1995 (3) TMI 213 - AT - Central Excise

Issues Involved:
1. Whether oil and moisture filters are accessories or components of the air gauge unit.
2. Whether the value of oil and moisture filters should be included in the assessable value of air gauge units for the purpose of Central Excise duty assessment.

Issue-wise Detailed Analysis:

1. Whether oil and moisture filters are accessories or components of the air gauge unit:

The appellants, M/s. Baker Mercer (India) Ltd., argued that oil and moisture filters are optional accessories, not essential components of air gauges. They contended that these filters are bought out items supplied only upon customer request and are not integral to the air gauge's functionality. The appellants cited previous judgments, including Jyoti Limited v. UOI and Electrosteel Castings Ltd. v. CCE, to support their claim that the filters should be classified as accessories rather than parts.

The respondent, represented by Shri A.K. Singhal, argued that the filters are essential components of air gauges, citing the appellants' own catalog and invoices, which describe the filters as standard equipment necessary for the air gauges. The respondent also pointed out that the filters were listed as spares in the appellants' classification list and were often supplied in equal numbers to the air gauges, indicating their integral nature.

The tribunal considered various judicial precedents, including the cases of Jyoti Ltd. v. UOI and Electrosteel Castings Ltd. v. CCE, which discussed the criteria for defining accessories and components. The tribunal concluded that oil and moisture filters are essential and integral parts of air gauges, as they perform a crucial function in preventing impurities from damaging the air gauges. The filters were found to be spares, which are regarded as components, and thus integral to the air gauge units.

2. Whether the value of oil and moisture filters should be included in the assessable value of air gauge units for the purpose of Central Excise duty assessment:

The appellants argued that the value of the filters should not be included in the assessable value of the air gauges, as they are optional accessories and not manufactured by the appellants. They cited judgments such as Diamond Clock Manufacturing v. CCE and Webel Telecommunications v. CCE, which held that the value of optional accessories should not be included in the assessable value of the main product.

The respondent countered that the filters are essential components and their value should be included in the assessable value of the air gauges. The tribunal referred to several judicial precedents, including Diamond Clock Mfg. Co. and Webel Telecommunications v. CCE, which provided guidance on the inclusion of bought-out items and optional accessories in the assessable value.

The tribunal concluded that since oil and moisture filters are essential and integral parts of air gauges, their value should be included in the assessable value of the air gauge units for the purpose of computing Central Excise duty. The tribunal also noted that the filters would be eligible for credit under the Modvat scheme.

Penalty:

The tribunal upheld the imposition of a penalty on the appellants, finding that the removal of oil and moisture filters from the factory was in contravention of Central Excise Rules with the intention to evade duty. The tribunal found the quantum of the penalty to be low and saw no reason to interfere with it.

Conclusion:

The tribunal upheld the impugned order, concluding that oil and moisture filters are essential and integral parts of air gauges, and their value should be included in the assessable value of the air gauge units for the purpose of Central Excise duty. The appeals were rejected.

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