ORDER
Gowri Shankar, Member (T)
1. The appellant manufactures malleable case iron inserts. It is common ground that these inserts are only used to fasten the rails of a railway line to concrete sleepers, and that ultimate user of these sleepers is the Indian Railways. The purchasers of these inserts are either the railway themselves or manufacturer of concrete sleepers, who sell them to the railways. It is also not in dispute that in every case, inspection of these inserts is to be conducted by Rail India Technical and Economics Services (RITES for short), the inspection and research agency of the railways. In terms of their contract with the railways, both the appellant, when it sells the sleepers, and the sleeper manufacturers, when they buy them from the appellant, are required to get these inserts inspected and approved by RITES before they purchase them and fitted in their sleepers. The question in this appeal is the includability of the charges paid to RITES for the inspection conducted by it. In the order impugned in this appeal, the Commissioner has held that these charges were not optional since the goods could not be sold without the inspection and that they were includable in the value.
2. It is the contention of Mr. C.J. Shah, the Manager of the appellant, that the testing and inspection by RITES is in addition to the testing and inspection that the appellant carries out on the goods, and the inspection by RITES is at the instance of the buyer. Although the appellant arranges the inspection, it recovers the charges from the buyer. The railways in turn reimburse the buyers. He cites the decisions of the Tribunal in Shree Pipes Limited Vs. CCE 1992 (59) ELT 462 and Hindustan Development Corporation Limited Vs. CCE 1995 (58) ECR 8.
3. In Shree Pipes Limited Vs. CCE the Tribunal found that the test conducted by the Director General of Supplies and Disposal on the cement asbestos manufactured by Shree Pipes was in addition to the tests that were carried out by the manufacturer, and that the such inspection was at the buyer’s option. It was only done in those cases where the goods were sold to the Public Health Electric Department. It therefore said that the view of the Commissioner that the charges of inspection were includable because the inspection rendered the pipes marketable was incorrect. In Hindustan Development Corporation Limited Vs. CCE the Kolkatta bench of the Tribunal applied the ratio of Shree Pipes Limited Vs. CCE to say that the charges payable to RITES for testing railway points and crossings manufactured by the appellant before it were not includable in the assessable value because these charges were incurred by the railways.
4. It is settled law that charges paid for inspection or testing by a third, party at the option of the buyer cannot form part of the assessable value. This is because such inspection or testing inspections has nothing to do with the marketability. In case where the buyer does not opt for inspection by a testing agency, the same goods have become marketable without it. The position would be different in a case where every buyer insists upon such inspection by a testing agency. In that case, the goods cannot be sold till that inspection takes place. In no case can the appellant sell the goods without testing by RITES. The inserts manufactured by the appellant cannot be sold unless they are tested and approved by RITES. They therefore do not become marketable till that such testing takes place. As we have seen, it is the buyer who pays the testing charge to the appellant. It is contended that the buyer is in turn reimbursed these charges by railways. We have to keep in mind that the sleeper manufactures sell, not inserts themselves, but sleepers, fitted with the inserts. As far as the appellant is concerned, it recovers, in every case, the charges for inspection from its buyers, the railways or the sleeper manufacturers. The costs incurred for such testing would therefore form part of their value.
5. This aspect, the absence of optionality and the existence of every buyer insisting upon test by RITES do not appear to have been present in Hindustan Development Corporation Vs. CCE. In that case, the Tribunal has recorded a finding of the fact that the inspection charges were paid, not by the manufacturer, but incurred by the railways, the only buyer. The ratio of that judgement, and of the judgment in Shree Pipes, would not apply to the facts before us.
6. It is contended that the notice is barred by limitation. The notice dated 21.2.1995 demanded duty for clearances made between 1st July, 1991 and July, 1992. It invoked extended period contained in proviso under sub-section (1) of Section 11A of the Act by alleging that the fact of recovery of these inspection charges was not declared to the department. The representative of the appellant does not deny that the fact of recovery of these charges was not communicated to the department. No other ground is urged with regard to limitation. In these circumstances, the conclusion of the Commissioner that the extended period would apply does not warrant interference.
7. Appeal dismissed.