Central Excise duty on bought out accessories failed where the goods were optional add-ons and the dispute was revenue neutral.

Central Excise duty on bought out accessories cleared with manufactured equipment was not sustainable where the items such as printers, workstations, modems and telephones merely added convenience or features and the main equipment remained complete without them. The demand also failed on revenue neutrality: the record showed no MODVAT credit had been taken during the disputed period, and the settled position noted that if credit were availed the corresponding duty demand would not survive. The Tribunal therefore upheld deletion of the demand and dismissed the Revenue appeals.

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Issues: Whether the demand of Central Excise duty on bought out items cleared along with the manufactured equipment was sustainable, and whether the principle of revenue neutrality supported deletion of the demand.

Analysis: The bought out items such as printers, PC workstations, modems, cable line equipment, ISDN telephones and terminal adapters were found to be accessories providing additional features and convenience, while the manufactured equipment was complete in itself even without them. The adjudicating authority had held that the assessee did not process these items, did not avail MODVAT credit on them during the disputed period, and therefore was not required to pay duty on their clearance. The order also relied on the settled position that a manufacturer may either avail credit and pay duty or forgo credit and not pay duty on such accessories. The Revenue did not dispute the finding on revenue neutrality, and the Tribunal noted that if credit were availed the duty demand would not be sustainable, making the exercise revenue neutral.

Conclusion: The duty demand on the bought out items was not sustainable, and the Revenue appeals were liable to be dismissed.

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