COMMISSIONER OF SALES TAX, U.P. vs. PRAG ICE & OIL MILLS

C.A. No.-006069-006069 - 1994Supreme Court15 April 1998Bench: S.C. AGRAWAL S. SAGHIR AHMAD3 pages
For Respondent: RR-EX-PARTE
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What were the facts?

M/s. Thermax Limited (the assessee) manufactures high-pressure boilers and process heat equipment. The company charges separately for pre-manufacturing steps like site inspection, design, and drawings, and post-manufacturing steps like installation, erection, and commissioning. The Revenue issued show cause notices demanding excise duty on the designing, engineering, erection, and commissioning charges, arguing they formed part of the assessable value of the boilers. The Assistant Collector confirmed a demand of Rs. 78,454.50. The Collector (Appeal) held that designing and engineering charges were includible but erection and commissioning charges were post-manufacturing expenses. The Tribunal, in its impugned judgment, allowed the Revenue's appeals, holding that these charges were includible in the assessable value. A subsequent show cause notice demanded Rs. 65,33,098/- for the period April 1982 to May 1987, which was confirmed by the Collector with a penalty, and this was also challenged before the Tribunal.

What did the Supreme Court hold?

The Supreme Court held that erection and commissioning charges, separately charged by the assessee, could not be legally included in the assessable value of the boilers. The Court relied on its previous decisions in PSI Data Systems Ltd. vs. Collector of Central Excise and Mittal Engineering Works (P) Ltd. vs. Collector of Central Excise, Meerut, which held that charges for installation, training, and erection/installation of a plant are not includible in the assessable value of the goods. The reasoning was that erection and installation of a plant cannot be held to be excisable goods, and including such activities would not be in consonance with the accepted meaning of excisable goods. Consequently, the judgments of the Assistant Collector and the Tribunal to the extent they related to the inclusion of installation and commissioning charges were set aside. The question of limitation concerning the show cause notice for the period 1982-83 to 1987-88 was not decided as the appeals were disposed of on merits.

What were the issues?

1. Whether erection and commissioning charges, separately charged by the assessee from its customers, could be legally included in the assessable value of the boilers manufactured and supplied by the assessee, and thus exigible to excise duty? (Question of law, turning on the interpretation of 'excisable goods' and 'assessable value' under the Central Excise Act, 1944). Assessee's contentions: The assessee conceded that drawing and designing charges could be included in the assessable value. However, they argued that erection and commissioning charges were post-manufacturing expenses and not part of the value of the goods. They relied on the principle that installation and erection of a plant are not excisable goods. Revenue's contentions: The Revenue contended that designing and engineering charges, as well as erection and commissioning charges, constituted the value of the 'products' and were therefore assessable to excise duty. They argued that the sale would be complete only upon erection and commissioning at the customer's site, making these expenses part of the goods' value. The judgment does not explicitly record the Revenue's specific arguments before the Supreme Court regarding erection and commissioning charges, but their consistent position throughout the proceedings was that these were includible.

Which sections of the Income-tax Act were involved?

Section 11A(1)

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Cause title — parties, addresses and appearances
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3 PETITIONER: M/S. THERMAX LIMITED Vs. RESPONDENT: COLLECTOR OF CENTRAL EXCISE DATE OF JUDGMENT: 15/04/1998 BENCH: S.C. AGRAWAL, S. SAGHIR AHMAD ACT: HEADNOTE:

JUDGMENT: J U D G M E N T S. SAGHIR AHMAD, J. In this appeal in which four sets of court fees have been paid, the correctness of the common judgment passed by the Customs Excise and Gold (control) Appellate Tribunal (for short, ‘the Tribunal’) in the three appeals filed by the Revenue and one filed by the present appellants, is questioned.

2.

The appellants manufacture high pressure Boilers, Process Heat Equipment etc. as per requirements of the customers. The manufacturing process includes pre and post manufacturing steps. Since Boiler has to be manufactured according to the requirements of the customers, the pre- manufacturing process includes the inspection of site where the Boiler is to be installed and the making of its drawings and designs etc. for which the appellants charge and had all along charged separately from its customers. The post- manufacturing steps include the ins

The order continues below.

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