Excise Duty on tools cost - Regarding

[SAKTHIVEL PONNUSWAMY]

Dear All,

Could you please give your views in the following situation on applicability of central excise duty or not?

A Ltd. is the manufacturer of automobile components, whereas its customer, B Ltd., requested for components suited for their requirements. To manufacture such a components a special purpose tool required to be developed. A Ltd. developed tools in its factory with the facility available in the A Ltd.'s factory.

Now A Ltd. is raising an invoice for the tools developed for B Ltd.'s Components and requested B Ltd. to pay the invoice upfront. A Ltd. Clearly communicated to B Ltd. that it will not amortize tool cost in the final invoice of components manufacture by using those tools.

In this scenario,

1. A Ltd need to charge Excise duty in the tool invoice?

2.If A ltd. charges excise duty in the tool invoice, B Ltd. is not agreeing for the same on the ground that the movement of goods not involved, hence they cannot take cenvat credit of the duty charged in the tools invoice

3.is it required to sent back the tools within 2 years, if so, from which date the 2 years period can be calculated.

Regards,

SAKTHIVEL PONNUSWAMY

AI Summary

Captive manufacture exemption for tools prevents excise on in-house tool production, with duty on depreciated value if returned.
Tools manufactured and used by the same manufacturer for producing customer-specific components are captively consumed and not dutiable; if the tool is later returned to the customer, duty is payable on its depreciated value computed under capital goods rules, and the customer cannot take CENVAT credit if the tool will not be used in its own manufacture. Authorities may treat amortisation recoveries for tools as exigible to duty.