TaxTMI 
TaxTMI 
1993 (12) TMI 118
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....ted that duty was not being paid on drag bits and drill pipes since they were not considered as forming integral parts of the machinery manufactured by the appellants. Thereafter, a show cause notice was served on the appellants on 15-2-1992 proposing to recover under Section 11A of the Act, the differential duty amounting to Rs. 48,23,684/- on the grounds that during the period 1985-86 to 1989-90 the appellants had under-valued the goods by not including the value of accessories, spare parts and components in the value of Drilling rigs, Construction and Mining equipments cleared by them. By the said notice the appellants were also asked to show cause as to why penalty should not be imposed on them under Rule 173Q. In their reply to the show cause notice the appellants denied all the charges. They submitted that there was no undervaluation since they had paid duty on accessories, which were manufactured by them. They stated that they were not paying duty on duty-paid accessories and other items bought by them from other suppliers which were optional in character and did not form an integral part of the machine. It was further submitted that composite orders received from customers ....
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....ifically required. In support of his contentions he referred to the statement at pages 363 to 367 of the paper book showing the total sales of machines, machines with accessories and accessories alone during the year 1986 to 1989. He submitted that in the price circulars issued by the appellants to buyers through their various sales centres the price of Standard Equipment (i.e. Drill machine and accessories) and optional accessories are listed separately. He stated that according to the copies of I.S. 7209/1974 for "Blast Hole Drilling Rigs", certificate of the Engineering Well Boring Division, Government of Karnataka and certificate by Drilling Engineer of International Development Agency, filed by the appellants Drill rods and Bits of various types are tools and accessories which vary according to the needs of the user. The learned Counsel submitted that the findings of the Collector in para 12 of the order that Drill rods, pipes and bits are not integral parts of drilling rigs, they are essential parts without which drilling rigs would not be useable for achieving the desired purpose of boring wells, in fact supports the appellants' contention that these items do not make the ma....
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....pplied according to the needs of the customer along with drilling rigs. He contended that even according to the opinion given by Engineer-in-Chief on pages 213 to 215 of the Paper Book - Vol. I Drill rods and Drill bits are accessories they are essential requirements for carrying out any drilling operation. He submitted that Drilling rods and bits are invariably attached to the drilling machine for carrying out drilling operations even though for the convenience of transportation they may be packed separately. He contended that the opinion given by Danish International Development Agency cannot be accepted as correct in the light of the opinion given by the Engineer-in-Chief. He submitted that the opinion of expert cannot always be relied upon since as held in the case of Guest Keen Williams Ltd. v. Collector of Customs, Calcutta reported in 1987 (29) E.L.T. 68 (Tribunal) independent conclusion has to be arrived at keeping in view the nature of the equipment. He contended that on the analogy of computer which is treated as a single equipment even though it consists of different parts, Drill rods and Drill bits though packed separately have to be treated along with the Drilling rig ....
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....bmissions made on behalf of both sides. It is seen that the main points that arise for consideration in this case are whether, (i) Drill rods and Drill bits supplied by the appellants along with Drilling rigs for boring water wells constitute integral parts of Drills and the assessable value of the rig has to be arrived at by including the value of Drill rods even when they are "bought out items", (ii) the demand issued to the appellants was time-barred. 6. The appellants' case is that the water well drilling rigs manufactured by them are complete machines and even without any attachments they can perform drilling operations upto a depth of 4 feet. However, when drilling is to be carried out to greater depths a number of drilling rods/pipes of lengths varying between 10 feet to 30 feet and diameter between 3½ to 4½ nches are used depending upon the depth of the hole to be bored. One end of the pipe is attached to the drilling machine and at other end of the pipe, depending upon the earth strata various types of bits for cutting the earth and deepening the hole have to be fitted. On completion of the drilling operation the rods and bits are retrieved and discon....
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.... can function independently without these essential parts when purpose for which it is purchased is not served. Therefore, the customers place order for these essential parts alongwith the drilling rigs and M/s. Ingersoll Rand supplies these essential parts along with the drilling rigs according to the needs of the customer but only to evade C. Excise duty on such parts, prepares separate invoices for such parts, with a plea that the drilling machine can function independently. I therefore hold that M/s. Ingersoll Rand have purposely invoiced separately the drilling rigs and the essential parts even though covered by the same purchase order to evade payment of C. Excise duty. This function is evident from the fact that the invoices under which the main drilling rig is supplied and invoice under which the essential parts are supplied are on the same date and it is only on record that these two items are separately invoiced even though supplied together as per the customer order. In the circumstances I hold that M/s. Ingersoll Rand have under-valued the drilling rigs manufactured and cleared by them without including the value of essential parts supplied along with the drilling rigs ....
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........................ The heading also excludes : (a) Transmission or conveyor belts or belting of plastics ( ). (b).................... (c) Hollow drill bars and rods (Heading 72.28) (d) Casing tubing and drill pipes (Heading 73.04 to 73.06) ..... (g) Rock drilling bits and chisels, boring bits, auger bits and similar rock drilling or earth boring tools (Heading 82.07). (h).................... (i).................... On a plain reading of the provisions of HSN extracted above it follows that Drilling Machines for sinking or boring of wells fall under Heading 84.30, the parts of these machines are covered by Heading 84.31. However, Drill bars/rods and Drill pipes are not classifiable as parts of Drill machines under Heading 84.30 as they are classifiable under Heading 72.28 and Headings 73.04 to 73.06 respectively. Similarly, Drill bits of various types are also not classifiable as parts of Drilling rigs and being earth boring tools they are classified under the more specific Heading 82.07. It is evident that even though Drilling rigs have necessarily to be used in conjunction with items such Drill rods/pipes and bits, these items do not constitute parts o....
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.... attachments are packed separately. In our view these examples are not relevant since CPU, Key board and the visual unit are essential parts which go into the making of a computer and in the absence of any one of these it will neither be useable as computer nor will it constitute an item which is normally known as a computer. Similarly a mixer is always sold as a complete machine and only certain optional accessories are offered as separate or detached items. As against this, a Drilling machine is a complete machine in itself which is useable for drilling without any attachments upto a certain depth and such machines are known and even sold as complete machines. 12. It is seen that in the case of State of Uttar Pradesh v. Kores (India) Ltd. reported in (1977) 39 STC 8 on the question whether typewriter ribbon is a part/accessory of a typewriter, the Hon'ble Supreme Court has held that it is an accessory and not a part of typewriter even though it may not be possible to use the latter without the former, just as aviation petrol is not a part of the aeroplane. Relevant extracts of the said judgment are reproduced below :- "Regarding ribbon also to which the abovementioned ....
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....arging holes in a solid material. Also known as a drill bit"." 15. On the basis of our findings that Drill rods/pipes and Drill bits are classifiable on merits under the relevant headings of the tariff and not as parts of Drilling rigs under Heading 84.31 and also on the ratio of the judgments discussed above we hold that Drill rods/pipes and Drill bits when supplied along with a Drilling rig would be assessable on merits under the relevant headings of the tariff and not as parts or attachments of Drilling rig and their value shall not be includible in the value of the machine. On these considerations, it follows that if such Drill bits/pipes and Drill bits are manufactured by the appellants they will attract duty under the relevant headings of the Tariff. However, if any of these items are received by the appellants as duty-paid "bought out" items for being supplied to customers along with Drilling rigs according to requirements of particular customers, then they shall not be chargeable to any further duty. 16. The learned SDR has contended that the value of bought out items has to be included in the assessable value of the equipment, provided they are compulsory o....