2010 (6) TMI 742 - AT - Central Excise

Valuation - inclusion of value of components received free of cost in assessable value - SSI Exemption - Reliance placed in the judgement of Tribunal in the case of Flux Engineering Ltd. v. CCE, Noida 2004 (8) TMI 547 - CESTAT, NEW DELHI , laying down that prior to amendment of N/N. 214/86-C.E., vide. N/N. 68/95-C.E., dated 16-3-1995, the machinery, plant, equipment, etc., were excluded. However, with the amendment, the exclusion clause relates only to packaging materials and plant, machinery which were excluded are no more covered in the exclusion clause. The Tribunal has also held that the benefit of N/N. 214/86-C.E. not only applied to the input but is also available to the capital goods. The value need not be included in the assessable value - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Inclusion of value of components supplied free of cost in the assessable value of final product for availing SSI exemption.
2. Applicability of Rule 57S(7) of Central Excise Rules, 1944 to the capital goods received and returned.
3. Interpretation of Notification No. 214/86-C.E. regarding the use of capital goods manufactured on job work basis.

Analysis:

Issue 1:
The case involved the inclusion of the value of components supplied free of cost in the assessable value of the final product for availing the Small Scale Industries (SSI) exemption. The officers found that the appellant was receiving various capital goods free of cost from customers and not including their value in the assessable value, potentially crossing the exemption limit. The show cause notice was issued, demanding duty and imposing penalties. The lower authorities confirmed the demand and penalties. However, after hearing both sides, the Tribunal found that the appellant did receive capital goods but returned them to the principal manufacturer, and the process undertaken did not fall under Rule 57S(7) as it did not involve removal for test, repairs, or reconditioning. The appellant's contention of job work was also rejected as the machines were sold to customers, and the Annexure-II challans were used to hide the non-inclusion of component values.

Issue 2:
The Tribunal considered the applicability of Rule 57S(7) of the Central Excise Rules, 1944 to the capital goods received and returned by the appellant. It was observed that the process undertaken by the appellant did not align with the provisions of Rule 57S(7) as it did not involve the permitted activities like testing, repairs, or reconditioning of capital goods. The Tribunal concluded that the appellant's activity could not be classified as job work since the machines were sold to customers, and the Annexure-II challans were used to conceal the non-inclusion of component values in the assessable value.

Issue 3:
Regarding the interpretation of Notification No. 214/86-C.E., the appellant argued that even if the Revenue's case of complete manufacture was accepted, they should still be extended the benefit of the notification allowing the use of capital goods manufactured on job work basis. Citing a relevant case law, the appellant contended that the benefit of the notification applied not only to inputs but also to capital goods. The Tribunal, relying on the precedent, held that the benefit of Notification No. 214/86-C.E. extended to capital goods as well. As the issue was directly covered by the Tribunal's previous judgment, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellants.