2000 (3) TMI 74 - AT - Central Excise

Customer-supplied mould value must be included in assessable excise duty, but time-barred demand set aside, appeal allowed

CEGAT held that where a customer supplies a mould of substantial value, the contract price for finished goods is not the sole consideration and the money ... Modvat credit of the duty - Valuation (Central Excise) - manufacturers of moulded components of plastic - Additional consideration - Demand - Limitation - HELD THAT:- In the instant case, the price of the finished goods has been fixed between the appellant and the customer. Can one say that the price so fixed is the sole consideration for the sale of the finished product when the mould was supplied by the customer. Without the mould supplied by the customer, which is having substantial value, the product could not have been manufactured. So it is crystal clear that the price of the finished goods was fixed by the appellant and the customer taking into consideration the supply of the mould by the customer. In other words, had the mould not been supplied by the customer, appellant could not have agreed to the price of the finished goods at the price as is evidenced by the contract entered into between them. So, the price of the finished goods fixed in the contract between the parties can safely be taken as not the sole consideration for the sale of the finished product. The other consideration is the value attributable to the use of the mould. In this view of the matter, we are not in a position to agree with the conclusions arrived at by West Zonal Bench, Mumbai in the three decisions referred to earlier. With respect we approve the decision rendered by this Tribunal in Flex Industries Ltd. case [1997 (1) TMI 173 - CEGAT, NEW DELHI]. As far as he is concerned he may be getting benefit of the depreciation. By virtue of this benefit he may be getting other tax benefits, not under the excise law. Whatever be the benefit that is accruing to the customer who supplied the mould, free of cost, to the manufacturer is not of any consequence as far as the finished products manufactured by utilising mould are concerned. Even when the mould has no money value as far as the customer is concerned, it certainly continues to have money value as far as the manufacturer of the finished product is concerned. This is because the product cannot be manufactured without the use of the mould. By the use of mould some money value on account of its user is gained by the manufacturer. This money value so obtained by the manufacturer goes to suppress the value of the finished product. Thereby under the excise law money value that is contributed by the use of the mould should also be reckoned for finding out the duty payable on the finished product. In view of what has been stated above, we uphold the action taken by the Department in imposing differential duty on the appellant on account of the benefit of money value obtained by them by the use of the mould supplied by the customer. Since the entire contract was with the Department, we hold that the manufacturer did not suppress or conceal any fact for the purpose of evading payment of duty. No transaction mentioned in the show cause notice falls within six months immediately preceding the date of notice. The period was from 1-10-1986 to 31-8-1990. The show cause notice was dated 25-10-1991 that is, more than one year after the period mentioned in the notice. The show cause notice is clearly barred by limitation. The demand made in the show cause notice is not legally sustainable. Therefore, we hold that the proceedings initiated against the appellant pursuant to show cause notice dated 25-10-1991 is clearly barred by limitation. Consequently the impugned order has to be set aside in its entirety. We do so. Appeal is allowed Issues Involved:1. Inclusion of amortized cost of moulds and dies in the assessable value of components.2. Applicability of extended period for issuing the show cause notice.Summary:1. Inclusion of Amortized Cost of Moulds and Dies in Assessable Value:The appellants, engaged in manufacturing moulded plastic components, faced a demand for duty based on the non-inclusion of amortized costs of moulds and dies in the assessable value of their components. The Department issued a show cause notice on 25-10-1991, raising a demand of Rs. 45,16,746 for the period from 1-10-1986 to 31-8-1990, and imposed a penalty of Rs. 4 lacs u/r 173Q of the Central Excise Rules, along with confiscation of land, buildings, plant, and machinery u/r 173Q(2).The Tribunal examined conflicting decisions from Flex Industries Ltd. v. CCE, Meerut - 1997 (91) E.L.T. 120 and CCE, Aurangabad v. Marathwada Glass Co. Pvt. Ltd. - 1999 (85) ECR 94. It was concluded that the value of moulds supplied by customers must be included in the assessable value of the finished product, as the moulds are essential for manufacturing the components. The Tribunal upheld the principle of proportional value addition as seen in Flex Industries Ltd. case, rejecting the contrary view from Marathwada Glass Co. Pvt. Ltd.2. Applicability of Extended Period for Issuing the Show Cause Notice:The Tribunal found that the show cause notice issued on 25-10-1991, invoking the extended period of five years, was not justified. The appellants had filed classification lists and price lists during the relevant period, making all transaction details available to the Department. The Tribunal held that there was no suppression or concealment of facts by the appellants, and the Department's delay in noticing the non-inclusion of mould costs did not warrant the extended period. Consequently, the show cause notice was deemed barred by limitation.Conclusion:The appeal was allowed, setting aside the impugned order in its entirety due to the show cause notice being barred by limitation. The Tribunal upheld the Department's action regarding the inclusion of mould costs but invalidated the demand due to the time-barred notice.