Bought-out items must be included in assessable value for pre-fabricated buildings supply under Section 11AC

CESTAT Chandigarh held that bought-out items must be included in assessable value when appellant supplied pre-fabricated buildings to Indian Army. Although appellant procured some components externally and manufactured steel structures internally, the final supply constituted complete pre-fabricated buildings. Valuation must be based on what is cleared from factory as complete units. However, extended period of limitation cannot be invoked as case arose from audit proceedings and appellant had reasonable belief that bought-out items need not be included in assessable value. Duty confirmed for normal period only; extended period duty and penalty under Section 11AC set aside.

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Issues:
Central Excise duty on bought-out items in assessable value.

Analysis:
The case involved a dispute regarding the inclusion of the value of bought-out items in the assessable value for Central Excise duty. The appellant, a manufacturer supplying prefabricated shelters to the Indian Army, claimed that certain items were bought-out and not manufactured by them. The Revenue issued a Show Cause Notice demanding duty on the bought-out items. The Commissioner initially dropped the proceedings, but the Revenue appealed.

The Department argued that as per Section 4(1) of the Central Excise Act, the transaction value should include amounts payable by the buyer to the assessee. They contended that the bought-out items were essential parts of the shelters supplied and should be included in the assessable value. The Department cited various cases to support their argument.

The Tribunal observed that the appellant supplied prefabricated buildings to the Army, including bought-out items along with items manufactured by them. The invoices issued were for the supply of complete prefabricated buildings. The Tribunal held that the value of bought-out items should be included in the assessable value, following the decision in the case of Frick India Ltd. The Tribunal emphasized the distinction between classification and valuation in excise duty assessment.

Regarding the invocation of the extended period for duty confirmation, the Tribunal noted that no evidence was presented to show intent to evade duty. The Tribunal concluded that the extended period could not be invoked solely based on audit findings. Duty was confirmed for the normal period, and the penalty imposed was set aside.

In the final decision, the Tribunal set aside the duty confirmed for the extended period, confirmed the duty for the normal period, and set aside the penalty imposed under Section 11AC. The appeal was partly allowed based on the above terms.

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