Marketability and suppression control excise duty: prototype towers were non-excisable, and the demand failed on limitation

Proto-type transmission line towers cleared in completely knocked down condition for testing were held not marketable and therefore not excisable goods, because marketability is an essential ingredient of excisability. Testing charges recovered under the contract were nevertheless includible in the assessable value, as they were incurred in relation to the contracted towers before delivery. The extended period of limitation could not be invoked, since the records disclosed the charges, there was no conscious suppression or wilful withholding of information, and the assessee acted under a bona fide belief. The demand was therefore set aside overall on the excisability and limitation issues.

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Issues: (i) Whether proto-type transmission line towers cleared in completely knocked down condition for testing were excisable goods; (ii) whether testing charges recovered from customers formed part of the assessable value of the transmission line towers; (iii) whether the demands were barred by limitation.

Issue (i): Whether proto-type transmission line towers cleared in completely knocked down condition for testing were excisable goods.

Analysis: Marketability is an essential ingredient of excisability. The proto-type towers were non-galvanised, cleared only for testing, assembled at the test site, and scrapped after the tests. They were not goods known to the market as finished, saleable commodities. The fact that they were fabricated in the factory and dismantled for transport did not make them marketable excisable goods.

Conclusion: The proto-type towers were not excisable goods and the finding was in favour of the assessee.

Issue (ii): Whether testing charges recovered from customers formed part of the assessable value of the transmission line towers.

Analysis: The testing of the proto-type towers was a contractual requirement undertaken in relation to the transmission towers ultimately manufactured and supplied. The charges were recovered from customers under the contract and were incurred before delivery of the final goods. Such charges were therefore linked to the manufacture and supply of the contracted towers and were includible in valuation.

Conclusion: The testing charges formed part of the assessable value and this issue was decided against the assessee.

Issue (iii): Whether the demands were barred by limitation.

Analysis: The assessee acted under a bona fide belief that duty was not attracted on the proto-type towers and the related testing charges. The contracts disclosed the testing charges, the records were available for inspection, and there was no positive act of conscious suppression or wilful withholding of information to evade duty. The extended period could not therefore be invoked.

Conclusion: The demands were barred by limitation and this issue was in favour of the assessee.

Final Conclusion: The order of demand was set aside and the appeal succeeded, with the assessee obtaining relief on the dutiability of proto-type towers and on limitation, notwithstanding the valuation finding on testing charges.

Ratio Decidendi: For excise duty, marketability is essential to establish that an article is goods, and the extended period of limitation requires positive suppression or wilful misstatement with intent to evade duty.

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