Free-supplied inputs not added to assessable value where credit is available; duty demand and penalty fail.

Where intermediate goods are manufactured using free-supplied inputs and the final product manufacturer is entitled to credit on those inputs, the cost of the free-supplied materials is not added to the assessable value of the intermediate product under the credit-linked excise valuation scheme. Applying the MODVAT/CENVAT line of decisions and treating Rule 4(5)(a) of the Cenvat Credit Rules, 2004 as pari materia to the earlier provision, the tribunal held that the valuation objection did not survive. On that basis, the duty demand and penalty could not be sustained, and the impugned order was set aside.

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Issues: Whether the value of raw materials supplied free of cost by the buyer was required to be included in the assessable value of the intermediate goods cleared on payment of duty, and whether duty demand and penalty could be sustained on that basis.

Analysis: The dispute concerned manufacture of intermediate goods using free-supplied inputs and their clearance on duty payment. The applicable valuation principle was tested against the MODVAT/CENVAT framework and the earlier line of decisions holding that where the final product manufacturer is entitled to credit on the inputs, the cost of free-supplied materials need not be loaded into the assessable value of the intermediary product. Rule 4(5)(a) of the Cenvat Credit Rules, 2004 was treated as pari materia to the earlier MODVAT provision, and the reasoning in the cited precedents was followed to hold that the valuation dispute had no consequence in such a situation.

Conclusion: The value of free-supplied inputs was not required to be included in the assessable value, and the duty demand and penalty could not be sustained.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief, if any, in accordance with law.

Ratio Decidendi: Where free-supplied inputs are used in the manufacture of intermediate goods cleared for further use in a credit-linked excise scheme, their cost is not to be added to the assessable value of the intermediate product merely because duty was paid on its clearance.

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