Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of Central Excise vs Electronics And Controls on 27 May, 1998
Equivalent citations: 1998(61)ECC640
ORDER
U.L. Bhat, J. (President)
1. The Collector of Central Excise. Bangalore has filed this appeal against Order-in-Appeal No. 111/90 dated 16.7.1990 passed by the Collector (Appeals), Bangalore, reversing Order-in-Original dated 21.11.1989 passed by the Assistant Collector, Bangalore. The Assistant Collector held that the value of battery supplied to buyers of Uninterrupted Power Supply System (UPSS) should be included in the: assessable value of UPSS and that the demand of differential duty on this account, had to be confirmed. The Collector (Appeals) took a contrary view, set aside the order passed by the Assistant Collector and discharged show-cause notice.
2. Respondent engaged in manufacture of UPSS was buying battery from the market and supplying the same along with UPSS apparently to buyers, who wanted both and supplying only UPSS without battery to buyers, who did not want battery. The dispute relates to those instances where battery was supplied with UPSS to buyers. Respondent paid duty on the assessable value of UPSS arrived at without including the value of the battery. Accordingly, show-cause notice was issued on the above terms and proposing demand of differential duty on assessable value arrived at by including the value of battery supplied along with UPSS.
3. Respondent submitted reply to the show-cause notice stating that while UPSS normally functions with battery from which power is drawn in the event of failure of commercial power supply, when such supply is present, UPSS acts as power-conditioning equipment to deliver clean quality power without any spikes, glitches, frequency variation and voltage variations and it acts basically as power conditioning equipment like voltage stabiliser or isolation transformer or spike arrestor. In reply, it was further stated that UPSS can function without battery, meeting the requirement of power conditioning only. The battery is not fitted inside the system but only connected by wire. The option lies with the buyer of UPSS either to buy battery from the respondent or from any other source. Modvat benefit has not been availed on duty paid on the battery.
4. The Assistant Collector held that battery is an integral part of the UPSS as it is connected by an electric cable and contributes to a clearly defined function, namely supply of quality power without interruption and the supply of battery enriches the value of UPSS and enhances its marketability on this basis, he held against the respondent.
5. The Collector (Appeals) did not consider on merits the question whether battery is an integral or component part of UPSS, but held in favour of the respondent on the sole ground that battery is supplied to buyer of UPSS only at his option.
6. Shri Rama Rao, JDR., contended UPSS cannot function at all without battery, unlike the case of Typewriter where the typewriter can function without a ribbon and therefore, optionality has no relevance in the dispute. All that can be said regarding cases of supply of UPSS without battery according to him, incomplete UPSS were supplied to buyers. Cases where UPSS plus battery were supplied, are cases of supply of complete UPSS system. According to him, some buyers did not want to buy battery from the respondent, but wanted to buy from some other suppliers as indicated in reply to the show-cause notice and therefore, battery cannot be regarded as an optional accessory and has to be regarded as integral on component part of UPSS. He also relied on the decisions of Tribunal in Karnataka Stale Electronics Development Corporation Ltd., and in Supra Hi-Terh Electro Equipments (P) Ltd. .
7. Sri K. Parameshwaran, learned Counsel for the respondent rebutted the above contentions and reiterated the contentions raised in reply to the show-cause notice that UPSS manufactured by the respondent can perform two different functions, namely, the function of uninterrupted power of supply using one or more batteries and the function of conditioning power being supplied by the commercial system, without using a battery and buyers fall into two classes, those who want to use UPSS for uninterrupted power supply, who may buy battery from the respondent or from others and those who wanted to use UPSS only for power-conditioning in which case they do not buy battery at all. lie relied on the decision of the Tribunal in National Radio and Electronics Co. Ltd., .
8. As indicated earlier, we are not concerned with UPSS sold without battery to buyers who wanted to buy battery from other source; we are concerned with UPSS supplied with battery to buyers who wanted to use the same for uninterrupted power supply. This issue is covered by two decisions relied on by the department. In Kerala State Electronics Development Corporation Ltd., it has been held that UPSS could be off-line or on-line but in both battery is an integral and an indispensable part. It provides uninterrupted character to the system. Off-line system is in the nature of standby equipment, while in on-line system, even when the main line is on, the current passes through the system. In both the systems, when the main line (different phases, in case of more than one phase in the existing line) fail, then without any interruption the battery automatically takes over immediately and when the current is restored or the generator takes over then the battery, automatically gives over to the main supply or to the generator. The battery is thereafter recharged by means of a battery charger, which forces electrons through the battery in a direction opposite to that of the discharge process. This action reverses chemical reactions that occur when a battery discharges. The reversed reactions of charging process restore the electrode materials to their original form and increase the amount of sulphuric acid in the electrolyte to a satisfactory level. The standby generator is not a substitute for UPSS system, as it cannot take over the power supply automatically. The battery is inter-connected using metallic links and it is connected to the UPSS equipment by means of cables generally planted underground. The Bench further-observed that there are many types of off-line UPSS systems. Most of them offer protection only against power failure, while a few of them may also offer protection against spikes, surges, line-noise and high and low voltages The Bench referred to the statement in "Standard hand-book for Electrical Engineers--11th Edition by Fink and Beauty" that in the UPSS system a battery supplies power to the invertor when the AC power source is interrupted upto several minutes. The Bench concluded that the battery is an essential part or component of the UPSS system. In the case of Supra Hi-Tech Electro Equipments (P) Ltd., where even without reference to the earlier decision, the Bench held against the assessee.
9. We now consider the decision in the case of National Radio and Electronics Co. Ltd.. relied on by the respondent. It was contended by the assessee in that case that the battery i.e. bought out item was supplied at the option of the. buyer of UPSS and not otherwise. The Bench noticed the rival contentions as to whether the battery is a component or integral part of UPSS. referred to the earlier decision in the case of Kerala Stale Electronics Development Corporation Ltd., considered whether the value of the battery was includible in the assessable value of UPSS, if it was a purely optional item and pointed out that the question of optionality was not raised and considered in the earlier case. The Bench observed that the value of bought out items is includible even if they are not essential for the operation of manufactured goods provided they are fitted or attached to the goods before clearance, and took the view that if the part or accessory is fitted at the option of the customer, it cannot be described as essential or integral part of the product.
10. The earlier decision considered the purposes and functions of UPSS and came to the conclusion that the UPSS cannot function at all without a battery and therefore, it was an integral part of UPSS. The Bench in the latter decision did not consider this aspect at. till and went merely by the circumstance that battery was being supplied optionally. Battery might have been supplied optionally since battery could be available to the buyer from other suppliers. This aspect was not considered in the later decision.
11. We have adverted to the two kinds of buyers--who according to the respondent, purchase UPSS manufactured by them. We are not concerned with the UPSS supplied to the buyers without battery. We are concerned only with the UPSS supplied to buyers with battery. Even if, we accept the contention of the respondent that UPSS can function without battery for conditioning power battery is an essential pre-requisite, if UPSS is to provide uninterrupted power supply. In such a case, the source of power, is the battery. The power, of course is replenishable when the main power supply is available, but unless a battery is part of the UPSS, the system cannot provide uninterrupted power supply. So far as persons who purchase UPSS with battery from the respondent are concerned, they did so only because they wanted to use this system to ensure uninterrupted power supply. So far as the UPSS with battery supplied to these buyers are concerned, UPSS is an integral system of which the battery is an essential and integral part as held in the case of kerala Slate Electronics Development Corporation Ltd. An explained in reply to the notice the aspect of optionality arises basically because some buyers want to use the system only for conditioning power and some other buyers who want to use the system for uninterrupted power supply want to buy battery from other sources. It is thus clear that as provider of uninterrupted power supply UPSS cannot function at all without a battery and therefore, battery has to be regarded as an integral part of the UPSS. The instance of typewriter ribbon referred to by the respondent is not an apposite analogy since typewriter can function even without ribbon, while UPSS cannot function as provider of uninterrupted power supply without battery.
12. We feel bound, in these circumstances, to follow the view taken in the case of Kerala State Electronics Development Corporation Ltd. and we do not feel bound to follow the decision in the case of National Radio and Electronics Co. Ltd.
13. For the reasons aforesaid, we set aside the impugned order passed by the Collector (Appeals) and restore the order passed by the Assistant Collector.
14. The appeal is allowed.
Pronounced and dictated in the open court.