ORDER
P.K. Kapoor, Member (T)
1. The appellants are engaged in the manufacture of transmission line towers. They enter into contract with various electricity boards for the supply of such towers. Such contracts invariably have a clause for the manufacture and testing of a proto-type at a test bed with reference to various specifications. The manufacturing of the towers covered by any contract is undertaken only after successful completion of such tests. The value of the contract is inclusive of the material, required for the proto-type and the charges for testing outside the appellants’ factory which are required to be paid for the use of test beds belonging to certain electricity boards. On 5-9-1980 the Superintendent of Central Excise issued a show cause notice to the appellants demanding central excise duty amounting to Rs. 32,330-00 on testing charges recovered for testing the proto-type towers. Three other similar show cause notices dated 18/20-11-1980, 31-8-1981 and 24-3-1982 seeking the recovery of Rs. 2400/-, Rs. 7040, and Rs. 5200/- respectively answerable to the Assistant Collector were also issued. The show cause notices alleged that the test charges recovered from the customers constituted a part of the assessable value of the transmission line towers covered by the relative contracts. It was further alleged that the appellants failed to indicate the testing charges in the invoices prepared for the supply of the goods and they had failed to furnish to the Department the separate invoices prepared by them in respect of the testing charges. In their reply to the show cause notice dated 25-10-1980 the appellants claimed that the goods manufactured by them were not required to be tested since only the prototype ungalvanised towers were tested after clearance from the factory and the test charges recovered on account of the cost of the material and test fee did not represent advance payment towards the cost of the actual goods viz. Transmission Line Towers. On the ground that the testing undertaken by them was neither a part of the manufacturing activity nor could it be deemed as an activity incidental or ancillary to the manufacture they claimed that no charges were recoverable from them. However, in the impugned order dated 26-11-1982 the Collector held that the Proto-type Transmission Line Towers cleared by the appellants from their factory in knocked-down condition were dutiable goods. He also held that the test charges constituted a part of the assessable value of the Transmission Line Towers, since testing of proto-type towers was essentially linked with the development of the product and as such it could not be treated as separate from the manufacture of the goods under contract. The appellants’ contention that the demands were barred by limitation was also rejected by the Collector.
2. On behalf of the appellants we heard learned Advocate Shri H.S. Joshi. He stated that proto-type towers cannot be treated as ‘goods’ inasmuch as they cannot be bought and sold in the market. He added that the components sent for testing are assembled at the test bed by erecting them on earth for subjecting to them to pressure and other tests in accordance with the ‘Indian Standard Code of Practice for Use of Structural Steel in overhead Transmission Line Towers’. He pointed out that the components sent from the factory for the erection of proto-type tower at the test bed site are non-galvanised and they do not enter the market since they become useless after the test. Shri Joshi reiterated his stand that such proto-type towers not being marketable cannot be deemed as ‘goods’ chargeable to duty. He contended that the Collector’s finding that proto-type towers cleared in completely knocked-down condition to facilitate transportation constitute ‘goods’ chargeable to duty is erroneous since the items cleared are merely angles and the proto-type tower constructed at the site by assembling such angles is fixed to the earth. In regard to the Collector’s finding that the test charges form a part of the assessable value of the transmission line tower, Shri Joshi contended that testing of the proto-type towers being a process totally unconnected with the actual manufacturing of the transmission towers covered by the contract the charges incurred on such testing cannot be treated as forming a part of the assessable value of the Transmission Towers fabricated by the appellants in terms of the contract. Shri Joshi further contended that the demands for the recovery of duty were time-barred since they were not issued within the period of 6 months stipulated in Rule 10 of the Central Excise Rules, 1944. He denied that there was any suppression of facts by the appellants. In this regard he pointed out that the goods in question were removed from the factory under despatch challans and the contracts as well as the bills mentioning these charges were available for scrutiny by Central Excise Officers and Audit parties which visited the factory from time to time. He claimed that the appellants had acted under the bonafide belief that the proto-type towers were not chargeable to duty, and not with the intent of evading any duty. In support of the points made, by him, he placed reliance on the following case law: –
(i) Hyderabad Race Club v. CCE, Hyderabad -1986 (23) ELT 274 (Tri.)
(ii) CCE, Baroda v. Dodsal Pvt. Ltd. – 1987 (28) ELT 352 (Tri.)
(iii) SAE (India) Ltd. v. CCE -1988 (36) ELT 613 (Tri. )
3. On behalf of the Department the learned JDR Shri M.S. Arora argued that there was no doubt about the durability of the Transmission Line Towers which are fabricated by the appellants in terms of the contracts entered into with various electricity boards, since they have been regularly paying duty on these products. In regard to the question of dutiability of the proto-type towers, Shri Arora referred to the Collector’s finding that complete towers are dismantled for facilitating transport to the test site and such towers are similar to the towers which are manufactured for the execution of the contract. Shri Arora contended that even though at the time of clearance from the factory the proto-type towers are in completely knocked down condition and not galvanised, they have to be deemed as having acquired the essential characteristics of finished towers. He stated that the decision in the case of Collector of Central Excise, Baroda v. Dodsal Pvt. Ltd. does not help the appellants since in that case the goods cleared from the factory were only angles and not complete towers in knocked-down condition. Shri Arora also referred to the decision in the case of Richardson and Cruddas (1972) Ltd. v. Collector of Central Excise reported in 1988 (38) ELT 176, and argued that even proto-type towers cleared by the appellants for test have to be deemed as excisable goods. On the grounds that tests in terms of the relevant Indian Standard Code was an essential condition of such contracts, he argued that the testing activity could not be deemed as separate from the manufacture of the goods covered by the contract and as such test charges had to be deemed as part of the assessable value of towers cleared by the appellants from their factory. In this regard he placed reliance on the following case law :-
(i) Madhavnagar Cotton Mills Ltd. v. CCE, Pune -1986 (25) ELT 443 (Tri.)
(ii) CCE, Bangalore v. Sunray Computers (P) Ltd. -1985 (33) ELT 787 (Tri. )
4. We have examined the records of the case and considered the arguments advanced by both sides. It is seen that the following points arise for consideration in this case: –
(i) Whether the proto-type towers cleared by the appellants in completely knocked down condition for tests after assembly at test site, can be deemed as excisable goods.
(ii) Whether the test charged recovered by the appellants from their customers form a part of the assessable value of the Power Line Transmission Towers which are fabricated after tests of the proto-type for erection in terms of the contracts.
(iii) Whether the demands issued in this case were barred by limitation.
5. It is seen that in this case there is no dispute as regards the dutiability of the Power Line Transmission Towers which are cleared in completely knocked down condition by the appellants for actual assembly and erection at various sites in terms of the contract entered into by the appellants with their customers. The dispute is only in regard to the dutiability of the proto-type towers cleared for tests at sites having facilities for conducting the tests which in terms of the contract between the appellants and their customers have necessarily to precede the fabrication of the transmission towers for actual installation. The appellants’ case is that proto-type towers not being commercially marketable, cannot be deemed as ‘goods’ chargeable to Central Excise duty. They have contended that transactions involving fabrication and sale can be only in respect of towers which are manufactured after the approval of the design by the customers on the basis of successful load and stress tests of proto-types in accordance with the “Indian Standard Code” relating to use of structural steel overhead transmission line towers. According to the appellants the towers supplied to customers in terms of the contracts are invariably galvanised whereas the proto-types used for test are non-galvanised and after the completion of tests at the test bed site, the proto-types are rendered useless and have to be scrapped.
6. As against the appellants’ claim that the proto-type towers cleared from the factory for tests are not ‘goods’ capable of being bought and sold; the revenue’s case is that even though such towers at the time of clearance from the factory are non-galvanised and in completely knocked down condition, they have to be deemed as dutiable on account of having acquired all the essential characteristics of the finished towers which are supplied by the appellants to their customers in terms of the contracts. In this regard we consider it desirable to refer to the relevant extract from the impugned order which is reproduced below: –
“As far as the first point is concerned the towers fabricated for the purpose of testing definitely constitute goods even though no sale may be involved in respect thereof. Sale is not an essential ingredient to determine whether goods have been manufactured or have come into existence. Towers are fabricated and dismantled before they are despatched to the test unit situated outside. The dismantling is only for the purpose of facilitating transport. Before dismantling, the towers have been manufactured. Again after clearance the towers are re-assembled outside. The tower sent for test is as much a tower as the regular towers subsequently manufactured and sold. The non-galvanisation of the tower sent for testing does not detract from its being a tower. If galvanising had not taken place naturally the cost of galvanising would be excluded in the value for assessment. Hence I hold that transmission towers fabricated in the factory and cleared to an outside testing place are dutiable.”
7. We are not inclined to agree with the revenue’s stand that for the determination of the question of dutiability of the disputed proto-type towers, their marketability cannot be an essential ingredient. In this regard it is seen that the Honourable Supreme Court in the case of Bhor Industries Ltd. v. Collector of Central Excise reported in 1989 (40) ELT 280 (SC) has observed that for any item marketability is an essential ingredient in order to be dutiable under the Schedule to the Central Excise Tariff Act, 1985. It would not be dutiable under the excise law simply because it falls within the schedule if it is not ‘goods’ known to the market. The relevant extract from the judgment is reproduced below: –
“It is necessary in this connection to reiterate the basic fundamental principles of excise. The Judicial Committee of the Privy Council in Governor General in Council v. Province of Madras -(1945 F.C.R. 179), this Court observed at page 1287 of the report that excise duty was primarily a duty on the production or manufacture of goods produced or manufactured within the country. This Court again in In Re The Bill to Amend S. 20 of the Sea Customs Act, 1878, and Section 3 of the Central Excises and Salt Act, 1944 [1964 (3) SCR 787] at page 822 of the report referring to the aforesaid observations of the Judicial Committee reiterated that taxable event in the case of duties of excises is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. Therefore, the essential ingredient is that there should be manufacture of goods. The goods being articles which are known to those who are dealing in the market having their identity as such. Section 3 of the Act enjoins that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or ‘manufactured’ in India. “Excisable goods” under section 2(d) of the Act means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt. Therefore, it is necessary, in a case like this, to find out whether there are goods, that is to say, articles as known in the market as separate distinct identifiable commodities and whether the tariff duty levied would be as specified in the Schedule. Simply because a certain article falls within the Schedule it would not be dutiable under excise law if the said article is not “goods” known to the market. Marketability, therefore, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985.”
Since the transmission line towers which are contracted for sale by the manufacturers have necessarily to conform to the specifications in regard to load, stress and other factors as laid down in the relevant standards of the Indian Standard Institute, and such finished towers covered by orders placed by the user Electricity Boards have to be galvanised and fully finished in all respects, it is evident that the untested proto-type ungal-vanised towers cleared by the appellants in completely knocked-down condition for the purpose of assembly and test at the special test sites and which are scrapped after the completion of tests are not marketable or ‘goods’ known to the market. For these reasons, on the ratio of the Supreme Court’s decision quoted above, we hold that the proto-type towers cleared by the appellants were not dutiable under the Central Excise Tariff Schedule.
8. The next point to be examined is whether the test charges recovered by the appellants from their customers can be deemed as forming a part of the value of the Power Line Transmission Towers which are fabricated after tests of the proto-type for erection in terms of the contracts entered into with the customers. The appellants’ claim is that such charges cannot form a part of the assessable value of the transmission line towers delivered to the customers since testing of the proto-type is an independent process unconnected with the actual manufacture of the goods and the test charges recovered from the customers are paid to the test bed authorities who provide the necessary facilities for test. However, we are not convinced by the appellants’ arguments. The tests of the proto-type towers are undeniably carried out in relation to the transmission line towers that are manufactured for actual execution of the contract entered into between the appellants and their customers and the charges incurred for conducting such tests are paid by the customers in terms of the contract. We are, therefore, of the view that all charges recovered by the appellants from their customers on account of the testing of the proto-type towers which in terms of the contract precedes the manufacturing of the transmission towers to be actually delivered would form a part of the assessable value of such towers. We find that this view is supported by the Tribunal’s decision in the case of Madhavnagar Cotton Mills Ltd., Sangli v. Collector of Central Excise, Pune reported in 1986 (25) ELT 443, wherein it was held that labour charges paid by customers to the manufacturers in respect of checks carried out prior to the delivery for ensuring flawless quality of the fabrics as stipulated in the contract would be includible in the assessable value. The relevant extract from the decision is reproduced below :-
“Secondly, the holding charges for the stock held by the appellants in their factory store-room are nothing but interest on working capital employed by them in their factory. It is not a charge which the customer has to pay for late payment after receiving delivery of the goods. Similarly, in the case of M/s. Leukoplast, cost of special checking is nothing but labour charges for ensuring that flawless quality of the fabric as stipulated in the contract is delivered to the customer. The charges in question, in both cases, are part of the total cost of manufacture. Further, these charges are incurred before delivery of the goods is effected at the factory gate. The lower authorities were, therefore, correct in holding that these charges are includible in the assessable value.”
In view of the foregoing we find no infirmity in the Collector’s order that the charges on account of the testing of the proto-type towers recovered by the appellants from the customers in terms of the contract formed a part of the assessable value of goods covered by the contract.
9. The only question remaining to be examined is whether the demand issued on 5-9-1980 in respect of duty on testing charges recovered by the appellants on goods supplied during the period 12-12-1976 to 30-4-1980 and other similar demands after the expiry of the period of 6 months in terms of Rule 10 of the Central Excise Rules, 1944 were barred by limitation. In this regard it is seen that the adjudicating authority had held in the impugned order that non-disclosure of the test charges recovered by the appellants to the departmental officers amounted to suppression of facts and therefore, the extended period of five years was available to the department for effecting the recovery of duty short-levied. As against this the appellants have claimed that they had failed to mention the test charges in the Central Excise records on account of the bona fide belief that no duty was attracted on the proto-type towers and the test charges recovered by them from their customers. They have claimed that they cannot be accused of any wilful suppression of facts with the intention of evading duty since the test charges recovered by them were mentioned in the Sales Journal and the relevant contracts which were perused during the period 1976 to 1981 by the Central Excise officers and Audit Parties who visited their factory for the inspection of the records.
10. Having regard to the relevant facts and circumstances, we are inclined to agree with the appellants that they had acted in the bona fide belief that Central Excise duty was not attracted on the proto-type towers cleared by them and also on the test charges recovered by them. In fact we have found ourselves to be in agreement with their contention in regard to the non-dutiability of the proto-type towers. We are, therefore, inclined to accept the appellants’ contention that non-declaration of the test-charges in the invoices filed by them with the Central Excise authorities was on account of their impression that such test charges would not form a part of the assessable value, of the goods covered by the contract. From the records of the case we find that Audit parties of the Accountant General were periodically visiting the appellants’ factory. The appellants have stated that the Central Excise officers were also paying periodic visits to the factory for inspections. Since contracts entered into by the appellants made a clear mention of the test charges that were recoverable from the customers, and such contracts must have been inspected by the visiting central excise officers and the audit parties, it cannot be accepted that the appellants had suppressed the facts regarding the recovery of such charges. In this regard it is seen that the Honourable Supreme Court in the case of Collector of Central Excise v. Chemphar Drugs & Liniments reported in 1989 (40) ELT 276 (S.C.) has observed that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise it required before he is saddled with any liability beyond the period of six months. The relevant extracts from this decision are reproduced below :-
“Aggrieved thereby, the revenue has come up in appeal to this Court. In our opinion, the order of the Tribunal must be sustained. In order to make the demand for duty sustainable beyond a period of six months and upto a period of 5 years in view of the proviso to Sub-section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or shortpaid or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to hereinbefore do not warrant any inference of fraud. The assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods, which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted that the Department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the product other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence.”
11. In view of the facts outlined above, on the ratio of the decision quoted above, we hold that there was no conscious or deliberate withhold of information by the appellants in regard to the test charges recovered by them with the intention of evading duty. We, therefore, hold that the extended period of beyond six months was not available to the Department for raising demands in this case.
12. In the result we set aside the impugned order and allow the appeal.