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TMI Blog1993 (12) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... they were not considered as forming integral parts of the machinery manufactured by the appellants. Thereafter, a show cause notice was served on the appellants on 15-2-1992 proposing to recover under Section 11A of the Act, the differential duty amounting to Rs. 48,23,684/- on the grounds that during the period 1985-86 to 1989-90 the appellants had under-valued the goods by not including the value of accessories, spare parts and components in the value of Drilling rigs, Construction and Mining equipments cleared by them. By the said notice the appellants were also asked to show cause as to why penalty should not be imposed on them under Rule 173Q. In their reply to the show cause notice the appellants denied all the charges. They submitted that there was no undervaluation since they had paid duty on accessories, which were manufactured by them. They stated that they were not paying duty on duty-paid accessories and other items bought by them from other suppliers which were optional in character and did not form an integral part of the machine. It was further submitted that composite orders received from customers include certain optional accessories, which are not essential for o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 363 to 367 of the paper book showing the total sales of machines, machines with accessories and accessories alone during the year 1986 to 1989. He submitted that in the price circulars issued by the appellants to buyers through their various sales centres the price of Standard Equipment (i.e. Drill machine and accessories) and optional accessories are listed separately. He stated that according to the copies of I.S. 7209/1974 for Blast Hole Drilling Rigs , certificate of the Engineering Well Boring Division, Government of Karnataka and certificate by Drilling Engineer of International Development Agency, filed by the appellants Drill rods and Bits of various types are tools and accessories which vary according to the needs of the user. The learned Counsel submitted that the findings of the Collector in para 12 of the order that Drill rods, pipes and bits are not integral parts of drilling rigs, they are essential parts without which drilling rigs would not be useable for achieving the desired purpose of boring wells, in fact supports the appellants contention that these items do not make the machine complete. Shri Natarajan further contended that the confirmation of the demand by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paper Book - Vol. I Drill rods and Drill bits are accessories they are essential requirements for carrying out any drilling operation. He submitted that Drilling rods and bits are invariably attached to the drilling machine for carrying out drilling operations even though for the convenience of transportation they may be packed separately. He contended that the opinion given by Danish International Development Agency cannot be accepted as correct in the light of the opinion given by the Engineer-in-Chief. He submitted that the opinion of expert cannot always be relied upon since as held in the case of Guest Keen Williams Ltd. v. Collector of Customs, Calcutta reported in 1987 (29) E.L.T. 68 (Tribunal) independent conclusion has to be arrived at keeping in view the nature of the equipment. He contended that on the analogy of computer which is treated as a single equipment even though it consists of different parts, Drill rods and Drill bits though packed separately have to be treated along with the Drilling rig as parts of the complete drilling equipment. He added that the fact that Drilling rods and bits are bought out items will not make any difference since the value of such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble value of the rig has to be arrived at by including the value of Drill rods even when they are bought out items , (ii) the demand issued to the appellants was time-barred. 6. The appellants case is that the water well drilling rigs manufactured by them are complete machines and even without any attachments they can perform drilling operations upto a depth of 4 feet. However, when drilling is to be carried out to greater depths a number of drilling rods/pipes of lengths varying between 10 feet to 30 feet and diameter between 3 to 4 nches are used depending upon the depth of the hole to be bored. One end of the pipe is attached to the drilling machine and at other end of the pipe, depending upon the earth strata various types of bits for cutting the earth and deepening the hole have to be fitted. On completion of the drilling operation the rods and bits are retrieved and disconnected from the machine. It has been contended that the Drilling rods/pipes and bits are only optional accessories and not integral parts of Drilling machines and requirement of these accessories varies from customer to customer depending upon the earth strata at the place where drilling is to be carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e customer but only to evade C. Excise duty on such parts, prepares separate invoices for such parts, with a plea that the drilling machine can function independently. I therefore hold that M/s. Ingersoll Rand have purposely invoiced separately the drilling rigs and the essential parts even though covered by the same purchase order to evade payment of C. Excise duty. This function is evident from the fact that the invoices under which the main drilling rig is supplied and invoice under which the essential parts are supplied are on the same date and it is only on record that these two items are separately invoiced even though supplied together as per the customer order. In the circumstances I hold that M/s. Ingersoll Rand have under-valued the drilling rigs manufactured and cleared by them without including the value of essential parts supplied along with the drilling rigs which are required for the effective functioning of the drilling rigs with an intention to evade payment of C. Excise duty. They have suppressed the fact of supply of these essential parts from the department by not mentioning them and their value in the Price lists and classification lists. Therefore, they are li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h).................... (i).................... On a plain reading of the provisions of HSN extracted above it follows that Drilling Machines for sinking or boring of wells fall under Heading 84.30, the parts of these machines are covered by Heading 84.31. However, Drill bars/rods and Drill pipes are not classifiable as parts of Drill machines under Heading 84.30 as they are classifiable under Heading 72.28 and Headings 73.04 to 73.06 respectively. Similarly, Drill bits of various types are also not classifiable as parts of Drilling rigs and being earth boring tools they are classified under the more specific Heading 82.07. It is evident that even though Drilling rigs have necessarily to be used in conjunction with items such Drill rods/pipes and bits, these items do not constitute parts of such machines which are complete items in themselves. 10. In our view the conclusion that Drill rods/pipes and Drill bits are not integral parts of Drilling machines and the requirement of these items which are essentially in the nature operating equipment and tools varies from user to user also emerges from the reading of para 2.2.13 of ISI specification IS 7209/1974 for Blast Hole Drillin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detached items. As against this, a Drilling machine is a complete machine in itself which is useable for drilling without any attachments upto a certain depth and such machines are known and even sold as complete machines. 12. It is seen that in the case of State of Uttar Pradesh v. Kores (India) Ltd. reported in (1977) 39 STC 8 on the question whether typewriter ribbon is a part/accessory of a typewriter, the Hon ble Supreme Court has held that it is an accessory and not a part of typewriter even though it may not be possible to use the latter without the former, just as aviation petrol is not a part of the aeroplane. Relevant extracts of the said judgment are reproduced below :- Regarding ribbon also to which the abovementioned rule of construction equally applies, we have no manner of doubt that it is an accessory and not a part of the typewriter (unlike spool) though it may not be possible to use the latter without the former. Just as aviation petrol is not a part of the aero-plane nor diesel is a part of a bus in the same way, ribbon is not a part of the typewriter though it may not be possible to type out any matter without it. 13. In this regard it is also seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s parts or attachments of Drilling rig and their value shall not be includible in the value of the machine. On these considerations, it follows that if such Drill bits/pipes and Drill bits are manufactured by the appellants they will attract duty under the relevant headings of the Tariff. However, if any of these items are received by the appellants as duty-paid bought out items for being supplied to customers along with Drilling rigs according to requirements of particular customers, then they shall not be chargeable to any further duty. 16. The learned SDR has contended that the value of bought out items has to be included in the assessable value of the equipment, provided they are compulsory or essential for the operation of the machine or equipment in question. In support of his contention he has placed reliance on the following decisions :- (i) Rallis India Ltd. v. CCE - 1993 (67) E.L.T. 144 (ii) Daya Ram Metal Works Pvt. Ltd. v. CCE, Baroda - 1985 (20) E.L.T. 392 (iii) Narne Tulaman Mfg. Pvt. Ltd. v. CCE - 1988 (38) E.L.T. 66 (S.C.) (iv) CCE, Bangalore v. Sunray Computers (P) Ltd. - 1988 (33) E.L.T. 787 We find that in these decisions the question that arose for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es having been raised in respect of items supplied with the Drilling rigs was raised earlier on two occasions in 1980 by way of audit objections which were duly replied to by the appellants. 19. In the case of Padmini Products v. Collector of Central Excise, reported in 1989 (43) E.L.T. 195 the Supreme Court has held that mere failure or negligence on the part of the manufacturer either not to take out a licence or not to pay duty in case where there was scope for doubt does not attract the extended limitation, unless there is evidence that the manufacturer knew the goods were liable to duty or he was required to take out the licence. Again in the case of Collector of Central Excise v. Chemphar Drugs and Liniments , reported in 1989 (40) E.L.T. 276 the Supreme Court has held that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when manufacturer knew otherwise, is required before it is saddled with any liability beyond the period of six months. Having regard to the fact that the relevant contract showing the details of Rigs and other equipments contracted for sale was appended ..... X X X X Extracts X X X X X X X X Extracts X X X X
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