The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed the excise duty demand in the absence of proof that compressor, battery chargers supplied by Oil Lube Systems as bought-out items, are essential for functioning of goods supplied.
The appellants, M/s Oil Lube Systems, are engaged in manufacture of excisable goods. The officers of Anti Evasion Wing visited the premises of the appellants and observed that there are some violations including that the appellants are not including the value of certain bought out items in the assessable value of the goods cleared by them. The appellants deposited Rs.20 Lakhs during the investigation.
The Original Authority confirmed the demand and imposed equal penalty; on an appeal filed, Commissioner (Appeals), reduced the duty after allowing cum-duty benefit and confirmed duty demand of Rs.35,29,617/-. The appellants accepted the duty demand of Rs.23,50,637/- and paid the same along with interest and 25% of the penalty and have disputed the issue relating to the inclusion of the value of the bought-out items in the assessable value.
N.K. Sharma, Counsel appeared on behalf of the appellants submitted that the Appellate Authority has confirmed the view of the Original Authority that the bought-out items are essential for completing the manufacture of the items cleared by the appellants that is service equipment system; however, the contention that the bought-out items form part of the equipment manufactured by the appellants is wrong.
The Counsel further submitted that the appellant supplies the manufactured goods along with bought out items purchased from the market and that the appellant does not subject the bought-out items to any manufacturing process. Hence the activity does not amount to manufacture in terms of Section 2 (f) of Central Excise Act, 1944.
Rajeev Gupta assisted by Aneesh Dewan, Authorized Representatives for the Department submitted that the appellants purchased parts like pneumatic tools, sockets accessories, valves, smokeless system, general tools, special tools, goti sets etc and the bought-out items were supplied along with manufactured items on one sale invoice because by adding all the parts and equipment.
The Coram comprising SS Garg, Judicial Member and P Anjani Kumar, Technical Member observed that “the Department did not even prove that the same are fitted into the system, manufactured by the appellants, at least by the use of screwdriver technology. “
“From the statements, of the experts in the field, recorded by the Department, it is clear that the said items are sold together for ease of convenience of the customers rather than the necessity of the functioning of articles manufactured. Therefore, we are of the considered opinion that the appellant’s arguments are strong and the demand of Rs.11,78,980/- disputed by the appellants requires to be set aside” the Tribunal concluded.
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