ORDER
A.C.C. Unni, Member (J)
1. In these two appeals, common issue has been raised for consideration. They were, therefore, heard together and are being disposed of by this common order.
2. We have heard Shri V. Lakshmi Kumaran, learned Advocate for the appellants and Shri Prabhat Kumar, learned Senior Departmental Representative appearing for the respondent Collector.
3. Appellants are engaged in the manufacture of heavy and sophisticated Electrical & Electronics equipments and machinery which are designed as per the specific requirements of the customers. The terms and conditions of sale also contain a condition relating to warranty which provides for replacement of the items if they developed defects within a period of 12 months from the date of commissioning or 18 months from the date of despatch, whichever is earlier. An amount of 2.5% of the factory cost is set apart by the appellants as ‘complaint reserve’ in the contractual price entered into by them. The Central Excise duty is paid by the appellants on the total contract sale value. Where in terms of the warranty clause the appellants supply replacements to their customers, appellants do not discharge any further duty since, according to the appellants, the total contractual value included also the value of the replacements during the warranty period.
4. The Department issued a show cause notice asking appellants to show cause why duty on replacements removed under the warranty clause during the period 1986-87 to 1990-91 should not be recovered from them. The notice alleged deliberate suppression of the fact of removal inasmuch as the appellants had not maintained statutory records in respect of the goods so removed apart from removing the goods without payment of duty. Penalty was also proposed to be imposed.
5. After considering the reply filed before him and after considering submissions made during the adjudication proceedings, Collector confirmed the demand and passed the impugned order. Collector observed that the taxable event in the case of excise duty is the production or the manufacture of the excisable goods and thus no sooner excisable goods are produced, a charge is created which was the taxable event. Since duty could be collected only after the charge is created, the appellants’ contention that duty had already been paid for the replacement items removed during the warranty period cannot be considered to have suffered duty at the time of clearance of the main equipment. He rejected the present appellants’ claim that unless warranty obligations were agreed to by the manufacturer the appellants could not have contracted for the supply of the main equipments and, therefore, the contract price would also include the duty element of replacements under the warranty clause. To the extent, the appellants had not informed the Department that they were clearing warranty replacements without payment of duty, the Collector also found that there was suppression on the part of the appellants and, therefore, penalty was also imposable on them.
6. Learned Counsel submitted that though the fact of clearance of replacements under the warranty clause made by the appellants was not disputed, it was also not in dispute that an amount of 2.5% had been added by the appellants to the factory cost in the contractual price entered into by them and the appellants had paid duty applicable to the total contract sale value. He submitted that the question of includibility of duty on replacements to customers under warranty clause has to be seen in the context of the general practice accepted the world over when no specific provision existed in the relevant statute or the rules. In this connection he referred us to the Customs Valuation Procedures followed in the GATT and the standard book on the subject by Saul L. Sherman and Hinrich Glashoff which dealt with this aspect in relation to international trade. The authors had referred to cases where manufacturer-exporter supplied free of charge parts needed to meet obligations under a warranty. The authors had discussed as to what will be the proper valuation of the parts sent free under warranty arrangements. After discussing the issue, the authors had concluded that from the customs valuation aspect the price actually paid or payable has to be determined on the basis of transaction value (Page 77, ibid). Learned Counsel also drew attention to the fact that on the customs side there was a notification exempting such replacements under a warranty clause from duty demand.
7. Though admittedly there was no corresponding notification issued under the Central Excise Act, learned Counsel pleaded for accepting the said principle in Excise law also in the absence of any such notification under the Central Excise Act, on a parity of reasoning.
8. We have considered the submissions. Admittedly, the Central Excise Act, the Central Excise Rules or the notifications issued do not contain any exemption from duty demand for replacements supplied by the manufacturer under a warranty clause irrespective of the fact that the contract price includes an added element to cover such replacements. Having regard to this undisputed position, we are unable to agree with the submissions made by the learned Counsel that on the basis of the international practice referred to in the commentary by the learned authors relied on by him the same principle would apply to cases under the Central Excise Act also. We have taken note of the submission of the learned Advocate that in the Customs side, there exists a notification granting exemption from customs duty for goods imported as replacements under the warranty clause (though no copy thereof was actually placed before us). However, even the existence of such a notification will not affect the legal position in the present case as it is the settled position that no exemption notification issued under one Act can be extended to situations covered by another enactment though the principle under-lying the grant of exemption in the former may also apply to the latter.
9. In the above view of the matter, we find no reason to disagree with the findings of the Commissioner in the impugned order.
10. In the result, the present appeal filed by M/s. Bharat Heavy Electricals Limited is rejected and the order of the Collector impugned in the present appeal confirmed.