2014 (2) TMI 768 - AT - Central Excise

Valuation of goods - inclusion of bought-out item - Whether the value of bought-out LCC (Line Circuit Card) supplied separately as traded goods, along with the EPABX systems, is includible in the assessable value of the EPABX systems for the purpose of charging central excise duty - Held that - EPABX systems were sold without LCCs thereby proving that the EPABX without LCCs was fully manufactured goods and that the supply of LCCs (bought out item) was optional depending upon the requirement of the customers. The LCC is not fitted into the EPABX system at the time of clearance from the appellant s factory, but the same is supplied separately from their trading unit situated within separately demarcated premises. In the case of National Radio and Electronics Co. Limited Vs. Collector of Central Excise, Bombay 1995 (1) TMI 158 - CEGAT, NEW DELHI it was held that, if the bought out items are only optional and if there are instances where the item manufactured by the assessee was supplied without these bought out items as contended on behalf of the party then the value of such items is to be excluded. Further following the decision of Webel Telecommunications (I) Limited Vs. Collector of Central Excise, Calcutta (1987 (10) TMI 151 - CEGAT, NEW DELHI) and Diamond Clock Manufacturing Co. Limited Vs. CCE, Pune (1987 (12) TMI 159 - CEGAT, NEW DELHI), Decided in favor of assessee.

Summary

Issues:
- Inclusion of the value of bought-out Line Circuit Cards (LCCs) in the assessable value of EPABX systems for charging central excise duty.

Detailed Analysis:
1. Issue of Inclusion of LCC Value in Assessable Value:
- The main issue in the appeals was whether the value of bought-out LCCs supplied separately along with EPABX systems should be included in the assessable value of the systems for central excise duty purposes.
- The appellant argued that EPABX systems were sold with or without LCCs, and the purchase of LCCs was optional, not mandatory. They contended that most systems were sold without LCCs, proving that EPABX was a complete product without LCCs.
- The respondent argued that LCC was an essential part of the EPABX system for its functionality and should be included in the assessable value when sold together.
- The Tribunal noted that most EPABX systems were sold without LCCs, indicating that EPABX without LCCs was a fully manufactured product. LCCs were supplied separately and were optional, not integral to the system's operation.
- Referring to previous case laws, the Tribunal held that optional items not essential for the operation of the main product should not be included in the assessable value. Decisions in cases like Webel Telecommunications and Diamond Clock Manufacturing Co. supported excluding the value of optional accessories like LCCs from the assessable value.
- Based on the facts and legal precedents, the Tribunal allowed the main appellant's appeal by setting aside the Order in Appeal that included the value of LCC in the assessable value of EPABX systems.
- Consequently, appeals filed by other appellants were also allowed as the main appeal succeeded on its merits, leading to the setting aside of the respective Orders in Appeal.

2. Judicial Interpretation and Precedents:
- The Tribunal extensively analyzed the nature of the LCCs, their optional inclusion, and the essentiality for the operation of the EPABX systems based on the arguments presented by both parties.
- Citing cases like Webel Telecommunications and Diamond Clock Manufacturing Co., the Tribunal emphasized the importance of examining the optional nature of bought-out items and their integration into the main product for determining their inclusion in the assessable value.
- The Tribunal's decision was guided by the principle that optional accessories, not integral to the main product's functionality, should not be considered in the assessable value, as established in various legal precedents.

3. Final Decision and Disposition of Appeals:
- After thorough consideration of arguments and case records, the Tribunal concluded that the value of bought-out LCCs should not be included in the assessable value of EPABX systems.
- The main appellant's appeal was allowed, leading to the setting aside of the Commissioner's Order in Appeal. Subsequently, appeals filed by other appellants were also allowed as a result of the main appeal's success on its merits.
- The Tribunal's decision, based on legal interpretations and precedents, provided clarity on the assessment of optional components in the assessable value of manufactured goods for central excise duty purposes.

This detailed analysis of the judgment highlights the key issues, legal interpretations, precedents cited, and the final decision rendered by the Appellate Tribunal CESTAT AHMEDABAD in the case involving the inclusion of bought-out Line Circuit Cards in the assessable value of EPABX systems for central excise duty assessment.