2014 (2) TMI 326 - AT - Central Excise

Valuation of goods - manufacture of Drilling Rig and Mud Pump - inclusion of value of goods of sale of brought out accessories to the buyers separately - Penalty u/s 11A - Held that - drill rig is complete when removed or cleared from the factory - though drilling rigs have necessarily to be used in conjunction with items such as Drill rods/pipes and bits etc., these items do not constitute parts of such machines which are complete items in themselves. Thus, the five items in question are not integral parts of drilling machines, but are in the nature of tools and other equipments - Following decision of COLLECTOR OF C. EX., BANGALORE Versus INGERSOLL RAND (INDIA) LTD. 1998 (3) TMI 151 - SUPREME COURT OF INDIA - Decided in favour of assessee.

Summary

Issues:
1. Whether certain bought-out items used in conjunction with drilling rigs are integral parts for excise duty purposes.
2. Whether the value of bought-out items should be included in the assessable value of the drilling rigs for excise duty calculation.
3. Whether the appellant is liable to pay excise duty on the bought-out items.

Issue 1:
The main issue in this case revolved around determining whether the bought-out items, such as drill pipes, drill bits, substitutes, slips, spider bushings, drill collars, etc., used in conjunction with drilling rigs constituted integral parts of the rigs for excise duty purposes. The appellant argued that these items were not integral parts of the rigs but were tools, accessories, or operating equipment to be used with the rigs. The Commissioner initially held that these items were essential parts of the rigs, leading to a demand for excise duty and imposition of a penalty.

Issue 2:
The second issue involved whether the value of the bought-out items should be included in the assessable value of the drilling rigs for calculating excise duty. The Tribunal, in an earlier order, set aside the Commissioner's decision and remanded the matter for a precise determination of the value of the rigs. The Tribunal emphasized that items not required for the manufacture of the rigs should not be included in the value. The appellant argued that based on previous rulings, items like drill pipes and drill bits should not be included in the value of the rigs.

Issue 3:
The final issue was whether the appellant was liable to pay excise duty on the bought-out items. The appellant challenged the duty confirmation on specific parts like substitutes, slips, spider bushings, drill collars, and traveling blocks, arguing that these were tools or accessories used in conjunction with the rig and not integral parts. The Tribunal considered pictorial evidence and explanations provided by the appellant, concluding that these items were indeed tools and equipment, not integral parts of the rigs. The Tribunal set aside the impugned order and allowed the appeal with consequential relief.

In conclusion, the judgment clarified that items like drill pipes, drill bits, and other bought-out items used with drilling rigs were not integral parts of the rigs for excise duty purposes. The Tribunal emphasized that the value of such items should not be included in the assessable value of the rigs for excise duty calculation. The appellant was relieved of the duty demand on specific items that were deemed tools or accessories rather than integral parts of the rigs.