Emerson Network Power India P. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. the facts of the case are that emerson network power india pvt.ltd., are engaged in the manufacture of precision air-conditioning equipment and ups systems cleared on payment of duty as complete machines. they also undertake installation and commissioning at the premises of their customers when the customers require them to do so in the contract/purchase orders, the scope of charges for installation and commissioning was separately agreed to between the appellants and the customers. in certain cases, customers also placed orders for other items which are not essential parts of precision air-conditioning machines manufactured by the appellants. these items were purchased from outside and sent directly to the site of the customers. some of these items are floor grills, piping, cabling,.....

Judgment:
1. The facts of the case are that Emerson Network Power India Pvt.

Ltd., are engaged in the manufacture of precision air-conditioning equipment and UPS systems cleared on payment of duty as complete machines. They also undertake installation and commissioning at the premises of their customers when the customers require them to do so In the contract/purchase orders, the scope of charges for installation and commissioning was separately agreed to between the appellants and the customers. In certain cases, customers also placed orders for other items which are not essential parts of precision air-conditioning machines manufactured by the appellants. These items were purchased from outside and sent directly to the site of the customers. Some of these items are floor grills, piping, cabling, earthing, remote alarms etc. for the period prior to 1.7.2000. Proceedings were initiated by the Central Excise authorities for including installation and commissioning charges in the assessable value of air-conditioning equipment and UPS systems which were dropped by the Commissioner of Central Excise (Appeals) in his order-in-appeal dated 31.1.2001, following the apex court's decision in the case of Thermax Limited v.CCE 1998 (99) ELT 481. The present appeals relate to the period after 1.7.2000, i.e. after substitution of Section 4 of the Central Excise Act by new Section 4 introducing the definition of "transaction value".

Show cause notices were issued to the appellants, proposing to include installation and commissioning charges, cost of bought-out items, interest on advances, and freight and insurance in the assessable value of he machines. Duty demand by including the above said elements was confirmed by the Assistant Commissioner vide order-in-original dated 24.8.2001. In addition, a penalty of Rs.20 lakhs was also imposed upon the appellants. The Commissioner (Appeals) vide order-in-appeal dated 13.5.2002 upheld inclusion of installation and commissioning charges, cost of bought-out items and freight charges, but set aside inclusion of notional interest on advances. The assessees have filed appeal E/2127/02 against the above inclusions while the Revenue has filed appeal E/3309/02 against the setting aside of the inclusion of notional interest on advances in assessable value.

3. The total demand confirmed on installation and commissioning charges is Rs. 1,01,23,715/- out of which Rs.93,22,882/- is the demand on air-conditioning machines while the balance of Rs.8,00,833/- is on UPS systems. We note that in the case of Carrier Aircon Ltd. v. CCE 2003 (57) RLT 134 the Tribunal has held, while considering a contract for supply and installation and commissioning like in the present case, that installation and commissioning charges cannot be included in the value of chillers of air-handling unit manufactured and clearing during the period after 1.7.2000. The Tribunal relied upon the CBEC circular dated 1.7.2002 clarifying doubts raised on the interpretation of new Section 4 and, in particular, on the clarification that erection/installation and commissioning charges for machines into immovable property are not includable in the assessable value of machines, in coming to its conclusion. Following the ratio of the above, we hold that installation and commissioning charges cannot be included in the assessable value of the goods in dispute.

4. The entire duty demand on bought-out items pertains to installation of air-conditioning machines at site. From the perusal of the list of bought-out items such as floor grills, piping, cabling etc., it would be seen that they are not parts of air-conditioning machines manufactured and cleared, but items required purely at site. Therefore, the appellants are right in contending that the cost of bought-out items cannot be included in the assessable value.

5. The appellants do not contest the inclusion of freight charges of Rs. 3,401/- and hence this inclusion is upheld.7. Coming to the appeal of the Revenue, we see no substance therein in the absence of any material on record to establish nexus of the notional interest on advances with the price charged, which is required to be established as held by the apex court in the case of VST Industries Ltd. v. CCE, Hyderabad 1998 (97) ELT 395 (SC) which has been followed in the case of CCE, Mumbai-III v. ISPL Industries Ltd. 2003 (154) ELT 3 (SC).