K.L. Rekhi, Member (T)

1. These are two appeals filed by the department. They arise out of two separate Orders-in-Appeals as stated above. Although, the appellant Collector filed only one consolidated appeal, the said appeal has been given two appeal numbers for the sake of record and since no fees are required to be paid by the department. The two appeals seek restoration of the following two demands for differential central excise duty :-

1. Demand for Rs. 1,10,620.96. This demand has been set aside by the Collector (Appeals) on the ground of time bar ;

(2) The demand for Rs. 49,431.41. This demand was included in the show cause notice. In his Order-in-Original, the Assistant Collector upheld the merits of this demand but inadvertently he omitted to confirm the demand specifically in the final Order portion. Though the department had filed a separate appeal before the Collector (Appeals) for restoration of this demand, Collector (Appeals) did not advert to it but set aside the department's appeal on the ground that he had already allowed the appeal of the respondents against the very same Order-in-original.

2. The respondents manufacture machinery like Veener driers, hydraulic presses etc. the demands relate to the period from 1979-80 to 1982-83. During this period, the respondents were working under the system of valuation laid down in exemption notification No. 120/75-C.E. dated 30.4.1975. According to the terms of this notification, assessment was to be made on the basis of invoice value of the goods provided the invoice value was the sole consideration for the sale, the dealings were at arm's length and the invoice value represented the true and full value of the goods. The aforesaid two demands were raised by the department on the footing that costs on account of consultancy charges, erection charges and service charges, though recovered by the respondents from their customers through separate invoices, were not included in the assessable value of the machinery sold by them. The first demand mentioned in paragraph 1 above related to consultancy charges. Under the head "consultancy charges", the respondents recovered the costs for the following items :-

(1) drawing, designing and technical specifications;

(2) project report;

(3) plant lay-out;

(4) Civil works;

(5) technical know-how for improving the efficiency of the existing machinery of the customer; and

(6) training of the customer's staff.

The second demand related to installation and service charges for the machinery at the customer's premises. It is the case of the department that the demands were not time barred since the respondents suppressed the fact of the two separate invoices raised by them for consultancy charges and erection and service charges and hence the extended time limit of five years was applicable. The respondents pleaded that they were guided by the interpretation of Section 4 generally adopted before the Supreme Court judgment in. the case of Bombay Tyre International became available in May, 1983 1983 E.L.T. 1986 (SC) and hence there was no suppression on their part.

3. We have carefully considered the matter. The central excise duty is a tax on goods and not on services. However, we find that the consultancy contracts entered into by the respondents were in part a service contract and in part they included elements of cost of manufacture of their machinery. Costs towards drawing, designing and technical specifications of machinery were clearly elements of machinery costs. The respondents also accepted this position during the hearing before us but again pleaded that the demand was hit by time bar. We do not agree with them so far as the time bar plea is concerned. It is not possible, to manufacture a machine without doing drawing, designing and technical specification work for it in advance. Drawing and designing is actually the first stage of manufacture itself. It is at this stage that the manufacturer plans as to what exactly he is going to manu