Customer-supplied mould cost is includible in assessable value, but extended limitation fails without proved suppression of facts.

Customer-supplied moulds used in manufacture were held to have their proportionate cost included in the assessable value of the finished goods, and amortization had to be computed on the basis of the number of goods capable of being produced from the moulds rather than actual removals. However, suppression of facts was not established because statutory records, contractual terms, classification, and price particulars were disclosed and the department had approved them; the extended period of limitation was therefore unavailable. On the same footing, penalty under Section 11AC, penalty under Rule 173Q, and interest under Section 11AB were not leviable. The duty demand on merits was sustained, but the extended-period demand and consequential penal and interest demands were set aside.

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Issues: (i) whether the proportionate cost of customer-supplied moulds was includible in the assessable value of the finished goods and whether amortization should be based on actual removals or on the number of goods capable of being manufactured from the moulds; (ii) whether suppression of facts was established so as to justify invocation of the extended period of limitation and demand of duty for that period; (iii) whether penalty under Section 11AC of the Central Excise Act, 1944, penalty under Rule 173Q of the Central Excise Rules, 1944, and interest under Section 11AB of the Central Excise Act, 1944 were leviable.

Issue (i): whether the proportionate cost of customer-supplied moulds was includible in the assessable value of the finished goods and whether amortization should be based on actual removals or on the number of goods capable of being manufactured from the moulds

Analysis: The issue was governed by the Larger Bench view that the cost of moulds supplied free by customers forms part of the assessable value of the moulded goods. On the method of amortization, the relevant basis is the number of units capable of being produced from the mould, not merely the number of units actually removed. The earlier contrary view was treated as resolved by the Larger Bench ruling.

Conclusion: The cost of the moulds was includible in the assessable value and amortization had to be computed on the basis of the number of goods capable of being manufactured from the moulds. This issue was decided against the assessee.

Issue (ii): whether suppression of facts was established so as to justify invocation of the extended period of limitation and demand of duty for that period

Analysis: The record showed maintenance of statutory documents and disclosure of contractual terms, including price and classification particulars. The department had approved the classification and price lists and was expected to notice the free supply of moulds from those materials. In these circumstances, the element of deliberate suppression or intent to evade duty was not made out, particularly when the legal position itself had been the subject of conflicting Tribunal views.

Conclusion: Suppression of facts was not established and the extended period of limitation could not be invoked. This issue was decided in favour of the assessee.

Issue (iii): whether penalty under Section 11AC of the Central Excise Act, 1944, penalty under Rule 173Q of the Central Excise Rules, 1944, and interest under Section 11AB of the Central Excise Act, 1944 were leviable

Analysis: Once suppression and intent to evade duty were held absent, the jurisdictional basis for mandatory penalty and associated penal consequences failed. The same factual foundation was also insufficient for interest demand on the footing adopted in the impugned order.

Conclusion: Penalty under Section 11AC, penalty under Rule 173Q, and interest under Section 11AB were not leviable. This issue was decided in favour of the assessee.

Final Conclusion: The duty liability on the includible mould cost was sustained on merits, but the demand for the extended period and the consequential penal and interest demands were set aside, leaving the assessee only partially successful.

Ratio Decidendi: Where customer-supplied moulds contribute to the manufacture of finished excisable goods, their proportionate cost is includible in assessable value, but extended limitation and mandatory penalty cannot be invoked in the absence of proved suppression of facts and intent to evade duty.

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