2009 (2) TMI 592 - AT - Central Excise

Valuation - Installation charges - includibility - simultaneous levy of excise duty as well as service tax - assessable value

Summary

Issues Involved:
1. Inclusion of installation charges in the assessable value for excise duty.
2. Applicability of service tax on installation charges.
3. Validity of penalties imposed under Rule 25(1) of Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Inclusion of Installation Charges in Assessable Value for Excise Duty:
The core issue was whether installation charges collected by HCL Infosystems Ltd. (HCL) for assembling computers at the buyer's premises should be included in the assessable value for excise duty purposes. The Tribunal examined the definition of 'transaction value' under Section 4(3)(d) of the Central Excise Act, 1944, which includes any amount that the buyer is liable to pay by reason of, or in connection with, the sale. The Tribunal noted that installation charges were separately invoiced and not inherently part of the sale price of the computers. The Tribunal referenced several precedents, including the Supreme Court's decision in the PSI Data Systems Ltd. case, which held that installation charges are not includible in the value of computers. The Tribunal concluded that installation charges do not enrich the intrinsic value of the computers and are not part of the transaction value for excise duty purposes.

2. Applicability of Service Tax on Installation Charges:
HCL was registered as a provider of taxable service under the category of "erection, commissioning or installation" and was assessed to service tax on installation charges. The Tribunal held that installation is a service activity distinct from the sale of computers. It was noted that if installation charges were included in the manufacturing activity, they could not be subjected to service tax. The Tribunal cited the decisions in Ericsson India Pvt. Ltd. and CCE v. Stone India Ltd., which established that excise duty and service tax cannot be levied on the same activity. Therefore, the Tribunal found that the demand for excise duty on installation charges, which were already subject to service tax, was unsustainable.

3. Validity of Penalties Imposed under Rule 25(1) of Central Excise Rules, 2002:
Given that the primary demand for excise duty on installation charges was found to be unsustainable, the Tribunal also held that the associated penalties and interest imposed under Rule 25(1) of the Central Excise Rules, 2002, were not valid. The Tribunal set aside the penalties imposed by the Commissioner of Central Excise.

Conclusion:
The Tribunal concluded that installation charges collected by HCL for assembling computers at the buyer's premises are not includible in the assessable value for excise duty purposes. It affirmed that these charges are subject to service tax, not excise duty. Consequently, the penalties and interest imposed on HCL were also set aside. The appeals were allowed, and the impugned orders were annulled.

Operative Part:
The operative part of the order was pronounced in the Court on 12-2-2009, allowing the appeals and setting aside the impugned orders.