Excise Duty on tools cost - Regarding, Central Excise

[SAKTHIVEL PONNUSWAMY]

Dear All,

Could you please give your views in the following situation on applicability of central excise duty or not?

A Ltd. is the manufacturer of automobile components, whereas its customer, B Ltd., requested for components suited for their requirements. To manufacture such a components a special purpose tool required to be developed. A Ltd. developed tools in its factory with the facility available in the A Ltd.'s factory.

Now A Ltd. is raising an invoice for the tools developed for B Ltd.'s Components and requested B Ltd. to pay the invoice upfront. A Ltd. Clearly communicated to B Ltd. that it will not amortize tool cost in the final invoice of components manufacture by using those tools.

In this scenario,

1. A Ltd need to charge Excise duty in the tool invoice?

2.If A ltd. charges excise duty in the tool invoice, B Ltd. is not agreeing for the same on the ground that the movement of goods not involved, hence they cannot take cenvat credit of the duty charged in the tools invoice

3.is it required to sent back the tools within 2 years, if so, from which date the 2 years period can be calculated.

Regards,

SAKTHIVEL PONNUSWAMY

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

1. A Ltd. is the manufacturer of automobile components.

2. A's customer, B Ltd., requested for supply of components suited for their requirements.

3. A Ltd. developed tools in its factory with the facility available in the A Ltd.'s factory, for the manufacture of components required by 'B' Ltd.

Since both the tools and components are manufactured by A, A need not pay duty on the tool developed by A under Notification No. 67/95-CE dated 16.3.95 as amended, since the tool is developed and captively consumed by A.

After completing the supply schedule if A returned the tool to B, he can do so on payment of duty by paying duty of depreciated value of the tool. But B cannot avail credit of the duty paid on the tool since he is not going to use the same for manufacture of any other components at his factory. If he insists returning of the tool then he has to bear the burden of duty paid on the returned tool. For calculating the depreciated value of the tool please refer to rule 5A of Cenvat Credit Rules, 2004 since tool is a capital goods.

[YAGAY AND SUN]

Department may ask to pay the Central Excise Duty on Amortization Cost of Tools even if not being charged by A to B.