GEHRING INDIA Vs. COLLECTOR OF C. EX.

JUDGEMENT

(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.