ORDER
Lajja Ram, Member (T)
1. These are three appeals filed by M/s. Air Control & Chem. Engg. Co. Ltd. The appellants were engaged in the manufacture of electric fans classifiable during the relevant time under Item No. 33 of the old Central Excise Tariff. Their fans were classifiable under sub-item (2) of Item No. 33 which covers industrial fans. They were bringing electric motors from outside and were invoicing them separately collecting higher amount from the customers than paid for such motors. In two appeals which had been disposed of by a common order by the Collector of Central Excise (Appeals), the cost of these motors did not form part of the final product. In the third appeal bearing No. E/387/87-A they had taken proforma credit in respect of the duty-paid electric motors, but did not include its cost while determining the assessable value of their final product and only reversed the credit taken on the electric motors. In all the three cases the duty demanded had been confirmed by the lower authorities.
2. When the matter was heard on 2-9-1996, Shri K.K. Anand, Advocate, appearing for the appellants submitted that such electric motors were bought out item, they are invoiced separately. Their cost should not be included while determining the assessable value of the industrial fans cleared by them. He also pleaded that the demands were partly time-barred. According to him, in Appeal No. E/2181/86-A the demand was completely time-barred. It was within time in A. No. E/2182/86-A and was partly time-barred in A. No. E/387/87-A.
3. In reply, Shri P. Das, learned SDR, submitted that the electric fans will not be operational without the electric motors and the fan was designed to work electrically and, therefore, even if the components are bought out from outside, their cost has to be included while determining the assessable value of the final product. On the plea of the time bar, he left the matter to the discretion of the Bench.
4. We have carefully considered the matter. The final product manufactured by the appellants were electric fans classifiable under Item No. 33 of the old Central Excise Tariff. Sub-item (2) covers electric fans designed for use in an industrial system as parts indispensable for its operation and have been given for that purpose some special shape or quality which would not be essential for their use for any purpose, and regulators therefor. There is no dispute that the electric fans could not operate without the electric motors. The fan was designed to work on electricity and the electric motor was an indispensable part of the same. The industrial fans could be of different varieties and could have a number of components, but in all electric motor was an essential part. The appellants were bringing electric motors and were charging for the same from their customers. These motors were tested, checked with reference to the parts manufactured by the appellants and they had to be correlated with the particular fans supplied to different customers. It is the settled position of the law that if the bought out items are in the nature of components and the raw materials, then their cost has to be included in the determination of the assessable value of the final product. In the case of Kirloskar Brothers Ltd. v. Union of India -1992 (59) E.L.T. 3 (S.C.), the issue before the Supreme Court was whether the duty paid on the motors should be taken into account for arriving at the assessable value of the pump. The Supreme Court held that the value of the excise duty paid on the electric motor is not deductible while arriving at the assessable value of the pump. In para 19 of the decision the Supreme Court had referred to their earlier decision in the case of Name Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector of Central Excise, Hyderabad – 1988 (38) E.L.T. 566 (S.C.), and in para 21 had held as under :-
“Here the article concerned was the ‘pump’ which had an electric motor which was duty paid. But what was deductible while assessing the assessable value was merely the excise duty payable on the ‘pump’ and not the excise duty already paid on the electric motor which was merely a component.”
In other decisions also the Supreme Court has taken the similar view. In the case of Burn Standard Co. Ltd. v. Union of India – 1992 (60) E.L.T. 671 (SC), the Supreme Court had held that for the purposes of Section 4 of the Central Excises and Salt Act, 1944, even value of free supplied item was includible in the assessable value. In the case of Texmaco Ltd. v. Collector of Central Excise, Calcutta -1995 (77) E.L.T. 501 (SC), the Supreme Court had distinguished the position under Section 4 with the position under Notification No. 120/75-C.E., dated 30th April, 1975 and had held that while for the purposes of Section 4, the value of the free supplies had to be taken into account the position is different under Notification No. 120/75-C.E. which was an exemption notification issued under Rule 8(1) of the Central Excise Rules, Thus, on merits, we consider that the appellants have no case.
5. Now coming to the plea of limitation. The demands were issued under Rule 10 of the Central Excise Rules as in force subsequent to its amendment on 6-8-1977. During the relevant time Rule 10 prescribed a normal limitation of six months. The learned advocate had submitted that there was no allegation of any suppression in any of the show cause notices and that while the show cause notice dated 6-10-1978 was issued within the normal period of limitation of six months, the show cause notice dated 23-10-1978 was completely barred by limitation and show cause notice dated 3-11-1981 was partly barred by limitation. The show cause notices did not contain any allegation that the duty had been short levied or had not been paid in full by reason of any fraud, collusion or any wilful misstatement or suppression of facts. The allegation is that while determining the assessable value of the final product i.e. electric fans, the value has not been correctly determined inasmuch as the cost of electric motor had not been taken into account. As there was no allegation justifying the invokation of larger period of limitation, we consider that in the facts and circumstances of the case the demand which was beyond the normal period of limitation was not justified. The show cause notice issued on 23-10-1978 for the period 1-3-1977 to 31-3-1978 appears to be fully time-barred. The learned advocate had stated that the demand relates to the date of the clearance of the final product and thus the relevant date is the date on which the electric motors were cleared. If it is so, then the demand will be fully time-barred.
6. Next show cause notice dated 6-10-1978 was issued within time as the period involved is from 1-4-1978 to 30-4-1978. The third show cause notice dated 3-11-1981 covers the period from 18-8-1980 to 17-7-1981 and is partly time-barred and partly within time. The demand of duty for the period of six months from the relevant date is valid and is confirmed.
7. In view of the above discussion while on merits, all the three appeals are rejected, on the question of limitation appeal bearing No. E/2181/86-A is allowed and A. No. E/387/87-A is partly allowed. A. No. E/2182/86-A is rejected. Ordered accordingly.