2018 (1) TMI 820 - AT - Central Excise

Valuation - amortization of cost of patterns - appellants amortized the entire cost of these patterns against the first Purchase Order received from M/s.Bharat Earth Movers Ltd. (BEML) for supply of 75 pieces of the castings - The department entertained the view that appellant ought to have amortized the cost of patterns against supply of all castings manufactured using the patterns. Held that - the value of amortization of the pattern supplied free are to be included in the assessable value for discharging the central excise duty. The appellants have amortized the entire cost of the pattern on 75 pieces of castings - Whatever is the No. of pieces manufactured the amount involved is the cost that is ₹ 100000/- on which excise duty is paid and the quantity produced is irrelevant. Appeal dismissed.

Summary

Issues:
1. Amortization of cost of patterns against subsequent purchase orders.
2. Interpretation of Section 4 of the Central Excise Act, 1944.
3. Applicability of Board Circular on apportionment of cost of amortization.
4. Comparison with the decision in Mutual Industries Ltd case.
5. Dispute over inclusion of amortized value of patterns in assessable value for excise duty.

Issue 1: Amortization of cost of patterns against subsequent purchase orders:
The case involved the appellants, engaged in manufacturing CNC Lathes and Iron Castings, who received patterns free of cost from customers. The dispute arose when the department demanded differential duty on clearances made without including the amortized value of patterns for subsequent purchase orders, following the initial amortization against the first order. The appellant argued that they amortized the entire cost against the first order, and subsequent orders did not require additional amortization. The department contended that the cost of patterns should be included for all castings manufactured using the patterns.

Issue 2: Interpretation of Section 4 of the Central Excise Act, 1944:
Section 4 of the Act mandates the inclusion of the value of amortization of patterns in the assessable value for excise duty. The appellant argued that they complied by including the entire amortized cost for the initial 75 pieces, as required by law. They contended that the law only necessitates including the cost of the pattern supplied free in the assessable value, allowing amortization even on a single piece manufactured against the first order.

Issue 3: Applicability of Board Circular on apportionment of cost of amortization:
The appellant relied on a Board Circular allowing apportionment of amortization cost based on the pattern's expected life and the quantity of castings that can be produced. They presented a Certificate of Cost Accountant to support their amortization method. The appellant argued that when the entire cost of the pattern is amortized, there is no duty shortfall.

Issue 4: Comparison with the decision in Mutual Industries Ltd case:
The Commissioner (Appeals) upheld the decision based on the Mutual Industries Ltd case, where it was held that the pattern's value remains even after manufacturing the estimated maximum units. The Larger Bench decision in Mutual Industries Ltd case was considered binding, leading to the dismissal of the appeal.

Issue 5: Dispute over inclusion of amortized value of patterns in assessable value for excise duty:
The appellant's argument centered on the method of amortization, emphasizing that they paid duty on the full pattern value for the initial 75 pieces, irrespective of the total quantity manufactured. The Commissioner (Appeals) relied on the Larger Bench decision and the Board Circular, concluding that the pattern's value persists beyond the estimated units, justifying the inclusion of amortized cost in the assessable value.

In conclusion, the Tribunal dismissed the appeal, upholding the decision that the appellant should include the amortized value of patterns in the assessable value for excise duty, as per the provisions of the Central Excise Act and the precedents set by the Mutual Industries Ltd case and relevant Board Circulars.