The Chandigarh Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) recently ruled that a third-party vehicle body modifier is not liable for Central Value Added Tax (CENVAT) in the process of mounting duty-paid chassis on vehicles that are later returned back to the manufacturer for further sale.
An appeal was filed by Perfect Mechanical Industries (Perfect Mechanical), an entity engaged in fabricating and mounting vehicle bodies on duty-paid chassis against an Order of Commissioner of Central Goods and Service Tax, Faridabad.
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Indian automotive manufacturing giant Ashok Leyland and Vehicle Factory, Jabalpur were two of the prime clients of the Appellant. The clients delivered duty-paid chassis to the Appellant from their Jabalpur unit. The Appellant did the necessary construction and mounting of chassis and delivered the vehicles back to Ashok Leyland who further sold them to defense establishments and other customers.
The Excise Department found no issues with the CENVAT exemption availed by the Appellant as per Notification No. 06/2006 (Entry 41) but maintained that the appellant should have paid duty on the entire vehicle value instead of just the charges for conducting fabrication while mounting the duty-paid chassis on the vehicles.
A show-cause notice (SCN) dated 10.09.2012 was issued to the appellant, alleging that duty should be recovered by inflating the assessable value by 10% under Rule 10A(iii) read with Rule 8 of the Central Excise Valuation Rules, 2000. The department contended that since the vehicles were ultimately supplied to and used by defense agencies, they were captively consumed, justifying the higher valuation.
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D.K. Tyagi, appearing for the appellant, contended that when a job worker fabricates and mounts a body on a chassis for the principal manufacturer, but the principal does not sell the completed vehicle, Rule 10A(iii) read with Rule 6 of the Valuation Rules applies. In such a case, the chassis value is added to the body-building charges to determine the assessable value. However, under Entry No. 41 of Notification No. 06/2006, the chassis value is subsequently deducted to ensure that excise duty is levied only on the fabrication and body-building charges.
Meanwhile departmental representative Harish Kapoor reiterated the findings of the impugned order.
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The two-member Bench constituted by Judicial Member S.S. Garg and Technical Member P. Anjani Kumar upheld the contentions raised by the Appellant, holding that CENVAT cannot be imposed on a third-party fabricator when duty has already been paid on the chassis and the final sale occurs after the vehicle is returned to the manufacturer.
Observing precedence with a decision of the Principal Bench in a matter of the same Appellant, the Tribunal confirmed that excise duty is payable only on the value added by the body builder, not on the entire vehicle while setting aside the impugned Order.
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