2024 (8) TMI 9 - AT - Central Excise

Valuation - inclusion of cost of free supply materials in the assessable value in terms of Rule 10 (A) (iii) of Central Excise Valuation Rules 2000, read with Rule 6 of the said Rules - time limitation - penalty - revenue neutrality. Whether the demand of duty raised invoking Rule 10A (iii) read with Rule 6 of Central Excise Valuation Rules, 2000 alleging that the value of goods supplied free of cost by the principal manufacturer has to be included to arrive at the assessable value (transaction value) is legal and proper? - HELD THAT - The provisions of Rule 10A can be applied when excisable goods are produced or manufactured by a job worker on behalf of a person and cleared to the buyer of the principal and/or cleared to a depot or a consignment agent. The intention of the Legislature was to capture the tax on the goods, on the value of the said goods when cleared to the ultimate consumers. In the case in hand, it is found that provisions of Rule 10A (i) and (ii) does not apply as recorded correctly by the first appellate authority. Provisions of Rule 10A (iii) gets attracted as 10A(i) or (ii) does not apply. The said provision (iii) very clearly mandate that in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable shall mutatis and mutandis apply for determination of value of the excisable goods. The provisions under Rule 10 A of Central Excise Valuation (Determination of Price of excisable goods), Rules 2000 has to be applied. In the present case, the Cenvated raw materials have been supplied free of cost to the appellant by the principal manufacturer. However, while clearing the wiring harness, the appellant has not included the value of these free materials in the assessable value - The cost of the intermediate product has been included for arriving at the assessable value by the principal manufacturer who has availed the credit on the free inputs supplied. The principal manufacturer would be eligible to avail credit of duty paid on intermediate product (wiring harness) by the appellant. The whole situation is revenue neutral. Time Limitation - Penalty - HELD THAT - There is no positive act of suppression established against the appellant except for the allegation that the value of free materials was not included for payment of central excise duty. These free materials have been received by the appellant from the principal manufacturer on job work challans. These being the facts, the invocation of extended period cannot sustain. For this reason, the demand raised invoking the extended period requires to be set aside - For the same reasons, the penalty imposed in respect of both show cause notices are set aside. The appellant is liable to pay duty along with interest for the normal period only. Appeal allowed in part.

Summary

Issues Involved:
1. Inclusion of cost of free supply materials in the assessable value.
2. Applicability of Rule 10A and Rule 6 of Central Excise Valuation Rules, 2000.
3. Invocation of extended period for demand.
4. Imposition of penalties.

Issue-Wise Detailed Analysis:

1. Inclusion of Cost of Free Supply Materials in the Assessable Value:
The appellants are engaged in manufacturing wiring harness and received certain materials free of cost from the principal manufacturer. The department contended that the cost of these free supply materials should be included in the assessable value of the goods, as per Rule 10A(iii) of the Central Excise Valuation Rules, 2000, read with Rule 6. The free supply materials were considered additional consideration, which should be added to the transaction value. This led to the issuance of show cause notices for different periods, demanding duty along with interest and imposing penalties.

2. Applicability of Rule 10A and Rule 6 of Central Excise Valuation Rules, 2000:
The method of valuation for job work goods under Rule 10A was introduced on 01.04.2007. The appellant paid duty without including the cost of the free raw materials. The department argued that Rule 10A(iii) and Rule 6 should be applied, which considers free supply materials as additional consideration. However, the appellant argued that Rule 6 should not apply as the principal manufacturer did not sell the wiring harness but used it for further manufacture, making the situation revenue neutral. The principal manufacturer availed Cenvat credit on the free supplies, and the appellant did not avail credit on such materials.

3. Invocation of Extended Period for Demand:
The department invoked the extended period alleging suppression of facts with intent to evade duty. The appellant argued that the demand from April 2007 to January 2010 was raised by invoking the extended period, but the figures were taken from the appellant's accounts, and they discharged duty based on their bona fide belief. The issue was interpretational, and there were pending litigations regarding the method of arriving at the assessable value. The Tribunal found that the invocation of the extended period could not sustain as there was no positive act of suppression by the appellant.

4. Imposition of Penalties:
The penalties were imposed on the appellant for not including the value of free materials in the assessable value. The Tribunal noted that the appellant discharged central excise duty on the products cleared and there was no suppression of facts. The invocation of the extended period was set aside, and consequently, the penalties imposed were also set aside. The appellant was held liable to pay duty along with interest for the normal period only.

Conclusion:
The Tribunal modified the impugned orders, setting aside the demand raised invoking the extended period and the penalties imposed. The appellant was directed to pay duty along with interest for the normal period only. The appeals were partly allowed with consequential reliefs, if any. The miscellaneous application for change of cause title due to re-organisation of the Commissionerate was also allowed.