9911796707
TMI Blog1997 (5) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... nto on the basis of tenders and negotiations and consolidated price is fixed for supply of manufactured items, bought out (imported items) items and erection and commissioning services. Subsequent to the contracts, appellant furnishes break-up of consideration for (a) items manufactured by appellant, (b) duty paid bought out items and (c) erection and commissioning for the purpose of invoicing and payments. Price lists in Part II are filed declaring only the prices of items manufactured by appellant. The items manufactured by appellant are cleared from the factory on payment of duty calculated on the assessable value of items manufactured by appellant and the same are removed to the premises of the buyers. Bought out items are invariably transported directly to the premises of the buyers. Thereafter the Equipments or Plants are erected and commissioned at the premises of the buyers. Appellant did not pay Central Excise Duty on the bought out items or on the equipments or plants as such. 3. Show cause notice dated 30-3-1987 was issued by the Collector alleging contravention of Rule 173C(1) of the Central Excise Rules, 1944 (for short, the Rules) read with Section 4 of the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the notice bought-out items had a margin of only about 4% whenever the items are supplied without being linked to manufactured items under question (Annexure A) and appellant had earned a total profit of Rs. 5.73 crores on the bought-out items that have been supplied along with the manufactured items and the profit margin was 27.92%. During the period, the total turnover was Rs. 182.97 crores and total net profit before tax was Rs. 12.21 crores. The profit in sale of bought-out items was Rs. 5.73 crores as against the turnover of Rs. 26.27 crores. On this basis, it was alleged as follows :- Such a picture is not possible unless the profit on other manufactured items have been diverted to bought-out items going along with manufactured items. It is also clear that no separate over-heads are being incurred by the assessee in relation to the bought-out items.........it is clear that the entire margin on bought-out items is a consideration for the manufactured goods and is liable to pay duty......... Annexure A2 dealing with independent sales of bought-out items (without manufactured items) referred to profit margin on such items as 4%. The notice referred to specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items. There is a wide distribution network as also sales service. In working out margin of manufactured items, it is the practice to include notional amount of depreciation on revalue fixed assets as well as notional value of interest on operating capital and margin of bought-out items, is worked out by merely reducing the material value of the items from the sale price. Hence, the margins are not comparable. Even in regard to supply of bought-out items appellant has to incur additional expenditure on sales at head office and branches, drawing and designing costs, cost of arranging procurement of bought-out items and stores personnel who arrange stocking and despatch, interest cost, bank charges incurred to finance inventory of these items and outstandings, commission payment, Royalty and technical fees paid to foreign principals, freight, packing, insurance and other non-recoverable charges. The total overhead attributed to these items would be 17% of the invoice value as seen in Annexure III to the reply. Deducting the overhead, the margin on bought-out items is negligible. Supply of bought-out items is not a mere trading activity. It involves sophisticated and elaborate service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. The contracts are for consolidated prices without break-up and such break-up is made only for convenience of appellant. Expenses incurred on account of several factors contributing to the value up to the date of sale have to be included in the assessable value of the Plant. Price lists in Part II should have declared the full contract price and permissible deduction, actual cost of bought-out items. The Collector observed :- Hence, it is the moral responsibility to claim only the deduction which are the actuals appearing in the supplier s invoices so far as bought-out items are concerned. The assessee has no right to show enhanced prices than the invoice prices of the suppliers because the contract price reflects the price of (a) Manufactured (factory made) goods, (b) actual invoice price of the total bought-out items, (c) actual invoice price of the imported items required for the project under contract, (d) erection and installation charges on actual basis and (e) manufacturer s profit. As a matter of fact, the assessee should not exclude from the price of the plants etc., supplied the value of the bought-out items which are components of such plants and machinery and sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the overheads. The collector also held as follows : I hold that the entire extra margin recovered by the assessee against the supply of the bought-out items is required to be added to the value of the Plant Machinery contracted to be manufactured and supplied (without prejudice to separately determining the question of adding the value of such bought-out items to the value of such plant and machinery manufactured land supplied on a turnkey basis). But the remaining contract price excluding the cost of erection and commissioning charges, should in any case be charged to Central Excise duty as a whole. The Collector, accepting that there was an error of calculation in the show cause notice, confirmed the demand only to the extent Rs. 44.05 lakhs. 8. Learned Counsel for appellant contended that the basis of the show cause notice and the impugned order are quite different and contradictory and as such the order is unsustainable. Show cause notice was not on the basis that the Plants which came into existence at the premises of the buyers are excisable goods (according to appellant, Plants become immovable property when the erection is complete) in which case alone duty is pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence in the premises of the buyers. According to the Collector, they came into existence just prior to being affixed to earth. No such case was propounded in the show cause notice. We agree with the appellant that the demand could not have been confirmed on the basis of a ground not propounded in the notice. The Collector was quite conscious of this fatal defect as can be seen from his repeated observation that he cannot demand duty on the cost of bought-out items as the same is outside the purview of the show cause notice. If the notice had laid the foundation for a case that the plants came into existence at the premises of the buyers, Collector would have been obliged to consider the question whether the Plants came into existence as movable, marketable goods or as immovable property since dutiability depends on the same. He appears to have proceeded on the assumption that Plants came into existence just prior to being affixed to the earth, a case not propounded in the notice and a case which could not have been accepted without examining the same and considering if the erection of Plants was piecemeal involving considerable civil work and if they became permanently embedded to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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