Holding

Installation and commissioning charges are post‑manufacturing expenses and are not part of the assessable value of the goods, thus not liable to excise duty.

Summary

Thermax Ltd. manufactured high‑pressure boilers and, in addition to the price of the boilers, separately charged customers for design, engineering, installation and commissioning services. The Assistant Collector of Central Excise and the Customs, Excise and Gold (Control) Appellate Tribunal held that the installation and commissioning charges formed part of the assessable value of the boilers under Section 4 of the Central Excises and Salt Act, 1944, and demanded additional excise duty. Thermax appealed before the Supreme Court, contending that such post‑manufacturing charges are not part of the value of the goods. Relying on earlier decisions (PSI Data Systems Ltd., Mittal Engineering Works (P) Ltd., and Quality Steel Tubes (P) Ltd.), the Court held that installation and commissioning charges are post‑manufacturing expenses and cannot be included in the assessable value of the goods. Consequently, the orders treating those charges as assessable were set aside. The appeals were partly allowed and no order as to costs was made.

Issues considered

Whether installation and commissioning charges for boilers are includable in the assessable value of the goods under Section 4 of the Central Excises and Salt Act, 1944.

Legislation cited

Central Excise Act, 1944s. 11(i), s. 9(2)
Central Excises and Salt Act, 1944s. 4

Subjects

excise dutyassessable valueinstallation chargescommissioning chargesboilerspost‑manufacturing expensesCentral Excise Act

Judgment

MIS THERMAX LTD. A
v.
COLLECTOR OF CENTRAL EXCISE

APRIL 15, 1998

- -<;
[S.C. AGRA WAL ANDS. SAGH!R AHMAD, JJ.]

Central Excises and Salt Act, 1944: Section 4.
B

Excise duty-Value ofgoods-Installation and Commissioning charges-
Jncludibility of-Assessee manufactured boilers and also installed and c
commissioned the same at site-Specific amounts were charged for such post-
manufacturing steps under separate invoices-Held: In the circumstances of
the case, the installation and commissioning charges includible in the
assessable value of the goods.

The appellant-assessee manufactured Boilers, Process Heat Equipment D
~·
~ etc. as per requirements of the customers. The manufacturing process
included post-manufacturing steps like installation and commissioning of
the Boiler at the site for which the appellant charged specific amounts from
its customers under separate invoices. However, the appellant had not included
the installation and commissioning charges in the assessable value of the
Boiler. E
The Assistant Collector, Central Excise held that the installation and
commissioning charges would also be included in the value of the Boiler and
hence demanded additional excise duty under S.4 of the Central Excises and
Salt Act, 1944. The Customs, Excise and Gold (Control) Appellate Tribunal
,..._ upheld the view of the Assistant Commissioner. Hence this appeal. F
q
Allowing the appeal, this Court
HELD : 1. In the circumstances of the case, the judgment passed by
the Assistant Collector as also by the Customs, Excise and Gold (Control)
Appellate Tribunal that installation and commissioning charges have to be
treated as assessable value of the goods supplied by the appellant under S.4 G
of the Central Excises and Salt Act, 1944 are not correct and are liable to
--,< be set aside. [773-B-C)
PSI Data Systems v. CCE, (1997) 89 ELT 3 SC; Mittal Engineering
Works (P) Ltd v. CCE, [1997) 1 SCC 203 and Quality Steel Tubes (P.) Ltd.
v. CCE, [1995) 2 SCC 372, relied on. H
769
770 SUPREME COURT REPORTS (1998] 2 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6096
ABC of 1994.

From the Judgment and Order dated 6.12.93 of the Customs, Excise and
Gold (Control) Appellate Tribunal, New Delhi in A. No. 1234-36/86A with E/
C0/279-281/86-A.
B
V. Lakshmikumaran, A.R. Madhva Rao and V. Balachandran for the
Appellant.

Anoop G. Chaudhary, Ms. Renu George and V.K. Verma for the
C Respondent.

The Judgment of the Court was delivered by

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
D 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
E 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
F 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
G 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
H the value of the "products" and were, therefore, assessab.le to excise duty.
THERMAX LTD. v. C.C.E. [S. SAGHIR AHMAD, J I 771

Consequently. an amount of Rs. 1,14,990.71 was demanded from them. A
-1. The Assistant Collector. Central Excise by his separate orders dated
May 3, l 985; May 7, 1985 and June L 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 regards erection and commissioning charges, it was held that since the B
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 C
of Central Excise (Appeal). Bombay and the Collector by his common order
dated December 18, 1985 disposed of all the three appeals with the finding
that ihe 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 D
T of the goods.

6. The Revenue, thereafter, filed three appeals before the Tribunal which
have been allowed by the impugned judgment.

7. There wa"s another appeal before the Tribunal which was filed against E
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 had 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 F
and commissioning charges. In the show cause notice, excise duty amounting
to Rs. 65,33,098 was demanded under Ruic 9(2) read with Section l lA(i) 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 G
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 fiJ ed.

8. Shri V Lakshmikumaran, lea,rned counsel appearing for the appellants
contended that the decision of the Tribunal as also that of the Assistant H
772 SUPREME COURT REPORTS [1998] 2 S.C.R.

A Collector insofar as they relate to the inclusion of drawing and designing
charges in the assessable Yalue of the Boiler are not challenged but the
r
decision relating to the inclusion of erection and commissioning charges iii
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
B 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
c 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
D by the appellants. Or, to put it differently, whether the installation and
T
commissioning charges are exigible to excise duty? This controversy stands
concluded by two decisions of this Court.

10. Jn PSI Data Systems Ltd. v. Collector ofC'entral Excise, (1997) 89
ELT 3 SC, it was held that the charges for installation of computers and
E 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 Mitt al Engineering Worh (P) Ltd. v. Collector of Central Excise.
F Meerut, (19971 I 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. "fhe process
involved welding and gas cutting as deep Mono Vertical Crystallisers had to I
be assembled, erected and attached to the earth by a foundation at the site
G 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: v. Collector of Central
Excise, (1995] 2 sec 372, in which also it was held that erection and installation
H charges cannot be included in the assessable value of the goods. It was held
THERMAX LTD. v. C.C.E. [S. SAGHIR AHMAD, J.] 773
thus :- A
"erection and installation of a plant cannot be held to be excisable
goods. If such wide meaning is assigned it would result in 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." B
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 C
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 1 lA of the Act for the period from 1982-$3 to 1987-88 is
not decided.

14. The appeals are accordingly partly allowed, the judgment and orders
D
dated May 3, 1985; May 17, 1985 and June I, 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
commissionin,g charges are set aside without there being any order as to E
costs.

V.S.S. Appeals partly allowed.