1998 (7) TMI 167 - AT - Central Excise

Tribunal rules bought out items not part of duty calculation, supports appellants' position

The Tribunal allowed the appeal, rejecting the Revenue's argument to include bought out items in the clearance value for duty computation. It was held ... Demand - Show Cause Notice Issues:Classification of goods under Central Excise Act - Exclusion of bought out items from clearance value for duty computation - Applicability of Notification No. 175/86-C.E. - Interpretation of HSN explanatory notes for classification under Chapter 32.Analysis:1. The appeal stemmed from an Order-in-Appeal confirming demands under Section 35E(4) of the Central Excise Act, alleging that the appellants exceeded the exemption limit of Rs. 20 lakhs by clearing goods at nil rate of duty. The dispute arose from the inclusion of Zinc Filler and Isocyanate Solution in the clearance value. The Asstt. Collector confirmed demands for clearances exceeding Rs. 20 lakhs, excluding the bought out items, which the appellants did not contest.2. The Revenue challenged the exclusion of bought out items, arguing that these items were cleared along with the manufactured product as a composite under the same gate pass, necessitating their inclusion in the clearance value. The Collector upheld this view, citing HSN explanatory notes for classification under Chapter 32, contrary to the appellants' contention that these items were duty paid and should not be added to the value.3. The appellants contended that the bought out items were not required to be added to the clearance value, citing a lack of break-up details in the show cause notice and precedent from a similar case. They argued that until the separate items were mixed, they should not be considered as manufactured goods under Section 2(f) of the Central Excise Act.4. The Tribunal considered the submissions and found that the grounds taken by the Revenue for including bought out items were beyond the scope of the show cause notice. The Asstt. Collector's findings, accepted by the appellants, were not contradicted by the Revenue in the appeal, indicating that the bought out items were not manufactured and should not be added to the assessable value.5. The Tribunal emphasized that the Revenue's contentions regarding the classification of bought out items were not raised in the show cause notice, expanding the scope of the notice. The judgment cited by the appellants supported their argument that until the bought out items were mixed and manufactured as separate goods, they should not be included in the clearance value. The appeal was allowed, rejecting the Revenue's contentions and ordering in favor of the appellants.