2023 (3) TMI 633 - AT - Central Excise

Valuation - free materials used in connection with the manufacture of the final product Tiltable Tile Cab Assembly which was cleared back to ALL on payment of duty without following the procedure laid down in notification no 214/86 CE dated 23/05/86 as amended - deviation from the provisions of Rule 4 (5) (a) of Cenvat Credit Rules, 2004 (CCR) or not - HELD THAT - Tribunal had occasions to go through a similar issue in its judgment in the case of SRF LTD. VERSUS COMMISSIONER OF C. EX., CHENNAI-I 2007 (3) TMI 613 - CESTAT, CHENNAI wherein it had set aside the order of the lower authority wherein the issue regarding the manufacture of goods involving free receipt of inputs by the appellant at the intermediate stage of manufacture was involved. The Hon ble Tribunal relied upon the Hon ble Apex Court s judgment in INTERNATIONAL AUTO LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BIHAR 2005 (3) TMI 132 - SUPREME COURT , where in it was held that in a case where a manufacturer supplied inputs free of cost to the manufacturer of intermediate products, it was not necessary to include the cost of such material in the assessable value of the intermediary products as the manufacturer of the final product was eligible for the credit of duty paid on all inputs and the intermediary product for clearance of the final product. Operation of the MODVAT scheme on the manufacturer of final product has rendered the valuation dispute of the intermediary product in question of no consequence. Appeal allowed.

Summary

Issues:
- Deviation from Cenvat Credit Rules
- Redetermination of transaction value under Central Excise Act
- Appeal against Order-in-Appeal No. 183 & 184/2013
- Applicability of MODVAT scheme
- Inclusion of free supply of items in the value of final product

Deviation from Cenvat Credit Rules:
The appellant, engaged in manufacturing automobile parts, received free input materials from a supplier. These materials were used in manufacturing final products cleared back to the supplier on payment of duty without following the prescribed procedure. The authorities confirmed duty with interest and imposed a penalty for this deviation from Rule 4(5)(a) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld the duty demand but reduced the penalty, taking a lenient view.

Redetermination of transaction value under Central Excise Act:
Due to the use of free materials in manufacturing, the transaction value was challenged under Section 4(1)(a) of the Central Excise Act, 1944. Two show cause notices were issued for different periods, and the authorities confirmed duty, interest, and imposed penalties. The Commissioner (Appeals) upheld the duty demand but reduced the penalty.

Appeal against Order-in-Appeal No. 183 & 184/2013:
The appeal was filed challenging Order-in-Appeal No. 183 & 184/2013 dated 8.5.2013. The appellant argued that the value of free supplied items should not be included in the value of the final product cleared on payment of duty. Citing the Supreme Court's ruling in International Auto Ltd. Vs. CCE, Bihar, the appellant contended that under the MODVAT scheme, the final product's cost should include the inputs' cost, allowing for credit at the time of final product clearance.

Applicability of MODVAT scheme:
The appellant relied on various judgments, including Dymoslear Automotive India Pvt. Ltd. Vs. CCE, Chennai, to support the argument that free supplied raw materials need not be included in the assessable value. The Tribunal referred to previous cases where similar issues were addressed, emphasizing that the MODVAT scheme allows for adjustments and credits, rendering the valuation dispute of intermediary products inconsequential.

Inclusion of free supply of items in the value of final product:
Based on the cited judgments and the interpretation of the MODVAT scheme, the Tribunal set aside the impugned order and allowed the appeals, granting consequential relief as per the law. The Tribunal's decision was influenced by the consistent application of legal principles across various cases and the precedence set by higher courts in similar matters.