Full Judgment Text
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PETITIONER:
M/S. THERMAX LIMITED
Vs.
RESPONDENT:
COLLECTOR OF CENTRAL EXCISE
DATE OF JUDGMENT: 15/04/1998
BENCH:
S.C. AGRAWAL, S. SAGHIR AHMAD
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
S. SAGHIR AHMAD, J.
In this appeal in which four sets of court fees have
been paid, the correctness of the common judgment passed by
the Customs Excise and Gold (control) Appellate Tribunal
(for short, ‘the Tribunal’) in the three appeals filed by
the Revenue and one filed by the present appellants, is
questioned.
2. The appellants manufacture high pressure Boilers,
Process Heat Equipment etc. as per requirements of the
customers. The manufacturing process includes pre and post
manufacturing steps. Since Boiler has to be manufactured
according to the requirements of the customers, the pre-
manufacturing process includes the inspection of site where
the Boiler is to be installed and the making of its drawings
and designs etc. for which the appellants charge and had all
along charged separately from its customers. The post-
manufacturing steps include the installation, erection and
commissioning of the Boiler at the site for which also the
appellants have charged specific amounts from their
customers under separate invoices.
3. Three separate show cause notices dated December 26,
1983; February 2, 1984 and July 30, 1984 were issued to the
appellants in which it was pointed out that during the
period from 1.2.1983 to 30.6.1984, the appellants had
supplied Boilers but had not included the designing and
engineering charges and the erection and commissioning
charges in the assessable value even though such charges
were recovered by them from their customers on separate
invoices. It was indicated in these notices that the
designing and engineering, erection and commissioning
charges etc. were the charges which constituted the value of
the "products" and were, therefore, assessable to excise
duty. Consequently, and amount of Rs. 1,14,990.71 was
demanded from them.
4. The Assistant Collector, Central Excise by his separate
orders dated May 3, 1986; May 7, 1985 and June 1, 1985 held
that the expenses on designing and engineering charges were
expenditure incurred on the goods produced and consequently
it constituted the part of the value of the goods. As
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regards erection and commissioning charges, it was held that
since the sale would be complete only on the erection and
commissioning of the Boiler at the customers’ site, the
expenses incurred in erection and commissioning of the
Boiler would also be included in the value of the goods. The
demand was confirmed only for Rs. 78.454.50 as excise duty.
5. These orders were challenged by the appellants before
the Collector of Central Excise (Appeal), Bombay and the
Collector by his common order dated December is, 1985
disposed of all the three appeals with the finding that the
designing and engineering charges were includible in the
value of the goods but erection and commissioning charges
were in the nature of post-manufacturing expenses and cannot
be treated as part of the assessable value of the goods.
6. The Revenue, thereafter, filed three appeals before the
Tribunal which have been allowed by the impugned judgment.
7. There was another appeal before the Tribunal which was
filed against the show cause notice dated August 4, 1987
issued by the Collector of Central Excise to the appellants
for the period from April, 1982 to May, 1987 alleging that
the appellants and not included and reflected in the invoice
prices, the amounts separately recovered in separate
invoices from their customers directly relating to their
manufacturing activities for (1) designing and engineering;
(2) technical services and training charges and (3) erection
and commissioning charges. In the show cause notice, excise
duty amounting to Rs. 65,33,098/- was demanded under Rule
9(2) read with Section 11A(1) of the Central Excise Act,
1944. The appellants refuted the allegations made in the
show cause notice but the Collector confirmed the demand and
imposed a penalty of Rs. 17 lakhs on the appellants. It was
against this order that an appeal was filed before the
Tribunal by the appellants. These four appeals were disposed
of by the Tribunal by common judgment against which the
present appeals have been filed.
8. Shri V. Lakshmikumaran, learned counsel appearing for
the appellants contended that the decision of the Tribunal
as also that of the Assistant Collector insofar as they
relate to the inclusion of drawing and designing charges in
the assessable value of the Boiler are not challenged but t
he decision relating to the inclusion of erection and
commissioning charges in the assessable value of the Boiler
Installed by the appellants at the customers’ site is
positively wrong and is liable to be set aside. It is
contended by him that before manufacturing the Boiler, the
officials of the appellants visit the site at which the
Boiler is to be installed and, thereafter, they prepare the
necessary drawings regarding the design of the Boiler
according to the need of the customer and, thereafter, the
Boiler and its parts are manufactured at the appellants’
factory. Consequently, the expenditure incurred in drawing
and design which is separately charged by the appellants
from the customers can, it is conceded, be legally included
in the assessable value of the goods.
9. The only question, therefore, with which we are left in
these appeals is whether the erection and commissioning
charges for which the appellants had separately charged from
its customers could be legally included in the assessable
value of the goods, namely, the Boiler manufactured and
supplied by the appellants. On, to put it differently,
whether the installation and commissioning charges are
exigible to excise duty? This controversy stands concluded
by two decisions of this Court.
10. In PSI Data Systems Ltd. vs. Collector of Central
Excise, 1997 (89) ELT 3 (SC), it was held that the charges
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for installation of computers and training of customer’s
personnel to operate and maintain it, was not includible in
the assessable value of the computer. The Court even went to
the extent of saying that the value of softwares sold along
with the computer was not includible in the assessable value
of the computer.
11. In Mittal Engineering Works (P) Ltd. vs. Collector of
Central Excise. Meerut, (1997) 1 SCC 203, Mono Vertical
Crystallisers which were used in sugar factories for
exhausting molasses of sugar were assembled, erected and
attached to the earth at the site of the customers’ sugar
factory. The process involved welding and gas cutting as
deep Mono Vertical Crystallisers had to be assembled,
erected and attached to the earth by a foundation at the
site of the sugar factory. It was held that the erection and
installation of a plant was not excisable.
12. In coming to this conclusion, reliance was placed on an
earlier decision of this Court in Quality Steel Tubes (P)
Ltd. vs. Collector of Central Excise, (1995) 2 SCC 372, in
which also it was held that erection and installation
charges cannot be included in the assessable value of the
goods. It was held thus :-
"erection and installation of a
plant cannot be held to be
excisable goods. If such bringing
in its ambit structures, erections
and installations. That surely
would not be in consonance with
accepted meaning of excisable goods
and its exigibility to duty."
13. In view of the above, the judgment passed by the
Assistant Collector as also by the Tribunal that
installation and commissioning charges have to be treated as
assessable value of the goods supplied by the appellants are
not correct and are liable to be set aside. Since we are
disposing of these appeals on merits on coming to the
conclusion that the installation and commissioning charges
could not be included in the value of the goods, the
question of limitation relating to the show cause notice
issued under Rule 9(2) read with Section 11A of the Act fro
the period from 1982-83 to 1987-88 is not decided.
14. The appeals are accordingly partly allowed, the
judgment and orders dated May 3, 1985; May 17, 1985 and June
1, 1985 as also the show cause notice dated August 4, 1987
issued by the Collector of Central Excise and his order
passed thereon together with the judgment passed by the
Tribunal in that regard to the extent they relate to
inclusion of installation and commissioning charges are set
aside without there being any order as to costs.