Case Law Details
Crompton Greaves Ltd Vs Commissioner of Central Excise (CESTAT Mumbai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, allowed the appeal challenging inclusion of “type test charges” in the assessable value of transformers for levy of Central Excise duty. The dispute arose after the Department alleged that the appellant had excluded charges recovered from customers for “type tests” conducted under contractual arrangements and instead paid service tax on those charges. A show cause notice demanded duty of Rs. 4,77,968 along with interest and penalty for the period April 2014 to September 2014. While the Commissioner (Appeals) had set aside the penalty, the duty demand was upheld.
The Tribunal observed that transformers became fully manufactured and marketable after completion of mandatory quality control tests, on which excise duty had already been discharged. It found that “type tests” were not mandatory or routine manufacturing activities but were conducted only when customers specifically requested them, either for their satisfaction or due to absence of testing facilities. The tests were performed only on selected units on a random basis, and the costs were separately borne by customers.
CESTAT held that such testing could not be treated as incidental or ancillary to manufacture, nor as a condition precedent for marketability of transformers. The activity was undertaken after completion of manufacture and for separate consideration. Referring to principles of valuation under the Central Excise Act, 1944, the Tribunal stated that only amounts intrinsically linked to manufacture and sale at the time and place of removal can form part of assessable value. Optional post-manufacturing activities carried out at the request of buyers do not form part of the “transaction value”.
The Tribunal also noted that the appellant had already discharged service tax on the “type test charges”, treating them as consideration for a taxable service. It further relied on earlier decisions in the appellant’s own cases, including Final Order Nos. 86090-86092/2024 dated 01.10.2024 and Final Order No. 86756/2025 dated 03.11.2025, where identical issues were decided in favour of the appellant. Those decisions relied upon rulings including Ericsson India Pvt Ltd v. Commissioner of Central Excise, Pondicherry and Essar Telecom v. Union of India.
Following the earlier precedents and the factual findings, the Tribunal held that “type test charges” were not includible in the assessable value of transformers for Central Excise purposes. The impugned order confirming the duty demand was set aside and the appeal was allowed with consequential relief as per law.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal is directed against the Order-in-Appeal dated 18.05.2016 passed by the Commissioner (Appeals), Central Excise, Mumbai-II, whereby the learned Commissioner (Appeals) partly allowed the appeal filed by the appellant by setting aside the penalty, while upholding the inclusion of ‘type test charges’ in the assessable value of transformers and confirming the duty demand.
2. The short issue that arises for determination is whether the charges collected by the appellant towards “type test”, conducted at the instance of certain customers, are liable to be included in the transaction value of transformers for the purpose of levy of Central Excise duty?
3. Briefly stated, the appellant is engaged in the manufacture of transformers and is availing CENVAT credit on inputs and input services. It appeared to the Department that the appellant was not including the ‘type test charges’, recovered from customers under contractual arrangements, in the assessable value of the transformers, and was instead discharging service tax on such charges. Taking the view that these charges formed part of the consideration for sale, a show cause notice dated 06.05.2015 was issued proposing recovery of duty amounting to Rs.4,77,968/- under Section 11A(4) of the Central Excise Act, 1944, along with interest and penalty. The demand was confirmed by the Adjudicating Authority vide Order-in-Original dated 06.11.2015. In appeal, the Commissioner (Appeals) set aside the penalty but upheld the duty demand, leading to the present appeal.
4. We have carefully considered the rival submissions and perused the records including the synopsis/written submissions and the case laws placed on record. The period in dispute is from April, 2014 to September, 2014. The undisputed factual position that emerges from the record is that once the transformers are fully assembled and subjected to routine and mandatory quality control tests, the process of manufacture stands completed and the goods become marketable. The appellant discharges central excise duty on such fully manufactured transformers at that stage.
5. It is further evident that the “type test” is not a mandatory or routine test forming part of the manufacturing process. Rather, it is conducted only in specific cases where customers, for their own satisfaction or due to lack of testing facilities, request the appellant to undertake such testing prior to dispatch. The cost of such testing is borne separately by such customers. Significantly, the test is not conducted on each transformer, but only on selected units on a random basis, clearly indicating its optional and customer-specific nature.
6. In these circumstances, the “type test” cannot be regarded as an activity incidental or ancillary to the completion of manufacture. Nor can it be said to be a condition precedent for the marketability of the transformers. The activity is undertaken post-manufacture, at the behest of the buyer, and for a separate consideration.
7. It is a settled principle of valuation under the Central Excise Act, 1944 that only such amounts which are intrinsically linked to the manufacture and sale of the goods, and form part of the consideration for sale at the time and place of removal, can be included in the assessable value. Charges for optional, post-manufacturing activities, undertaken at the request of the buyer and not as a condition of sale, do not form part of the “transaction value”.
8. In the present case, the “type test charges” are clearly in the nature of consideration for a distinct and optional service rendered to the customer after the completion of manufacture. This position is further reinforced by the admitted fact that the appellant has been discharging service tax on such charges, treating the same as a taxable service.
9. We also find that the issue is no longer res integra. In the appellant’s own case, in Excise Appeal No. 86716 of 2015 and connected matters, this Tribunal vide Final Order Nos. 8609086092/2024 dated 01.10.2024, and again in Excise Appeal No. 87943 of 2017 vide Final Order No. 86756/2025 dated 03.11.2025, has considered an identical issue and held that “type test charges” are not includible in the assessable value of transformers. The said decisions, rendered on identical facts, have attained finality and are binding in the absence of any contrary decision. The relevant paragraphs of Final Order No. 86756/2025 (supra) are extracted hereunder: –
“xxx xxx xxx
4. We find that the Tribunal had indeed, in the case of the appellant itself, considered the validity of inclusion of the charges so recovered for an earlier period and, relying upon the decision of the Tribunal in Ericsson India Pvt Ltd v. Commissioner of Central Excise, Pondicherry [2007 (212) ELT 198 (Tri-Chennai)] and the ratio of the decision of Hon’ble High Court of Karnataka in Essar Telecom v. Union of India [2012 (275) ELT 167 (Kar)], held that
8. In re Ericsson India, it has been held that
9. We have carefully gone through the records and considered the submissions made by both sides. In the instant case, the appellants had imported various equipment comprising the Transmission Apparatus for Radio Telephony network such as MSC, BSC and BTS and installed the same at various locations spread over several districts. The adjudicating authority has found that the Mobile Switching Centre, the Base Station Controller and the Base Transceiver Station imported by Aircel installed in several districts in the State by ECPL are excisable goods. It was admitted by the appellants that components of the system were movable goods, but could not be moved as their alignment was software specific in relation to their relative locations in the network. If the network was considered to be a complete equipment the same could not be considered a movable item as the same could be moved only by dismantling the network. In such cases, the item could not be considered to be movable as decided by the Apex Court in the case of Triveni Engineering & Industries Ltd. (supra). We are not in a position to accept this claim as it is an undisputed position that the components had been tested after assembly in a network/system before they had been dismantled and exported to India. We find that what the appellants had done was to install and commission the Transmission Apparatus for Radio Telephony with the components imported. They had paid Service tax for the said activity. Therefore, tax cannot be charged under the Central Excise Act on the same activity. As per the submissions of the appellants, the article decided to be excisable comprises MSCs, BSCs and BTSs. No MSC or BSC is situated in the jurisdiction of the adjudicating authority. This claim is not contested by the Department. Hence the adjudicating authority was not competent to decide installation/assembly of several equipments as constituting manufacture when critical components of that system were situated outside his jurisdiction. In the circumstances, we find that the impugned order is devoid of merits. Accordingly we set aside the impugned order and allow the appeals.’
9. Learned Authorised Representative has relied upon the decision of Commissioner of Central Excise v. Cera Boards and Doors [2020 (373) ELT 794 (SC)]. The dispute therein was in the context of clearance prior to the revision in section 4 of Central Excise Act, 1944 with effect from 1st July 2000; we find that there is no justification for collection of duties of central excise on the consideration realised for an activity which has been subjected to levy under the Finance Act, 1994.’
5. In the light of above, the demand and detriments in the impugned order are set aside to allow the appeal.”
10. Following the ratio of the aforesaid decisions and in view of the factual and legal position discussed above, we hold that the “type test charges” recovered by the appellant are not includible in the assessable value of the transformers for the purpose of levy of central excise duty.
11. Consequently, the impugned Order-in-Appeal, to the extent it upholds the inclusion of such charges and confirms the demand of duty, is unsustainable and liable to be set aside. The appeal is accordingly allowed with consequential relief, if any, as per law.
(Pronounced in the open court on 30.04.2026)
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