1993 (12) TMI 118 - AT - Central Excise

Summary

Issues Involved:
1. Whether Drill rods and Drill bits supplied along with Drilling rigs constitute integral parts of the Drilling rigs.
2. Whether the demand issued to the appellants was time-barred.

Issue-wise Detailed Analysis:

1. Integral Parts of Drilling Rigs:
The appellants contended that Water-well Drilling Rigs are complete machines capable of performing drilling operations up to a depth of 4 feet without any attachments. For deeper drilling, Drill rods/pipes and various types of bits are used, which are considered optional accessories and not integral parts of the Drilling machines. The appellants argued that these accessories are bought out items and their value should not be included in the assessable value of the Drilling rigs.

The respondents argued that Drilling machines are capable of drilling only up to 4 feet on their own, and for deeper drilling, Drill rods and bits are essential. They contended that these items should be assessed to duty on the total price declared in the price list, as they are essential for the operation of the Drilling rigs.

The Tribunal examined the classification under the Harmonised System (HSN) and found that Drilling Machines fall under Heading 84.30, while Drill rods/pipes and bits are classifiable under different headings (72.28, 73.04 to 73.06, and 82.07 respectively). The Tribunal concluded that these items do not constitute integral parts of the Drilling rigs and are essentially operating equipment and tools. Therefore, their value should not be included in the value of the Drilling rigs.

2. Time-barred Demand:
The appellants argued that the demand was time-barred as the department was aware of their activities and invoicing method since 1980. They had furnished all required information to the department and the price lists were approved. They contended that there was no intentional suppression of facts.

The respondents argued that the appellants had failed to supply basic information and had not disclosed separate invoices for Drill rods and bits, justifying the invocation of the extended period for the demand.

The Tribunal found that the relevant contracts showing the details of the Drilling rigs and other items were filed with the price lists, which were approved. The same controversy was raised earlier through audit objections in 1980, which were duly replied to by the appellants. Based on the Supreme Court judgments in Padmini Products v. CCE and CCE v. Chemphar Drugs and Liniments, the Tribunal held that there was no intentional suppression of facts. Therefore, the demand issued and confirmed by invoking the extended period beyond six months was time-barred.

Conclusion:
The Tribunal set aside the impugned order confirming the demand and allowed the appeal, concluding that Drill rods and Drill bits are not integral parts of Drilling rigs and the demand was time-barred.