2024 (5) TMI 1054 - AT - Central Excise

Manufacturer wins appeal after correctly splitting contract into 70% goods and 30% services for tax purposes

CESTAT Kolkata allowed the appeal in a valuation dispute where the appellant divided a contract into 70% goods and 30% services, paying excise duty only ... Valuation - balance amount collected subsequent to installation of the bearings in the project - Amount received towards supply of goods or services? - Required to be added in the assessable value or not - Non-following of CAS- 4 valuation - extended period of limitation - HELD THAT:- In the present case, without any dispute, the Appellant has divided the contract into two parts and paid any Excise Duty on 70% of the value treating the same as the value of goods supplied. For the balance 30% value of the contract, they have not paid any Excise Duty. For the second portion of this contract value amounting to 30% realization by the Appellant would in fact should be termed as service and the Department should have demanded Service Tax on the same. Considering the fact that the main contractor HCC was awarded the contract under “Works Contract” and both materials and services are involved even in respect of the goods to be cleared by the Appellant, it is clear that designing, installation etc. form part of the services rendered by the Appellant. Therefore, the Revenue is in error in treating this as a valuation case by enhancing the value of manufactured goods to arrive at the quantified/confirmed demand. Non-following of CAS- 4 valuation - HELD THAT:- Since this is not a case where the Appellant is supplying to their own unit and the goods are not cleared on stock transfer basis, they are not required to follow CAS-4 value. Even otherwise, irrespective of the value declared for the manufactured goods cleared, in the normal course on the balance 30% portion the appellant would have been liable to pay the Service Tax. However, the Department has failed to issue the Show Cause Notice demanding the Service Tax. The confirmed demands are not sustainable on merits - the confirmed demand and penalty on the Appellant company is set aside. Time Limitation - HELD THAT:- The SCN has been issued within one year from the date of Audit getting the reply from the appellant. But it is noted that the appellants are registered manufacturer. As such they have been filing their Monthly Returns showing the value adopted by them. Even under the self assessment regime, scrutiny of the ER-1 Returns are still to be taken up by the Range officials. There is nothing to indicate that the self-assessed ER-1 were taken up for scrutiny and any query was raised towards the assessable value adopted by the appellant for their clearances. Therefore, the confirmed demand for the extended period is set aside. The confirmed demand is not sustainable against the Appellant company, the question of imposing penalty on the Director would not arise. Accordingly, the penalty imposed on him is also set aside. Appeal allowed. Issues:- Assessment of excise duty on 30% balance amount in a contract for supply and installation of goods.- Whether the balance 30% amount should be added to the assessable value for excise duty.- Whether the balance 30% amount constitutes a service portion.- Application of extended period provisions for demand confirmation.- Compliance with CAS-4 valuation method.- Imposition of penalty on the Director.Analysis:1. The Appellant, engaged in manufacturing excisable goods, entered into a contract with a construction company for the supply and installation of goods. The dispute arose when the Revenue claimed excise duty on the balance 30% amount not included in the assessable value for the goods supplied.2. The Appellant argued that the balance 30% amount was for service portion related to installation and not material supply. They contended that no excise duty was required on this portion as it was not for material supply but for service provided.3. The Appellant further argued that the goods installed at the site became part of the immovable property, making the additional charges received not part of the assessable value for material supply.4. The Appellant claimed that they were a registered manufacturer filing their returns regularly, and the Revenue erred in invoking extended period provisions for demand confirmation, as the Department was aware of their activities.5. The Department contended that the entire contract value included excise duty and that the Appellant deliberately divided the contract to avoid paying excise duty on the balance 30% amount, which they deemed as part of material supply.6. The Tribunal analyzed the contract details and found that the contract involved both material supply and services. It held that the balance 30% amount should be considered a service portion for which Service Tax should have been demanded, not excise duty on manufactured goods.7. The Tribunal ruled that the confirmed demands were not sustainable on merits and set aside the demand and penalty on the Appellant company.8. Regarding the time bar issue, the Tribunal noted that the Show Cause Notice was issued within one year from the date of Audit, but as the Appellants were filing returns regularly, the extended period demand was set aside due to lack of indication that the self-assessed returns were scrutinized.9. Consequently, the Tribunal set aside the penalty imposed on the Director, as the confirmed demand was not sustainable against the Appellant company.10. The Appeals were allowed with consequential relief, if any, as per law, and the penalty on the Director was also set aside.This detailed analysis of the judgment highlights the key arguments presented by both parties, the Tribunal's reasoning, and the ultimate decision reached on each issue involved in the case.