2016 (2) TMI 681 - AT - Central Excise

Reversal of CENVAT credit - Valuation of goods sold from depot - Duty demand on the additional value recovered on the goods cleared from depot under composite contracts - Held that - The learned Counsel has very correctly determined the method of arriving at the additional amounts received at depot, which can be attributed to the assessable value of the goods manufactured by them at the factory gate. It is arrived at after deducting (i) Sales tax, (ii) excise duty paid at factory, (iii) CENVAT Credit reversed for inputs cleared as such and, (iv) assessable value of manufactured goods and inputs cleared as such from the gross composite price at the depot. The differential assessable value needs to be taxed. So far as rate of duty applicable on the goods is concerned, it is noted that there is no evidence that any activity was being undertaken on the said goods at the depot. The goods are cleared from the depot in the shape in which they were received, although as part of a larger basket of goods, also containing certain inputs cleared as such. In these circumstances, it cannot be said that a different rate of duty can be applied to the parts manufactured by the appellant in their factory premises. The rate of duty is fixed when the parts leave the factory. It is only the value that needs to be re-determined in view of composite contracts. In view of the above, it is clarified that the rate of duty applicable on the differential assessable value recovered at the depot premises attributable to the products manufactured by them would be the rate applicable to the said goods when they were cleared from the factory premises. No different rate can be applied to such goods. It is seen that the learned Counsel and learned AR were unable to immediately give the revised calculation of duty. The impugned order is therefore set aside and the matter is remanded to the original adjudicating authority to determine the liability on the above terms.

Summary

Issues:
1. Calculation of differential value for goods sold under composite contracts.
2. Applicability of duty rate on the differential value.
3. Determination of assessable value for goods manufactured at factory gate.

Analysis:
1. The appellants were clearing parts of X-ray machines/instruments and bought-out items under composite contracts. Show-cause notices were issued demanding duty on the additional value recovered on goods sold from the depot. The appellants calculated the gross assessable value of goods sold at the depot by deducting sales tax, excise duty, and assessable value of manufactured goods and inputs cleared. They paid duty at 5%/8%, applicable to medical equipment, on the excess differential value. The Revenue sought to demand duty at higher rates.

2. The appellant's counsel challenged the calculation method for the differential value and argued for the 5% or 8% duty rate applicable to medical equipment. The net assessable value recovered at the depot was determined after deducting various components from the gross value of the composite contract. The Revenue relied on the impugned order.

3. The Tribunal noted that the appellants were clearing parts and inputs to their depot for sale under composite contracts. The assessable value needed revision for goods manufactured by the appellants, while the liability for inputs cleared was limited to reversal of credit. The differential assessable value attributed to goods manufactured needed to be taxed. The duty rate applicable was the rate when goods left the factory, and no different rate could be applied. The matter was remanded for the original authority to determine the liability based on these terms.