2017 (4) TMI 1217 - AT - Central Excise

Valuation - bought-out items such as bolts, nuts, corner plate, locking pin etc. - Department took the view that these bought-out items are essential and integral to the storage systems so assembled at the customers site and therefore their cost is required to be included in the assessable value - Held that - once these bought out items are used at the customer s site for installation of the storage system, they would become part of the immovable property attached to the ground and hence would not be exigible - value of bought-out items like bolts, nuts, corner plate etc. cannot be included in the assessable value of other manufactured goods cleared by the appellant in terms of section 4 of the Central Excise Act, 1944. Extended period of limitation - Held that - the said assessee suppressed the fact with intent to evade payment of duty, there has been no attempt or elaboration in the notice to justify such an allegation - extended period and penalty not imposable. Appeal allowed - decided in favor of appellant.

Issues:
1. Inclusion of value of bought-out items in assessable value for duty calculation.
2. Imposition of penalty under section 11AC of the Act and Rule 25 of Central Excise Rules, 2001/2002.
3. Validity of show cause notice and limitation period.

Issue 1: Inclusion of value of bought-out items in assessable value for duty calculation:
The case involved the appellants, who manufactured storage systems and cleared components like slotted angles, panels, bolts, nuts, etc., at customers' sites. The dispute arose when the department sought to include the value of bought-out items in the assessable value of the goods cleared by the appellants. The appellants argued that these bought-out items were not integral to the storage systems and were supplied separately. They relied on various case laws to support their position. The Tribunal examined the arguments and case laws cited, ultimately holding that bought-out items like bolts, nuts, corner plates, etc., cannot be included in the assessable value of the manufactured goods for duty calculation. The Tribunal emphasized that once these items were used at the customer's site for installation, they became part of the immovable property and were not exigible to duty.

Issue 2: Imposition of penalty under section 11AC of the Act and Rule 25 of Central Excise Rules, 2001/2002:
The original adjudicating authority had imposed penalties on the appellants under section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2001/2002. In the appeal, the Commissioner (Appeals) set aside the penalty under Rule 25 but upheld the penalty under section 11AC. However, the appellants contested the penalty imposition, arguing that the show cause notice itself was hit by limitation. The Tribunal, after considering the timeline of events and correspondences between the department and the appellants, concluded that the show cause notice issued in 2006 was indeed hit by limitation. The Tribunal found no justifiable reason for the imposition of penalties under section 11AC, given that the department was aware of the bought-out items and their clearances for an extended period without any willful suppression of information by the appellants.

Issue 3: Validity of show cause notice and limitation period:
The Tribunal scrutinized the timeline of communications between the department and the appellants regarding the bought-out items. It noted that the appellants had informed the department of their intention to trade in certain items as early as 2001. Subsequent clarifications were provided by the appellants in 2003. However, the show cause notice was issued in 2006, after a significant delay. The Tribunal observed that the notice lacked elaboration or justification for the allegation of suppression of facts by the appellants. Consequently, the Tribunal held that the show cause notice was clearly hit by limitation. As a result, the appeal succeeded on both the merits and the limitation issue, leading to the setting aside of the impugned order.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT CHENNAI highlights the key issues, arguments presented, relevant case laws cited, and the Tribunal's findings on each aspect of the case.

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