Duty liability on sub-assemblies captively used in the manufacture of auto-electrical parts which are cleared at nil rate of duty for manufacture of tractors of PTO HP not exceeding 25 under Notification No. 239/86-C.E., dated 3-4-1986 - Central Excise - 2/87

Duty liability on sub-assemblies captively used in the manufacture of auto-electrical parts which are cleared at nil rate of duty for manufacture of tractors of PTO HP not exceeding 25 under Notification No. 239/86-C.E., dated 3-4-1986 Circular No. 2/87 Dated 18-2-1987 [From F. No. 156/1/87-CX.4] Government of India Ministry of Finance (Department of Revenue) New Delhi Subject : Duty liability on sub-assemblies captively used in the manufacture of auto-electrical parts which are cleared at nil rate of duty for manufacture of tractors of PTO HP not exceeding 25 under Notification No. 239/86-C.E., dated 3-4-1986. Certain manufacturers are engaged in the manufacture of finished auto-electrical components like starter motors, dynamos, alternators, generators, classifiable under Chapter 85 of the Schedule to the Central Excise Tariff Act, 1985. These items, when supplied as original equipment parts for the manufacture of tractors of power take-off horse power not exceeding 25, are entitled to full exemption from central excise duty subject to observance of Chapter X procedure, under notification No. 239/86-C.E., dated 3-4-1986. It has been reported that whereas exemption under the above notification has been allowed on the above finished auto-electrical components supplied as original equipment parts for the manufacture of tractors of power take-off horse power not exceeding 25, the said exemption had not been allowed on the sub-assemblies of the finished auto-electrical components which are manufactured in the same factory and utilised within the factory for the manufacture of finished auto-electrical components, which are finally cleared at the wholly exempted rate of duty in terms of the above-said notification. In other words, excise duty has been demanded at certain places on the sub-assemblies captively consumed in the manufacture of wholly exempted finished auto-electrical components which are cleared as O.E. parts for the manufacture of tractors of power take-off horse power not exceeding 25. 2. The matter has since been examined by the Board. It is observed that the notification No. 239/86-C.E., dated 3-4-1986 speaks of exemption to parts of tractors falling under Chapters 45, 48, 68, 73, 85 or 87 of the Central Excise Tariff, 1985. It would appear that, notwithstanding the exemption available to finished auto-electrical components under the said notification, the sub-assemblies of the finished auto-electrical components, falling under the chapters referred to above, would also qualify for exemption. Accordingly, the Board is of the view that sub-assemblies of finished auto-electrical components (such as starter motors, dynamos, alternators, generators), falling under the chapters referred to in the said notification, and used within the factory of production for the manufacture of finished auto-electrical components, which are finally cleared from the factory at nil rate of duty, as OE parts, for use in the manufacture of tractors of power take-off horse power not exceeding 25, would also qualify for exemption under notification No. 239/86-C.E., dated 3-4-1986, provided that the conditions prescribed in the said notification (including the end-use verification) are satisfied.