Limited Vs. Collector of Central Excise  INSC 218 (15 April 1998)
Agrawal, S. Saghir Ahmad S. Saghir Ahmad, J.
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.
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
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.
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 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.
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.
Revenue, thereafter, filed three appeals before the Tribunal which have been
allowed by the impugned judgment.
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
services and training charges and
and commissioning charges.
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.
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.
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
PSI Data Systems Ltd. vs. Collector of Central Excise, 1997 (89) ELT 3 (SC), it
was held that the charges 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.
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
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."
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.
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.