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1. The appellants are engaged in the manufacture of transmission line towers. They enter into contract with various electricity boards for the supply of such towers. Such contracts invariably have a clause for the manufacture and testing of a proto-type at a test bed with reference to various specifications. The manufacturing of the towers covered by any contract is undertaken only after successful completion of such tests. The value of the contract is inclusive of the material, required for the proto-type and the charges for testing outside the appellants' factory which are required to be paid for the use of test beds belonging to certain electricity boards. On 5-9-1980 the Superintendent of Central Excise issued a show cause notice to the appellants demanding central excise duty amounting to Rs. 32,330-00 on testing charges recovered for testing the proto-type towers. Three other similar show cause notices dated 18/20-11-1980, 31-8-1981 and 24-3-1982 seeking the recovery of Rs. 2400/-, Rs. 7040, and Rs. 5200/- respectively answerable to the Assistant Collector were also issued. The show cause notices alleged that the test charges recovered from the customers constituted a part of the assessable value of the transmission line towers covered by the relative contracts. It was further alleged that the appellants failed to indicate the testing charges in the invoices prepared for the supply of the goods and they had failed to furnish to the Department the separate invoices prepared by them in respect of the testing charges. In their reply to the show cause notice dated 25-10-1980 the appellants claimed that the goods manufactured by them were not required to be tested since only the prototype ungalvanised towers were tested after clearance from the factory and the test charges recovered on account of the cost of the material and test fee did not represent advance payment towards the cost of the actual goods viz. Transmission Line Towers. On the ground that the testing undertaken by them was neither a part of the manufacturing activity nor could it be deemed as an activity incidental or ancillary to the manufacture they claimed that no charges were recoverable from them. However, in the impugned order dated 26-11-1982 the Collector held that the Proto-type Transmission Line Towers cleared by the appellants from their factory in knocked-down condition were dutiable goods. He also held that the test charges constituted a part of the assessable value of the Transmission Line Towers, since testing of proto-type towers was essentially linked with the development of the product and as such it could not be treated as separate from the manufacture of the goods under contract. The appellants' contention that the demands were barred by limitation was also rejected by the Collector.

8. The next point to be examined is whether the test charges recovered by the appellants from their customers can be deemed as forming a part of the value of the Power Line Transmission Towers which are fabricated after tests of the proto-type for erection in terms of the contracts entered into with the customers. The appellants' claim is that such charges cannot form a part of the assessable value of the transmission line towers delivered to the customers since testing of the proto-type is an independent process unconnected with the actual manufacture of the goods and the test charges recovered from the customers are paid to the test bed authorities who provide the necessary facilities for test. However, we are not convinced by the appellants' arguments. The tests of the proto-type towers are undeniably carried out in relation to the transmission line towers that are manufactured for actual execution of the contract entered into between the appellants and their customers and the charges incurred for conducting such tests are paid by the customers in terms of the contract. We are, therefore, of the view that all charges recovered by the appellants from their customers on account of the testing of the proto-type towers which in terms of the contract precedes the manufacturing of the transmission towers to be actually delivered would form a part of the assessable value of such towers. We find that this view is supported by the Tribunal's decision in the case of Madhavnagar Cotton Mills Ltd., Sangli v. Collector of Central Excise, Pune reported in 1986 (25) ELT 443, wherein it was held that labour charges paid by customers to the manufacturers in respect of checks carried out prior to the delivery for ensuring flawless quality of the fabrics as stipulated in the contract would be includible in the assessable value. The relevant extract from the decision is reproduced below :-

In view of the foregoing we find no infirmity in the Collector's order that the charges on account of the testing of the proto-type towers recovered by the appellants from the customers in terms of the contract formed a part of the assessable value of goods covered by the contract.

9. The only question remaining to be examined is whether the demand issued on 5-9-1980 in respect of duty on testing charges recovered by the appellants on goods supplied during the period 12-12-1976 to 30-4-1980 and other similar demands after the expiry of the period of 6 months in terms of Rule 10 of the Central Excise Rules, 1944 were barred by limitation. In this regard it is seen that the adjudicating authority had held in the impugned order that non-disclosure of the test charges recovered by the appellants to the departmental officers amounted to suppression of facts and therefore, the extended period of five years was available to the department for effecting the recovery of duty short-levied. As against this the appellants have claimed that they had failed to mention the test charges in the Central Excise records on account of the bona fide belief that no duty was attracted on the proto-type towers and the test charges recovered by them from their customers. They have claimed that they cannot be accused of any wilful suppression of facts with the intention of evading duty since the test charges recovered by them were mentioned in the Sales Journal and the relevant contracts which were perused during the period 1976 to 1981 by the Central Excise officers and Audit Parties who visited their factory for the inspection of the records.

10. Having regard to the relevant facts and circumstances, we are inclined to agree with the appellants that they had acted in the bona fide belief that Central Excise duty was not attracted on the proto-type towers cleared by them and also on the test charges recovered by them. In fact we have found ourselves to be in agreement with their contention in regard to the non-dutiability of the proto-type towers. We are, therefore, inclined to accept the appellants' contention that non-declaration of the test-charges in the invoices filed by them with the Central Excise authorities was on account of their impression that such test charges would not form a part of the assessable value, of the goods covered by the contract. From the records of the case we find that Audit parties of the Accountant General were periodically visiting the appellants' factory. The appellants have stated that the Central Excise officers were also paying periodic visits to the factory for inspections. Since contracts entered into by the appellants made a clear mention of the test charges that were recoverable from the customers, and such contracts must have been inspected by the visiting central excise officers and the audit parties, it cannot be accepted that the appellants had suppressed the facts regarding the recovery of such charges. In this regard it is seen that the Honourable Supreme Court in the case of Collector of Central Excise v. Chemphar Drugs & Liniments reported in 1989 (40) ELT 276 (S.C.) has observed that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise it required before he is saddled with any liability beyond the period of six months. The relevant extracts from this decision are reproduced below :-