ORDER
P.K. Kapoor, Member (T)
1. The respondents entered into contracts with different parties for the supply of vibrating feeders which are designed, erected and commissioned by them at the site. The electric motors required for vibrating feeders and certain mandatory spares supplied along with the vibrating feeders are bought by the respondents from other manufacturers. They received advance on account of part of the contracted price of the vibrating feeders. By the impugned order the Collector (Appeals) held that the cost of bought out motor and mandatory spares and also the interest on the advance payment received by the respondents could not be treated as part of the assessable value of the vibrating feeders. The Collector (Appeals) also held that erection and commissioning charges also could not be deemed as part of the vibrating feeders. Being aggrieved by the order passed by the Collector (Appeals) the Department has filed the present appeal.
2. On behalf of the appellants Shri B.K. Singh, Ld. SDR stated that electric motor being an integral part of the vibrating feeder erected and supplied by the respondents, its price was includible in the assessable value of the vibrating feeder even when it is a bought out item. He contended that the Collector (Appeals) had erred in holding that the price of bought out electric motor was not includible in the assessable value of the feeder. He submitted that the Collector (Appeals) had also erred in holding that the interest earned by the respondents on the advance on account of a part of the contracted price received by the respondents from the customer could also not be treated as forming a part of the assessable value of the feeders. He stated that he did not want to make any submissions in support of the point in the memorandum of appeal that advance received by the respondents on account of erection and commissioning charges should have also been held as forming a part of the value of the vibrators. He argued that erection and commissioning charges would also form a part of the assessable value since all costs incurred upto the stage of completion of erection of the machine or equipment at the site would form a part of the value of the goods. In support of his contentions he cited the following judgments :-
(i) O.R.G. Systems v. CCE, Vadodara -1994 (73) E.L.T. 450.
(ii) CCE, Bangalore v. Sunray Computers (P) Ltd. -1988 (33) E.L.T. 787.
(iii) Britannia Industries Ltd. v. Union of India – 1989 (44) ELT 630.
(iv) Raymond Woollen Mills Ltd. v. Union of India -1992 (57) E.L.T. 396.
3. On behalf of the respondents Shri N. Mookherjee, Ld. Advocate submitted that the respondents were procuring duty paid electric motors from other manufacturers and even though the motor in question was coupled with the vibrator for imparting power, it was not an integral part of the vibrator. He contended that under these circumstances the price of such duty paid bought out motor was correctly held as not includible in the assessable value of the vibrator. He added that the Collector (Appeals) had also correctly held that interest on advance amount paid by the buyer did not form a part of the assessable value of the feeder. He contended that the interest on advance received by the respondents could not form a part of the assessable value only since the sale price of the goods had not been influenced by such advance. He submitted that erection, testing and commissioning charges being in the nature of post-manufacture expenses could also not be deemed as forming a part of the assessable value of the vibrator. In support of his contentions he cited the following case law :-
(i) Diamond Clock Mfg. Co. v. C.C.E., Pune -1988 (34) E.L.T. 662
(ii) Webel Telecommunications (I) Ltd. v. C.C.E., Calcutta -1987 (32) E.L.T. 453
(iii) Multimetals Ltd. v. Assistant Collector Central Excise -1992 (57) E.L.T. 211 (Mad.)
4. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the following are the only points arising for consideration in this case :-
(a) Whether the price of the bought electric motor used by the respondents for assembly and erection of vibrating feeder at the customers’ site was includible in the assessable value of the feeders.
(b) Whether the interest earned by the suppliers on the advance received from the customers could be deemed as forming a part of the value of the goods.
(c) Whether amount received by the respondents on account of erection and commissioning charges would form a part of the assessable value of the machine/equipment.
5. It is seen that the respondents entered into contract with different parties for the design, manufacture, supply, erection and commissioning of vibrating feeders. The vibrating feeders are erected and commissioned by the respondents’ engineers at the customer’s premises. About 30% contracted price is paid by the customer at the time of placing of the order and the balance in parts at the time of delivery and after satisfactory erection and commissioning. Since, the respondents do not manufacture electric motors required for the operation of the vibrators, they procure them as duty paid items from other manufacturers. The respondents’ case is that the motor in question being duty paid bought out item and used for running the vibrating feeders without being incorporated in the machine as an integral part, its value would not be includible in the assessable value of the vibrating feeder. In this regard we find from one of the purchase orders available in the records of the case that vibrating feeders supplied by the respondents require a high powered sophisticated electric motor. Since, the relevant drawings/catalogues have not been filed along with the records of the case, it is not possible for us to determine whether the duty paid bought out electric motor was meant for mounting as an integral part of the vibrating feeder or it was to be fitted separately on the ground. In the case of Bedi and Bedi (Pvt.) Ltd. v. Collector of Central Excise, Bangalore, reported in 1987 (32) E.L.T. 169 the questions whether the price of the bought out electric motor and erection and commissioning charges would form a. part of the assessable value of ‘Fluid Bed Tea Drier Machine’ came up for examination before the Tribunal. The Tribunal held that the value of bought out duty paid item has to be excluded since value of machine as a whole has to be reckoned for excise purposes. If bought out motor is not fitted on the machine, the cost of the same has to be deleted from the assessable value. It was also held that commissioning charges and other post-manufacturing charges are to be excluded from the assessable value. The Tribunal decided to remand the matter to the lower authority for deciding the matter afresh after ascertaining whether the bought out motor was fitted on the machine or it was used separately by fitting it on the ground. Para 15 of the said decision being relevant is reproduced below :-
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6. We find that on the question whether notional interest on deposits received by manufacturers of machines from customers could be deemed as a part of the assessable value of the machine by the Madras High Court in the case of Lakshmi Machine Works Ltd. v. Union of India, reported in 1992 (57) E.L.T. 211 has held that such interest would be includible in the assessable value only if the department is able to establish that such additional consideration has a nexus to the sale price. Paras 17 and 18 of the said judgment are reproduced below :-
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7. It is seen that in the case of Transformers & Electricals Kerala Ltd. v. Collector of Central Excise, reported in 1993 (63) E.L.T. 715, the question whether the interest free advance collected by the manufacturer from the customers can be deemed as a part of the assessable value of the goods came for consideration before the Tribunal. The Tribunal while remanding the matter to the lower authorities, directed them to examine whether there was any nexus between advance paid and the sale price.
8. In view of the foregoing we set aside the impugned order and remand the matter to the Assistant Collector for re-adjudication in accordance with law. He is directed to keep in view the observations in this order and grant a personal hearing to the respondents before deciding the matter.
9. The appeal is, therefore, allowed by way of remand.
