2014 (10) TMI 443 - AT - Central Excise

Valuation of goods - Inclusion of assessable value of the Air Brake equipment manufactured and cleared by assessee for Railways - Held that - Appellant manufactured certain Air Brake Equipments and cleared the same from their factory to Integrated Coach Factory, Chennai of the Railways. Pipes and pipe fittings of the Air Brake systems were bought from the outside and supplied separately to the ICF, Chennai and thereafter the goods manufactured and cleared by the appellant along with bought out pipes and pipe fittings were installed in the Railways Coaches as Air Brake Systems. In our view since what had been manufactured and cleared by the appellant was Air Brake Equipment and this is not a case of where bought out items had been brought to the factory for use in the manufacture of the final products, the value of bought out items would not be includible in the assessable value. Similarly the installation of the Air Brake equipment has nothing to do with the manufacture of the equipments and hence the charges for the same are not includible in the assessable value of the Air Brake equipment - Decided in favour of assessee.

Summary

Issues:
Assessable value determination for Air Brake Equipments manufactured for Railways, inclusion of pipes and pipe fitting cost and installation charges in the assessable value, duty demand confirmation, penalty imposition under Section 11AC.

Assessable Value Determination:
The case involved a manufacturer of Air Brake Equipments for Railways who supplied goods manufactured by them along with purchased pipes and pipe fittings to the Integrated Coach Factory, Chennai. The Central excise invoices issued by the manufacturer only mentioned the price charged for Air Brake equipments, on which Central Excise duty was paid. The Department contended that the cost of pipes, pipe fittings, and installation charges should be included in the assessable value of the Air Brake equipment. A Show Cause Notice was issued, leading to a duty demand confirmation of Rs. 12,37,087 for the period 2001-2002, along with interest and penalty under Section 11AC. The Commissioner (Appeals) upheld the Additional Commissioner's order, prompting the filing of the current appeal.

Inclusion of Pipes and Pipe Fitting Cost and Installation Charges:
The Department argued that since the Air Brake Systems were installed in the coaches at the Integrated Coach Factory, Chennai, and the manufacturer was responsible for both supplying and installing the equipment, the cost of pipes, pipe fittings, and installation charges should be part of the assessable value. The contention was that the Air Brake Equipment was non-functional without pipes and fittings, and only became operational after installation. However, the Tribunal disagreed, stating that the manufacturer's supply of Air Brake Equipment, along with purchased pipes and fittings, did not warrant inclusion of the cost of bought-out items in the assessable value. The installation charges were also deemed unrelated to the manufacturing process of the equipment, thus not includible in the assessable value.

Duty Demand Confirmation and Penalty Imposition:
The Tribunal, after considering the submissions and records, found that the appellant's manufactured and cleared products were Air Brake Equipment, distinct from the bought-out pipes and fittings. As the bought-out items were not used in the manufacturing process and the installation charges were not part of the manufacturing activity, the Tribunal set aside the impugned order, ruling in favor of the appellant and allowing the appeal. Consequently, the duty demand confirmation and penalty imposition under Section 11AC were overturned.