2011 (6) TMI 729 - AT - Central Excise

Value of bought out items directly supplied to customer s sites is to be included in the assessable value of Centrifugal machine - HELD THAT - In present case, customers placed purchase orders on the appellant for supply of electric motors, control panel, cables, etc., which are not manufactured by the appellants but purchased and sent directly to the site of the customers. Here, the centrifugal machine is assembled in the factory, tested with an electric motor and electric panel, disassembled and afterwards supplied. This process itself shows that electric centrifugal machine is incomplete without electric motor and control panel. In the case of MIL India Ltd., 2007 (3) TMI 8 - SUPREME COURT itself allowed the deductions of duty paid on the goods supplied as bought out items. Therefore the claim of the appellant that what they had cleared was centrifugal machines without the bought out items and therefore the value of bought out items cannot be added is not correct. the actual price charged has to be the basis for calculation of excise duty and further the value of bought out items has to be added. As regards subsequent to 1-7-2000 assessment has to be based on transaction value. In this case the value has been brought down by the method adopted by the appellant by which they have been supplying bought out items separately under a separate invoice. Since the value of the complete centrifugal machine erected at site has to be arrived at it becomes necessary to add the value of bought out items charged by the appellant to their customer to the value of centrifugal machine. We find that observation of learned Commissioner that the conditions in the purchase order clearly suggested that in addition to the centrifugal machine, the appellant was responsible for specification of the control panel and the electric motor which were supplied with the centrifugal machine. Further the appellant was to give guarantee for the performance of the electric motor and the control panel. As already observed by us, the appellant was also required to ensure that the warranty for items supplied with the centrifugal machine is co-terminus with the warranty for the centrifugal machine. In view of the observations made by us that the cum-duty benefit has to be extended and while calculating differential duty, duty paid on bought out material supplied has to be adjusted, the matter is required to be remanded to the original adjudicating authority once again for this limited purpose of re-computation of differential duty after taking into account the duty paid on bought out items and treating the value as cum-duty value as requested by the appellants. the impugned orders are set aside and the matter remanded to the original adjudicating authority for fresh decision.

Issues Involved:

1. Inclusion of the value of bought-out items in the assessable value of Centrifugal Machines.
2. Applicability of excise duty on bought-out items supplied directly to customers.
3. Re-computation of differential duty considering duty paid on bought-out items.
4. Extension of cum-duty benefit.
5. Imposition of penalties on the appellants.

Issue-wise Detailed Analysis:

1. Inclusion of the Value of Bought-Out Items in the Assessable Value of Centrifugal Machines:

The core issue was whether the value of bought-out items like electric motors and control panels, which were directly supplied to customers, should be included in the assessable value of the Centrifugal Machines manufactured by the appellants. The appellants argued that these items were not integral parts of the machines and were not manufactured by them, hence should not be included in the assessable value. They cited several precedents where it was held that excise duty is a tax on manufacture and should be restricted to goods manufactured by the assessee. The Tribunal, however, noted that the centrifugal machines were incomplete without these items, as they were essential for the machines to function. The Tribunal referred to various purchase orders where the appellants had guaranteed the performance of the machines along with the bought-out items, indicating their integral nature. The Tribunal concluded that the value of these bought-out items should be included in the assessable value of the centrifugal machines.

2. Applicability of Excise Duty on Bought-Out Items Supplied Directly to Customers:

The appellants contended that since the bought-out items were supplied directly to customers and did not enter their factory premises, no excise duty could be levied on them. They argued that excise duty is applicable only on goods manufactured by the assessee. The Tribunal, however, relied on the Supreme Court's decision in the MIL India Ltd. case, which stated that the inclusion of the value of bought-out items in the assessable value depends on the facts of each case. The Tribunal observed that the centrifugal machines were tested with electric motors and control panels before dispatch, indicating that these items were essential for the machines' functionality. Therefore, the Tribunal held that the value of bought-out items supplied directly to customers should be included in the assessable value of the centrifugal machines.

3. Re-computation of Differential Duty Considering Duty Paid on Bought-Out Items:

The Tribunal noted that the Commissioner had previously allowed the adjustment of duty paid on bought-out items while calculating the differential duty. This benefit was not challenged by the Revenue and should have been considered during the de novo adjudication. The Tribunal directed the original adjudicating authority to re-compute the differential duty after adjusting the duty paid on bought-out items, treating the value as cum-duty value.

4. Extension of Cum-Duty Benefit:

The appellants requested the extension of the cum-duty benefit, arguing that the amount realized should be treated as inclusive of duty. The Tribunal agreed with this submission and directed the original adjudicating authority to consider the cum-duty benefit while re-computing the differential duty.

5. Imposition of Penalties on the Appellants:

The Tribunal observed that the dispute was a continuing one and involved interpretation of law and valuation. The initial order dated 18-12-1989 had already taken the view that no penalty was imposable, and the extended period was not invocable. Considering the ongoing nature of the dispute and the question of law interpretation, the Tribunal set aside the penalties imposed on the appellants in various orders.

Conclusion:

The Tribunal set aside the impugned orders and remanded the matter to the original adjudicating authority for re-computation of differential duty after considering the duty paid on bought-out items and treating the value as cum-duty value. The penalties imposed on the appellants were also set aside. The Tribunal emphasized the need for a fresh decision in terms of the observations made, ensuring a reasonable opportunity for the appellants to present their case.

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