Excise Duty on Tooling developed by Supplier

[Pradeep Jain]

Dear Sir,

Our supplier has developed / buy tools on our behalf for and will be captive comsumed by him for supply components to us, within number of years . Tooling amount is paid to the supplier,since the said tools are laying with the supplier and there is no phycical movement of above said Tools from supplier premises to our premises hence no excise duty is charged on the said toolings invoice.

Now instead of the amortised the cost of said tools , we want to pay whole exise duty of the tools , on the excise invoice raised by supplier at time of first supply of components.

In that case, will be able to get the CENVAT credit of the said tools which is paid through above manner?.

Is there is any other issue / implications for follow the above procedure ?

Please reply

Regards

Pradeep

[YAGAY andSUN]

Dear Pradeep,

We have following concerns pertaining to your query, viz:-

• You need to pay Central Excise Duty on the amortization cost, even if you pay the Central Excise Duty on the assessable value of the tools.
• Without physical movement of tooling, how the CST/VAT will be charged by your supplier and how the waybills will be arranged under CST/VAT laws (if applicable).
• What is the rationale for not availing the exemption under Notification No. 67/95.CE?

Regards,

YAGAY and SUN

(Management and Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

As per CBEandC Circular No. 170/4/96-CX dated 23.1.96the proportionate cost of pattern has to be included in the assessable value of the casting even in cases, where such patterns are being supplied by the buyers of the casting or are got prepared / manufactured by the job worker at the cost of the buyer. In cases where there is difficulty in apportioning the cost of pattern, apportionment can be made depending on the expected life and capability of the pattern and the quantity of castings that can be manufactured from it and thus working the cost to be apportioned per unit. For this purpose, a certificate from a Cost Accountant, may be accepted.

If any duty is paid on the tools manufactured on behalf of the job worker at the cost of the buyer then the credit can be taken and utilized for payment of duty on the final products at the hand of job worker.or prepared either by the buyer or by job worker. If the job worker return the finished to goods to the buyer without payment of duty under Notification No. 214/86-CE then the buyer will determine the value of the finished product when he sells the same. However, such value must include the amortized value of tools used for the manufacture of the finished goods. amortization of cost of tool and availing credit of duty paid on such tool are independent of each other. It is not correct proposition of law that if duty is paid on the tool developed by job worker, then amortization of tool cost is not required. Even if the tool is manufactured by SSI unit without payment of duty, cost of the tool must be amortized and added to the value of the finished goods.

[YAGAY andSUN]

Dear Pradeep,

We are in agreement with the reply submitted by 'Rajagopalan Sir'.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

[Madhukar N Hiregange]

There is first of all NO NEED to pay central excise by the supplier for tools ONLY sold not removed as CE is on removal. Ownership transfer makes no difference under CE in this case.

However since you would be sending the raw material under not.214/86 the credit on the inputs used for manufacturing the tool would be admissible to the supplier if under CE.

If supplier is going to use the tools for manufacture of goods and pay CED then he has to add the proportion of tools used in manufacture of the part [ cost of tool - 300 and it can manufacture 20 pieces then amortisation = 15 per piece.]

[Mahir S]

For the tooling amount, invoices can be raised on the main supplier with payment of excise and vat duty. It is also required for the purpose of settlement of the account entries in the books of the supplier.

However, amortized cost has to be paid thereafter on each invoices cleared to the supplier.

AI Summary

Excise duty on tooling: paying duty does not remove amortisation obligation, but duty paid may be claimed as credit. Excise is ordinarily leviable on removal; tools retained by the supplier do not automatically attract excise. If duty is paid on tools manufactured or procured by the supplier on the buyer's account, that duty is admissible as CENVAT credit and may be used against duty on final products. Irrespective of duty payment or exemption, the amortised cost of tooling must be included in the assessable value of finished goods, with apportionment based on expected life/output and supporting certificate where needed. Practical VAT/CST and waybill implications should be examined when tools do not physically move.