Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Central Excise vs Thermax Bobcock And Wilcox Ltd. on 14 January, 2005
Equivalent citations: 2005(99)ECC290, 2005(182)ELT336(TRI-MUMBAI)
ORDER Moheb Ali M., Member (T)
1. This is a Revenue's appeal against the order of Commissioner (A).
2. Briefly the facts are that the respondent is engaged in the manufacture of boilers of huge sizes. He enters into turnkey contract for the supply, erection commissioning of such boilers. The pressure parts of such boilers are manufactured in the respondents' factory. Some parts are manufactured at the respondents' vendors premises and brought to his factory. The parts which are manufactured by the respondents and the ones that are brought to the factory are cleared together. The respondent clears these parts classifying them under Chapter Sub-heading No. 8402.10 of CETA applicable to boilers on payment of duty. The following parts of the boiler are cleared by the respondent classifying them as boilers.
(a) Pressure parts of boiler consisting of steam drum, water drum and membrane panel, ducting module, evaporator etc. (b) Economiser; (c) Super heater; (d) Heat recovery unit; (e) structural items like ladders, chimneys and other items for holding the boiler; (f) pipes and tubes; (g) Flexible tubings.
3. The respondents receive certain parts of boilers, such as (a) Feed water pumps; (b) Fans; (c) Safety Valves; (d) Level gauges;(e) process Valves; (f) Soot blowers; (g) Instruments; (h) L.P. & HP. Dosing; (i) Dust Collector; (j) O P H Unit and (k) Motors, directly at site of erection. The above said parts are bought out items.
4. The dispute pertains firstly to the classification of pressure and non pressure parts cleared from the factory. The rival contention are that the parts cleared from the factory are incomplete boilers removed in unassembled form and are therefore classifiable under 8402.10 as boilers according to respondent. The Revenue contends that the parts removed from the factory have to be classified as parts under. Sub-heading 8402.90. Secondly the value of brought out items should be added to the assessable value of the boilers in case it is considered that the respondent removed boilers in unassembled form from their factory, according to the excise authorities. The respondent contends that the bought out items are accessories and therefore their value can't be added.
5. The Commissioner held that the respondents removed boilers in unassembled form and are therefore classifiable under 84.02.10. While coming to such a conclusion he relied on Rule 2(a) of Interpretative Rules. It bears no repetition that this Rule deals with classification of goods, incomplete at the time of removal, but are so far advanced as to acquire essential characteristics of a complete machine/goods even when they are removed in unassembled form. The Commissioner after having decided that the goods as removed by the respondents are classifiable under sub-heading 8402.10 meant for boilers also held that the value of brought out items is not to be added to the assessable value. He relied on the experts opinion (Professor of Mechanical Engineering Department Government Engineering College Pune) who opined that what has been cleared by the respondent from the factory are complete boilers in SKD condition. The expert also opined that the goods in question have all the essential characteristics and utility of steam generator (boilers) although delivered in lots because of constraint involved in transportation.
6. Heard both sides.
(a) Whether the goods as cleared by the respondent is classifiable as boiler under sub-heading 8402.10 We observe that the HSN explanatory note at page 1240 under heading 84.02 says that economizers, air pre-heaters, super-heaters, de-super-heaters steam receivers, steam accumulators, soot removers, water tube, fire-box walls, and other apparatus of accumulation etc. are auxiliary item supplied along with the boilers. These auxiliary item increase or regulate the output of a boiler or its efficiency. But the expert, whose opinion the Commissioner took into consideration, opines that economizer, super heater and heat recovery unit are essential parts of a boiler. This opinion therefore is at variance to that extent with what is stated in the explanatory note referred to above. But we still hold that this variance in opinions expressed, does not alter the fact that the parts of boilers as cleared by the respondents, do constitute an incomplete boiler in an unassembled form. The facts as come out clearly indicate that the essential parts of boilers are cleared from the factory as it is not possible to clear a complete boiler in one go. Even when one considers that some of the parts removed from the factory are of auxiliary nature, one has to agree that an incomplete boiler in unassembled form is cleared. That the boiler in unassembled form is removed in several lots on different dates itself does not mean that parts but not the whole are cleared from the factory in view of the fact that the respondent has a contract to erect and commission a boiler and has been disclosing this fact to the Department.
For the reasons stated above we hold that the parts removed in several consignments is a boiler in incomplete form and therefore have to be classified under the heading meant for the complete machine, in this case under 8402.10. We uphold the contention of the Commissioner that Rule 2(a) of Interpretative Rules apply to this case. We therefore uphold the contention of the Commissioner and reject the Revenues appeals in so far as this aspect is concerned.
(b)Bought out items-inclusion of value thereof:
Revenue has challenged the Commissioner (Appeals) decision that the value of the bought out items are not to be added to the assessable value. The various bought out components are auxiliary accessories to the boiler and what is cleared from the factory is a complete boiler; according to the Commissioner. He also accepted the assessees contention that he had not claimed MODVAT credit of duty paid on bought out items and therefore the bought out items can not be said to be the constituents of a boiler.
7. According to the Revenue boiler, as complete functional unit, comes into existence only after the goods cleared from the factory and bought items directly received at site, are assembled at site, it is argued that the contract is for erection of a boiler and therefore the value of the bought out item form part of the assessable value. The fact that no processing was done on the bought out items and that no credit is availed is immaterial according to revenue.
8. The respondents argue that the bought out items are in the nature of accessories and not parts of boiler manufactured and supplied by them. Boiler is complete without these bought out items. The respondents relied on CBEC order No. 4192 issued under Section 37B in this regard and on the decision of the Tribunal in the Shrike Construction Equipments Pvt. Ltd. v. CCE Pune [1997 (95) ELT 644 (Tribunal)].
9. We observe that the respondents reliance on the CBEC order cited supra is misplaced. The said order does not relate to the present issue that is whether the Value of bought out items is be added or not. The decision in Shrike Construction Equipments Pvt. Ltd. case does not decide the issue of inclusion of value of bought out items. The Revenues' contention that without these parts a boiler cannot be commissioned appears to be correct. For instance a boiler cannot be functionable without parts such as feed water pump, safety valves, process valves, level guager etc. These parts are necessary to make a boiler functional. Their value therefore has to be included in the assessable value. It is immaterial that no MODVAT credit has been taken by the respondents. We are not sure that any MODVAT was available to the respondents on these bought out items. We therefore hold that the Commissioners' contention that because a boiler has been removed in unassembled form from the respondents' factory the value of bought out items should not be included is incorrect; we accordingly set aside that part of the Commissioner's order. While on the subject we may also mention that it is not understood as to what the Commissioner means by saying that the bought out items are "auxiliary accessories".
10. The Revenue's appeal is partly allowed. The jurisdictional officer is directed to determine and recover the duty form the respondents arising out of addition value of the bought out items in the assessable value of the boilers.
11. The appeal of the Revenue is decided thus:
(a) The goods as cleared by the respondents are classifiable under 8402.10 as boilers.
(b) The value of bought out items received at site and used in the erection of boilers have to be added to the assessable value of boilers.