Torrison Products Ltd. Vs. Collector of Central Excise

1. This is an appeal arising out of an order of the Collector holding that the appellants are liable to pay duty on the main springs by including the cost of bushes. The appellants manufacture inter alia unspecified motor vehicle parts like spring leaves falling under Tariff Item 68. The main spring plate in the assembly of the spring leaves is provided with an 'eye' at their ends to facilitate the fixing of bushes. The bushes are not manufactured by the appellants and the sale of these spring leaves without the bush is also a common feature. In other words, bush is not an essential part of spring leaves. Since the spring leaves are manufactured and supplied without bushes by the appellants, they were invoicing the sale of spring leaves independently of the supply of any other material. They have also not taken out licence for the manufacture of bushes, and they were obtaining them in the open market and sell them separately, invoicing them separately at the request of the purchasers. On 7-6-1980, the Superintendent directed the appellants to include the value of 'bushes' in the value of springs for assessment. Thereafter, a show cause notice was issued on 14-8-1980 and 6-4-1981 demanding excise duty on 'bushes' sold during the periods from 1-4-1979 to 30-6-1980 and from 1-7-1980 to 31-10-1980. On receipt of the reply, the Asstt. Collector held that "the 'bushes' are supplied with the main leaves and assembly, their value has also to be added to the value of the main leaves and assembly and central excise duty is to be charged on this value. Their contention that 'bush' is not an essential part of spring leaves is also not correct. Fitting of the bushes to leaves is essential to protect wear and tear to the 'eye' of the Main Leaf which acts as a pivot. The Bush acts as a bearing and can be replaced, otherwise the whole assembly becomes weak with damage to the 'eye' of the main leaf. When the leaves and spring assembly are fitted with Bushes, the value of Bushes will form part of assessable value".

2. On appeal, the Collector while confirming the order of the Asstt.

Collector observed as follows : "This is not a case where 'bushes' are supplied separately. Here, they are bought and fitted to the main goods and then, moved out of the factory of production for delivery and this activity is akin to any other manufacturing activity. Hence, the manufacturing cost of main spring will necessarily include the cost of bushes that go into the making and delivering the ultimate product for use by the buyers. Under the circumstances, I am of the view that goods as it leaves out of factory of production should pay duty on full value including the value of parts fitted into them, irrespective of whether or not such parts are purchased from outside." 3. The appellants filed a revision application under Section 36(2) of the Central Excises & Salt Act which was transferred to this Tribunal on its constitution.

4. The appellants' main contention is that the main spring is a finished product by itself and is recognised as a commodity without the production of bushes for them. Bushes are also recognised as independently identifiable goods that come to the market for being bought and sold. The 'bushes' are not integral part of spring leaves and their supplies to the customers are not necessary in trading practice unless specifically sought by the customers as a separate transaction. Substantial supplies of spring leaves have been made to M/s. Ashok Leyland, Madras who have not required the bushes to be supplied along with the leaves. The 'bushes' can be provided by the customers themselves at the time of their use and according to the requirements of the parts with which the springs are to be attached.

The customers could always buy the 'bushes' in the open market the same way the applicants have procured and supplied. All these factors go to establish that 'bushes' are accessories and that their supplies to the customers along with the spring leaves would not attract the inclusion of their value in the value of springs for the purpose of excise levy.

5. Shri Jagdeesan also submitted that the authorities below without holding an enquiry as to whether 'bush' is an essential part or an accessory of the spring leaves, proceeded on the assumption that it is an essential part of spring leaves and therefore, the cost is liable to be included. The finding of the lower authority that the bush is an essential part of spring is based on no evidence and is made without holding an inquiry. If bush is an accessory, the value is not includible in the assessable value of the spring. Shri Jagdeesan further pointed out the distinction between a part and an accessory, and in support of his contention, he relied upon on an order of this Tribunal in C.C.E. v. jolly Exports (P) Ltd. [1990 (45) E.L.T. 612 (Tribunal)] wherein it was held that a part of a machinery is capable of being substituted or replaced. On the other hand, an accessory means something which contributes in a subordinate degree to attain general result or effect. If a machinery cannot be worked without the part, then it ceases to be an accessory. If it adds merely to the convenience or effectiveness of a machinery like a speedometer, it would be an accessory. Shri Jagdeesan also relied on Bajaji Auto Ltd. v. C.C.E.[1990 (44) E.L.T. 763] and submitted that it is the value of an essential part which is to be included in the assessable value and not an accessory. An accessory means 'goods' which may have been manufactured for use as an aid or addition. He also submitted that an accessory is an object or device that is not essential in itself but adds to the beauty, convenience or effectiveness of something else.

Therefore, he submitted that the order of the Collector as well as the Asstt. Collector are liable to be set aside as they proceeded on the assumption that 'bush' is an essential part of the spring which is based on no evidence and that 'bush' is an accessory, therefore, the cost of 'bush' is not includible in the assessable value of spring.

6. The Ld. SDR Shri Ganu, appearing for the Department submitted that there is no dispute that the 'bushes' are fitted to the springs before they are cleared from the factory. Therefore, the cost of bush should be included in the assessable value of the end product viz., spring.

The appellants, he submitted that, have not raised the issue that 'bush' is an accessory and therefore, at this stage, they are not entitled to raise the same. He relied on an order of this Tribunal in C.C.E. v. Lawkim (P) Ltd., Thane [1987 (31) E.L.T. 700] holding that the "legislature could not have intended that a manufacturer should be at liberty to constructively or notionally step down the product he had made by asking for exclusion of certain 'parts' on the ground that they are not essential and, therefore, are only accessory ...". Accordingly, in principle, it would be open to a manufacturer to market a particular article and seek the exclusion from its assessable value of certain parts of the article as cleared and marketed on the ground that they are not incorporated in its main article and are not essential to its operation. Therefore, he submitted that the authorities below are justified in adding the cost of bushes to the value of springs.

7. The question that arises for consideration is whether the cost of the bushes is includible in the assessable value of spring leaves.

8. The Assistant Collector and the Collector rejected the contention of the appellants on the ground that 'bush' is an essential part of the spring and, therefore, the value of 'bush' is includible in the assessable value of spring leaves. The reply filed by the appellants to the show cause notice is not before us. However, the Assistant Collector says in his order that "their contention that 'bush' is not essential part is also not correct". In other words, the appellants have raised before the Assistant Collector the contention that bush is not an essential part. The grounds of appeal filed before the Collector were also not before us. However, the Collector categorically says that "I am of the view that goods as it moves out of the factory of production should pay duty on full value including the value of parts fitted into them, irrespective of whether or not such parts are purchased from outside". The above observation of the Collector indicates that the appellants have again reiterated their ground that 'bushes' are not essential parts of spring leaves. In the grounds of appeal before us, the appellants have categorically stated that "all these factors go to establish that 'bushes' are accessories and their supplies to the customers along with the spring leaves would not attract the inclusion of their value in the value of spring leaves for the purpose of excise duty". Therefore, the consistent stand of the appellants is that the 'bushes' are not essential parts of spring leaves. Neither the Assistant Collector nor the Collector have considered the issue as to whether 'bushes' are essential parts or not.

They have proceeded on the assumption that bushes are essential parts.

They ought to have gone into the question whether bushes are essential parts or not. Therefore, the finding of the Assistant Collector as well as the Collector that bushes are essential parts is neither based on inquiry not on evidence. Therefore, the contention of the Departmental Representative that the appellants have not made out a case that bushes are not accessories, cannot be sustained.

9. We may also point out that this Tribunal has already laid down a distinction between an accessory and a part in the case of C.C.E. v.Jolly Exports (P) Ltd. (supra) . We may also refer to the observations of the Bombay High Court in T.I. Miller Ltd. v. U.O.I. & Another [1987 (31) E.L.T. 344] wherein pointing out the distinction between an accessory and a part, it was held that a thing is a part of the other only if the other is incomplete without it while a thing is an accessory of the other if the thing is not essential for the other but only adds to its convenience or effectiveness.

10. It is now well settled that the value of an accessory cannot form part of the assessable value of an article if the said article could be used and would be complete by itself without such accessory. We, therefore, direct the Assistant Collector to hold an inquiry after giving an opportunity to the appellants whether 'bush' is an accessory or part and if it is a part, include the value of the 'bush' in the assessable value of spring leaves, otherwise exclude the same.

11. We, thus, allow the appeal and remand the matter to the Asstt.

Collector to ascertain whether bush is an essential part of spring leaves or an accessory and redetermine the assessable value in the light of his findings. The appeal is, thus, allowed by remand.