1998 (4) TMI 134 - SC - Central Excise

Whether the installation and commissioning charges are exigible to excise duty? Held that - The judgment passed by the Assistant Collector as also by the Tribunal that installation and commissioning charges have to be treated as assessable value of the goods supplied by the appellants are not correct and are liable to be set aside. Since we are disposing of these appeals on merits on coming to the conclusion that the installation and commissioning charges could not be included in the value of the goods, the question of limitation relating to the show cause notice issued under Rule 9(2) read with Section 11A of the Act for the period from 1982-83 to 1987-88 is not decided. The appeals are accordingly partly allowed, the judgment and orders dated May 3, 1985; May 17, 1985 and June 1, 1985 as also the show cause notice dated August 4, 1987 issued by the Collector of Central Excise and his order passed thereon together with the judgment passed by the Tribunal in that regard to the extent they relate to inclusion of installation and commissioning charges are set aside without being any order as to costs.

Issues:
1. Inclusion of designing and engineering charges in the assessable value of goods.
2. Inclusion of erection and commissioning charges in the assessable value of goods.
3. Legality of imposing excise duty on installation and commissioning charges.

Analysis:

Issue 1: Inclusion of Designing and Engineering Charges
The appellants were engaged in manufacturing high-pressure boilers and other equipment tailored to customer requirements. The manufacturing process involved pre and post-manufacturing steps, including designing and engineering charges separately invoiced to customers. The show cause notices alleged non-inclusion of these charges in the assessable value of goods supplied. The Assistant Collector and the Collector of Central Excise held that designing and engineering charges formed part of the goods' value. The Collector of Central Excise (Appeals) concurred with this view. The Tribunal upheld this decision, which was not challenged by the appellants.

Issue 2: Inclusion of Erection and Commissioning Charges
The controversy centered around whether erection and commissioning charges, separately invoiced to customers, could be included in the assessable value of the goods supplied. The appellants argued that these charges were post-manufacturing expenses and should not be considered part of the goods' value. The Supreme Court referred to precedents, including PSI Data Systems Ltd. and Mittal Engineering Works cases, where it was held that charges for installation and erection were not excisable. Relying on these decisions, the Court concluded that installation and commissioning charges should not be included in the goods' value for excise duty purposes.

Issue 3: Legality of Imposing Excise Duty on Installation Charges
The Court's decision to exclude installation and commissioning charges from the assessable value of goods rendered the show cause notice demanding excise duty on these charges untenable. The Court set aside the orders and notices related to the inclusion of installation and commissioning charges, partially allowing the appeals in favor of the appellants. The judgment emphasized that excise duty could not be levied on such post-manufacturing expenses, aligning with established legal principles and prior judicial decisions.

In conclusion, the Supreme Court clarified the distinction between manufacturing costs and post-manufacturing expenses, ruling that charges for erection and commissioning should not be subject to excise duty. The judgment provided clarity on the assessable value of goods for excise duty purposes, ensuring consistency with legal precedents and upholding the appellants' position on the exclusion of installation charges from the goods' value.

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