2011 (4) TMI 578 - AT - Central Excise

Value of bought out items directly supplied to customer s sites is to be included in the assessable value or not and Penalty on it. - Held 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. decided against Assessee and remand back to original adjudicating authority Regarding Penalty - held that - the dispute was a continuing dispute and therefore we do not consider it appropriate that penalty should be upheld. - Decided in favour of Assessee.

Issues Involved:
1. Inclusion of the value of bought-out items in the assessable value of Centrifugal Machines.
2. Admissibility of cum-duty benefit.
3. Adjustment of duty already paid on bought-out items.
4. Imposition of penalties on the appellants.
5. Interpretation of relevant legal precedents and rules.

Detailed Analysis:

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

The primary dispute is whether the value of bought-out items, such as electric motors and control panels, supplied directly to customers should be included in the assessable value of Centrifugal Machines manufactured by the appellants. The appellants argued that these items are not manufactured by them, do not enter their factory premises, and are not integral parts of the Centrifugal Machines. They contended that the machines are complete and functional without these items, which are optional and can be sourced separately by customers.

The Revenue, however, maintained that the Centrifugal Machines are incomplete without the electric motors and control panels, as these are essential for the machines' functionality. The Revenue's stance was supported by the fact that the machines are tested with these components before dispatch and that customers often placed orders for these items along with the machines.

The Tribunal examined various purchase orders and concluded that the Centrifugal Machines, when tested and dispatched, are incomplete without the electric motors and control panels. The Tribunal applied Rule 2(a) of the General Rules for Interpretation of the Tariff, which states that an article presented unassembled or disassembled should be considered as a complete article if it has the essential character of the finished product. Therefore, the value of the bought-out items should be included in the assessable value of the Centrifugal Machines.

2. Admissibility of Cum-Duty Benefit:

The appellants claimed the benefit of treating the amount realized as cum-duty, arguing that the demand should be recalculated accordingly. The Tribunal agreed with this submission, noting that the benefit of cum-duty should be extended to the appellants.

3. Adjustment of Duty Already Paid on Bought-Out Items:

The Tribunal noted that the Commissioner had previously extended the benefit of adjusting the duty already paid on bought-out items in the order dated 18.12.1989, which was not challenged by the Revenue. Consequently, the Tribunal held that the adjustment of duty paid on bought-out items should be allowed while calculating the differential duty.

4. Imposition of Penalties on the Appellants:

The Tribunal found that no penalty should be imposed on the appellants. The initial order dated 18.12.1989 had already concluded that no penalty was imposable, and this aspect was not challenged by the Revenue. Given the ongoing dispute and the interpretative nature of the issue, the Tribunal set aside the penalties imposed on the appellants.

5. Interpretation of Relevant Legal Precedents and Rules:

The Tribunal considered various legal precedents, including the decisions in Electronics Corporation of India Ltd., MIL India Ltd., and others. The Tribunal noted that the Hon'ble Supreme Court in MIL India Ltd. had held that the inclusion of the value of bought-out items depends on the facts of each case. The Tribunal also referred to Rule 2(a) of the General Rules for Interpretation of the Tariff, which supports the inclusion of the value of bought-out items if the article has the essential character of the finished product.

Conclusion:

The Tribunal set aside the impugned orders and remanded the matter to the original adjudicating authority for fresh decision, specifically for the re-computation of differential duty after adjusting the duty paid on bought-out items and treating the value as cum-duty. The penalties imposed on the appellants were also set aside. The adjudicating authority was directed to provide the appellants with a reasonable opportunity to present their case before finalizing the amounts.

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