2018 (6) TMI 707 - AT - Central Excise

Valuation - inclusion of free supply of materials - whether the free issue materials supplied by their customer M/s. Saint Gobain is to be included in the value of wooden crates/finished products by the appellant? - Held that - The Hon ble Supreme Court in the case of International Auto Ltd. Vs. Commissioner of Central Excise, Bihar 2005 (3) TMI 132 - SUPREME COURT OF INDIA had analyzed a similar issue and held that while clearing the goods to their principal, the cost of free issue need not be included in the assessable value - demand do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the free issue materials supplied by the customer should be included in the value of the wooden crates/finished products by the appellant.

Analysis:
The case involved the appellant, a manufacturer of wooden crates, who received free issue materials from their customer, M/s. Saint Gobain, for manufacturing the crates. The appellant did not include the value of these free issue materials in the assessable value of the wooden crates. A show cause notice was issued demanding duty under Section 11A of the Central Excise Act, 1944, along with interest and penalty. The appellant paid the duty liability and interest before the notice. The original authority and the Commissioner (Appeals) confirmed the demand. The main issue was whether the free issue materials should be included in the value of the wooden crates. The appellant argued, citing relevant case law, that the cost of free issue materials need not be included in the assessable value, referring to a Supreme Court decision and a Tribunal order in a similar case.

The Tribunal referred to a previous case involving Rane Brake Lining where it was held that the cost of free inputs/raw materials supplied need not be included in the assessable value of the finished products. The Tribunal noted that the situation was revenue neutral, following judgments from the Supreme Court dismissing appeals by the department in similar cases. Therefore, the Tribunal concluded that the demand for duty cannot be sustained. The impugned order was set aside, and the appeal was allowed with consequential relief, if any. The Tribunal's decision was based on the principle that the cost of free issue materials need not be included in the assessable value of the finished products, as established by previous legal precedents.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the demand for duty based on the inclusion of free issue materials in the assessable value of the wooden crates was not valid. The decision was supported by legal precedents and established principles regarding the treatment of free issue materials in the valuation of manufactured goods. The appeal was allowed, and the impugned order was set aside, providing relief to the appellant.