Customs, Excise and Gold Tribunal - Tamil Nadu
I.T.I. Equatorial Satcom Ltd. vs Commissioner Of Central Excise on 10 September, 1999
Equivalent citations: 2000(67)ECC154, 2000ECR202(TRI.-CHENNAI), 2001(136)ELT156(TRI-CHENNAI)
ORDER V.K. Ashtana, Member (T)
1. In this appeal, appellants have agitated against Order-in-Original No. 5/92 dt. 28.1.92 passed by Collector of Central Excise which has confirmed the duty demand of Rs. 9,18,049.55 on the element of interest received by the appellants and an additional amount of Rs. 19,87,249.95 on the maintenance and warranty charges realised by the appellants. The Central Excise duty of Rs. 57,74,866 has also been confirmed and a penalty of Rs. 1 lakh imposed on the appellants.
2. Briefly the issue concerns import in SKD condition of Micro Earth Stations which were supplied to M/s. National Informatics Centre (NIC) for erection at various locations specified by them including district headquarters in various States. The order impugned holds that the said erection/installation amounts to manufacture and that in the assessable value thereof, the interest received by the appellants from M/s. ITI Ltd. from time to time is to be included and differential duty leviable. Similarly, the amount of maintenance and warranty charges is to be included in the assessable value.
3. Heard Shri G. Sampath, Ld. Advocate for appellants and Shri S. Kannan, Ld. DR for Revenue.
4. Learned Advocate submits that they are in appeal only on two grounds viz firstly that interest on such advances is not includible in the assessable value and secondly that maintenance charges being post-warranty charges are not includible in the assessable value. He submits that as far as the first issue is concerned, the appellants used certain sums by M/s. ITI Ltd. who had received these sums from M/s. NIC in the Govt. of India to facilitate the import of these highly sophisticated satellite stations for the use by the Government through NIC. Revenue seeks to include the interest on these advances received by appellants in the assessable value of these Micro Earth Stations as the said activity was held to be manufacture in the order impugned. Ld. Advocate submits that the process of erection/installation of these Micro Earth Stations at sites by Engineers employed by the appellants cannot be held to be manufacture because nothing was produced or manufactured during the course of these installations as the complete equipment had been imported and Customs duty paid on relevant Bill of Entry. No expenses on brought out items were also involved at the material point of time. Therefore, simply because in the balance sheet, appellants had erroneously used the word "manufactured", it cannot be said that they were engaged in any manufacturing activity. Mere installation of a complete system imported in a semi-knocked down condition at site indicated by the buyers cannot be said to constitute manufacture but it is merely a trading activity.
5. Ld. Advocate further submits that the Ld. Collector has relied on the judgment in the case of Narne Tulamen Mfs. (P) Ltd. as reported in 1988 (18) ECC 165 (SC). As the same has been reviewed by the Supreme Court in the case of Mittal Engg. as reported in 1997 (58) ECC 22 and also in Quality Steel Tubes (P) Ltd. as in 1996 (53) ECC 96 wherein it was observed that in the case of Name Tulamen MFS. (P) Ltd. the Court had not considered the question of manufacture at all under the Central Excise law. Therefore, the reliance in the order is not legally correct. Ld. Advocate further submits that when there was no manufacture involved, the question of adding the interest to the assessable value would automatically fall to the ground.
6. With respect to the warranty/maintenance charges, he drives our attention to the purchase Order dated 16.11.87 between NIC & ITI Ltd. wherein it has been clearly stipulated that since the warranty was only for 90 days, thereafter, further maintenance for one year beyond this period would be included in the price paid. Annexure to the said Purchase Order used the term "Warranty extension for 9 months" as also the terms "warranty and maintenance for one year on certain other items". Ld. advocate submits that the charges paid by NIC was for providing further maintenance charges after the initial period of warranty of 90 days which were given free. Though the term 'warranty' has been loosely used, what it means is that after expiry of 90 days, further maintenance including supply of spares required would be as per the charges included in that said annexure and it would only be free. Ld. Advocate submits that therefore it is clear that manufacturers' warranty was for only 90 days which was provided free of charge. Thereafter, despite loose use of the word 'warranty and maintenance', the nature of services provided was merely post-warranty charges which are now more commonly known as 'Annual Maintenance Charges'. He submits that there are plethora of decisions that such post-warranty charges cannot be included in the assessable value. To support these two arguments, Ld. Advocate cites the case of British Physical Laboratories India Ltd. as in wherein it has been held that assembly of video magnetic tapes with plastics imported in disassembled condition especially in the absence of manufacture of any components thereof does not amount to manufacture and in reaching the said conclusion, the Tribunal had relied on a number of other decisions of the Apex Court as well as High Court of Calcutta and Madras indicated therein. He submits that since there is no evidence on record or allegation that any component of this highly sophisticated satellite micro earth station was manufactured by the appellants in India, the ratio of this said decision would be clearly applicable on all fours to the facts of the present case. He further submits that at the relevant point of time, appellants had no factory, no machines and no personal or any other infrastructure for manufacturing any such components. The only personal employed in this trading and working activity was about 10 engineers who had been taken on loan by appellants by ITI Limited whose list has already been disclosed with the Department as well as 7 other Executives/Secretarial staff recruited by the appellants not one of them were engaged in any production activity.
7. With respect to the question of warranty charges, he cites the decision of the Tribunal in Konark Televisions Ltd., Bhubaneshwar and Anr. v. CCE, as in ; CCE v. PSI Data Systems as in and the decision of the Apex Court in CCE v. Kelvinator India Ltd. as in 1988 (17) ECC 33 (SO wherein it was held that after-sales service rendered for maintenance after the expiry of free warranty charges, the entire payment for that is not includible in the assessable value as the contract is optional. He submits that while the Ld. Collector in order impugned has stressed that there is no evidence to show that the said contract was optional, it is equally true that there is no evidence to show that the said contract was compulsory. In the normal course of trade, while the warranty services to be rendered free of charge is compulsory, subsequent maintenance services are always to be considered as optional. In view of the aforesaid submissions, he submits that there is no merit in the order impugned and prays for the appeal to be allowed.
8. Ld. Advocate further submits that even if it is held that erection would amount to manufacture, though not admitted. The Central Excise Collectorate Bangalore would not have jurisdiction to raise demand on those systems which were erected/installed outside its geographical jurisdiction. He says 99% of the said equipment was erected outside the jurisdiction of the said Collectorate. On that ground also, the demand upheld in the order impugned suffers from lack of jurisdiction. The list of these locations are available at page 130 to 133 of the Paper Book.
9. Heard Ld. DR Shri S. Kannan who reiterates the Order-in-Original and particularly lead us to para-16 thereof, wherein detailed discussion is available as to how the activity of the appellants constitutes manufacture. He also submits that Ld. Collector has examined in detail as to how the advances drawn by the appellants from M/s. ITI were in the nature of working capital and if the same had not been available to them, then the appellants would have been forced to raise the said sums from the normal financial institutions on payment of interest.
10. With respect to after-sales services, he cites the decision in the case of Enfield India Ltd. as in wherein it has been held that after-sales service and pre-delivery inspection which is only collected at the time of delivery of the goods over and above the price declared to the Department are to the treated as additional consideration and hence includible in the assessable value. He also submits that there is no evidence submitted by appellants to show that warranty/maintenance charges were actually optional and that there was a free warranty period.
11. At this point, Ld. Advocate counters to say that when no manufacture is involved, there is no question of including any of these charges in any assessable value. He also submits that the purchase orders speaks of the initial 90 days warranty for which payment has not been made as the payment indicated therein is for the period thereafter.
12. We have carefully considered the rival submissions and records of the case. We find that the equipment imported was such that the like of which was not manufactured in India by anybody else. We also find that therefore, the entire equipment necessary was imported, albeit in SKD condition. These imports were cleared through Customs after assessment to customs duty etc. under that law. We also find that appellants have led significant evidence to show that they were not in possession at the material time of any infrastructure, factory, means of production, work force etc. by which they would have manufactured any component to complete the working of the items imported as a complete Micro Earth Station. Therefore, the only logical conclusion available to us is that the complete Micro Earth Station was in fact in SKD condition and nothing was added to it and that no other components or sub-systems were added to it by the appellants. Such a situation has already been considered by the Tribunal in the case of British Physical Laboratories India Pvt. Ltd. (supra) wherein it was held that when there is only an assembly of the entire components imported, the said assembly does not amount to manufacture. The facts of that case is identical to the facts of the case under consideration. We also take note of the fact that the decision in the case of Name Tulamen relied upon in the impugned order has since been clarified by the Apex Court in the decision of Mittal Engg. and Quality Steel Tubes (P) Ltd. (Supra) to the effect that the question of manufacture therein considered in that decision and therefore the reliance thereon in the Order-in-Original impugned is also not logically correct. The total picture which emerges out of this case is that nothing was manufactured and that a sophisticated Micro Earth Station was merely installed/ erected at the sites indicated by the NIC which was a body of the Govt. of India. Therefore applying the ratio of the said decision in the case of British Physical Laboratories India Pvt. Ltd., we hold that no manufacture was involved in such erection/installation of imported Micro Earth Station in SKD condition. While considering the fact that the said erection/installation was done at various cites all over the country as is available in the paper book as noted above, we find that the Collector of Central Excise Bangalore had no jurisdiction to issue a demand in the case of those cites which were beyond the geographical jurisdiction of the said Collectorate as exists by the Govt. Notification on this issue. A perusal of these locations, we find that a very substantial part of the demand would straightaway be hit by lack of jurisdiction even if it were to be held that such installation amounted to manufacture. However, we have not held so as indicated above. Since no manufacture is involved, there is no question of any other excisable goods emerging and of addition of any charges to their assessable value. Therefore, we find that there is no need to go further into whether such advances as well as warranty/maintenance charges were in fact having a nexus with the manufacturing activity or not leading to emergence of any excisable goods.
13. In view of the aforesaid analysis, we find that appeal being only restricted to the two issues noted above, the Order-in-Original impugned, as far as these two issues are concerned only, is set aside and the appeal is allowed with consequential relief, if any, as per law. The Order-in-Original impugned has imposed a penalty of Rs. 1 lakh basically on the ground that there was manufacture. Since we have held that there is no manufacture as also that there is lack of jurisdiction on very substantial part of the demand, therefore the said penalty is also set aside.
14. Appeal succeeds accordingly with consequential relief, if any, as per law.