2018 (5) TMI 303 - AT - Central Excise

Valuation - inclusion of bought out items supplied by the Appellant in the assessable value - some of the show cause notices were issued on the ground that the value of bought out items supplied by the Appellant is includible in the value of the contract price and duty was demanded on said contract/ agreement value after deducting the value of the Appellant s own manufactured goods as appearing in ER-1 Returns. In another set of show cause notices it was alleged that the Appellant have produced the excisable goods during installation of plants and the same were installed in sugar plants and therefore liable for duty on goods. Held that - We are unable to comprehend as to what is the basis of such demands. The show cause does not specify as to what are the bought out goods and how they have been considered as critical goods and what is the basis of arriving at assessable value. Even in case of show cause notices wherein it was alleged that the goods manufactured on location were excisable, it is not forthcoming from the show cause notice as to how the duty computation was made on whole contract price. Notably many of the contracts entered into by the Appellant in this appeal are only for supply of goods and supervision of erection and commissioning and thus stands of different footing from the agreements where the Appellant themselves undertook the erection activity. The demand has been made considering the contract price as value of goods. We find from the agreement that the said agreement is for supply of goods for the 80 TPH Boiler and supervision of erection and commissioning. The Appellant themselves did not carry out erection or commissioning of the said Boiler but after supply of goods only supervised the erection. In such case no duty can be demanded from the Appellant as they are only supplier of goods. It is not the allegation of the department that the Appellant s own manufactured goods and the bought out goods when put together would result into emergence of new product i.e Boiler. What has come into existence at site are huge boiler systems which were part of power systems or whole sugar manufacturing sections or plants. Undoubtedly the whole property which came into existence are immovable property. Without dismantling these systems they cannot be shifted. Thus there is no reason to demand duty on the contracts undertaken by the Appellant. Further as far as demand of duty under the guise of bought out goods is concerned we find that when the bought out goods are not being part of any excisable goods at the time of their clearances in that case no duty can be demanded. There is no reason to demand duty on the bought out goods as the Appellant has not manufactured any goods which are recognizable as excisable goods. CENVAT credit on bought out items - Held that - when revenue seeks to demand duty on the value of bought out goods the appellant shall be entitled for cenvat credit of duty paid on such bought out goods - credit allowed. N/N. 67/95-CE dt. 16.3.1995 - Held that - capital goods manufactured and used within the factory of production shall be exempted - As per the facts of the case the machines which undoubtedly capital goods falling under Chapter 84/85 erected and installed within the Sugar Mills product of which i.e. Sugar/Molasses etc. is liable to duty. Thus all the conditions of N/N. 67/95-CE stands fulfilled - benefit of notification allowed. Time limitation - penalty - Held that - the facts were in the knowledge of the revenue since very beginning and even earlier to the demand confirmed against the Appellant which was eventually set aside by the Tribunal - extended period and penalty cannot be invoked. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Inclusion of the value of bought-out items in the assessable value of the goods.
2. Determination of excisability of goods manufactured and installed at the customer’s site.
3. Eligibility for exemption under Notification No. 67/95-CE.
4. Applicability of extended period for demand and imposition of penalties.

Issue-wise Detailed Analysis:

1. Inclusion of the Value of Bought-Out Items in the Assessable Value:
The adjudicating authority determined that the value of bought-out items, which are essential for the functionality of the goods contracted by the buyer from the Appellant, should be included in the transaction value. This decision was based on the contract for an 80 TPH Boiler, where the Appellant was responsible for designing, procuring, manufacturing, and supplying the boiler, including critical components purchased from other vendors. The authority concluded that the completion of the manufacturing process at the customer’s site, using these bought-out items, necessitated their inclusion in the assessable value. However, the Appellant argued that the bought-out items were directly delivered to the site and were already duty-paid, thus should not be included in the assessable value.

2. Determination of Excisability of Goods Manufactured and Installed at the Customer’s Site:
The adjudicating authority held that the Appellant manufactured excisable goods (e.g., Mill House, Cane Unloader, etc.) at the customer’s site, which were movable and could be dismantled and reassembled. The Appellant contended that these items, once installed, became immovable property and thus non-excisable. They relied on Supreme Court decisions and a CBEC circular stating that goods incapable of being sold, shifted, and marketed without dismantling are considered immovable and non-excisable. The Tribunal agreed with the Appellant, noting that the goods in question were part of large systems (e.g., boilers) permanently attached to the earth, and their removal would require dismantling, making them non-excisable.

3. Eligibility for Exemption under Notification No. 67/95-CE:
The Appellant argued that even if the goods were considered excisable, they were eligible for exemption under Notification No. 67/95-CE, which exempts goods manufactured and used within the factory of production. The Tribunal found that the goods, being capital goods used within the sugar mills, met the conditions of the notification. Therefore, even if the Appellant's activities were considered manufacturing, the goods would still be exempt from duty under this notification.

4. Applicability of Extended Period for Demand and Imposition of Penalties:
The Tribunal noted that the facts were known to the revenue from the beginning, and a previous demand on similar grounds had been set aside by the Tribunal and upheld by the High Court. Therefore, there was no suppression or malafide intent on the part of the Appellant. Consequently, the Tribunal held that invoking the extended period for demand and imposing penalties was not justified.

Conclusion:
The Tribunal concluded that the demand and penalties confirmed against the Appellant were not sustainable. The goods installed at the customer’s site were considered immovable property and non-excisable. Additionally, the bought-out items directly delivered to the site were not part of any excisable goods, and the Appellant was eligible for exemption under Notification No. 67/95-CE. The Tribunal set aside the impugned order and allowed the appeal with consequential reliefs.

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