No excise duty payable for captive use of Tools and Fixtures within factory, Even if Sale Invoices are issued: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that excise duty is not payable on tools and fixtures used captively within the factory, even if sale invoices are issued, and that demands based on revenue-neutral transactions are time-barred.

Tennco Exhaust India Pvt Ltd, the appellant, is engaged in manufacturing motor vehicle parts for General Motors India Pvt Ltd. The appellant also manufactured tools and fixtures used in production but retained them in its factory while issuing sale invoices to General Motors India Pvt Ltd without paying excise duty. Later, two of these tools and fixtures were transferred to the appellant’s Pune unit without excise duty payment.

The department issued a show cause notice dated September 27, 2010, demanding an excise duty payment of Rs. 17,83,136. The adjudicating authority confirmed the demand. On appeal, the Commissioner of Central Excise (Appeals) upheld the order. Aggrieved, the appellant approached the CESTAT.

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The appellant’s counsel argued that the tools and fixtures were used captively within the factory for manufacturing motor vehicle parts, qualifying for exemption under Notification No. 67/95-CE dated 16.03.1995.

The appellant’s counsel argued that since no physical removal occurred, excise duty was not payable merely because a sale invoice was issued. Regarding the transfer to the Pune unit, the appellant argued that the transaction was revenue neutral, as the Pune unit was eligible for Cenvat Credit.

The revenue countered that excise duty is payable at the stage of manufacture and not just upon clearance. The revenue argued that issuing sale invoices to General Motors India Pvt Ltd created a liability. The revenue argued that the transfer to the Pune unit constituted a clearance outside the factory, attracting excise duty.

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The two-member bench comprising Ramesh Nair (Judicial Member) and C. L. Mahar (Technical Member) observed that captive consumption within the factory is exempt under Notification No. 67/95-CE and that mere issuance of a sale invoice does not create excise duty liability in the absence of physical removal.

Regarding the transfer to the Pune unit, the tribunal ruled that the entire transaction was revenue-neutral and that no malafide intent was established, making the extended period of limitation inapplicable. The tribunal held that the demand was time-barred and not sustainable. The impugned order was set aside, and the appeal was allowed.

To Read the full text of the Order CLICK HERE

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