Free-supplied capital goods and job work exemption: amended notification scope prevented addition to SSI valuation.

The amended scope of Notification No. 214/86-C.E. was applied to capital goods used in job work, so free-supplied capital goods were not to be added to the assessable value for Small Scale Industry exemption purposes. The article notes that the goods were received under prescribed challans and returned after use, and that the department's attempt to treat the activity as complete manufacture was rejected where the notification and rule conditions were otherwise satisfied. On that basis, the demand and penalty were stated to be unsustainable, with consequential relief following.

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Issues: Whether the value of capital goods supplied free of cost by customers and used in manufacture was required to be included in the assessable value for computing the Small Scale Industry exemption limit, and whether the benefit of Notification No. 214/86-C.E. was available to the appellant.

Analysis: The appellant received capital goods under Annexure-II challans and returned them after use through the prescribed records. The Department treated the activity as complete manufacture and denied the facility under Rule 57S(7) of the Central Excise Rules, 1944. The Tribunal accepted the appellant's reliance on the amended scope of Notification No. 214/86-C.E., noting that after amendment by Notification No. 68/95-C.E. dated 16-3-1995, the exclusion no longer covered machinery and similar capital goods, and that the notification's benefit extended to capital goods used in job work.

Conclusion: The value of the free-supplied capital goods was not required to be added in the manner adopted by the Revenue, and the appellant was entitled to the benefit of Notification No. 214/86-C.E.

Final Conclusion: The demand and penalty could not be sustained, and the appeal succeeded with consequential relief.

Ratio Decidendi: Where amended exemption notification language extends its benefit to capital goods used in job work, the value of such goods cannot be excluded from the benefit merely by treating the activity as full manufacture if the statutory and notification conditions otherwise support the claim.

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