5,05,833/- as being the duty not paid on the total collection of special testing charges of Rs. 29,86,334/-. Allegation in the show cause notice was made to the effect that these special testing charges were collected by the appellants through invoices raised from their own regional/branch office and therefore, the collection of such special charges was not brought to the notice of the central excise officers and thus, the appellants suppressed the facts of collection of charges on special testing. Show cause notice also proposed as to why penalty be not imposed on them under Rule 173Q(1) for contravention of Rules 173F and 173G of the Central Excise Rules, 1944.
1.2 On adjudication, the Collector of Central Excise has demanded the aforesaid duty of Rs. 5,05,833. He has however, not imposed any penalty under Rule 173Q(1) having regard to the facts and circumstances of the case. Hence this appeal before the Tribunal.
1.3 The appellants' ld. advocate Shri L.P. Asthana has now urged that in transformer manufacturing there are certain specific tests which are inherent part of the manufacturing process at different stages so as to produce finished goods and these are known as routine tests/line tests. These tests, he submits, are obligations of the manufacturer. The appellants like all other transformer manufacturers issued copies of the certificates of all the routine/line tests carried out during the entire manufacturing process for each transformer that it manufactures to the customer. At this stage, all obligations of the appellants, submits the ld. advocate, are fulfilled inclusive of performance guarantee and the goods namely the transformer becomes marketable at this stage. Serial number is allotted to the transformer and production of goods is recorded in the RG-1.
2.1 In case of very few customers, they desire that certain investigations be specially carried out for their own satisfaction in presence of their representatives after the manufacture of the transformer is complete in all respects and for which the customer agrees to pay separately. These investigative tests, according to the ld. advocate, are known as special tests. Where a customer places a bulk order for the transformers, he may decide for his own satisfaction and select at the last moment any one of the transformers out of the lot so procured to be investigated by those special tests. Such investigative tests are normally asked for by State Electricity Boards and Public Undertakings.
2.2 Many transformer manufacturers do not have the facilities to carry on such special tests required by the customers and invariably these special tests are to be got done from National Test House, Central Govt. Testing Agencies, e.g. Central Power Research Institute (Bhopal & Bangalore) etc. Sometimes, even if a manufacturer possesses facilities for carrying out special tests a customer may like those tests to be carried out by an independent organisation as aforesaid rather than by the manufacturer himself. In all such cases, special charges are collected for such tests and no duty is charged on such collections. It was also urged that these special tests are not carried out on each of the transformer manufactured by the appellants. They are carried out on one of the representative transformers of the lot purchased by a customer. It was also asserted that sales of transformers were also made even without these special tests. Therefore, the ld. advocate has submitted that there is no dispute about the marketability of the transformers without their undergoing the special tests for which special charges are collected. It has therefore, been urged that no excise duty can be levied on these special charges because these are made after the goods have become marketable and only at the request of special customers. He relies in support on a very recent judgment of the Tribunal (Order No. 796/91-A, dtd. 2-12-1991) in the case of Shree Pipes Ltd. v. C.C.E. reported in 1992 (59) E.L.T. 462 (Tri.) 2.3 Apart from the aforesaid submission, on merits of the case, the ld. advocate has also stated that the demand of duty is time-barred inasmuch as the department was fully aware of collection of special testing charges by the appellants from its customers. He points out that matter was adjudicated by the Asstt. Collector of Central Excise vide his order dtd. 25-8-1984 issued from file No. V(30)55/84/X-2. It cannot therefore be stated by the department by any stretch of imagination that the facts were suppressed by the appellants from them. He submits that the appeal against the aforesaid order of the Asstt. Collector is pending before the Tribunal. It was urged that the show cause notice dtd. 8-7-1988 covers the period November 1982 to October 1987. It is thus submitted that the demand is even beyond the period of five years for the period November, 1982 to 7-7-1983. Demand for this period is wholly beyond the provisions of law.
2.4 Another incidental submission has been made that the impugned order includes an amount of duty for a period which is covered by another show cause notice. It is thus submitted that there is an overlapping of demand of duty.
3. Ld. JDR, on the other hand, opposes the above contentions and reiterates the findings of the adjudicating authority. He submits that the expenses incurred before the clearance of the goods from the factory gate would form part of the assessable value. The special testing is an activity which is undertaken before the goods are removed from the factory gate as per the terms and conditions of the contract. Therefore, the charges paid towards the special testing are includible in the assessable value being the pre-removal expenses.
3.1 Looked at from another angle, he submits that special testing charges collected by the appellants are in the nature of additional consideration and therefore, they are covered by Rule 5 of the Central Excise (Valuation) Rules, 1975. He has also submitted that special testing enhances the value of the goods and repose greater confidence of the customer. Therefore, on the analogy of including the after-sale-service charges collected by a manufacturer, these charges on special testing also go to enrich the value of the goods. Hence, the ld. JDR submits that in view of the Supreme Court's judgment in the case of Bombay Tyres International Ltd. -1983 (14) E.L.T. 1896 (SC) these charges would form part of the value of the goods. It has been held by the Supreme Court in that case that after-sale-service charges would form part of the value of the goods.
3.2 He has also drawn attention to a Book styled as The J & P Transformer Book, 11th Edition, A Practical Technology of the Power Transformer by A.C. Franklin and D.P. Franklin. He draws attention to Chapter 13 namely Performance and Type Tests which indicates that tests to be carried out on transformers are divided into 3 categories namely :
1. Routine Tests.
2. Type Tests.
3. Special Tests.
He submits that the tests carried out by the appellants cannot be termed as special tests. They fall under the category of type tests namely :
1. Temperature & Rise Tests.
2. Lightning impulse tests.
From this, the ld. JDR submits, that the tests carried out by the appellants for which charges are collected by them separately and on which duty had not been paid cannot in any manner be categorised as special tests and would, on the appellants' own argument, form part of the assessable value.
3.3 On the question of time bar the Id. JDR has stressed that these charges were collected by the appellants through the invoices issued by their Branch & Regional offices. Thus, he submits that these charges were collected by the appellants without the knowledge of the central excise officers. Therefore, there is a clear case of suppression of facts by the appellants. Hence, the period of five years has been rightly invoked.
3.4 As regards the overlapping of duty, he submits that the matter, if considered necessary, be remanded on this aspect to the lower authorities.
4. In his rejoinder, the ld. advocate Shri Asthana submits from the same Book, the J & P Transformer Book that the requirement for type or special tests to be performed or for any tests to be performed in the presence of the purchaser or his representative, must be determined for particular contracts. He therefore, submits that even the tests carried out by the appellants, which no doubt fall within the category of type tests are different from routine tests and being a matter of contract between the manufacturer and the customer these cannot be included in the assessable value of the goods because the goods are otherwise marketable without these tests.
5. We have carefully considered the pleas advanced on both sides. On the first question whether the special/type tests carried out by the appellants and for which separate charges are collected by them from their customers are includible in the assessable value or not, we are of the view that the Tribunal's judgment in the case of Shree Pipes, relied upon by the ld. advocate applies squarely to the facts of this case. There is no dispute by the department that the goods are marketable even without the type/special tests carried out by the appellants and they have actually been sold in different years even without these tests. The Tribunal in the said judgment of Shree Pipes had agreed to the following submission of the ld. advocate for the appellants :-
"That this is an extra test carried out on behalf of the customer; otherwise even before carrying out aforesaid inspection by DGS & D the goods were fully marketable and had actually been marketed to the other wholesale customers. He, therefore, submits that the cost of this test which is admittedly a post-manufacturing expense and has no relation to the manufacturing of the goods, should be excluded from the assessable value of the goods. He draws analogy from the special secondary packing made on behalf of the customers by a manufacturer on which there is a direct judgment of the Supreme Court in the case of Bombay Tyres International Ltd. [1983 (14) E.L.T. 1896 (SC)]. He draws attention in particular to paras 51 and 52 of the said Report. The later para i.e. 52 is reproduced below :-
"52. If any special secondary packing is provided by the assessee at the instance of a wholesale buyer which is not generally provided as a normal feature of the wholesale trade, the cost of such packing shall be deducted from the wholesale cash price."
Shri Asthana submits that this ratio should also apply to the cost towards testing/inspection subsequent to the manufacture of goods. Accordingly, he submits that if any special testing is carried out by the assessee at the instance of the wholesale buyer which is not generally provided as a normal feature of the wholesale, the cost of such testing should be deducted from the wholesale cash price".
5.1 Facts of this case are on all fours with the facts of the Shree Pipes' case. Following the ratio of the judgment in the said case, we are of the view that the charges collected for type/special tests by the appellants would not form part of the assessable value of the goods.
5.2 On the question of time bar as well, we find sufficient force in the plea of the appellants. We find from the order dtd. 25-8-1984 of the Asstt. Collector of Central Excise, Allahabad that the department was aware of the practice at least from October 1983 when it had raised demands in RT-12 for the months of October 1983 to March 1984 and May 1984 in the said adjudication order dtd. 25-8-1984 passed by the Asstt. Collector of Central Excise, Allahabad. It cannot therefore be said, as contended by the department and found by the adjudicating authority that the department was not aware of the practice of collection of charges for special tests by the appellants. The demand of duty therefore, for the period October 1983 onwards is wholly time-barred, the show cause notice having been issued for the period beyond six months. The demand of duty for the period November, 1982 to July 1983 is in any case time-barred, the period being beyond five years. The demand of duty only for the period from 8-7-1983 to September, 1983 alone would be within time. This finding is, however, only of academic interest, in view of our finding on the first issue.
6. The appeal is disposed of in the above terms.