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TMI Blog1995 (3) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... y of air gauges and therefore the value of the oil and moisture filters should be added to the assessable value of air gauges and duty will be computed on the composite value. The Asstt. Collector in his order after examining the evidence produced by the appellants and considering the relevant submissions made during the course of personal hearing held that oil and moisture filters are an integral part and essential part of the air gauges. The main function of the oil and moisture filters is to prevent impurities in the compression line for entering into the air gauges. Thus, if the filters are not used, the impurities in the compression line will damage the air gauges and reduce its utility and also longivity. Thus, it was held that as the oil and moisture filters perform an important function to prevent the impurity from entering the air gauges and are as such an important, essential and integral part of the air gauges. After considering the rulings in the case of CCE v. Lavkein Pvt. Ltd. reported in 1987 (31) E.L.T. 700, in the case of Lona Manufacturers of Home Appliances reported in 1980 (6) E.L.T. 482 and in the case of W.H. Brady and Co. v. CCE reported in 1990 (50) E.L.T. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se decisions was squarely applicable to the appellant s case. The ld. Consultant also submitted that proper investigation to look into the facts of the case was not undertaken by the department and the show cause notice was issued simply because an audit objection was raised. 4. It was contended by the ld. consultant that oil moisture filters have general use to prevent dust and other impurities; that they are not essential components or parts; that filters are fitted to compression line to ensure that air passed to the air gauges is free from dust, moisture and other impurities; that this does not mean that air gauges cannot function without filters; that the department has not proved that filters are essential parts of air gauges; that onus of proving that filters were essential parts of air gauges has not been discharged by the department. The ld. consultant submitted that the entire issue can be summarised in the following heads :- (a)that oil and moisture filters were bought out items; (b) supply of oil and moisture filters with air gauges was not the regular practice but was optional purely on the request of the customer; (c)that oil and moisture filters are accessori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso submitted by the ld. DR that in the orders placed, oil and moisture filters have sometimes been described by the customers as spares. Summing up his arguments, the ld. DR submitted that looking to the definition of oil and moisture filters, it is very clear that they are an integral part of the air gauge unit and hence value thereof is includible in the price of air gauge units. 7. On the question of nomenclature of the filters, the ld. DR submitted that the customer s orders clearly showed that the parts namely oil and moisture filters are spare parts of air gauge unit. Now coming to the understanding of the appellants about the nomenclature of oil and moisture filters, the ld. DR submitted that in the Annexure to the Classification List, even the appellants have shown oil and moisture filters as spare parts. The ld. DR therefore submitted that spare parts of any equipment or any standard equipment can by no stretch of imagination be termed as accessories. It is an admitted position that spares are different from accessories as such moisture filters have already been described as spares in the Annexure to the classification list as well as in some of the orders placed with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but have become ball-mill balls and equipments, and in that class they will move out of the category of castings. The argument of M/s. Electrosteel Castings Ltd. that these are not machine parts and are not parts of the ball mill is only half true if one takes into account the fact that they are not fitted in the grinding mill. But the mill cannot grind, however much it may run, without the balls in the drum. The balls perform an essential part in the grinding by the ball mill and must, therefore, be classed as parts of the ball mill. A component, whose absence will disable a machine or appliance, must be regarded as an essential ingredient or part of that machine. The assessment of the balls and cylpebs under Item 68 is not unjustifiable, and accordingly this appeal is rejected. 10. On the second issue namely the question of includibility of value in the value of air gauge units, the following case law was relied upon : Diamond Clock Mfg. Co. reported in 1988 (34) E.L.T. 662. In this case on the question of valuation of bought out items whether includible in the assessable value or not, the Tribunal had held : 23. The appellants claim that Anand Traders have supplied bought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differently. With effect from 18-6-1977, this tariff item was specifically amended to include regulators alongwith fans in the Tariff item/sub-items. The earlier judgment and the rulings cannot, therefore, apply when the law itself underwent a change. The amended tariff makes it abundantly clear that regulators go along with the fans and their cost has, therefore, to be included in the assessable value of the electric fans whenever regulators are supplied with the fans. The material period in the present appeal is from 1-7-1980 to 10-11-1983, i.e., after 18-6-1977. There is, therfore, no question of deducting the cost of regulators. 12. On the question of the inclusion of value of optional accessory, reference was made to the decision of the Tribunal in the case of Piyush Kumar Prabhudas Mehta v. CCE reported in 1991 (51) E.L.T. 151 in which the Tribunal had held :- 5.3 From a perusal of the judgment of the Tribunal in the case of Universal Luggage Mfg. Co. (mentioned supra), we find that one of the issues decided there in is essentially the same as in this case, namely whether the value of optional accessories should be included in assessable value of main item. In that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yre International Ltd. After considering all these submissions, the Court had observed in Para 9 as follows : However, Mr. Sethna submits that as against the dismissal of appeal by the Division Bench in Metal Box case, the deptt. has taken the matter to the Supreme Court and the matter is pending. But till such time, Metal Box case is reversed, the petitioners are entitled to claim deductions in respect of costs of caps and capping charges. Therefore in the present case also the factual situation is similar. The records further show invoices indicating sale of aluminium flexible tube without caps from the appellants factory. In such a situation, it may not be appropriate for the Tribunal to deviate from the ratio of the Bombay High Court Judgment in the Extrusion Processes (P) Ltd. case unless it is shown that the other decision of the Bombay High Court in the case of Metal Box Co. in Writ Petition No. 511 of 1973 has been upset by the decision of the Supreme Court where the appeal against that order is said to be pending. In the circumstances, the order proposed by the Hon`ble President is concurred with. 67. In view of the majority opinion of the Members, the appeal is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air gauge units and therefore, the value of spares should be added to the value of the air gauge units for purpose of computing Central Excise duty. However, they will be eligible for credit of duty on filters under the modvat scheme. 19. On the question of imposition of penalty, a lot of case law was cited and relied upon by both sides. We find that oil and moisture filters were removed from the factory in contravention of various Central Excise Rules. The contravention was with the intention to evade payment of duty. From the evidence on record, we find that the function of oil and moisture filters made them an important part of the air gauge unit. From the catalogue also, we find that they were standard equipment for air gauge units which shows their essential character in the functioning of an air gauge unit. The understanding in the trade parlance, both of the customers as well as the appellants indicated that the items were traded as spares. This leaves us with no doubt that imposition of penalty is maintainable in the instant case. As the quantum of penalty is low, we do not see any reason to interfere with the quantum of penalty. 20. Having regard to the above findings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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