ORDER
Lajja Ram, Member (T)
1. In this appeal filed by M/s. Gehring India, the matter relates to the valuation of the Gehring Honing Machine re-made for Honing Cylinder Blocks and for Honing Brake Drums. Earlier the machine in question was usable for Honing Brake Drums only. After conversion it became usable for Honing both the brake drums and the cylinder blocks. The machine had been imported in January, 1988 by M/s. Hindustan Motors, and its assessable value was Rs. 25,33,356/-. With the customs duty of Rs. 22,80,020.40, its landed cost came to Rs. 48,13,376.40. The machine was brought in the premises of M/s. Gehring India under Rule 173H of the Central Excise Rules, 1944 (hereinafter referred to as the ‘Rules’)- The conversion cost was of Rs. 44,13,200/-. Further a sum of Rs.4 lakhs was charged as service charges. In the show cause notice dated 6-3-1992, it was alleged that the conversion of the Honing Machine by the appellants amounted to the manufacture of a new machine and that the matter was not covered by the provisions of Rule 173H of the Rules. It was proposed that as against the declared value of Rs. 44,13,200/- (conversion charges), the assessable value be determined at Rs. 96,26,576.40/- (landed cost of Rs. 48,13,376.40 + conversion charges of Rs. 44,13,200 + service charges of Rs.4 lakhs). The Asstt. Collector of Central Excise, Kanpur, who adjudicated the matter held that as a result of conversion, new goods had been manufactured and that the landed cost of the original machine, material cost, service charges and packing charges were to be taken together to arrive at the assessable value. On appeal, the Collector of Central Excise (Appeals), Allahabad agreed with the adjudicating authority that the processes applied by the appellants with regard to the machine brought by them in their factory were the processes of manufacture. With regard to valuation, however, he was of the view that the original cost of the machine as a whole was not includible in the assessable value of the new machine for the purposes of assessment of duty and that the duty should have been demanded on the depreciated value of the machine + conversion charges + services charges. The matter was remanded to the Asstt. Collector of Central Excise for re-determination of the assessable value of the machine after ascertaining its depreciated value in the light of his observations.
2. The matter was heard on 29-10-1998 when Shri J. S. Sinha, Advocate submitted that the machine in question was originally imported in the year 1988 and after use for about three years, had come to the appellants for modification under the provisions of Rule 173H of the Rules. The Collector of Central Excise, Kanpur had accorded permission under Rule 173H of the Rules for bringing the machine in question in the factory of the appellants. It was his submission that the central excise duty could be demanded only on the cost of the machine. The customs duty paid on the import should be excluded; service charges should also be excluded. The appellate authority had already agreed that the depreciation was allowable. He referred to the Tribunal’s decision in the case of Refco Icematic Co. v. Collector of Central Excise, New Delhi – 1999 (105) E.L.T. 247 (Tribunal) wherein it had been held that the assessable value had to be arrived at after deducting the duty element even in the case of fully exempted goods.
3. In reply, Shri K. Shiv Kumar, JDR submitted that as a result of processes to which the machine as brought into the factory was subjected, there had been, substantial changes in the machine. It was not the case of repair. In fact a new machine had come into existence. He pleaded that the cost of the old machine + conversion cost + service charges should form the basis for determination of the assessable value.
4. We have carefully considered the matter. The appellants, M/s. Gehring India were the manufacturers of Precision Honing Machines and had a technical-cum-financial collaboration with M/s. Maschinen Fabrik Gehring Gmbh and CO KG, Germany (referred to as the appellants’ collaborators). M/s. Hindustan Motors Ltd. had imported a Honing Machine from the appellants’ collaborators. The machine so imported was for honing brake drums. It was usable for honing cylinder blocks. For making the machine suitable for honing cylinder blocks also, a proposal was made by the appellants in consultation with their collaborators to re-make the old honing machine to make it suitable for honing cylinder blocks also. The appellants proposed to pay central excise duty on the various parts to be added. They filed a price list and sought approval for the price of Rs. 44,13,200/-. The assessable value of the machine when imported was of Rs. 25,33,356/- and with customs duty of Rs. 22,80,020.40/-, the landed cost (including customs duty thereon) was Rs. 48,13,376.40. In the show cause notice, it had been proposed that instead of Rs. 44,13,200/-, the assessable value was to be calculated with landed cost of machine + conversion charges + service charges equivalent to Rs. 48,13,376.40 + Rs. 44,13,200 + Rs. 4,00,000/- total Rs. 96,26,576.40. The appellants had admitted that central excise duty was payable by them but had contested the value on which the duty was leviable.
5. The appellants had sought permission to bring into their factory the machine which had earlier been imported by their customers, on the basis of the facts as given in their application. The permission was granted by the Collector of Central Excise with reference to the facts that were given in the application of the appellants. Rule 173H of the Rules provided for bringing into the factory the excisable goods if goods needed to be re-made, refined, reconditioned, etc., provided the process to which the goods received were subjected did not amount to the process of manufacture. Rule 173H as substituted by Notification No. 34/90-C.E. (N.T.), dated 11-9-1990 read as under :-
“173H. Retention in, or bringing into, a factory or warehouse, of duty paid goods.
(1) Except as hereinafter provided, no excisable goods or parts thereof on which duty has been paid shall be brought into, or retained in, a factory or a warehouse.
(2) An assessee may, subject to such conditions as may be specified by the Collector, retain in, or bring into, his factory or warehouse, excisable goods or parts thereof, accompanied by duty paying documents, if such goods or parts thereof, –
(a) are required for use in the manufacture of other goods in the factory; or
(b) are required in the factory for construction; repairs or for use as fittings or equipment or for any other purpose for which such goods are normally consumed; or
(c) need to be re-made, refined, reconditioned, repaired or subjected to any similar process in the factory; or
(d) cannot be transported due to circumstances beyond the assessee’s control, such as, the suspension of booking on railways, non-availability of railway wagons or the breakdown of carriers; or
(e) are required for test or for study of designs or methods of construction :
Provided that where such goods or parts thereof are required to be brought into the factory or warehouse of an assessee for any of the purposes specified in Clause (c) such goods or parts thereof shall be brought into such factory or warehouse within a period of one year from the date of their initial removal from the factory or warehouse or within the period of warranty or guarantee provided in respect of such goods by the assessee, whichever is more :
Provided further that the Collector may, on a representation being made to him in this regard, if he is of opinion that having regard to the circumstances of the case, it is necessary so to do, by order extend the period specified in the first proviso to such period as he may consider necessary :
Provided also that in the case of goods or parts thereof which are not accompanied by duty paying documents, if the Collector is satisfied that the identity of the goods can be established by other collateral evidence he may by order and subject to such conditions as he may impose, relax the requirement of the production of duty paying documents.
(3) The goods or parts thereof retained in, or brought into, a factory or warehouse in accordance with the provisions of Sub-rule (2) may, if not subjected to any process amounting to manufacture, be removed from the factory or warehouse without payment of duty subject to such conditions as may be specified by the Collector.”
6. On a perusal and on harmonious construction of the clauses of the above rule, it is clear that to avail of the benefit of the said rule, the process of remaking etc. should be such that it falls short of manufacture. A contention to the contrary ignores Clause (3) of the said rule. Whether a process employed amounted to the process of manufacture had to be determined on the basis of all the relevant facts and circumstances in a particular case. The main consideration was whether the goods were cleared in the same form in which they were brought in the factory. If the goods were not in the same form when cleared in which they were brought in the factory, then it was not re-making of the goods for the purposes of Rule 173H of the Rules, but will amount to the process of manufacture. Earlier when the Rule 173H had been amended on 26-6-1976, simultaneously by their letter dated 2-7-1976, the Government clarified as under :-
“It may however, be noted that re-making, refining, re-conditioning or subjecting the goods to any other similar process will not amount to manufacture if the goods are subsequently cleared after rectification of defect in the same form in which they were retained or brought into the factory. (Refer para-6 of the Tribunal’s decision in the case of Shriram Refrigeration Industries Ltd. v. C.C.E. – 1986 (26) E.L.T. 353 (Tribunal).
7. In the present case, the goods had not been cleared in the same form in which they were brought into the factory. The goods received and the goods cleared were not in the same form. The machine capacity and capability had changed. It was made usable for honing cylinder blocks for which it was not usable before. From the purchase job order dated 13-11-1999 (sic) placed by M/s. Hindustan Motors, the following jobs were required to be undertaken :
(1) The spindle speed of the original honing machine was to be changed to 60-300 RPM.
(2) A new longitudinal table has been added.
(3) The base of the machine has been changed and new cylinder block adaption fixture has been fabricated after welding guiding rails etc. so that a new article “cylinder block” may be honed.
8. We thus, consider that the processes undertaken by the appellants amounted to the processes of manufacture and it has been so rightly held by the Collector of Central Excise (Appeals), Allahabad.
9. As regards the valuation, the Asstt. Collector of Central Excise, Kanpur, had determined the assessable value of the machine at Rs.96,26,576.40 with the following components :-
(i)Landed cost of the machine Rs. 48,13,376.40
(ii) Material expenses in modification Rs. 43,68,200.00
(iii)Service charges Rs. 4,00,000.00
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Total =Rs.96,26,576.40
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The Collector of Central Excise (Appeals) with regard to the cost and components relating to the landed cost observed that "it would not be just and proper to include its original cost in the assessable value for the purposes of assessment to duty".
10. He had held that the depreciation value of the machine should form part of the value of the new machine. In the depreciation value of the machine, the material cost of the components used and the service charges were to be included to arrive at the value of the new machine for the purposes of the assessment.
11. We find that although the adjudicating authority had referred to the packing charges of Rs. 50,000/- but while arriving at the assessable value of Rs. 96,26,576/- only the landed cost of the machine, material expenses in modification and the service charges had been taken into account. The packing charges had not been added in the value assessed. To that extent, the remand order had gone beyond the Order-in-Original against the appellants, on appeal by the assessee with no cross appeal by the Revenue. We modify the order to the extent that the packing charges of Rs. 50,000/- were not to be taken into account.
12. According to the Collector of Central Excise (Appeals), the depre-riation value of the machine as brought into the factory of the appelants + material expenses in modification and the service charges, should form the basis for determination of the assessable value of the machine. The matter had been remanded back to the jurisdictional Asstt. Collector of Central Excise (now Asstt. Commissioner of Central Excise) for this purpose. We have already discussed about the packing charges which had not been taken into account by the adjudicating authority while arriving at the assessable value.
13. The appellants had referred to the Tribunal’s decision in the case of Refco hematic Co. v. C.C.E., New Delhi -1999 (105) E.L.T. 247 (Tribunal). The Tribunal had observed that the assessable value was to be arrived at after deducting the duty element even in the case of full exempted goods. The appellate authority in the case before us had rejected the view of the adjudicating authority that the landed cost of the old machine was to be taken into account in full while adding thereto the material expenses in modification and the service charges. He had held that in place of the full landed cost the depreciation value of the machine should be taken into account to which the material expenses in modification and the service charges were to be added. We, therefore, consider that the case law referred to by the appellants is not applicable to the facts in the present case.
14. In view of the facts and circumstances of the case, except to the extent of the packing charges, we do not find any ground to interfere with the view taken by the ld. Collector of Central Excise (Appeals), Allahabad. Accordingly, with the above observations with regard to the packing charges, the appeal is otherwise rejected. Ordered accordingly.