2001 (8) TMI 445 - AT - Central Excise

Tribunal rules on freight & insurance inclusion in assessable value, penalties imposed

The Tribunal referred the classification issue to a Larger Bench for a conclusive interpretation. It upheld the Department's position on including freight ... Hydraulic turbines - Parts/components - Valuation Issues Involved:1. Classification of hydraulic turbine parts.2. Eligibility for duty exemption under Notification No. 205/88-C.E.3. Inclusion of freight and insurance in the assessable value.4. Invocation of the extended period of limitation.5. Imposition of penalties and interest.Detailed Analysis:1. Classification of Hydraulic Turbine Parts:M/s. Sulzer Flovel Hydro Ltd. (SULZER) manufactured and supplied parts of hydraulic turbines to various State Electricity Boards. They claimed these parts as turbines in knocked-down (CKD) condition under TSH 8410.10, seeking exemption from duty. The Department argued that the parts were not turbines but parts thereof, classifiable under TSH 8410.90, and demanded duty accordingly. The Tribunal noted that all parts required for assembling a complete turbine were not removed from SULZER's factory, some being supplied directly to the site by suppliers. Therefore, the condition for treating parts as unassembled turbines under Rule 2(a) of the Interpretative Rules was not satisfied. The Tribunal referenced the case of Space Age Engg. Projects, where a similar situation led to the classification of parts as parts, not as a complete machine.2. Eligibility for Duty Exemption:SULZER claimed exemption under Notification No. 205/88-C.E., as amended, which exempted parts consumed within the factory for the manufacture of specified goods, including turbines. The Tribunal observed that since not all parts were removed from the factory, the exemption could not be granted. The Tribunal also noted conflicting interpretations in previous cases (Flat Products Equipments and Space Age Engg. Projects) and decided to refer the matter to a Larger Bench for a conclusive interpretation.3. Inclusion of Freight and Insurance in Assessable Value:SULZER contended that the sale of goods occurred at the factory gate, and thus, freight and insurance charges should not be included in the assessable value. The Department argued otherwise, stating that the sale took place at the customer's site. The Tribunal noted that the sale was completed at the factory gate, with invoices raised and sales tax paid accordingly. Therefore, the cost of transportation should be excluded from the assessable value under Section 4(2) of the Central Excise Act.4. Invocation of Extended Period of Limitation:The Department invoked the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, alleging wilful misdeclaration and suppression of facts by SULZER. SULZER argued that there was no suppression as the Department was aware of their clearance practices. The Tribunal noted that the change in description of goods post-16-3-1995 without informing the Department constituted suppression of facts, justifying the invocation of the extended period.5. Imposition of Penalties and Interest:The Commissioner imposed penalties on SULZER and its Managing Director under various sections of the Central Excise Act and Rules. SULZER argued against the penalties, citing no intention to evade duty. The Tribunal, considering the findings on suppression and misdeclaration, upheld the penalties and interest imposed by the Commissioner.Conclusion:Given the conflicting interpretations on the classification issue, the Tribunal referred the matter to a Larger Bench for a conclusive interpretation. The Tribunal upheld the Department's stance on the inclusion of freight and insurance in the assessable value, the invocation of the extended period of limitation, and the imposition of penalties and interest.