Bought-out replacement spares escape excise valuation, but excess sales tax collection can be added and extend limitation.

Bought-out parts and accessories supplied independently as replacement spares are not part of assessable value for central excise because no manufacturing activity is involved in their clearance. By contrast, any sales tax amount collected in excess of the tax actually remitted to the Government is includible in assessable value. Where invoices and RT-12 returns do not disclose such excess remittance mismatch, extended limitation is available and penalty may be sustained, subject to reduction on the facts. The article therefore distinguishes between exempt independent spare supplies and excess tax collections that affect valuation.

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Issues: (i) Whether the value of bought-out parts and accessories supplied independently as replacement spares was includible in the assessable value for central excise duty. (ii) Whether the amount collected as sales tax in excess of the amount actually paid to the Government was includible in the assessable value and whether extended limitation and penalty were attracted.

Issue (i): Whether the value of bought-out parts and accessories supplied independently as replacement spares was includible in the assessable value for central excise duty.

Analysis: The parts and accessories supplied along with the main machine were already taken into account in the assessable value. The dispute related only to supplies made independently as replacement spares. Those items were bought-out goods and, when supplied as such, no manufacturing activity was involved. In such a situation, no excise duty liability arose on their clearances.

Conclusion: The demand on this count was set aside in favour of the assessee.

Issue (ii): Whether the amount collected as sales tax in excess of the amount actually paid to the Government was includible in the assessable value and whether extended limitation and penalty were attracted.

Analysis: Sales tax deduction is available only on actual basis. Any amount collected in excess of the amount actually remitted to the Government formed part of the assessable value. The invoices and RT-12 returns did not disclose that the excess collection had been paid to the exchequer, so invocation of the extended period was justified. On that basis, penalty under Rule 173Q of the Central Excise Rules, 1944 was also sustainable, though the quantum was reduced considering partial success on the first issue.

Conclusion: The demand on this count was upheld, the extended period was sustained, and the penalty was reduced.

Final Conclusion: The appeal succeeded only to the limited extent of setting aside the duty demand on independently supplied bought-out parts and accessories, while the demand relating to excess sales tax collection and the finding on limitation were sustained, with the penalty reduced.

Ratio Decidendi: Bought-out goods supplied independently without any manufacturing activity are not exigible to excise duty, but amounts collected in excess of the actual sales tax paid to the Government are includible in the assessable value, and nondisclosure of such excess collection justifies extended limitation.

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