Customs, Excise and Gold Tribunal - Delhi
Mihir Engineers (P) Ltd. vs Collector Of Central Excise on 19 February, 1999
Equivalent citations: 1999ECR775(TRI.-DELHI), 1999(107)ELT756(TRI-DEL)
ORDER Lajja Ram, Member (T)
1. In this appeal filed by M/s. Mihir Engineers (Pvt.) Ltd. (hereinafter referred to as M/s. MEPL) the matter relates to the inclusion of the value of the bought out components used in the manufacture of fibre glass reinforced plastic (FRP)/air washers, and the value of the bought out components supplied along with other manufactured parts for installation of cooling towers. The Assistant Collector, Central Excise, Ahmedabad had observed that no duty was chargeable on the bought out parts purchased from the open market. He had also passed orders with regard to the classification of the goods manufactured by MEPL. He had classified the FRP air washers under sub-heading No. 8415.00 of the Central Excise Tariff. The components FRP casings and FRP basins were classified under sub-heading No. 8419.00. This order passed by the Assistant Collector, Central Excise, Ahmedabad was reviewed by the Collector, Central Excise and an appeal was filed with the Collector, Central Excise (Appeals). The Collector, Central Excise (Appeals) decided that the value of the entire quantity of component parts which go into the manufacture of cooling towers as also in the manufacture of air washers would have to be taken into account for determining the assessable value. He also passed certain orders with regard to the classification of the FRP air washers, FRP casings and FRP basins. In the grounds of appeal, the MEPL had pleaded that -" the order in appeal passed by the Collector is not proper, correct and legal so far as it relates to inclusion of the value of bought out components for the purpose of classifying the cooling towers as a whole unit and for determining of the aggregate value of clearance under Section 4 of the Act". With regard to the classification, the appellants had pleaded that with regard to the classification of air washers, they had submitted a separate appeal before the Tribunal and that with regard to the classification of the cooling towers and parts thereof, there was no controversy about the decision of the Collector of Central Excise (Appeals).
2. The matter was posted for hearing on 26-10-1998 when Shri Vijay Joshi, Advocate submitted that the cooling towers were installed on the site and the appellants were only manufacturing FRP casings and FRP basins. The rest of the components were bought out items and were transported to the site without any manufacturing process. No cooling towers as such were manufactured by them. He pleaded that the value of the bought out items was not to be included in the value of the parts which the appellants had manufactured in their factory. He referred to the following decisions :
(1) Collector of Central Excise, Meerut v. Friction Materials reported in 1996 (86) E.L.T. 685 (Tribunal) (2) Collector of Central Excise, Bhubaneshwar v. Radiant Electronics Ltd. reported in 1996 (85) E.L.T. 102 (Tribunal) (3) Collector of Customs, Bombay v. Recondo Ltd. reported in 1998 (102) E.L.T. 113 (Tribunal).
3. In reply Shri N. Shiv Kumar, JDR submitted that orders were placed with the appellants for supply of cooling towers. They supplied the cooling towers under their own brand name. He submitted that the case law relied upon by the appellants was not applicable to the facts and circumstances of the case.
4. We have carefully considered the matter. The only issue for our consideration is whether the cost of the bought out items which were supplied as such to the customers was or was not to be included in the value of the goods manufactured by the appellants. With regard to the classification dispute, the appellants in para 3 of their grounds of appeal, had submitted that so far as the question of classification of cooling towers and parts thereof was concerned, the Collector, Central Excise (Appeals) had ordered that the said goods were classifiable under Heading No. 84.19 of the Tariff and not under Heading No. 84.15 as contended by the Assistant Collector, Central Excise in the EA 2 application. They had submitted that there was no controversy about this decision and no arguments were being placed against the same. As regards the classification of air washers under Heading No. 84.15, they had submitted that a separate appeal had already been filed by the appellants against the Order-in-Appeal No. R-922/AHD/102/103/87, on 9-8-1988.
5. The appellants were manufacturing FRP casings and FRP basins, components for the Mihir Cooling Towers. The other components required for installation, erection and commissioning of the cooling towers were purchased from the open market. The appellants had explained that the cooling towers as a whole was neither fabricated nor assembled in their factory but the equipment as a whole comes into existence at the site of the buyers. As a result of mounting and erection jobs, the entire structure of the cooling towers fastened to the earth comes into existence and becomes a immovable property. They had represented that they did not have any machinery for manufacturing cooling towers or any other components thereof except FRP casings and FRP basins.
6. It appears clear from the facts on record that although the appellants had orders for erection of cooling towers, only two parts were manufactured by them. The bought out items were not subjected to any process of manufacture and they were fitted only at the site of the customers.
7. The Assistant Collector, Central Excise, Ahmedabad, the adjudicating authority had observed that the MEPL were manufacturing only certain parts and not a complete cooling unit though they had entered into a contract for erection of the cooling unit. He relied upon the Gujarat High Court decision in the case of Machine Products (I) Pvt. Ltd. v. Union of India reported in 1986 (23) E.L.T. 426 (Gujarat) wherein the High Court had held that the value of the component parts purchased from the open market was excludible from the total value of clearance for determining the eligibility to exemption under Notification No. 89/79-C.E., dated 1-3-1979 or Notification No. 105/80-C.E., dated 19-6-1980. He also referred to the Tribunal's decision in the case of Machine Products (I) Pvt. Ltd., Ahmedabad v. C.C.E., Ahmedabad -1982 (14) E.L.T. 2480 (Tribunal) wherein it was observed that the value of bought out parts would not be includible while computing the value of clearance for determining the eligibility of the appellants to the benefit of Notification No. 176/77-C.E., dated 18-6-1977. He had come to a finding that the eligibility of duty arose only with regard to the manufacture of the goods by M/s. MEPL - i.e FRP casings and FRP basins and that they were only liable to pay duty on the products manufactured by them and not on the other parts which they had bought out from the open market on payment of duty. In the grounds of appeal filed before the Collector of Central Excise (Appeals), it had been mentioned that there were 22 essential part of cooling towers out of which only two i.e. FRP casings and FRP basins were manufactured by M/s. MEPL. The rest of the parts were bought out items. These were brought in the factory premises for testing the functional accuracy. Thereafter all these bought out items along with the goods manufactured by M/s. MEPL were sold to the customers concerned. Only on the ground that orders placed by the customers were for the cooling towers and not for the individual parts, it was argued that the sale was of the cooling towers in unassembled or disassembled condition.
8. In the grounds of appeal, reference has been made to the Rules for interpretation of the tariff in support of the contention that when parts of the cooling towers were removed from the premises of the appellants, it was the removal of the cooling towers in unassembled or disassembled condition. In the operative part of the order of the Collector of Central Excise (Appeals) we do not find any reference to the Rules for interpretation of the tariff. The ld. Collector Central Excise (Appeals) had observed in this regard as under :-
"Regarding the question of valuation of the cooling towers and washers it is pointed out that although the respondents are buying various component parts of the cooling towers and air washers from outside, they are disposing of those goods as single item as cooling towers and air washers. The respondents have stated that the cooling towers are installed at the site by them. Even if this is conceded that these are installed by the respondents at the site, yet one thing is clear that for installing the cooling towers for which the orders are being placed by their customers on them, they took out all the items from their factory for single unit of a cooling unit or air washers and installing the same. Therefore the value of the entire quantity of component parts which go into the manufacture of cooling towers as also in the manufacture of air washers would have to be taken into account for determining the assessable value."
In para 10 of the grounds of appeal the appellants had pleaded as under :
"10. Considering the facts of the case, it would be appreciated that invoking of Rule 2(a) of Rules of Interpretation is not correct. This rules applies only when there is a manufacture. Here in this case components are bought out components and they are not used in the factory in relation to manufacture of the goods. The appellant's factory is also not capable of testing them or assembling then even/or trial purposes. The goods are purchased and collected at one place, only for ease of transport and proper accounting. Such bought out components are never subjected to any process or testing or trial within the factory. When there is no manufacture, the question of applying the Rules of Interpretation also does not arise."
9. We therefore, consider that the ld. Collector, Central Excise (Appeals) had not been able to substantiate the case for inclusion of the cost of the bought out parts while determining the duty liability of the appellants. We also find that there is nothing on record to show that the bought out items were fitted or attached to the parts manufactured by MEPL or any process was undertaken with regard to the bought out parts.
10. In the case of Uptron India Ltd. v. Collector of Central Excise, Allahabad reported in 1994 (73) E.L.T. 848 (Tribunal), the Tribunal had observed that the bought out items and accessories fitted or attached to the goods before clearance, the cost thereof was includible in assessable value of the goods even if they are not essential for operation of the manufactured goods. In the case of Collector of Central Excise, Bhubaneshwar v. Radiant Electronic Ltd. reported in 1996 (85) E.L.T. 102 (Tribunal), it had been held that when bought out items are supplied besides manufactured articles, the value of such bought out articles was not includible provided they were not fitted or attached to the goods before clearance and no process was undertaken on such bought out items. In the case of Collector of Central Excise, Meerut v. Friction Materials reported in 1996 (86) E.L.T. 685 (Tribunal), it had been held that the value of the bought out articles supplied along with their own manufactured goods was not includible in the assesable value of the manufactured goods.
11. Keeping in view the facts and circumstances of the case and the case law as referred to above, we consider that on the issue of the valuation, the view taken by the Assistant Collector, Central Excise, Ahmedabad was correct. Accordingly, we set aside that part of the impugned order in appeal which relates to the valuation. The question of classification had not been agitated by the appellants before us. With these observations the appeal is allowed. Ordered accordingly.