1. M/s. National Engineering Industries Ltd. have filed these appeals.
These appeals are directed against the orders passed by the Collector of Central Excise(Appeals). As the appeals being on the same issue for the determination are therefore being dealt with by this common order.
Collector of Central Excise in his findings in the order-in-original had held as under : "6. (i) I confirm demand for duty to the tune of Rs. 3,47,961.84 under Rule-9(2) of the Central Excise Rules, 1944 read with Section 11A(1) of the Central Excises and Salt Act, 1944. I call upon NEI to deposit this amount of Rs. 3,47,961.84 within a period of 30 days from the date of receipt of this order; (ii) I hold that NEI are liable for penal action under Rule 173Q of the Central Excise Rules, 1944, for the reasons already recorded. I impose a penalty of Rs. 10,000/- (Rupees Ten thousand only) on NEI under Rule 173Q of the Central Excise Rules, 1944 as amended and Rs. 500/- (Rupees five hundred only) under Rule 226 of the Central Excise Rules, 1944.
(iii) This order is issued without prejudice to any other action that may be initiated against NEI under the Central Excises & Salt Act, 1944 and the rules made thereunder or under any other law for the time being in force." 2. Briefly stated the facts of the case are that the appellants are engaged in the manufacture of axle boxes which were being classified under Tariff Item 68. The appellants were not filing price lists but claimed the benefit of partial exemption under Notification No.120/75-C.E. While claiming the benefit under this Notification, the appellants did not file documents like contract with the railways and quotations submitted by them. It was presumed that the appellants were paying duty by declaring the correct price. In November, 1985, however, the department came across certain documents and found it to be a composite contract for roller bearings and axle boxes. From these documents, it appeared that the appellants were collecting additional amount of Rs. 40/- in respect of axle boxes supplied to the railways on the ground that this amount represented mounting charges for mounting axle boxes on the wagons. However, the invoice on the basis of which duty was paid did not reflect the collection of additional amount.
Accordingly, a show cause notice was issued to the appellants on 4-7-1988 asking them to explain as to why duty short-paid by them during the period 1-4-1983 to 28-2-1986 should not be demanded from them and why penalty should not be imposed on them. The allegation was that duty was payable on the price charged by the manufacturer for the sale of goods and that from such price only excise duty and local taxes were excludible in case such price was inclusive of these components.
It was also alleged that the fact of collection of additional amount was never disclosed to the department when benefit under Notification No. 120/75-C.E was claimed by the appellants. It was also alleged in the show cause notice that the appellants knew fully well that this additional amount was being collected as part of the contracted price and that the appellants suppressed this fact with the intention to evade payment of duty.
3. Shri Krishna Kumar, the learned Counsel appearing for the appellants submitted that the appellants supplied axle boxes to Indian Railways as a part of a contract and availed partial exemption under Notification No. 120/75-C.E.; that the contracted price included mounting charges; that these mounting charges were to be paid as and when mounting was carried out by the appellants; that these charges were optional and Railways were permitted to get the mounting done by other agencies; that the Railways had not paid to the appellants mounting charges relating to axle boxes not mounted by the appellants; that under Contract No. 83/RS/I/874/6/648, dated 9-6-1983, the appellants supplied 42,500 numbers whereas the mounting was carried out in respect of 23,142 pieces only; that similarly under contract No. 85/RS(I)/10/702, dated 6-11-1985, the appellants supplied 2,300 pieces whereas mounting was carried out by them in respect of 12 pieces; that these figures clearly illustrate that mounting of the axle boxes was an optional one entrusted to the appellants; that invoice price reflected sales price of axle boxes since contract showed separately the different components of price; that the appellants did not indicate the mounting charges in their invoice on the ground that these charges did not form part of consideration paid for sale of axle boxes; that mounting charges were in the nature of after sale service charges, therefore they would not form part of value of the goods sold by the appellants; that it is well settled in law that service charges incurred after clearance of goods would never form part of assessable value under Section 4 of the Central Excises and Salt Act, 1944. In support of his contention, the learned Counsel cited and relied upon the judgment of Hon. Supreme Court in the case of Kelvinator of India Ltd. reported in 1988 (36) E.L.T. 723.
4. The learned counsel submitted that break-up of prices has been given in clause 4 of the contract dated 6-11-1985 which are as under :(a) Roller Bearings L 5603 and L 5064 Rs. 1850.00(b) Axle Box with components Rs. 1310.00(c) Mounting charges inclusive of cost of initial Rs. 40.00 greasing and labour etc.
------------- Rs. 3200.00 That Clause No. 11 of the contract specifically provides that payment for the supply under the contract could be made excluding mounting charges of Rs. 40/- per roller bearing; that at the time of supply of the goods no mounting charges is either sought to be recovered or in fact recovered; that it was beyond doubt that the sales price mentioned with regard to each of the goods mentioned in clause No. 4 of the said contract will alone be the sole consideration for the sale of the said goods under the said contract; that mounting charges cannot be in any event form part of the sale consideration of the said goods; that the appellants had been following this practice for a considerable time; that Central Excise duty was leviable on goods manufactured or produced; and that the mounting charges are in the nature of post-manufacturing expenses and as such are not includible in the assessable value as was held by the Central Board of Excise and Customs on 1-10-1981 in the case of Nair's Arki Metals Pvt. Ltd. reported in 1982 (10) E.L.T. 77; that the Collector being satisfied by the explanation given in its reply dated 23-12-1985 dropped further proceedings against them.
5. Ld. counsel submitted that the demand is in any way time-barred inasmuch as the show cause notice was issued on 4-7-1988 demanding duty for the period 1-4-1983 to 28-2-1986; that appellants were manufacturing axle boxes from 1960, that the appellants submitted the price lists for roller bearings to avail the benefit of Notification No. 120/75-C.E. for axle boxes, that since the price lists were submitted by the appellants in respect of Roller Bearing, the excise authorities would have seen the contract submitted to them along with price lists for roller bearings, that the allegation that the contract came to the notice of excise authorities only in November, 1985 is baseless, that, roller bearings are supplied alongwith the axle boxes, that with the price list of roller bearings, copies of the contract were supplied from the year 1960 itself that there was no concealment or misdeclaration whatsover. The ld. Counsel submitted that Notification No. 120/75-C.E, permits the benefit of partial exemption to the assessee on the basis of invoice price; that the components of sale price which were allowed to be excluded in terms of the said Notification were excise duty and the local taxes; that Collector's findings that only excise duty and sales tax was deductable from the sales price and not charges for any services for installation is patently wrong. Summing of this arguments, the learned counsel submitted that in view of the above submissions the impugned order may be set aside and appeal may be allowed.
6. The learned SDR Shri B.K. Singh appearing for the Revenue submitted that a closer look at the contract reveals as under :---------------------------------------------------------------------------Item No. Description Specifications Quantity Price per& RSP No. unit for JAIPUR---------------------------------------------------------------------------1 2 3 4 5---------------------------------------------------------------------------Pt. of Item Roller Bearing Indian Railways 2310 (Two Rs. 3200/-No. 482 of Axle Boxes Schedule of thousand (Rupees1984-85 (Broad Gauge) Technical Re- three hun- three complete with quirements No. dred & ten thousand roller bearings AB/RB-25-85 only) two hun- for 16.3 tonne dred only) axle load on rail (i) The Roller Bearing Axle Boxes shall conform RDSO's Schedule of Technical Requirements No. AB/RB-25-85 for 16.3 tonnes Roller Bearing Axle Boxes. Before commencing supplies, you shall obtain complete technical clearance of your Drawings and shall incorporate in your supplies the improvements which RDSO may desire without any price implications insofar as those improvements are within the scope of the RDSO's Schedule of Technical Requirements.
(ii) All references, clarifications/amplifications regarding technical matters pertaining to specifications, drawings, design etc. as required by Director General, Research Design & Standards Organisation, Manak Nagar, Lucknow, may be furnished to him.
(iii) The supplies will be commenced after obtaining complete technical clearance from R.DSO. The break-up of prices indicated in Col. No. 4 above are as under:(a) Roller Bearings L 5603 and L 5064 Rs. 1850.00(b) Axle Box with components Rs. 1310.00(c) Mounting charges inclusive of cost of initial Rs. 40.00 greasing and labour etc.
This price is subject to fall clause namely clause 12 of the Special Conditions of contract and is firm. It is inclusive of mounting charges but exclusive of excise duty and sales tax. Excise duty and tax as applicable on the date of despatch of Roller Bearing Axle Boxes will be paid extra." On scrutiny of the particulars of the order, it would be seen that the price has been quoted per unit is Rs. 3200/- under column 5 of the order, that the appellants in their letter dated 3rd October, 1985 again stated "We have quoted to you distress price of Rs. 3200/- against the tender No. 85/RS/I/874/6(TC) dated 30-8-1985.
7. The ld. SDR submitted that reading of clause 6 of the contract dated 4 6-11-1985 will show that mounting charges at the rate of Rs. 40/- are described as part and parcel of the total price. He also submitted that the arguments of the appellants that mounting charges may be considered as installation charges and therefore should be treated as after sales service charges; that excise duty on goods is leviable under Section 3 of the Central Excises and Salt Act, 1944, that manufacture of the axle boxes was complete at the time of clearance and therefore, mounting charges should not be included in assessable value; the ld. SDR submitted that these contentions are not tenable inasmuch as the Tribunal is not considering the price lists and therefore valuation under Section 4 of CESA, 1944; that in the instant case the Tribunal was considering whether mounting charges should have been shown in the invoice submitted to the department and assessed the duty once the applicant opted for the benefit of Notification 120/75-CE. That Notification No. 120/75-C.E., dated 30-4-1975 exempts goods falling under Item No. 68 cleared from the factory of the manufacturer on sale from so much of duty of excise leviable thereon as is in excess of the duty calculated on the basis of invoice price (after excluding duty and local taxes, if any, included in such price charged by the manufacturer) in the sale of such goods; that this Notification debars the appellants from claiming fixation of value under Section 4 on presentation of price list; that the contract clauses referred to in the preceding paragraph clearly showed that mounting charges were part and parcel of the contract price, that the contract price was a composite price and that the collection of mounting charges at a later date did not in any way affect their being considered as a part and parcel of the price and that the only deduction out of the invoice was excise duty and sales tax if this price was inclusive of these; that in the instant case, the price was exclusive of the Central Excise duty and local taxes. Having regard to these submissions, the ld. SDR submitted that on merits the appellants did not have any case at all.
8. On the question of limitation, the ld. SDR drew attention to the letter of the Superintendent dated 26-11-1985 which clearly shows that the issue of collecting mounting charges came to the notice of the excise authorities only in November, 1985; that from the reply dated 23-12-1985 of the appellants to the Superintendent, it is seen that the appellants nowhere indicated that there was a contract or the appellants were collecting Rs. 40/- as mounting charges, was intimated to the department; that this clearly shows that the appellants did not mention in their invoice submitted to the department that they were collecting Rs. 40/- as mounting charges, that the appellants knew fully well that they were collecting Rs. 40/- as mounting charges but did not bring this fact to the notice of the Revenue authorities that they intentionally held back this information with the intention to evade payment of duty. The ld. SDR submitted that ld. Collector has rightly held that demand of duty is justified beyond six ; months under proviso (1) of Section 11A of the CESA, 1944.
9. Heard the submissions of both sides and considered them. On careful consideration of the submissions made before us, we find that there are mainly two issues and they are : (1) whether the mounting charges were a part of price and whether such charges were excludible from the price when the appellants had opted for the benefit of Notification 120/75-CE., dated 30-4-1975.
For proper appreciation, it is necessary to reproduce the relevant provisions of the contract dated 6-11-1985 and Notification No. 120/75-C.E., dated 30-4-1975 as under : "5. "The break up of prices indicated in Col. No. 4 above are as under :(a) Roller Bearings L 5063 and L 5064 Rs. 1850.00(b) Axle Box with components Rs. 1310.00(c) Mounting charges inclusive of cost of initial Rs. 40.00 greasing and labour etc.
(c) Mounting charges at the rate of Rs. 40/- (being part and parcel of total price) per roller bearing axle boxes have been mounted on to the wheel-sets, the claim for which should be supported by a certificate from the Inspector that the roller bearing axle boxes have been satisfactorily mounted".
In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), cleared from the factory of manufacture, on sale, from so much of the duty of excise leviable thereon as is in excess of the duty calculated on the basis of the invoice price (excluding duty and local taxes, if any included in such price) charged by the manufacturer for the sale of such goods: (i) the manufacturer files with the Superintendent of Central Excise having jurisdiction a written declaration to the effect that he opts to avail of the said exemption; (ii) the manufacturer avails of the said exemption uniformly in respect of all goods, sold by him, which fall under the item aforesaid; (iii) the manufacturer certifies that the price referred to in the invoice represents the price actually charged by him for the relevant sale and that the price is the sole consideration for the sale; (iv) the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in busines with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods; (v) no part of the proceeds of the subsequent sale, or disposal of such goods accrues either directly or indirectly to or for the benefit of the manufacturer or any person associated in business with him.
Provided further that a manufacturer shall be entitled to withdraw his option referred to in clause (i) of the preceding proviso after giving to the Superintendent of Central Excise having jurisdiction a prior notice in writing of at least 7 days and where the manufacturer has withdrawn his option he shall, unless otherwise directed by the Central Board of Excise & Customs, be precluded from availing of the aforesaid exemption during the remaining period of the relevant financial year.
11. It was pointed out that under clause 3 of the Notification it has inter alia been stated that "(iii) the manufacturer certifies that the price referred to in the invoice represents the price actually charged by him for the relevant sale and that the price is the sole consideration for the sale". That this condition was not fulfilled by the appellants inasmuch as they did not disclose that the price shown in the invoice was exclusive of Rs. 40/- to be collected as mounting charges of the axle boxes. It was therefore argued on behalf of the respondents that this amount was a part of the assessable value and therefore, the appellants should have paid duty on this amount also. We however, find that the Hon. Supreme Court in the case of Texmaco Ltd. v. Collector of Central Excise reported in 1995 (77) E.L.T. 501 (SC) in para 8 had held as under : "8. On a consideration of the matter we are afraid the Tribunal fell into an error in its understanding of the notification. The Notification posits and predicates the possibility that the 'invoice-value' could be lesser than the 'assessable-value' and, taking into account the need to mitigate the hardship on the manufacturer of being called upon to pay duty on the value in excess of the invoice value, seeks to exempt the manufacturer from payment of duty 'in excess of the duty' calculated on the basis of the 'invoice price'. There is no dispute in this case that the invoice price represented the value of the wagons, less the value of the 'wheel-sets' supplied by the Railways. The invoice price could not be required to include the value of the 'wheel-sets'. But the 'assessable value' would take into account the full commercial value including, that of the 'wheel-sets'. It is in order to mitigate the hardship that may arise by requiring the manufacturer to pay duty on this difference in such cases that the Notification No. 120/75 came to be promulgated. There is nothing in Clause (iv) which enjoins upon the appellant to include the value of the 'wheel-sets'. The contract between the parties does not also require this. The way in which the Tribunal looked at the Notification is neither good sense nor good law. Such construction would make the notification and the exemption contemplated thereunder meaningless. The need for the exemption arose in view of the fact that 'assessable value' was higher than the 'invoice value'. Requiring the former and the latter to be the same as something compelled by Clause (iv) is really to construe the Notification against itself." 12. In the above decision, the Apex Court has ruled that the invoice price could not be required to include the value of wheel-sets but the assessable value would take into account the full commercial value including that of the whee-sets and therefore it was held that to mitigate hardship that may arise by requiring the manufacturer to pay duty on this difference in such cases that the Notification No. 120/75 came to be issued. The facts of the present case before us are slightly different. Here in the instant case, we are considering the determination of the assessable value but we are concerned only what the invoice value was. We find that Rs. 40/- was being collected as mounting charges through bills/invoices issued on completion of mounting. We also find that Rs. 40/- collected as mounting charges were a part and parcel of the composite price. We, therefore, find that the facts in the case before us and the one decided by the Hon'ble Supreme Court are different and easily distinguishable. We, therefore, hold that Rs. 40/- collected as mounting charges will be includible in the invoice value and as the invoice value is exclusive of the Central Excise duty and local taxes, this value shall be the value for computing duty. Thus, on merits, the appellants do not have a case in their favour.
13. We, therefore, proceed to examine the second issue, whether the demand was hit by limitation or not. We find that the appellants had opted for invoice assessment under Notification No. 120/75 and, therefore, should have attached a copy of the contract to show that they were collecting Rs. 40/- as mounting charges. However, from the evidence on record we have not been shown any paper to prove that the appellants had disclosed this fact to the Department or had indicated this fact in the invoices, on the other hand the show cause notice is specific that this fact came to the notice of the Department in November, 1985 and there is no rebuttal of this allegation by production of any document. The appellants have simply stated that this fact might have been noticed by the Department while dealing with price list of Roller Bearings. This plea of the appellants is not acceptable as the appellants while taking permission of availing themselves of the concession under Notification No. 120/75-CE should have disclosed this fact, which the appellants did not do. We, therefore, hold that invocation of proviso (1) of Section 11A of the Central Excises and Salt Act was justified in this case.
14. In view of the above findings, the appeals fail on both the counts and are rejected.
15. With respect to Ld. Member (Judicial) and Ld. Member (Technical), I differ from the conclusions arrived at and write my separate order as under :- 15A. The contract dated 6-11-1985, which indicates a composite price of Rs. 3,200/- for roller bearing axle boxes, also gives the break-up of this price to indicate what exactly is the price of the goods supplied and what are charges for mounting of these goods. Mounting charges are shown as Rs. 40/-. Para-11 of the Contract dealing with payment stipulates 100% payment of the price including excise duty at the time of delivery duly supported by Gate Pass but excluding mounting charges of Rs. 40 per roller bearing axle box. It also indicates that mounting charges @ Rs. 40/- will be paid after the goods have been mounted on the wheel sets and this claim would have to be supported by a certificate from the inspector that the roller bearing axle boxes have been satisfactorily mounted.
16. It was submitted by the Ld. Advocate on behalf of the appellants that mounting charges do not constitute a part of the sale price of the goods. Mounting is in the nature of installation, was optional, and that, in majority of the cases was not done by them but got done through outside agencies. Mounting service did not constitute a consideration for sale nor was it compulsory. It being in the nature clearly of post-sale service was not includible in the assessable value and, therefore, no duty is demandable on mounting charges.
17. Considering the evidence on record, it is clear that mounting of these axle boxes was more in the nature of a service rendered after removal of the goods and mounting by itself did not constitute a process even incidental or ancillary to the completion of the manufactured product. The fact that contract stipulated payment of 100 per cent price of goods at the time of delivery and payment of mounting charges of Rs. 40/- only after it was mounted would by itself indicate that what was sold and received was roller bearing. Notification 120/75 exempts goods, cleared from factory, as such ... what is cleared from the factory, as such, is roller-bearings, and not the operation of mounting of such bearings after clearance. Mounting of roller bearing therefore was clearly in the nature of an installation operation and could not be considered even essential to the marketability of the product. It was therefore clearly not includible in the assessable value.
17.1 This was in a way admitted even by the Collector, who (Internal Page-16) of his Order) observed, "The issue of post-manufacturing expenses, or the point that mounting charges were installation charges, have no relevance since in this case the issue is not one of determining the assessable value in terms of Section 4 of the Central Excises and Salt Act, 1944. The issue is whether the contracted price represented the price for sale and whether the contracted price was disclosed to the Deptt. and duty was paid on the contracted price since only the contracted price could be the invoice price".
17.2 The Ld. Collector however held that the mounting charges which formed part of the contract price should have been reflected in the invoice as that was the price which constituted consideration for sale.
18. This arguement of the Ld. Collector would appear to suffer from a serious infirmity. Facility of Invoice Price under Notification No.120/75-C.E. was allowed to mitigate the hardship which payment of duty at the full assessable value might cause in certain situations. As held by the Hon'ble Supreme Court in case of Texmaco Ltd. v. C.C.E., Calcutta, 1995 (77) E.L.T. 501 (SC), the Notification posits and predicates the possibility that the invoice value could be lesser than the assessable value and in order to mitigate the hardship on the manufacturer of being called upon to pay duty on the value in excess of the invoice price, seeks to exempt manufacturers from payment of duty in excess of the duty calculated on the basis of the invoice price.
18.1 Holding that ordinarily "Assessable Value" would take into account the full commercial value of goods, including that of "Wheel Sets" supplied by Railways, the Apex Court held that the need for exemption arose in view of the fact that the "Assessable Value" was higher than the invoice price and the Notification No. 120/75 was intended to mitigate the hardship on the manufacturer being called upon to pay duty on the value in excess of invoice price.
Hon'ble Supreme Court did not in this judgment say that invoice price, 'on which duty ought to be paid', should be more than the assessable value.
18.2 Charging Section 3 of the Central Excises and Salt Act read with Machinery provision of Section 4 requires payment of duty on the goods on the basis of value as determined in Section 4 of Central Excises and Salt Act. The exemption notification which seeks to mitigate the hardship which may in certain situations be faced by a manufacturer requiring to pay duty on assessable value as determined under Section 4 of Central Excises & Salt Act cannot have the effect of enhancing that very burden. It would, in such an event, cease to be an Exemption and metamorphose into an Imposition. An exemption notification is issued to give relief and not to impose a liability even exceeding such as Section 4 of Central Excises and Salt Act does.
18.3 Hon'ble High Court Bombay in case of I.T.C. Ltd., Bombay v. Union of India -1993 (64) E.L.T. 202 (Bom.), holding that an Exemption Notification issued under Rule 8(1) can create liability to pay only lesser and not higher excise duty, observed, "It is, then, impermissbile for the respondents to so interpret the Notification as to deprive the manufacturer of that benefit and, indeed, to place upon him a far greater liability than he shouldered before".
19. Mounting charges cannot form part of assessable value and requiring inclusion of these mounting charges in the prices and requiring thereafter the appellants to pay duty on such price by includng such elements as have to be excluded from the assessable value would defeat not only the very purpose of exemption, but add a burden even more than what the assessee would have suffered had he not opted for the exemption of invoice price. Invoice Price Notification No. 120/75 cannot have the effect of requiring payment of duty on a value exceeding assessable value under Section 4 of Central Excises and Salt Act.
19.1 An Exemption Notification, if one were to accept the construction otherwise placed on it, would cease to be an exemption and would supplant the very Section 4 of Central Excises and Salt Act whose rigours in certain situations it seeks to soften by giving relief and, even transcending it, transmute itself into an Imposition : something never perhaps expected by those who sought, and conceivably never intended by those who granted, this exemption.
20. In the result, for the reasons set out hereinbefore, I set aside the impugned order and allow the appeal.