2005 (1) TMI 145 - AT - Central Excise

Classification of goods - Manufacture of boilers of huge sizes - Valuation (Central Excise) - duty demand - Penalty - Whether the goods as cleared by the respondent is classifiable as boiler under sub-heading 8402.10 - Bought out items-inclusion of value thereof - HELD THAT - The facts as come out clearly indicate that the essential parts of boilers are cleared from the factory as it is not possible to clear a complete boiler in one go. Even when one considers that some of the parts removed from the factory are of auxiliary nature, one has to agree that an incomplete boiler in unassembled form is cleared. That the boiler in unassembled form is removed in several lots on different dates itself does not mean that parts but not the whole are cleared from the factory in view of the fact that the respondent has a contract to erect and commission a boiler and has been disclosing this fact to the Department. Thus, we hold that the parts removed in several consignments is a boiler in incomplete form and therefore have to be classified under the heading meant for the complete machine, in this case under 8402.10. We uphold the contention of the Commissioner that Rule 2(a) of Interpretative Rules apply to this case. We therefore uphold the contention of the Commissioner and reject the Revenues appeals in so far as this aspect is concerned. Bought out items-inclusion of value thereof - The Revenues' contention that without these parts a boiler cannot be commissioned appears to be correct. For instance a boiler cannot be functionable without parts such as feed water pump, safety valves, process valves, level guager etc. These parts are necessary to make a boiler functional. Their value therefore has to be included in the assessable value. It is immaterial that no Modvat credit has been taken by the respondents. We are not sure that any Modvat was available to the respondents on these bought out items. We therefore hold that the Commissioners' contention that because a boiler has been removed in unassembled form from the respondents' factory the value of bought out items should not be included is incorrect; we accordingly set aside that part of the Commissioner's order. While on the subject we may also mention that it is not understood as to what the Commissioner means by saying that the bought out items are auxiliary accessories The Revenue's appeal is partly allowed. The jurisdictional officer is directed to determine and recover the duty form the respondents arising out of addition value of the bought out items in the assessable value of the boilers.

Summary

Issues involved:
Classification of pressure and non-pressure parts of boilers; Inclusion of value of bought-out items in the assessable value of boilers.

Classification of pressure and non-pressure parts:
The dispute revolved around whether the parts cleared by the respondent should be classified as boilers under sub-heading 8402.10 or as parts under sub-heading 8402.90. The Commissioner held that the goods removed from the factory were incomplete boilers in unassembled form and should be classified under 8402.10. The Tribunal agreed with the Commissioner, stating that even though there was a difference in expert opinions regarding the essential characteristics of a boiler, the parts cleared by the respondent constituted an incomplete boiler in unassembled form. The Tribunal upheld the application of Rule 2(a) of Interpretative Rules and rejected the Revenue's appeal on this aspect.

Inclusion of value of bought-out items:
The Revenue contested the decision that the value of bought-out items should not be added to the assessable value of the boilers. The Commissioner deemed the bought-out components as auxiliary accessories to the boiler and concluded that the bought-out items were not constituents of a boiler as the assessee had not claimed duty credit on them. However, the Tribunal disagreed with this assessment. It noted that a boiler becomes a complete functional unit only after the goods cleared from the factory and bought-out items are assembled at the site. The Tribunal held that the value of bought-out items, necessary for the functionality of the boiler, should be included in the assessable value. It set aside the Commissioner's decision on this matter and directed the recovery of duty from the respondents for the addition value of the bought-out items.

Conclusion:
The Tribunal decided in favor of the Commissioner on the classification of pressure and non-pressure parts, affirming that they should be classified under 8402.10 as boilers. However, the Tribunal ruled against the Commissioner on the inclusion of the value of bought-out items, directing the recovery of duty from the respondents for the added value of these items in the assessable value of the boilers.