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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  installation, erection and commissioning of  the Boiler  at the site for which also the appellants  have   charged  specific   amounts  from   their customers under separate invoices. 3.   Three separate  show cause  notices dated  December 26, 1983; February  2, 1984 and July 30, 1984 were issued to the appellants in  which it  was pointed  out  that  during  the period  from  1.2.1983  to  30.6.1984,  the  appellants  had supplied Boilers  but had  not included  the  designing  and engineering  charges  and  the  erection  and  commissioning charges in  the assessable  value even  though such  charges were recovered  by them  from their  customers  on  separate invoices.  It  was  indicated  in  these  notices  that  the designing  and   engineering,  erection   and  commissioning charges etc. were the charges which constituted the value of the "products"  and were,  therefore, assessable  to  excise duty.  Consequently,  and  amount  of  Rs.  1,14,990.71  was demanded from them. 4.   The Assistant Collector, Central Excise by his separate orders dated  May 3, 1986; May 7, 1985 and June 1, 1985 held that the  expenses on designing and engineering charges were expenditure incurred  on the goods produced and consequently it constituted  the part  of the  value  of  the  goods.  As

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regards erection and commissioning charges, it was held that since the  sale would  be complete  only on the erection and commissioning of  the Boiler  at the  customers’  site,  the expenses incurred  in  erection  and  commissioning  of  the Boiler would also be included in the value of the goods. The demand was confirmed only for Rs. 78.454.50 as excise duty. 5.   These orders  were challenged  by the appellants before the Collector  of Central   Excise  (Appeal), Bombay and the Collector by  his  common  order  dated  December  is,  1985 disposed of  all the three appeals with the finding that the designing and  engineering charges  were includible  in  the value of  the goods  but erection  and commissioning charges were in the nature of post-manufacturing expenses and cannot be treated as part of the assessable value of the goods. 6.   The Revenue, thereafter, filed three appeals before the Tribunal which have been allowed by the impugned judgment. 7.   There was  another appeal before the Tribunal which was filed against  the show  cause notice  dated August  4, 1987 issued by  the Collector of Central Excise to the appellants for the  period from  April, 1982 to May, 1987 alleging that the appellants and not included and reflected in the invoice prices,  the   amounts  separately   recovered  in  separate invoices from  their customers  directly relating  to  their manufacturing activities  for (1) designing and engineering; (2) technical services and training charges and (3) erection and commissioning  charges. In the show cause notice, excise duty amounting  to Rs.  65,33,098/- was  demanded under Rule 9(2) read  with Section  11A(1) of  the Central  Excise Act, 1944. The  appellants refuted  the allegations  made in  the show cause notice but the Collector confirmed the demand and imposed a  penalty of Rs. 17 lakhs on the appellants. It was against this  order that  an appeal  was  filed  before  the Tribunal by the appellants. These four appeals were disposed of by  the Tribunal  by common  judgment against  which  the present appeals have been filed. 8.   Shri V.  Lakshmikumaran, learned  counsel appearing for the appellants  contended that  the decision of the Tribunal as also  that of  the Assistant  Collector insofar  as  they relate to  the inclusion of drawing and designing charges in the assessable  value of the Boiler are not challenged but t he decision  relating  to  the  inclusion  of  erection  and commissioning charges  in the assessable value of the Boiler Installed by  the  appellants  at  the  customers’  site  is positively wrong  and is  liable to  be  set  aside.  It  is contended by  him that  before manufacturing the Boiler, the officials of  the appellants  visit the  site at  which  the Boiler is  to be installed and, thereafter, they prepare the necessary  drawings  regarding  the  design  of  the  Boiler according to  the need  of the customer and, thereafter, the Boiler and  its parts  are manufactured  at the  appellants’ factory. Consequently,  the expenditure  incurred in drawing and design  which is  separately charged  by the  appellants from the  customers can, it is conceded, be legally included in the assessable value of the goods. 9.   The only question, therefore, with which we are left in these appeals  is whether  the  erection  and  commissioning charges for which the appellants had separately charged from its customers  could be  legally included  in the assessable value of  the goods,  namely, the  Boiler  manufactured  and supplied by  the appellants.  On,  to  put  it  differently, whether  the  installation  and  commissioning  charges  are exigible to  excise duty?  This controversy stands concluded by two decisions of this Court. 10.  In PSI  Data Systems  Ltd.  vs.  Collector  of  Central Excise, 1997  (89) ELT  3 (SC), it was held that the charges

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for installation  of computers  and training  of  customer’s personnel to  operate and maintain it, was not includible in the assessable value of the computer. The Court even went to the extent  of saying that the value of softwares sold along with the computer was not includible in the assessable value of the computer. 11.  In Mittal  Engineering Works  (P) Ltd. vs. Collector of Central Excise.  Meerut, (1997)  1 SCC  203,  Mono  Vertical Crystallisers  which   were  used  in  sugar  factories  for exhausting molasses  of sugar  were assembled,  erected  and attached to  the earth  at the  site of the customers’ sugar factory. The  process involved  welding and  gas cutting  as deep  Mono  Vertical  Crystallisers  had  to  be  assembled, erected and  attached to  the earth  by a  foundation at the site of the sugar factory. It was held that the erection and installation of a plant was not excisable. 12.  In coming to this conclusion, reliance was placed on an earlier decision  of this  Court in  Quality Steel Tubes (P) Ltd. vs.  Collector of  Central Excise, (1995) 2 SCC 372, in which also  it  was  held  that  erection  and  installation charges cannot  be included  in the  assessable value of the goods. It was held thus :-      "erection  and  installation  of  a      plant  cannot   be   held   to   be      excisable goods.  If such  bringing      in its  ambit structures, erections      and  installations.   That   surely      would not  be  in  consonance  with      accepted meaning of excisable goods      and its exigibility to duty." 13.  In view  of the  above,  the  judgment  passed  by  the Assistant  Collector   as  also   by   the   Tribunal   that installation and commissioning charges have to be treated as assessable value of the goods supplied by the appellants are not correct  and are  liable to  be set  aside. Since we are disposing of  these appeals  on  merits  on  coming  to  the conclusion that  the installation  and commissioning charges could not  be included  in  the  value  of  the  goods,  the question of  limitation relating  to the  show cause  notice issued under  Rule 9(2) read with Section 11A of the Act fro the period from 1982-83 to 1987-88 is not decided. 14.  The  appeals   are  accordingly   partly  allowed,  the judgment and orders dated May 3, 1985; May 17, 1985 and June 1, 1985  as also  the show cause notice dated August 4, 1987 issued by  the Collector  of Central  Excise and  his  order passed thereon  together with  the judgment  passed  by  the Tribunal in  that  regard  to  the  extent  they  relate  to inclusion of  installation and commissioning charges are set aside without there being any order as to costs.