Archana Wadhwa, Member (J)

1. Vide his impugned order the Commissioner of Central Excise has confirmed demand of duty of Rs. 28,98,826/- against the appellants and has imposed identical amount of personal penalty. The appellants are engaged in the manufacture of monoblock concrete railway sleepers, which are being sold by them to the Ministry of Railways under purchase orders placed by the Ministry. The appellants were clearing the goods after payment of duty on the contracted price of the sleepers in terms of the said purchase orders.

2. However, before taking delivery of the sleepers, railways were getting the same inspected by their own employees for which neither any amount was being charged by the appellant from them nor any amount was being paid to them. The said inspection was carried by the railway employees after the goods were fully manufactured by the appellant and duly entered in their RG-1 register. As per the appellants before completion of manufacture of the said sleepers, the testing, if any was being done by them and the cost of such inspection was included in the assessable value of the said sleepers.

3. The present demand has been confirmed against the appellant by including the testing charges on notional basis @ Rs. 23.50 per sleeper. The said testing charges has been adopted by the Commissioner on the basis that in case of sale made to private parties, the appellants had incurred an expense of Rs. 23.50 per sleeper as inspection charges and as such the same have to be adopted as notional inspection charges in respect of sleepers being supplied to the railways, though in fact no such charges are being collected by the appellant.

4. Shri S.K. Bagaria, ld. Adv. appearing for the appellant submits that the goods are in fully manufactured condition before such inspection takes place by the employees of the railway department and the same are duly entered in their RG-1 register. The railways, before taking delivery of the goods, sent their employees for their own satisfaction to test the goods in question for which no charges are being paid by them to the appellant. As such, the Commissioners findings that the assessable value would get enhanced by adding this notional testing charges is against the facts and law. The price on which the sleepers are being sold to the railways was the sole consideration for the sales and nothing more flowed back to the appellant. He submits that the inspection by Ministry of Railways has got nothing to do with the completion of manufacture of the said sleepers and the buyers, before taking delivery of the goods, are within their right to get themselves satisfied about the quality of the goods and the same is not an activity incidental or ancillary to the manufacture of the said sleepers. In fact the contract itself provides that before the despatch of the finished concrete PSC sleepers, the same would be inspected by them. This fact shows that it was fully finished sleepers which were inspected by the railways. He submits that the Commissioner has relied to same Para 21 of the purchase order, which in fact does not belong to them. The same has been picked up by the Commissioner from some other case or from the papers relating to some other matter and there is no such para in the contract entered into between them and the Ministry of Railways. For the said purpose he draws our attention to the relevant purchase orders. He also submits that this was not even the allegation in the show cause notice.

5. Shri Bagaria submits that in the present case no inspection charges are being charged by them, but even in those cases where inspection charges were actually being incurred, it has been repeatedly held that such expenses incurred by the buyers are not liable to be included in the assessable value of the goods. He draws our attention to the Tribunals decision in the case of Shree Pipes Ltd. v. C.C.E. - 1992 (59) E.L.T. 462 wherein it was held that testing/inspection conducted by DGS & D at the request of the buyer was not liable to be included in the assessable value. The appeals filed by the Revenue against the above orders was dismissed by the Honble Supreme Court as reported in 1992 (62) E.L.T. A-51. Similarly in the case of Bhaskar Industries Development Ltd. v. CCE - 2003 (56) RLT 452, inspection charges paid to RITES of railways in respect of goods purchased by them was held as not includible in the assessable value. To the same effect are the decisions in the case of General Engg. Works - 1996 (81) E.L.T. 569; CIMMCO Ltd. v. CCE - 1994 (74) E.L.T. 687 and Hindustan Development Corporation -1996 (85) E.L.T. 58.

6. Differentiating the decisions relied upon by the Commissioner in his impugned order Shri Bagaria submits that the reliance placed by the Commissioner on the decisions reported in 1999, (110) E.L.T. 874 (T); 2001 (133) E.L.T. 481 (T) - 2001 (45) RLT 711 and 2001 (45) RLT 840 was and is totally misconceived. In the decision reported in 1999 (110) E.L.T. 874 (T) the manufacturer was recovering testing charges from the customers whereas no such charges were collected or recovered by the appellant from Ministry of Railways. Similarly, in 2001 (45) RLT 711 (T), the appellant was recovering in every case the inspection charges from the buyers. The decision reported in 2001 (45) RLT 840 (T) was not at all concerned with the issue as to whether the expenses incurred by the buyer for inspection/testing of the goods purchased by it are includible in the assessable value in the hands of manufacturer. On the other hand, the said decision related to totally different facts and circumstances and totally different issue. In the said matter, the assessee received duty paid seamless tubes at its factory and took Modvat credit of such duty. These were then sent to the job workers under Rule 57F(4) procedure. After the required job works, the goods were received back by the assessee. After receiving back the goods from the job workers, the assessee was inspecting and counting the goods and then clearing the same on payment of duty by utilising the Modvat credit. It was held that the aforesaid procedure followed by the assessee was in accordance with law. Thus, the decisions relied by the Commissioner were on totally different facts and are totally irrelevant for the instant case. On the other hand the decisions relied by the appellant in Paragraph 8 of its reply were fully and directly on the issues involved in the present appeal and it was incumbent and obligatory on the Commissioner to follow the said decisions.

7. Shri Bagaria also assails the impugned order on the ground of limitation by submitting that show cause notice dated 28-2-2002 was issued for the period February, 1997 to July, 2001. As such the demand in question was beyond the period of one year from the relevant date. He submits that the purchase orders in question were also the matter of scrutiny by the Central Excise authorities when earlier show cause notices relating to the same purchase orders were issued by the authorities. He submits that the reasons adopted by the Commissioner in his impugned order for invoking the longer period of limitation on the ground that collection of charges on account of testing/inspection during the relevant period was not brought to the notice of the department by the appellant is erroneous inasmuch as no charges were ever collected by the appellant from the Ministry of Railways and as such the question of disclosure of the same does not arise. Shri Bagaria strongly relies upon the Supreme Courts decision in the case of National Radio & Electronics Ltd. - 2000 (115) E.L.T 35 wherein the Honble Supreme Court was pleased to hold that if the contracts in question were available with the department, application of mind by the excise authorities would have revealed to them the entire factual position and no suppression can be alleged. For identical reasons, he submits that there is no justification for imposition of penalty upon the appellant under the provisions of Section 11AC or for demand for interest under Section 11AB.

8. Shri N.K. Mishra, ld. JDR appearing for the Revenue reiterates the reasoning adopted by the Commissioner in his impugned order and submits that the appellant company is charging a price of Rs. 23.50 per sleeper as testing charges from the other parties and as such, even if the railways have not paid the said testing charges, the same have been correctly added in the assessable value on notional basis. He submits that sleepers are not complete unless the same are inspected and as such testing is a part and parcel of the complete manufacture of the sleepers as held by the Bombay Bench of the Tribunal in the case of Hindustan Gas Ltd. v. CCE & C, Baroda - 2001 (133) E.L.T, 481 (Tri.-Bom). He also supports the impugned order of the Commissioner for invoking the extended period inasmuch as the facts of inspection of sleepers by the railways was not placed before the Central Excise authorities.

9. We have considered the submissions made from both the sides. The dispute revolves around the addition of Rs. 23.50 per sleeper as testing charges which the appellant company never collected from the railways. The railways employees were doing the inspection themselves before taking the delivery and in fact no expenses were being incurred on such testing inasmuch as the same was being done by the paid employees of the railways. We do not find any justification for addition of the testing charges on notional basis in the assessable value of the final product. The appellants have strongly contended that sleepers were in fully manufactured condition and were duly entered in RG-1 register before the same were tested by the employees of the railways. As such it was the finished sleepers which were being inspected by the purchaser for his own satisfaction. As rightly contended by the ld. Adv., such inspection for which no expenses were either being incurred or were being paid to the appellant, cannot be held to be pre-manufacture inspection charges. There is no justification for addition of notional testing charges in the assessable value of the goods when there is no dispute that what the appellant was receiving from the railways was only the contract price entered into between the two on which duty was being paid by them. The Tribunal, as noted above has in a number of cases held that even the inspection charges paid by the railways to RITES are not includible in the assessable value of the goods supplied to the railways. In the instant case we find that even the above situation is not available inasmuch as no charges are being paid to the appellants. As such we are of the view that addition of notional inspection charges in the assessable value of the sleepers is not to be upheld. We order accordingly.

10. We also find force in the appellants submission that the demand in question is barred by limitation, the show cause notice having been issued after the normal period. The two purchase orders, on the basis of which the demand has been raised, were under the scrutiny of the Revenue authorities when earlier the show cause notices were issued in respect of the same purchase orders. As such it cannot be said that the appellants suppressed anything from the Revenue, so as to justify invocation of longer period of limitation. Accordingly, we hold that the demand is also barred by limitation. In view of our findings above, there is no justification for confirmation of interest or for imposition of personal penalty. In a nutshell the appeal is allowed on merits as also on the point of limitation.