Customs, Excise and Gold Tribunal - Delhi
Bajaj Auto Ltd. vs Collector Of C. Ex. on 9 August, 1989
Equivalent citations: 1989(44)ELT763(TRI-DEL)
ORDER Harish Chander, Member (J)
1. M/s. Bajaj Auto Limited has filed an appeal being aggrieved from the order passed by the Collector of Central Excise (Appeals), Bombay.
2. Briefly the facts are that M/s. Bajaj Auto Ltd., Akurdi are manufacturers of scooters and excisable goods. The appellants have been clearing foot rests under Tariff Item 68 which are fitted alongwith the scooters. The foot rest is to be fitted by the dealer with the scooter. The foot rest is not fixed with the scooter at the time of the clearance. Show Cause Notices were issued to the appellants and in reply to the Show Cause Notices-cum-demand notices the appellants stated that the foot rest was an accessory of scooter and not an essential part of scooter. Scooter can run without foot rest. They pleaded that the foot rest was an optional accessory and not an integral part of a scooter and 60 foot rests were sold for every 100 scooters. The appellants have relied on a Government of India, Ministry of Industry letter No. 5(23)/69-AE Ind(I) dated 27th November, 1969 addressed to the appellants and had prohibited the assessee from selling of foot rests as an integral part of the scooter. It is further contended that even controlling Ministry have recognised the fact that the foot rest was only accessory and an option was given to the customer. The learned Assistant Collector had accepted the contention of the appellants and had held that foot rest was not an essential part of the scooter and scooter could run without the foot rest and the foot rest was an accessory. He had relied on a Government of India's letter and had withdrawn the 5 show cause notices-cum-demand notices mentioned in Order-in-Original. The Revenue being not satisfied with the order of the Assistant Collector had filed an application on EA-2 form before the Collector of Central Excise (Appeals) to be treated as an appeal. The learned Collector of Central Excise (Appeals) relying on a provision of Bombay Motor Vehicle Rules had taken the view that foot rest was an essential fitment to a scooter and its value must form part of the assessable value of the scooter and had allowed the EA-2 application which was being treated an appeal. Being aggrieved from the aforesaid order the appellants has come in appeal before the Tribunal. Shri T.R. Andhyarujina, Sr. Advocate with Sh. M.P. Bharucha, Advocate have appeared on behalf of the appellants. He has reiterated the facts and pleaded that only issue to be decided is whether the foot rest which is cleared by the appellants separately after paying Central Excise duty under Tariff Item 68 is an essential part or an accessory. In support of his argument he has referred to an order of Maharashtra Scooters, where the learned Collector of Central Excise (Appeals) had held that the value of the foot rest could not be included in assessable value of the scooter as the same was an accessory. The learned Senior Advocates as further argued that the provisions of Motor Vehicles Rules are only applicable for the purpose of the registration of the vehicles. In support of his argument the learned Advocate has cited the following case laws:
(1) 1976 (38) S.T.C. 198 - Deputy Commissioner of Agricultural Income Tax & Sales Tax v. Union Carbide India Ltd., Madras.
"A thing is a part of the other, if the other is incomplete without it. A thing is not an accessory of the other, if the other, although complete in itself, cannot function without the thing."
(2) 1977 (1) E.L.T. J133 - International Tractor Co. of India Ltd. v. Union of India.
"Wheel weights and hour metres are not essential parts of the tractors. As a tractor can operate without these parts. Moreover, these two accessories are not fitted to all the tractors but are fitted to tractors at the option of the customers."
(3) 1979 (4) E.L.T. J145 -Amkar Engineering Works v. Superintendent of Central Excise.
"Value of accessories cannot form part of the assessable value of an article if the said article could be used and would be complete by itself without such accessories. In other words, accessories cannot be characterised as component or integral parts of an article and therefore the value of an article will not include the value of accessories."
(4) 1986 (25) E L.T. 556 (Tribunal) - Mecneill & Magor Ltd., Calcutta v. Collector of Central Excise, Calcutta-I. "The cost of battery, battery charger and attachments and accessories such as load back rest, extra set of lights, ram attachment, crane attachment, are not includible in the assessable value for sales tax."
(5) 1987 (31) E.L.T. 344 (Madras) - T.I. Miller Ltd. v. Union of India & Ors..
"Dynamo lamp not a part or a component of the cycle but accessary. Cycle can function without a dynamo. Merely because a cycle must have light during the night therefore dynamo lamp must be treated as a part thereto has no relevance in relation to classification."
3. The learned Senior Advocate has further-argued that in view of the various judgments cited by him the appeal filed by the appellants may be allowed.
4. Shri G.V. Naik, the learned Joint Chief Departmental Representative who has appeared on behalf of the respondent has referred to the practice prevalent in the Kanpur Collectorate and has stated that the value of the foot rest is included in the assessable value of the scooter for purposes of assessment. He has referred to page 12 of the appellants paper book which is the letter dated 27th November, 1969 and stated that the letter issued by the Ministry of Industry cannot help the appellants in any way as it is only for licence purposes. In support of his argument he has cited the following case laws :
(1) 1987 (31) E.L.T. 700 (Tribunal) - Collector of Central Excise, Bombay v. Lawkim Pvt. Ltd., Thane.
"In support of this view, there is also the established principle that entries in the Tariff should be interpreted according to common parlance or the market understanding. Thus, a motor car as known to the market, and particularly to those who deal in or with motor cars, would be equipped with various meters, wind-screen wipers, a rear view mirror, a spare wheel as well as a number of other items which would not be essential for the bare functioning of the car but it would not be permissible for a manufacturer who markets a motor car equipped with such "parts" to seek their exclusion from the assessable value. Accordingly, in principle it would not be open to a manufacturer to market a particular article and yet seek the exclusion from its assessable value of certain "parts" of the article as cleared and marketed, on the ground that, they are not incorporated in his main article or are not essential to its operation."
(2) 1985 (20) E.L.T. 392 (Tribunal) - Daya Ram Metal Works Pvt. Ltd., Gujarat v. Collector of Central Excise, Baroda.
"Value of bought out parts along with the manufactured equipment/machinery to be included in value of clearances."
5. The learned Joint Chief Departmental Representative has pleaded that the value of the foot rest has to be included in the assessable value of the scooter as the same is an essential part. He has pleaded for the dismissal of appeal. In reply the learned Senior Advocate again pleaded for the acceptance of the appeal and argued that the judgment cited by the learned JCDR in the case of Collector of Central Excise, Bombay v. Lawkim Pvt. Ltd., Thane (supra) is not applicable. He has pleaded for the acceptance of the appeal.
6. We have heard both the sides and have gone through the facts and circumstances of the case. The only issue to be decided is whether foot rest of the scooter is an essential part or an accessory. The respondent has mainly relied on the Maharashtra Motor Vehicle Rules whereas the appellants main reliance is on the Ministry of Industries letter which appears on page 12 of the paper book and the Ministry of Industries letter dated 27th November, 1969, para 3 from the said letter is reproduced below:
"It is also understood that the foot rest supplied by you to the customers although regarded as an extra fitment, conies fitted with the scooter from your factory, and no option is given to the customer in regard to the supply of this item. The same position holds good in respect of the supply of the plastic bottle. In view of this, I am to request you to discontinue with immediate effect the supply of these items to the customer as an integral part of the scooter."
It is an established principle that entries in the Tariff should be interpreted according to the common parlance or the market understanding. Scooter is sophisticated conversion of motor cycle. Encyclopaedia Britannica Vol. VII, page 58 15th Edition describes scooter as under:
"The more sophisticated motor scooter originated in Italy soon after World . War II, led by manufacture of a 125-cubiccentimetre model. Despite strong competition from Germany, France, Austria, and Britain, the Italian scooters maintained the lead in the diminishing market. The scooter has small wheels from 8 to 14 inches (20 to 36 centimetres) in diameter, and the rider sits inside the frame. Power units are placed low and close to the rear wheel, which is driven by bevel gearing or chain. Capacities vary from 50 to 225 cubic centimetres, and four-speed gearing is common."
The appellants had placed strong reliance on the judgment of the Bombay High Court hi the case of International Tractor Company of India Ltd. v. Union of India reported in 1977 (1) E.L.T. J133. The said matter related to the question of Wheel weights and hour metres which were claimed to be optional parts of tractors. The Court had come to the conclusion after taken into consideration statutory price control order of tractors under the Essential Commodities Act, 1985 and for the purpose of price control Government has specified certificate which were required to be supplied with every tractor.
7. Para 21 of the International Tractor Co. of India v. Union of India reported in 1977 (1) E.L.T. J 133 cited by the appellants is reproduced below :-
"On the said admitted facts it would be convenient now to consider the said rival contentions - Section 3 of the Central Excises & Salt Act, 1944, which is a charging section, provides for the levy of excise duty on excisable goods which are produced or manufactured. Excisable goods are as mentioned in the Tariff Schedule, hi this case, 'tractors' under Item 34(3a). It is only at the point when the petitioners manufacture 'a tractor' which could be only with all its essential parts or components, that the said goods become excisable. The petitioners had produced sufficient evidence by way of affidavits of traders and purchasers to show that the said two parts viz. hour meters and wheel weights are not essential components of a tractors. That position is not disputed before me. On the aforementioned admitted facts it is clear that a manufacture of 'a tractor' is complete when it is brought into existence with all its essential components. The said two accessories viz. Hour meters and wheel weights, are not its essential parts, and the manufacture of a tractor would be complete without they or any of them being fitted to a tractor nor would the people in the trade reject the same as a tractor without the said accessories or one of them being fitted to it."
8. In the case of Collector of Central Excise, Bombay v. Lawkim Pvt. Ltd. Thane reported in 1987 (31) E.L.T. 700 (Tribunal) cited by the learned JCDR, held that the Tariff should be interpreted according to the common parlance or market understanding. Para Nos. 65,66,67,68 & 72 reproduced below:
"As explained above, it appears to me that the Legislature could not have intended that a manufacturer should be at liberty to constructively or nationally strip down the product he has made by asking for the exclusion of certain 'parts' on the ground that they are not essential and therefore are only accessores. In support of this view there is also the established principle that entries in the Tariff should be interpreted according to common parlance or the market understanding. Thus, the ordinary customer for a car would expect it to be equipped with various meters, windscreen wipers, a rear view mirror, a spare wheel, and so on. In other words, a motor car as known to the market, and particularly to those who deal in or with motor cars, would be equipped with these items as well as a number of other which would not be essential for the bare functioning of the car. Since however the term 'motor car' has to be interpreted in the sense in which it is known to the market, it would not be permissible for a manufacturer who markets a motor car equipped with such 'parts' to seek their exclusion from the assessable value : because, notwithstanding their precise function, a motor car without those 'parts' would not be a motor car as ordinarily known and accepted in the market.
The above view finds support even from some of the judgments on which reliance has been placed on behalf of the appellant. In the case of international Tractor Co. [1977 (1) E.L.T. 133], the Court took this aspect into consideration. In para-21 of the judgment reference has been made to affidavits of traders and purchasers. It has been observed that the two accessories in question were not essential parts of the tractors, nor would the people in the trade reject the same as a tractor without the said accessories or one of them being fitted to it.
Again, in the judgment of the Gujarat High Court in the case of Jyoti Ltd., Baroda [1979 (4) E.L.T. 546], stress was placed on the test of common parlance. The Court observed as follows:
"6. It is well settled law that in cases like the present one when questions Of interpretation of items or entries in excise schedules arise, the test to be applied is the test of how it will be understood by those who are accustomed to deal with power driven pumps in their ordinary avocations. It is what is known as common parlance test but common parlance of those who are familiar with the subject ...."
The court considered the evidence of an expert in order to decide what was the common understanding of the term 'pump."
Therefore, while the function of particular 'part' may become relevant in certain circumstances, the market understanding has always to be taken into account: and this requirement could override the arguments based on the function of a specified part.
In the case of Jyoti Ltd., Baroda v. Union of India and Another [1979 (4) E.L.T. 546 (Guj.)], the Gujarat High Court considered ' a short but interesting question as to what is the meaning of the word pump' occurring in Item 30A of the Schedule to the Central Excises & Salt Act, 1944". The petitioners were manufacturers of power-driven pumps. It was noted that what the petitioners manufactured and What was loosely called a pump, fell into three divisions, namely, the 'bowl assembly', 'column assembly" and "discharge assembly". According to the Department all the three assemblies were part of the power-driven pump. According to the petitioners, only the bowl assembly which housed the impellers, comprised the 'power driven pump', and the column assembly, through which water or liquid would go up, and the discharge head assembly, through which water or liquid is discharged and passed on to the distribution system, were merely accessories of the pump. Evidence as to the trade understanding was produced by the petitioners, in the shape of one Lalchandani, who was a technically qualified man as well as an industrialist. The Court took note of the definition of the term "accessories" as adopted by the Supreme Court in Annapuma Carbon Industries Co. v. State of Andhra Pradesh (37 STC 378). It quoted the following paragraph from that judgment :-
"We find that the term "accessories" is used in the Schedule to describe goods which may have been manufactured for use as an aid or addition. A sense in which the word 'accessory* is used is given Webster's Third New International Dictionary as follows: "an object or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else". Other meanings given there are : "supplementary or secondary to something of greater or primary importance"; 'additional'; 'any of several mechanical devices that assist in operating or controlling the tone resources of an organ'. 'Accessories' are not necessarily confined to particular machines for which they may serve as aids. The same item may be necessary for more than one kind of instrument."
The Gujarat High Court adopted the above definition of accessories. It took note of the fact that T.I. 30A dealt only with power-driven pumps and did not refer to accessories. It observed that the column assembly and the discharge head assembly contributed to the effectiveness of the bowl assembly, but they were not performing the essential function of a power-driven pump, namely, building up pressure in the liquid. That essential function was performed only by the impellers which were housed in the down assembly. Consequently, the High Court held that the Department was wrong in treating the column assembly and the discharge head assembly as components or essential elements of power-driven pumps manufactured by the petitioner."
9. We would also like to observe that the scooter manufactured by the appellants have got separate rider and pillion seat and there is a gap. Engine of the scooter is on the left side and is covered with the covering and other covering which is oval and similar is the position on the right side of the scooter which is hollow. The passenger on the rear seat of the scooter cannot sit comfortably if he places his feet on the flooring of the scooter body. In any case for comfortable sitting on the pillion seat he has to sit, and has to keep his both legs and foot on the left side and necessary resting place to the feet has to be given, and for giving the necessary resting place to the feet, foot rest is very essential.
10. We have come to this conclusion on the basis of common trade parlance and without taking into consideration the Bombay Motor Vehicle Rules or the Ministry of Industry's letter dated 27th November, 1969.
11. In view of the above discussion we are of the view that foot rest is an essential part of the scooter and as such the value of the same was rightly includible in computing the assessable value of the scooter. During the course of arguments the learned Advocate had also argued that the value of the foot rest has been included on the basis of the scooters manufactured and cleared by the appellants not on the basis of actual foot rest which were 60% of the number of scooters value. We find that there is force in the argument of the learned Senior Advocate. Accordingly, we are of the view that value of the foot rest should be included only on the basis of the actual clearances made by them. Especially when there is no evidence on record to the effect that the appellants had supplied the same to the dealer after the sale of the scooter to him. Accordingly the revenue authorities are directed to re-calculate the duty on the foot rest on the basis of the actual clearances of the foot rest, except for this modification in the order the appeal is otherwise rejected.