2003 (3) TMI 380 - AT - Central Excise

Benefit of exemption under Notification No. 75/87-C.E. and 1/93-C.E. available. - SSI Exemption - Valuation - Demand - Limitation - Penalty

Issues Involved:
1. Classification of "Flake Ice Makers" under the correct sub-heading.
2. Eligibility for exemption under Notification Nos. 75/87 and 1/93.
3. Inclusion of consultancy charges in the assessable value.
4. Inclusion of the value of bought-out items in the assessable value.
5. Imposition of penalties on NIEC, M/s. Rifostar Equipment Sales, and Shri C.S. Gandhi.
6. Confiscation of land, building, plant, and machinery of NIEC.

Detailed Analysis:

1. Classification of "Flake Ice Makers":
The Commissioner accepted the classification of "Flake Ice Makers" under sub-heading 8418.00 instead of 8419.00, as the machines work on the mechanism of refrigeration and are essentially refrigerators capable of achieving and maintaining sub-zero temperatures. This classification was deemed correct and did not require modification.

2. Eligibility for Exemption under Notification Nos. 75/87 and 1/93:
The Commissioner held that the benefit of the exemption notifications was not available as the goods were classified under heading 84.18, which excluded "Refrigerating and air-conditioning appliances and machinery, parts and accessories." Additionally, the goods bore the brand name "North Star," which belonged to a foreign company, thus disqualifying them from the SSI exemption. However, the Tribunal found that freezers, shown separately from refrigerators and refrigerating equipment in the tariff entry, should not be denied the benefit of the notification.

3. Inclusion of Consultancy Charges in the Assessable Value:
The Commissioner included consultancy charges collected by M/s. Rifostar Equipment Sales in the assessable value of the machines. The Tribunal, however, accepted that consultancy charges were collected only in the case of 9 out of 63 machines sold and were not connected to the manufacturing operations or costs. Therefore, these charges were not addable to the assessable value.

4. Inclusion of the Value of Bought-Out Items in the Assessable Value:
The Commissioner found that the value of bought-out items should be included in the assessable value as these items were essential parts of the machine, assembled and tested in the factory before dispatch. The Tribunal upheld this finding, referencing the Supreme Court judgment in the case of Narne Tulaman and other relevant precedents, which established that bought-out items incorporated in the machine must be included in the assessable value.

5. Imposition of Penalties on NIEC, M/s. Rifostar Equipment Sales, and Shri C.S. Gandhi:
The Commissioner imposed penalties on NIEC, M/s. Rifostar Equipment Sales, and Shri C.S. Gandhi. The Tribunal upheld the penalty on NIEC and Shri Gandhi but remanded the case for re-determination of the quantum of penalty. The penalty on M/s. Rifostar Equipment Sales was set aside as the consultancy charges were not includible in the assessable value.

6. Confiscation of Land, Building, Plant, and Machinery of NIEC:
The Commissioner ordered the confiscation of NIEC's land, building, plant, and machinery but allowed redemption on payment of a fine. The Tribunal set aside this order, stating that such a provision should be used in the rarest of rare cases and was not warranted in the facts of this case.

Summary of Order:
(a) The order of confiscation of land, machinery, etc., is set aside.
(b) The charge of short-levy due to failure to include the value of bought-out items is established, and the case is remanded for re-determination of the quantum of duty short-levied.
(c) The appropriate authority should determine the quantum of penalty on NIEC and Shri Gandhi after re-determination.
(d) The appeal of M/s. Rifostar is allowed, and the penalty on them is set aside.

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