2025 (2) TMI 5 - AT - Central Excise

Valuation of Excise duty - inclusion of amortized value of the moulds to the assessable value of the goods manufactured and cleared by the Appellant using the moulds - HELD THAT - Larger Bench decision relied by the Revenue in the matter of M/s Mutual Industries Ltd. 2000 (3) TMI 74 - CEGAT COURT NO. I NEW DELHI though the issue was amortization of mould it was specific to the issue that whether the proportion of such inclusion need to be made even when after successive income tax depreciation cost of the mould became zero. On that issue it is held that cost of such mould has to be included in such value. However the Larger Bench decision is not relevant considering the facts and circumstances of present case. As regards reliance on the M/s Bhor Industries Ltd. the customer of the appellant supplied Dies and tools to the job worker without amortizing the cost of the same. However in Appellant s case adjudication authority admits that the original equipment manufacturers (OEMs) being the customers of the Appellant have amortized the cost of the mould supplied by them and hence the above judgment cannot be applied to the facts of the present case. As regarding the reliance on the decisions of the Larger Bench in the matter of M/s. Mutual Industries Ltd. Vs. Collector of Central Excise Mumbai 2000 (3) TMI 74 - CEGAT COURT NO. I NEW DELHI the movement of mould were neither undertaken under the job work challan nor the job worker amortize the value of the free issue material. However in the present case movement of mould from OEMs to the appellant was under job work challan and further the value of the mould in the present case is amortized while clearing the final product which includes the intermediate product manufactured and supplied by the appellant. The impugned order confirming the demand along with the interest and imposition of penalty is unsustainable. Conclusion - The intermediate product manufacturers are not liable for duty on free supply inputs when the final product manufacturer avails credit under the MODVAT Scheme. Appeal allowed.

Summary

The legal judgment concerns the inclusion of the amortized value of moulds in the assessable value of goods manufactured by the appellant, M/s. Kongovi Electronics Private Ltd., under the Central Excise Act, 1944. The appellant challenged the adjudication authority's decision, which confirmed a duty demand based on the amortized value of moulds supplied free of cost by customers.

Issues Presented and Considered:

The core legal issue is whether the amortized value of moulds supplied free of cost by customers should be included in the assessable value of goods manufactured by the appellant under Section 4 of the Central Excise Act, 1944. The Tribunal considered whether the adjudication authority correctly distinguished the appellant's case from the precedent set by the Supreme Court in M/s. International Auto Ltd. v. CC, Kanpur.

Issue-wise Detailed Analysis:

Relevant Legal Framework and Precedents:

The legal framework involves Section 4 of the Central Excise Act, 1944, and Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The precedent case is M/s. International Auto Ltd. v. CC, Kanpur, where the Supreme Court held that the value of free supply inputs could not be added to the value of finished products when the final product manufacturer worked under the MODVAT Scheme.

Court's Interpretation and Reasoning:

The Tribunal found that the adjudication authority incorrectly distinguished the appellant's case from the International Auto precedent. The Tribunal noted that the Supreme Court's decision in International Auto was applicable because the appellant, as an intermediate product manufacturer, did not avail credit of duty paid on inputs, similar to the situation in International Auto.

Key Evidence and Findings:

The Tribunal considered the appellant's argument that the situation was revenue-neutral because the excise duty paid on the final product by the original equipment manufacturer (OEM) included the amortized cost of the moulds. The Tribunal also noted that the appellant was not in a position to know the cost and effective life of the moulds, which were supplied free of cost by the OEMs.

Application of Law to Facts:

The Tribunal applied the legal principles from the International Auto case, determining that the appellant should not be liable for duty on the amortized value of the moulds, as the duty liability on the final product was discharged by the OEMs. The Tribunal found that the adjudication authority's reliance on other cases, such as Bhor Industries Ltd., was misplaced because those cases involved different circumstances.

Treatment of Competing Arguments:

The Tribunal addressed the respondent's arguments by clarifying that the cases cited by the respondent, such as Mutual Industries Ltd., were not applicable to the appellant's situation. The Tribunal emphasized that the movement of moulds under job work challans and the OEMs' amortization of mould costs distinguished the appellant's case from those cited by the respondent.

Conclusions:

The Tribunal concluded that the adjudication authority's order was unsustainable and set it aside. The Tribunal allowed the appeal, granting consequential relief to the appellant in accordance with the law.

Significant Holdings:

The Tribunal upheld the principle established in the International Auto case, affirming that intermediate product manufacturers are not liable for duty on free supply inputs when the final product manufacturer avails credit under the MODVAT Scheme. The Tribunal emphasized the importance of distinguishing between the duty liability of final product manufacturers and intermediate product manufacturers.

The Tribunal's final determination was that the impugned order confirming the demand, interest, and penalty was unsustainable, and the appeal was allowed with consequential relief.