CESTAT rules VAT liability on catalyst remains with supplier HMIL, not manufacturer using it for production

CESTAT Chennai held that VAT liability on catalyst supplied by HMIL remains with HMIL, not the appellant who used it for further manufacturing. The tribunal ruled that notional duties unpaid by suppliers cannot be included in transaction value of finished goods under Central Excise Act, 1944, Section 4(3)(d), which excludes taxes from transaction value. Following SC precedent in Dai Ichi Karkaria case, the appellant had no role in HMIL's VAT non-payment and showed no intention to evade duty. Extended limitation period and penalty were deemed inapplicable. The impugned order was set aside, appeal allowed in appellant's favor.

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Issues: Determination of assessable value for payment of Central Excise Duty based on inclusion of VAT element on goods supplied by Principal Manufacturer.

Summary:
The appellant, a manufacturer of Engine parts and Aluminum raw castings, received Catalyst from M/s Hyundai Motors India Ltd. for manufacturing components on job work basis. The appellant cleared finished goods without including VAT on the impugned goods, resulting in short payment of duty. The appellant contended that VAT should not be included in the assessable value as price is the sole consideration. They argued that inclusion of Central Excise duty in the cost of material supplied does not arise as they are availing CENVAT credit. The appellant also highlighted that the demand was time-barred and cited legal precedents to support their claim.

The main issue was whether the element of VAT not paid on the catalyst should be included by the appellant for determining the transaction value of finished goods for Central Excise Duty payment. The Tribunal held that the liability to pay tax for the catalyst supplied by M/s HMIL rests with them, and there is no provision to include notional duties unpaid on intermediate goods onto the transaction value of the buyer. Additionally, section 4(3)(d) of the Central Excise Act excludes taxes from transaction value, which was not addressed in the impugned order.

The Tribunal referred to the Commissioner (Appeals) order in the appellant's own case, which cited CBEC's Manual and legal precedent to support the exclusion of taxes from transaction value. It was clarified that the appellant cannot be held liable for HMIL's non-payment of sales tax, and hence, the appeal was allowed on merits. The impugned order was set aside, and the appellant was granted consequential relief.

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