TaxTMI 
TaxTMI 
2011 (4) TMI 578
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 08.05.06 42,92,081 2,15,000 3 Sept. 03 to June 04 12/CX/ADJ/ 05 dtd. 25.10.05 PIII/036/06 dtd. 07.02.06 1,20,874 50,000 4 April 06 to Feb. 07 116/CEX/ADC/07 dtd. 24.12.07 PIII/161/08 dtd. 17.07.08 11,15,765 11,15,765 5 May 05 to March 06 35/CEX/07 dtd. 31.03.08 PIII/243/08 dtd. 24.12.08 3,56,978 4,20,980 6 March 07 to Feb. 08 11/CEX/09-10 dtd. 03.11.09 89,68,079 89,68,079 2. The brief facts of the case are as follows: 2.1. The appellants are engaged in the manufacture of Electric Centrifugal Machines falling under chapter 84 of the Central Excise Tariff Act, 1985 since 1960. The Centrifugal Machines are of two types (a) Recycling Batch machines and (b) Continuous Centrifugal Machines. The Centrifugal Machines operate on the principle of centrifugal force i.e. force due to rotation. One of the main applications of the said machine is to separate the fluids from solid. The said machines are used in sugar industries to separate molasses from sugar from the mixtures (massecuite). The power for operating the said machines can be either electric power or hydraulic power or pneumatic power or it can also be operat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the first one, penalty was also imposed. 5. Heard both the sides. 6. The learned counsel on behalf of the appellants made detailed submissions and after hearing both the sides, the bench had directed the appellants to make written submissions. Accordingly, written submissions have been filed by the appellants which is reproduced below: 6.1 The admitted factual position in this case is that the centrifugal machines manufactured and cleared by the appellants are complete in all respects when they are cleared from their factory. The centrifugal machines manufactured and cleared by the appellants are tested for its technical performance for dry run at the appellants, factory and the same are sent to the site for installation. The bought out items are not manufactured by the appellants. The suppliers of such goods have manufactured and cleared the said bought out items on payment of central excise duty. Excise duty is a tax on manufacture. Once the appellants have not manufactured the bought out items, no duty can be demanded on such goods. In Electronics corporation of India Ltd. 2004 (167) ELT 420 (T), this Tribunal held that excise being a levy on manufacture, duty liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nes apart from the centrifugal machines manufactured by the appellants. This fact is also not in dispute. Hence, the value of bought out items (electric motor and control panel) cannot be included in the assessable value of the centrifugal machines. 6.4 The main plank of attack in the instant case against the appellants is that the electric motors and control panel are necessary to make the centrifugal machines functional. The finding against the appellants is that centrifugal machines cannot be functional without the electric motor and control panel. The centrifugal machine is complete only with the electric motor and control panel. According to the Revenue, unless the drive is given in the form of electric motor, the Centrifugal Machines is a non-functional unit. According to the Revenue, centrifugal machines are not functionally complete without electric motor and control panel and hence, the value of the electric motor and control panel has to be included in the assessable value of the machine. There is no substance in this case of the Revenue. 6.5 There is absolutely no basis or evidence placed on record by the department to show that the bought out items are essential....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g cistern cannot be made functional without the said bought out items. The Commissioner does not hold that the said decision is not applicable in the facts of the present case. The Ld. Commissioner chooses not to follow this decision solely on the ground that appeal filed by the Revenue before the Supreme Court is pending. This cannot be a valid reason for not following a binding precedent. 6.9 In CCE Vs. Kishor Pumps Pvt. Ltd.1998 (91) ELT 91 (T), this Tribunal dealt with an identical issue. In that case, the assessee was engaged in the manufacture of Power-driven pumps and Agitators (PD Pumps). The assessee was also supplying electric motors along with PD Pumps. The issue under consideration was whether the value of electric motors was includible in the assessable value of Agitators and PD Pumps. Electric Motors were supplied along with Agitators or PD Pumps only at the request of buyers. The assessee was also clearing Agitators and PD Pumps without Electric Motors in cases where buyers did not require the latter. The Tribunal held that Electric Motor cannot be regarded as a component or integral part of a pump. The Tribunal also took note of the fact that without electric po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tally irrelevant and extraneous for determining the value of the goods cleared from the factory. 6.13 The above view is supported by decision of the Bombay High Court in the case of Reliance Textile Industries Ltd. Vs. Union of India 1993 (63) ELT 67 (Bom.), para 7 thereof. 6.14 A clarification to similar effect has been issued by the CBEC vide Circular No. 139/08/2000 dated 03.01.2001. 6.15 The above legal position has not been altered by the amendment made to Section 4 of the Central Excise Act with effect from 01.07.2000. Even under the transaction value era, the goods manufactured and cleared from the factory, which are the subject matter of assessment, have to be looked into. Goods not manufactured but purchased and sold cannot be subject to central excise duty. The Revenue cannot tax the trading margin of manufacturer-cum-trader by including the value of the traded goods in the value of the manufactured goods. 6.16 In any event, the centrifugal machine after they are erected at site and connected with the motors and control panel becomes immovable property. Therefore, if the contention of the department that the electric motors, control panels etc.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epends on Drive used and Massecuite condition 2117 2000 HP-700 700 1220x762 16 to 18 2117 2000 V-1000 1000 1250x1000 18 to 20 2360 2000 V-1250 1250 1350x1000 18 to 20 2360 2100 V-1500 1500 1395x1100 18 to 20 2450 2150 V-1750 1750 1500x1150 18 to 20 2450 2150 6.19 As can be seen from the above that each machine carries different chare per cycle and accordingly, the number of cycles varies. This is precisely the performance guarantee referred to in clause (5) above. Thus, it is clear that the performance guarantee is for the centrifugal machine only. 6.20 Secondly, assuming it is a performance gu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se, the electric motors, control panels etc. are not cleared from the factory of the appellants along with the centrifugal machine. Further, the motors and control panels are of standard size. The said goods are not made to order or specifications. Hence, the facts of the present case are distinguishable from the facts of that case. 6.24 Similarly, the reliance placed on the decision of the Supreme Court in the case of MIL India Ltd. 2007 (201) ELT 188 (SC) is of no help to the revenue. In that case, the Supreme Court held that whether value of bought out items would be included assessable value would depend on the facts of each case. In the undisputed facts of the present case, as already shown above, the value of the electric motor, control panels etc is not includible in the assessable value of the centrifugal machine. 6.25 In any event, credit of duty paid on the bought out items needs to be adjusted against the duty demand in the present case and re-computed after allowing cenvat credit. This benefit has been extended to the appellants by the Commissioner himself vide order 18.12.1989 which has not been challenged by the Revenue. 6.26 The appellants are also entitl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd submitted that the Commissioner has considered all aspects of the matter in her order and therefore the order has to be sustained. 8. We have considered the submissions made by both the sides and also have gone through the various records and the documents filed to us. 9.1 The first submission made by the appellant was that duty liability has to be restricted to the goods manufactured by an assessee and not the goods supplied by the assessee. The appellants relied upon the decision of the Tribunal in the case of Electronics Corporation of India Ltd. in this regard. In MIL India case, the Hon'ble Supreme Court considered the issue as to whether the value of bought out items are to be included in the soaps/detergents and allied industries plant which was manufactured by MIL India Ltd. The Tribunal had taken the view that the department was not entitled to add the value of the bought out items in the assessable value of the goods manufactured by the appellants and allowed the appeal. In that case also, the bought out items were directly sent to the site and were never received in the factory premises of the appellants. In fact the fatty acids plant and the film sulphonation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ich had no relevance to taxability of the goods. In the circumstances we reduce the demand from Rs. 94,03,500 to Rs. 23,56,000 which shall be paid within eight weeks failing which department would be entitled to levy interest at 9% p.a." 9.2. As can be seen from the above, the Hon'ble Supreme Court took note of the fact that the appellant had a composite contract by which manufacturer have agreed to supply the equipment but also agreed to provide datawise information. The Hon'ble Supreme Court observed that the erection of a plant by assembling certain items at site could constitute 'manufacture' under the excise law. The above decision of the Hon'ble Supreme Court would require us to have a look at the type of the contract, the process of manufacture and consider whether value of bought out parts have to be included or not. It has to be taken note of that nowhere in the decision of the Hon'ble Supreme Court the necessity or the essentiality of the component or item has been discussed. The one aspect that emerges very clearly from the decision of the Supreme Court is that fact as to whether a particular bought out item was manufactured or not is not the only factor to determine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also mentioned that before dispatch of the centrifugal machine from their factory the same is tested without load. For such testing motor and control panel are necessary. In any case either at factory testing or for functioning at site the centrifugal machine requires electric motor and control panel. There is no doubt whatsoever that the centrifugal machine is complete without the prime mover (in the form of electric motor or otherwise) and a control mechanism (in the form of control panel) to control the prime mover for varying load condition on the centrifugal machine. Unless the drive is given in the form of electric motor the centrifugal machine is non functional unit. To control the output of the motor as per the varying load conditions of the centrifugal machine, control panel is required. If the electric motor and control panel are not essential and integral parts of the centrifugal machine, then why the customers are placing order for supply of such motor and control panel to suit operation of the centrifugal machine and why the noticee is supplying them is not anwwered by the notice. Hence I observe that the centrifugal machine is functionally not complete without the ele....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the appellants is that of L.H. Sugar Factories Ltd. dated 30.03.1994. This contract is also for supply of one Centrifugal machine without Bharat Bijlee make electric motor drive system thyrister control panel, push bottom station, electronic console, hydraulic power pack, cables etc. It is strange that the contract is made specifically for supply without Bharat Bijalee make electric motor drive system thyrister control panel, push bottom station, electronic console, hydraulic power pack, cables etc. Normally one would expept the purchaser to say he wants it without a motor. The warranty in this case is for machine and accessories for 12 months from the date of commissioning. One would imagine that accessories would include items like electronic console, hydraulic power pack, push bottom station etc. for which no order has been placed with the appellant. The purchase order does not specify which are the accessories for which warranty is required. Further the purchaser also requires the appellant to guarantee for the quality of machinery and for its performance as mentioned in the technical specifications. 13. The next contract that we have seen is that of the Seksaria....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nus with the warranty for the Centrifugal machine. 16. The study and grievance of various purchase orders available to us on record shows that whenever electric motors control panels etc. were supplied by the appellants themselves, they have undertaken to ensure that those items are according to the requirements, will perform satisfactorily, their equipment will perform satisfactorily, the warranty for those purchased items are co-terminus with the warranty for the equipments supplied by them and they have also given performance guaranty. In the case of purchase orders where electric motor etc. are not supplied by them, the guarantee is limited to the equipment supplied by them and they are not required to provide any warranty for the performance of electric motor, control panel etc. 17. A dry run is conducted in the factory of manufacture using a standard electric motor and electric panel before supply would show that Centrifugal machine is assembled in the factory and tested. Thereafter the same is disassembled and supplied. While supplying the Centrifugal machine in disassembled form, naturally the electric motor, electric panel would be separated from the Centrifugal ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on in the case of Kores India Ltd. I don't think the case of the typewriter ribbon is applicable to the present one. A typewriter ribbon is a consumable and it has to be kept on being replaced unlike electric motor and electric panel in this case. Similarly, the decision of the Hon'ble Bombay High Court in the case of Koron Business systems Ltd. cited by the appellant is also of no help to them. Admittedly photo conductive plates are also consumables and after taking a few photographs they have to be changed and they are similar to typewriter ribbons. However another decision relied upon by the learned Commissioner in her order is applicable to the present case. That is the decision of Bombay High Court in the case of Koron Business System Ltd. -1992 (58) ELT 48 (Bom.). In that decision the Hon'ble High Court considered the includibility of the value of bought out items like timer and the lens for the camera used in the photocopier and held that the same are includible. The Hon'ble Supreme Court also had considered the issue of inclusion of value of plates and black shield in the value of photocopying machine and held that the same are not parts of photocopying machines and hence t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not and it has to be decided on the basis of facts and circumstances of each case. This is the reason why we have proceeded to examine different purchase orders made available in the records by the Revenue as well as the appellants. 22. As regards the submission that department has not produced any evidence to show that the Centrifugal machine is complete without the electric motor and control panel, we find that the very process of manufacture, supply and the process of fulfillment of purchase orders shows that the Centrifugal machine is assembled in the factory, tested with an electric motor and electric panel, disassembled and afterwards supplied. This process itself shows that electric Centrifugal machine is incomplete without electric motor and control panel. Whether it is supplied with electric motor and control panel or without them, the assessment has to be treating the same as Centrifugal machine. As regards valuation, we have to depend upon the provisions of Section 4 of Central Excise Act, 1944 and the fact that Centrifugal machine is incomplete or complete with the electric motor and panel does not help the appellant. This is case according to Rule 2(a) of Interpret....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the contracts goes against the appellants. 25. The submission that the reliance of learned DR on the decision of the Tribunal in the case of Peterplast Synthetics Private Limited is not appropriate also cannot be accepted. In this case we have already noticed that without electric motor and control panel Centrifugal machines cannot work and even within the factory, the dry run is conducted by using electric motor and electric panel. Therefore, the decision of the Peterplast Synthetics Private Limited case squarely applies. 26. The dispute involved in this case covers the period prior to 01.07.2000 and subsequent to 01.07.2000, 01.07.2000 being the date on which the new section 4 came into existence. 27. For the period earlier to 01.07.2000, valuation has to be done as per Section 4 as it existed during the relevant time. According to Section 4 during the relevant time, when duty was to be calculated with reference to value, such value was deemed to be the normal price. During the relevant time therefore the value was a deemed value and the normal price which was the price at which goods or article was sold in the course of wholesale trade to an unrelated buyer.....