1998 (1) TMI 169 - AT - Central Excise

Summary

Issues:
1. Interpretation of assessable value under the Central Excise Act, 1944.
2. Inclusion of engineering service charges in the assessable value of manufactured items.
3. Nexus between engineering services and the cost of goods supplied for the plant.

Analysis:
The dispute in this case arose from a contract to set up and erect a plant for a company. The total contract amount was Rs. 29,45,000, with various components such as factory-made items, bought-out and imported items, engineering services, erection and commissioning charges, and freight & insurance. The appellant had cleared the factory-made items by paying the appropriate duty based on approved prices. However, a show cause notice was issued under Section 11A(1) of the Central Excise Act, 1944, proposing a demand for differential duty and penalty, stating that the amount received for engineering services should be part of the assessable value of the manufactured items.

The appellant contended that the engineering services were related to plant layout drawings, piping drawings, electrical drawings, etc., and not directly linked to the manufactured items. The Additional Collector, who adjudicated the matter, upheld the demand and penalty, stating that the cost of drawings was an essential aspect of the contract and was recovered from customers, thus having a nexus with the cost of goods supplied for the plant. However, the Additional Collector did not fully consider the appellant's argument that the services were unrelated to the manufactured items but only to the plant layout.

Upon review, it was found that the contract order included various components, and the cost of manufactured items would inherently consider any engineering services required for those items. The engineering service charges separately collected were deemed to have a nexus only with the layout of the plant and should not be included in the assessable value of the manufactured items. As a result, the impugned order was set aside, and the appeal was allowed.

In conclusion, the Tribunal clarified the distinction between engineering services related to plant layout and those directly linked to manufactured items. The judgment emphasized that charges for services unrelated to the manufactured items should not be included in the assessable value, highlighting the importance of accurately determining the components that contribute to the value of goods under the Central Excise Act, 1944.