1991 (7) TMI 178 - AT - Central Excise

Summary

Issues Involved:

1. Dutiability of proto-type towers.
2. Inclusion of test charges in the assessable value of transmission line towers.
3. Limitation period for issuing demands.

Issue-wise Detailed Analysis:

1. Dutiability of Proto-type Towers:

The appellants argued that proto-type towers could not be treated as 'goods' since they are not marketable. They contended that the components sent for testing are assembled at the test bed and do not enter the market as they become useless after testing. The revenue, however, argued that even though the towers are non-galvanised and in a knocked-down condition at the time of clearance, they should be deemed as having acquired the essential characteristics of finished towers, thus making them dutiable.

The Tribunal examined whether the proto-type towers, cleared in completely knocked-down condition for tests, could be deemed as excisable goods. It referred to the Supreme Court's decision in Bhor Industries Ltd. v. Collector of Central Excise, which stated that marketability is an essential ingredient for an item to be dutiable. Since the proto-type towers are ungalvanised, non-marketable, and scrapped after testing, the Tribunal held that they are not dutiable under the Central Excise Tariff Schedule.

2. Inclusion of Test Charges in Assessable Value:

The appellants claimed that the test charges recovered from customers should not form part of the assessable value of the transmission line towers. They argued that testing of the proto-type towers is an independent process unconnected with the actual manufacturing of the goods. The revenue countered that testing is an essential condition of the contracts and the charges for such tests should be included in the assessable value.

The Tribunal found that the tests of the proto-type towers are carried out in relation to the transmission line towers manufactured for actual execution of the contracts. It concluded that all charges recovered by the appellants for testing proto-type towers, which precede the manufacturing of the transmission towers, form part of the assessable value. This view was supported by the Tribunal's decision in the case of Madhavnagar Cotton Mills Ltd. v. Collector of Central Excise, Pune.

3. Limitation Period for Issuing Demands:

The appellants contended that the demands for the recovery of duty were time-barred as they were not issued within the stipulated period of six months. They argued that they acted under the bona fide belief that the proto-type towers were not chargeable to duty and that there was no suppression of facts. The revenue argued that non-disclosure of the test charges amounted to suppression of facts, justifying the extended period of five years for recovery.

The Tribunal agreed with the appellants, noting that they acted in good faith under the belief that duty was not applicable to the proto-type towers and test charges. It found that the contracts and bills mentioning these charges were available for scrutiny by Central Excise Officers and Audit Parties. The Tribunal referred to the Supreme Court's decision in Collector of Central Excise v. Chemphar Drugs & Liniments, which stated that something positive other than mere inaction or failure is required to invoke the extended period. It concluded that there was no conscious or deliberate withholding of information by the appellants, thus the extended period was not applicable.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal, concluding that the proto-type towers were not dutiable, the test charges should be included in the assessable value, and the demands were barred by limitation.