Bought-out site-supplied items excluded from assessable value; extended limitation and penalty failed for lack of suppression.

Bought-out items such as bolts, nuts and corner plates, when supplied separately for installation at the customer's site and not manufactured by the assessee, were held outside the assessable value of the manufactured storage system under section 4 of the Central Excise Act, 1944. The demand was also held time-barred because the department had prior knowledge of the trading and clearance pattern, so extended limitation could not be invoked without proof of suppression with intent to evade duty. On the same footing, the penalty under section 11AC was not sustainable. The duty demand and penalty were set aside.

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Issues: (i) Whether the value of bought-out items such as bolts, nuts, corner plates and similar components cleared to the site along with manufactured parts of storage systems was includible in the assessable value under section 4 of the Central Excise Act, 1944; (ii) Whether the demand was barred by limitation and the penalty under section 11AC of the Central Excise Act, 1944 was sustainable.

Issue (i): Whether the value of bought-out items such as bolts, nuts, corner plates and similar components cleared to the site along with manufactured parts of storage systems was includible in the assessable value under section 4 of the Central Excise Act, 1944.

Analysis: The items in question were admitted to be bought-out goods and not manufactured by the appellant. They were supplied separately for installation at the customer's site and were not part of the manufactured components cleared on payment of duty. The reasoning followed settled authority that bought-out items used at site, even if necessary for assembly or functionality, do not form part of the assessable value of the manufactured goods when they are distinct commercial items already subject to duty.

Conclusion: The value of the bought-out items was not includible in the assessable value. The issue was decided in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation and the penalty under section 11AC of the Central Excise Act, 1944 was sustainable.

Analysis: The department had prior knowledge of the appellant's trading and clearance pattern through earlier intimations and correspondence, while the show cause notice was issued much later without adequate basis for alleging suppression with intent to evade duty. On these facts, invocation of the extended period was unjustified, and the foundation for equal penalty under section 11AC also failed.

Conclusion: The demand was held to be time-barred and the penalty under section 11AC was not sustainable. The issue was decided in favour of the assessee.

Final Conclusion: The duty demand and penalty were set aside on both merits and limitation, and the appeal succeeded.

Ratio Decidendi: Bought-out items supplied separately for installation do not become includible in the assessable value of manufactured goods merely because they are used in assembling the final system at site, and the extended period cannot be invoked absent a substantiated allegation of suppression with intent to evade duty.

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