ORDER
V.P. Gulati, Member (T)
1. This is an appeal against the order of the Collector of Central Excise, Bangalore.
2. Brief facts of the case are that the appellants manufactured Fluid Bed Tea Drier (FBD) assessable under T.I. 68 GET and they were found to have cleared these machines without payment of duty after filing the declaration under notification No. 111/78. They were alleged to have cleared goods valued at Rs. 30 lakhs and were charged with having evaded payment of duty on the goods cleared to the extent of Rs. 13,45,486.13. Clearance of some of the machines without payment of duty was made by them in the name of two trading companies – M/s. B & B Tea Processing Systems Private Limited and M/s. B & B (Agents) Private Limited, situated in the same premises as the appellants unit. These two concerns did not own any factory and obviously all the manufacturing activity was being done in the factory of the appellants. These companies were only found to be dummies of the appellants set up for the purpose of availing the exemption notification in respect of the goods manufactured by them. The Collector held that all the clearances of the goods manufactured in the appellants factory as having been made on account of the appellants and confirmed duty demand and also levied a penalty of Rs. one lakh on the appellants and Rs. 1000/- on the other two concerns.
3. In the proceedings before us, the learned advocate for the appellants accepted that all the clearances of machines covered by the impugned order made by the appellants were on their account and gave up the plea that any clearances of these goods had been made by the other two concerns. The item in dispute for the purpose of reckoning the total value of the clearances made by the appellants, are FBDs and some other machines. The issue before us is the excisability of the FBDs to duty. Briefly stated, the appellants manufactured some of the components of these machines in their factory and bought out some of other components and all these sent to the Fabricators, M/s. Confabs, situated in Bangalore. M/s. Confabs manufactured premarily shelf for the machines and also did some other fabrication work. The shelf along with the bought out and fabricated components received from the appellants constituted the FBD.
4. During the course of hearing it was seen that certain relevant documents like catalogue, purchase invoices, sale invoices, contract of sale, agreement between the contractors and the appellants were not on record. The same were asked to be filed for proper appreciation of the facts. The relevant documents available with both sides were filed and admitted for purpose of proceedings before us.
5. The learned advocate for the appellants, Shri Haskar, pleaded that the lower authority had not given any findings on the plea of the appellants that FBDs did not come into existence as goods for the purpose of Central Excise levy at the hands of the appellants when these were despatched from the factory of M/s. Confabs. He drew our attention to the appellants plea made before the Collector (Appeals) in reply to the show cause notice. He also drew our attention to paras iv, vi and viii of the reply to show cause notice which for convenience of reference are reproduced below for appreciation of the points made by him :
“(iv) The fluid bed tea drier comprises of a drive chamber, housing motors, gear boxes, etc. which activates a feed conveyor on which the fermented leaf is fed and delivered to the drying chamber. The drying unit consists of a plenum (Pressure equalising) Chamber, an air velocity chamber which is covered by a grid plate above which is the actual drying chamber where fermented tea is fed. By virtue of the design it is essential that the plenum chamber is recessed into the floor of the factory and at the time of despatching the drier a pit is dug to accommodate the unit in accordance with floor plans provided. The unit is linked to a heat source which can be of different models and utilises oil/fire-wood/loco/coal/lignite.
(vi) The drier comes in several sizes- depending upon location, capability of heat source, etc., and with various accessories such as dust collection equipment, control panels, etc. which are the choice of the customer. Of the range of driers manufactured by the first company weights vary from 6 tons to 10.5 tons.
(viii) At site the clients’ erection personnel are deputed who erect the unit and attach the fan to the heat source available there by means of suitable ducting. It is relevant and significant to point out that under no circumstances can the equipment be classified as a drier until such time as it is attached to a heat source. Furthermore, the equipment cannot possibly be assembled and tried other than in its located area wherein the pit has to be provided and the equipment is fastened to the earth, when the project automatically becomes a Turnkey Project as immovable property, losing its character as “goods” liable to Excise Duty. This aspect is well settled in law by various judicial pronouncements.”
He stated that this point raised by him before the Collector goes to the root of the matter. In the background of the plea made before the Collector, he stressed the following points :
(i) All the components and sub-assembly required to make a complete FBD were sent from the factory of M/s. Confabs and that there was no further components required to make a complete FBD at the site of the customer.
(ii) The FBDs, as such, did not come into existence at the factory of M/s. Confabs and that the goods were invoiced as FBDs as on assembly at the customer’s premises these formed into FBDs.
(iii) After setting up of the FBDs at the customers premises, the plenum chamber had to be recessed underground and enclosed in the necessary civil work. Further some of the bought out items had to be fixed on the ground separately.
(iv) The FBDs which came into existence at the customer’s site became immovable goods as in the case of installation of the lift where the lift came into existence after some of its parts became part of the structure of the building.
In this view of the matter, he pleaded the FBDs could not be considered as goods for the purpose of levy of Central Excise duty. He cited the case of Hyderabad Race Club, Malakpet, Hyderabad v. Collector of Central Excise, Hyderabad : 1986 (23) ELT 274 and the case of Government of India v. Otis Elevator Company (India) Limited : 1981 ELT 720 in support of this plea. It was pointed out to him that from the invoices, purchase contracts, sales contracts and also their contract with M/s. Confabs showed that before the despatch of the goods there was a requirement of inspection of these goods and in case the necessary inspection and testing was not done, the goods were not accepted by the customers.
He pointed out that testing done was of the sub-assemblies like conveyors and for the purpose of alignment of the parts to be fitted to the shell and that the complete test run of the FBD was not carried out since it was not feasible to do so at Confabs factory. He stated that for a test run of complete FBD heat source was needed and so also an electric motor of higher horse power for its operation at Bangalore than was required for operating the FBD at altitudes where tea gardens are situated on account of the rarefied atmosphere there. He drew our attention to the technical opinion given by the Government of India Field Testing Station, Ministry of Industry, Bangalore. He pleaded that the appellants did not have the necessary motors of higher horse power rating for testing purposes. He also produced a set of photographs to show how the plenum chamber was recessed underground and various other components installed. These photographs, it was conceded, were taken at different factories and he could not show that these related actually to any particular machines installed by the appellants. He, however, offered that the Department could conduct on-the-spot study at the factories to verify the correctness of the pleas made by him. He stated that in as much as the appellants did not manufacture FBDs as such the Revenue could take into reckoning only the value of the parts fabricated by the appellants and their Fabricators, M/s. Confabs and charge duty thereon if leviable otherwise and the value of the bought out items could not be therefore added for the purpose of assessment. He stated that if this was done, the appellants clearances would fail within the exemption limit in respect of the goods falling under T. I. 68.
6. The learned SDR stated that from the records it would be seen that what the appellants had sold were only FBDs and the same were inspected and tested before despatch from the factory of M/s. Confabs and, therefore, it should be considered that they had cleared FBD machines only. He pleaded that Collector’s order notwithstanding the fact that the appellants plea regarding FBDs being not goods was not dealt with in his order, was maintainable in law. He drew our attention to the contracts of appellants with their buyers (a number of these have been filed). He referred to the Purchase Order DTD/HP/83/4504 dated 11.6.1982 for Balanoor Tea Estate for B&B Fluid Bed Tea Drier Model BB:20:L:4B and instruction I of the said order requiring inspection. The same is reproduced for convenience of reference :
“(i) Despatch of machinery ordered for should hot be effected till receipt of specific instruction in that behalf from the “Tea Board” after inspection of the machinery, failing which no claim for payment will be entertained. Despatch of machinery without approval of Tea Board in writing may entail concellation of the order.”
He pleaded that since the inspection of the machine was a requirement of sale, this showed that whole FBD was to be assembled for the purpose of test before it could be despatched. He stated that the appellants plea that the machines could not be tested as they did not have requisite motors of necessary horse power in their premises was not correct as the Karnataka State Electricity Board has certified that they have power of more than 50 HP installed in their units and therefore necessary test could be carried out. He stated that the plea of the appellants that plenum chamber had to be recessed and that FBD come into existence at customer’s site was not correct because according to the appellants own quotation given to the Wynad Estates & Industries Pvt. Ltd. in response to enquiry PI3, for Model BB 20 – L:38 Series FBD 1 at serial No. 10 of the quotation there is a mention of plenum chamber wherein it has been written the plenum chamber was capable of being recessed below floor level if desired. He stated there was no evidence on record that in respect of any of the FBD sold by the appellants, the plenum chamber was so designed that it could be only recessed. He stated, on the other hand, the same plenum chamber which Was manufactured could be placed underground at the option of the buyer but this did not prevent FBD from coming into existence for test purposes before despatch. He cited the statement of Shri R. Ramani, the proprietor of M/s. Confabs in support of his plea that goods were tested at the factory of Confabs. The statement of Shri Vasanth working as Manager is as under :
“After completing the manufacturing process at our end the components will be sent to M/s. Confabs for fabrication of steel metals. After the fabrication the complete drier will be run on trial run. Sometimes the customer may inspect the working of the drier. Thereafter the fabricated machine will be dismantled and packed for despatch to customer’s site and it will be erected at the site.”
He drew our attention to the appellants quotations for supply of various machines. He stated that these quotations in respect of FBDs are more or less uniform so far as the form is concerned and stated in all these cases while a separate charge has been raised for erection/installation/ commissioning (supervision only), the buyers are supposed to provide at their own cost following items :
1. Plenum chamber floor civil works
2. Heater civil works
3. All electrical wiring
4. Labour for erection/installation
5. Board/lodging/transport for our installation personnel
6. Ducting from Heater Nose Bag to Drier Hot Air Blower
He pointed out that quotations in the case of Kadamane Estates Company, an element of excise duty chargeable has been shown. He further pointed out. that most of the machines sold by the appellants were through the Tea Board and one of the conditions for delivery was the inspection of the machines before their despatch. He drew our attention to the service certificates of inspection issued in respect of Kadmane Estates Company. This certificate is as under :
“Inspection Certificate No. 13 –
Reference No. DTD/HP/HP/82/82/4450/5196 dated 21/10.1982
A/C Kadamane Estates Company
[full description of the Machine(s)]
B&B Fluid Bed Tea Drier – Model BB 20:L:48
Series FBD 1) One
Certified that I/we have inspected the machines No.(s) Serial No. D/DB/02 on 1.11.1982 and found it/them in good condition and is/are according to specifications in a deliverable stage. The machine(s) is/are acceptable to us.
Hirer Supplier Field Advisory
Right of inspection Bedi & Bedi Officer
waived by letter 11/13 First Tea Board
dated 18.10.1982 Main Road, Coonoor*"
Jayamanal
Extension
Bangalore -
560046
He stated that the appellants on a query from the Bench have admitted that when the goods were despatched from M/s. Confabs to the buyers there was no further addition required to be made for re-assembly of the FBD at site. He stated that FBD came into existence at the premises of M/s. Confabs and it was inspected and only after the FBD as such was approved, then only the despatch was made. He stated the various documents cited and on record show that the appellants before supplying machines had been addressing Tea Board for inspection of the machines which were kept ready for pre-inspection before despatch of the same. As for illustration he cited letter dated 2.10.1982. The same is reproduced for convenience of reference :-
“Thank you for your purchase order mentioned above for the supply of an Fluid Bed Drier to Kadamane Estates. Accordingly we are pleased to confirm our order acceptence. We would advise that the subject machine is ready for inspection and would request you to complete inspection formalities at the earliest.”
In this background he pleaded that the citation of Otis Elevator case referred to (supra) was not relevant to the facts of this case as FBD is an integrated unit came into existence before despatch. He cited the case of M/s. Ajit India Pvt. Ltd. v. CCE: Bombay/ Madras 1984 ECR 2133 in support of the plea that the duty on the FBD should be charged. He stated FBD was bought and sold as such cited the case of Secretary, Revenue v. W.S. Insulators of India : 1983 ELT 2184 (Mad). He stated that even if the machine was required to be fixed to some .structure on site, civil works or otherwise, the FBDs were still chargeable to duty and cited the case of Madan Cold Storage Kanpur v. Collector of Customs (para 7) : 1984 ECR 1889 (Cegat). He stated that the value of the bought out items which were utilised for manufacture of FBD were required to be added for the purpose of assessment and cited the case of Daya Ram Metal Works v. Collector of Central Excise, Baroda 1985 ECR 1383 (Cegat). He also pointed out that as per terms of contract between M/s. Bedi & Bedi and their contractors, M/s. Confabs, the despatch of the goods was not to be done by M/s. Confabs to the various buyers till the same had been inspected by them.
7. Shri Haksar in his reply stated that there was no evidence that in any case the appellants had charged excise duty. He fairly conceded that for the purpose of assembly at site nothing further was added to what was despatched from the factory of M/s. Confabs. He stated that no doubt the invoice was for FBD complete but this did not determine the character of the goods at the time of despatch. He pleaded that the goods were to be assessed in the form in which these were despatched and the form in which these came into existence at the premises of Confabs. He stated that at the premises of Confabs no FBD took shape and despatches were only of components of FBDs and that the collection of components there did not mean that the FBD had been manufactured the appellants. He also pleaded that the excise duty was Sough to be charged on the invoice value which contained elements other than the value of the machines as seen from the invoices and he stated the installation charges etc. mentioned therein in terms of Section 4 to be excluded.
8. The points that arise for our consideration are :
(i) where the FBDs came into existence;
(ii) whether these are goods for the purpose of levy of Central Excise levy;
(iii) what should be the assessable value for the purpose of assessment.
9. We observe that no machines in the assembled condition were seized or found as such at the premises of the appellants or that of M/s. Confabs. The appellants took the plea before the lower authority that FBD machines did not come into existence as excisable goods at their hands or even at the site of the customers where these were installed. This plea goes to the very root of the matter and the lower authority for reasons best known to it has chosen to ignore this plea and has not given any findings in this regard. Proper course for the lower authority was to make necessary enquiries with regard to the plea taken to ascertain the factual position as to when and where and in what form the FBDs came into existence before adjudicating the case. The lower authority also did not make any enquiry with the buyers or the officers of the Tea Board to ascertain as to the nature of the inspection of the machines and the form in which the machines existed at the time of inspection. Even before us neither of the two sides has produced any evidence in this regard from the concerned people by way of affidavit for proper appreciation of the issues before us. In as much as the information regarding the form in which the machinery came into existence before it was sent was not available in the records before us, we asked for the catalogue and other relevant information from the appellants and the respondents and additional documents were allowed to be filed. We observe that the appellants sell drying machines and the heat source for the same is provided at site. For the purpose of testing the machines, therefore testing and inspection whatever was carried out would have, been in relation to the functioning of the machines for the purpose of drying the tea leaves.
10. The points that we have therefore to take into consideration for arriving at our conclusions are :
(i) How the machine was bought and sold,
(ii) the conditions of sale;
(iii) whether the machine came into existence as a unit for the purpose of testing.
We find from the documents filed before us that the appellants offered for sale specified models of FBDs. The catalogue produced by the appellants also shows that they manufacture different models of these goods. What is offered for sale is described as Fluid Bed Tea Drier. The models referred in the catalogue produced are 20:L:3B 20L:4B. There may be some other models also that the appellants may have been manufacturing but there is not plea before us that the general configuration of machinery offered is in any way different in design from what has been shown in the catalogue produced. The drier shown in the catalogue is a single unit with various parts indicated.
11. It is seen from the documents on record that M/s. Tamilnadu Tea Plantation Corporation Limited placed order for the purchase of the FBDs in the following fashion :-
Specification of the Fluid Bed Drier (as in firms letter B&B/TNPC/ FBD 82A, dated 8.10.1982 - Rs. 4,94,814.00
One No. B&B Fluid Bed Tea Drier Output 450 to 500 Kgs. made
Mode 1 BB 24:L:4B Series : FBD 1 tea per hour on South Indian CTC
manufacture at an inlet Tem-
perature of 2600 F.
Consisting of :
1) Double-Walled and fully glass wool (SPINTEX) insulated air and drying chamber 24' x 4'.
2) Double-Walled 'Spintex' insulated PLENUM chamber, beneath ari/pressure shamber capable of being recessed below ground level if so desired.
3) Aerodynamic blade pitch INDUCTION HOT AIR FAN capable of delivering 35000 cfm. of air at upto 3″ SWG, complete with 40 HP 1440 PM motor INDULL GUIDE VANE ASSEMBLY, with cooling DISC, pulleys, V Belts and guide rails.
4) Complete independently driven Gold Feed Attachment with gear box and 1 HP 1440 RPM motor.
5) Totally enclosed Dust Proof driving machanisms with gear box and 1 HP 1440 RMM motor drive Blow Hole Cumpressor.
6) Dust Proof POWER CONSOLE having all Starters, power mains, Circuit fuses, voltage indicators and pilot lights.
7) Integrated Drier operation Console having inlet and exhaust temperature DIGITAL READ OUT INDICATORS, with provision for NO/NC OUTPUT & PCD Link-up, light indicators for Feed Conveyor, blow hole Superssor, Hot Air fan, Cooling chamber Fan and Dust Expeller Fan.
8) Complete overhead ducting in 2 sections, the first two chambers being exhausted directly into the atmosphere while in the Balance 4 chambers the air is passed through a chamber type Dust EXTRACTION SYSTEM.
9) The DRIER is provided with a chamber directly connected to the OVERHEAD system includes a dust expeller fan Vane control with flap valves to facilitate the extraction of fibre and dust from the exhaust air.
10) Cooling chamber complete with Backward Curved Elade suction Fan directly coupled to 1440 RPM motor and equipped with grid plate to cool drier mouth teas before discharge.
11) Dial type Thermograph Recorder with suitable lengths of capillary Tubing to record both inlet and exhaust temperature.
N.B. The above equipment is supplied with all required electric motors, starters and switches and complete in all respects.
1) Price ex-works Bangalore inclusive of
all levies and Excise duty Rs. 4,48,200.00
2) CST at 4% against 'C' form 17,928.00
3) Packing and forwarding 12,500.00
4) Insurance at 1% 4,786.00
5) Freight octroi and estate delivery 5,400.00
6) Erection 6,000.00
Total for one complete FBD. Rs. 4,94,814.00
Heater SHOLA (Super) indirect fired cellular
Multitubular Solid Fuel Air Heater Rs. 2,24,850.00
heater flue gas disposal System (Ad Fan)
Comprising of the following :
(a) 25" Dia impeller with 16" wide
casing with heat slinger Rs. 19,911.00
(b) Inletbox, damper, outlet duct to
ground level
Rs. 7,39,575.00
(c) Drive arrangement consisting of
motor stand, pulleys, V. Belts etc,
(d) Suitable T.E.F.C. Motor & Starter
Total :
2. A firm order is placed with you for the supply and erection of One Fluid Bed Drier combined with Heater and flue gas disposal system according to the above specifications and as per the following terms.
Delivery: - Delivery of the machines should be completed before 31.3.1983 and erection of the same before 30.4.1983.
Payment : 90% payment will be made on completion of erection and the balance 10% after satisfactory commissioning and trial runs.
Insurance : Insurance of the machines should be arranged by you as per the terms of your tender.
Installation :- Erection of the machines should be completed BEFORE 30.4.1983 as per the conditions of the tender notice. Intimation will be set to you on receipt of machines, for deputing your erectors.
11 A. The above is representative of the form in which the orders were placed by various buyers. The specimen of the invoice raised by the appellants from the record is also reproduced below :-
"TO AND SUPPLY OF ;
1 No. B&B Fluid Bed Tea Drier, Model BB 20: L:38 Series FBD 1 with accessories enumerated in your purchase order cited above.
Machine No. Serial No. 28/83 4,47,000.00
Less: 90% claimed vide our Invoice No. 0762
dated 11.5.1973 4,02,300.00
Balance 10% payable : 44,700.00
From the evidence on record we therefore find that the appellant have been offering the FBD designating them as machines. Buyers also consider them as complete machines being sold to them.
12. We observe that an important aspect of the sale of the machine is that these have to be inspected before these are despatched. As it is before the appellants can fix the machines at site functionally these will have to be tested.
13. It is seen from the catalogue that tea leaves are fed by hopper from one end and carried on to a conveyor through various stages of drying in the inner chambers and the dried tea leaves emerge at the other end. Various arrangements for the movement of the tea leaves, drying mechanism required therefor and arrangement for the flow of air, are all built into the single unit in the shell fabricated by Confabs. From what appears in the diagram there has to be high degree of integration between various components which go into this unit and the functioning of the different sub assemblies has to be coordinated to a high degree of precision for a unit to function efficiently. From the catalogues produced it is seen certain amount of electric connection have to be laid along the length of the machine and the mechanism for adjustment of the spread of the tea and for controlling flow are also built in. For ensuring that the drying is done just right without any damage to the leaves, the temperature gradient to be maintained alongwith the level of heat to be provided, again all requires a degree of fine tuning. The appellants are making specialised equipment and they have the desired expertise in this regard available at Bangalore. It is therefore, a normal thing in a case like this that before the unit is installed the necessary parameters required for drying unit is installed the necessary parameters required for drying tea are all ^checked up, in a whole. The inspection of the goods being a pre-requiisite before their sale and even in terms of the agreement between confabs and B&B the machine are required to be inspected before these are sent at the cost of M/s. B&B. It has to be held that the machines as inspected as per the requirements would have to be in a form that all the equipment which functionally participates in the drying of the leaves right from the first stage to the last are tested in an integrated term. It is only then that any defect in the operation of the machine would come to light. It is, therefore, to be held that FBD machines in the form in which it is shown in the catalogue do come into existence before it is sent in CKD form to the buyers’ site.
14. The appellants have pleaded that notwithstanding the fact that they offered complete machines, these came into existence as machines only at site as immovable goods as plenum chamber had to be recessed underground for the purpose of installation of one machinery. Their plea is that FBD machines for the purpose of levy of excise duty did not come into existence at the time of despatch of the machines to the customers. They have maintained that in case of all the machines which they had sold the plenum chamber had to be recessed underground and therefore there could have been no trial run of the machine at the premises of confabs before despatch of the goods and it was carried out only at the site. We observe that the appellants had made this plea before the Collector and Collector had not given any findings in this regard. The appellants have not produced any evidence before us that they had sold any FBD’s other than the standard models. In respect of the standard models sold or offered for sale we find that the plenum chambers of the machine is capable of being recessed underground but there is indications that it is so designed that it has to be recessed and unless this was done, the machine won’t function.
15. In view of the above discussion, we hold that standard models of the FBD machines as shown in the catalogue came into existence at the hands of the appellants before clearance of the same from the factory of the confabs to the customers. No facts have been placed before us as to whether any machines were specially designed with plenum chambers having to be recessed underground. Collector did not examine this aspect. In case there are any such machines which were sold by the appellants, this aspect will have to be examined by the Collector with reference to the facts of these machines. We observe, that it is possible that the electric motor or a blower for operational reasons may not be mounted on the shell of the machine. If any such electric motor is fitted separately to the ground or fixed otherwise than on the machines, the FBDs unit will continue to retrain the character of the machines like any other machines without the prime mover. Regarding valuation of the machine, inasmuch as we have held that the standard models of the machine come into existence before clearance of the same, the question of excluding the value of bought out duty paid term does not arise as the value of the machines as a whole has to be taken into reckoning for excise purposes. However, in case the bought out motor etc. is not fitted onto the machine, the cost of the same should be deleted from the sale price for arriving at the assessable value. The commissioning charges and any other post clearance charges will have to be excluded under the law. As mentioned earlier, since the facts in relation to all the machines cleared have not been placed before us and some verifications regarding the nature of the machine cleared has to be done, we find it a fit case for remand. We, therefore, direct the lower authority to adjudicate the case de-novo in the light of our findings above after giving the appellants an opportunity of hearing and to produce evidence. The appeal is therefore, allowed by remand of the above terms.