Customs, Excise and Gold Tribunal - Delhi
Kec International Ltd. vs Collector Of Central Excise on 5 February, 1999
Equivalent citations: 1999ECR221(TRI.-DELHI), 1999(108)ELT675(TRI-DEL)
ORDER A.C.C. Unni, Member (J)
1. These three Appeals filed by the appellants, M/s. KEC International, Jaipur involve same questions for consideration. They were therefore, heard together on 5-1-1999 and are being disposed of by this common order.
2. By common Order-in-Appeal dated 16-7-1991 Collector (Appeals), Jaipur disposed of three Appeals filed by the present Appellants against three adjudication orders, all dated 19-9-1990, confirming three duty demands for three different periods.
3. Facts: Appellants are manufacturers of Transmission Line Tower parts falling under Tariff Heading 7303.20 of Central Excise Tariff Act. They filed price lists for approval of assessable value for levy of Central Excise duty chargeable on ad valorem basis. Scrutiny of contracts entered into by the appellants with their buyers showed that the contract provided for payment of testing charges by the buyers in addition to the price of fabricated material of transmission parts. In the price lists submitted by the appellants to the Asstt. Collector only the price per ton of fabricated material minus the testing charges had been shown. Asstt. Collector ordered that testing charges should also be included in the assessable value and the assessment was finalized accordingly. Various demands were raised on that basis as specified in the notice. In adjudication, the demands were confirmed and in Appeal, Collector (Appeals) by impugned order upheld the adjudication orders. Hence the present Appeals.
4. Shri A.K. Chitale, ld. Sr. Advocate argued the case of appellants. Shri K. Shiv Kumar, ld. JDR argued the case of Respondent Collector.
5. Ld. Senior Advocate stated that appellants were reputed manufacturers of transmission towers and were supplying the same to various State Electricity Boards for many decades. In their contract with NTPC there was a provision for erection of transmission towers and testing them from different angles arid for bearing various quantities of loads/stress. These tests were called "destruction testing" which resulted in the eventual destruction of the tower. In such cases what appellants recover from the customers was the charges for fabrication of steel structures, erection of models therefrom and testing charges. Appellants' arguments were two fold:
(a) that the model transmission towers which they erected (in their own premises) for testing were immovable structures, embedded in earth and therefore not 'goods' within the meaning of the Central Excise Act, 1944 since they were not cleared from their factory in marketable form and also that they were not put to any other use other than the testing process in the factory.
(b) 'destruction test' was not a normal condition in their contracts with their customers. This condition was inserted in the contract at the request of some customers only,, for example, NTPC. Separate invoices in relation to such Tests were raised only in relation to those customers for whom such tests were specifically conducted.
It was, therefore, not correct according to appellants to allege (as has been done in the SCN) that the activity of testing the strength of manufactured product enriched the value of the product. The additional charges viz. costs of testing 'model' transmission towers are not therefore includible in the assessable value. He drew attention to the fact that appellants have fully equipped drawing, designing and quality control sections in their factory where regular testing from different angles are carried out in the normal course before they are put to use in the erection of transmission towers. The cost incurred in testing is already included in the assessable value in all cases and therefore, the additional charges incurred in the testing of 'model' transmission towers at the instance of customers could not be included in the assessable value. Since the condition of destruction test is an optional one carried out at the instance of a particular customer, such additional charges cannot form part of their assessable value., Reliance was placed on the Supreme Court decisions in C.C.E. v. Kelvinator of India Ltd. 1988 (36) E.L.T. 517 holding that optional charges cannot be included in the assessable value and C.C.E. v. Indian Oxygen Ltd. 1987 (31) E.L.T. 730 (T) holding that incidence of duty on manufacture and supply of cylinder was ancillary to and not incidental to the manufacture of gases and as such rental charges and interest thereon would not includible in the assessable value. Reliance was also placed on C.C.E. v. Dudoal Pvt. Ltd. 1987 (28) E.L.T. 351 (T), SAE (India) Ltd. v. C.C.E. 1988 (36) E.L.T. 613 (T), SAIL v. C.C.E. 1988 (36) E.L.T. 316 (T) and Godrej Boyce v. U.O.I. 1989 (43) E.L.T. 225.
6. Ld. JDR submitted that the question for consideration was not in relation to charging of duty on the model transmission tower erected for purpose of testing or as to whether they were movable property or not, but whether the cost of erection of the model which is eventually destroyed by testing should be added to the value of the product ordered by the customer. The test served the purpose of clearly ascertaining the strength and quality of the excisable goods to be supplied to the customer. There was no doubt that the 'destruction test' further demonstrated its quality to the satisfaction of the customer in addition to the standard quality supplied to other customers and thereby enriched its value. Such tests were a pre-condition for the sale of the tower to the customer who had demanded it as a term of the contract. Costs incurred for such tests were, therefore, part of the manufacturing cost of the product eventually ordered by the said customer and hence the charges collected from the customer for the model towers were includible in the assessable value. He submitted that the decisions relied on by the appellants are clearly distinguishable on facts and therefore, the said rulings would not be applicable in the case presently under consideration.
7. We have considered the submissions. We find that the question of includibility of testing charges for tests carried out by the manufacturer at the instance of the customer in addition to regular Quality Control Test, conducted by the manufacturer has been considered by the Tribunal in '.he cases brought to our notice by the Counsel for the appellants. In the case of Ashok Transformers Pvt. Ltd. v. C.C.E. 1996 (86) E.L.T. 652 the question that was considered was whether testing charges carried out by the manufacturer of transformers conducted at the specific request of some customers can be included in the assessable value. The Tribunal took the view that the test conducted being at the specific request of the customers, they should be regarded as an optional test and therefore, such additional testing charges cannot be included in the assessable value. In the case of General Engg. Works v. C.C.E. 1998 (102) E.L.T. 725, the Tribunal noted that the issue of includibility of additional testing charges for additional tests carried out at the instance of the buyer had been settled by the Tribunal decision in Shree Pipes Ltd. v. C.C., reported in 1992 (59) E.L.T. 462 which was confirmed by the Hon'ble Supreme Court. The Tribunal had in that case held that additional tests conducted at the instance of the buyer and the charges incurred for such additional tests will not be included in the assessable value. This decision was followed by the Tribunal in C.C.E. v. Shree Pipes Ltd. reported in 1998 (103) E.L.T. 94.
8. We are of the view that the ratio of the said decisions are clearly applicable to the facts of this case. Following the case law cited above, we find that the dispute presently before us is covered in favour of the appellants. The Appeals are as a result allowed with consequential benefit, if any, to the appellants as per law.
9. Since the Appeal is allowed in favour of the appellants on the ground of non-includibility of optional testing charges in the assessable value, we are not adverting to the other issue urged by the appellants.