Rule 8 of Central Excise Valuation Rules Applicable only when Manufactured Goods are Captively Consumed by Manufacturer: CESTAT [Read Order]

The Chandigarh Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) recently clarified that Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, applies only when manufactured goods are captively consumed by the manufacturer themselves or another manufacturer on their behalf.

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.

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.

Read More: ‘Even on the Strength of endorsed bill of entry, CENVAT Credit is admissible’: CESTAT

Such delivery came within the radar of the Excise Department who contended that the appellant should have paid duty on the entire vehicle value instead of just the fabrication charges, but abstained from disputing the Central Value Added Tax (CENVAT) exemption availed by the Appellant.

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.

Read More: CESTAT upholds Ujagar Prints Method for Valuing Job-Worked Goods, Rejects Rule 8 Application as Goods were Supplied to Principal Manufacturer

The Adjudicating Authority set aside the demand of differential duty in respect of Ashok Leyland Ltd. as duty stood paid in terms of Rule 10A(i) of Valuation Rules; but sustained the demand in respect of Vehicle Factory, Jabalpur since the completed vehicles are not sold by the Vehicle Factory, Jabalpur, but used captively by the Defense Establishment, leading to the present appeal.

D.K. Tyagi, representing the appellant submitted 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 is applicable.

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.

Read More: CENVAT Credit Cannot Be Denied When Duty is accepted by Department for Manufactured Product: CESTAT

The two-member Bench of Judicial Member S.S. Garg and Technical Member P. Anjani Kumar observed that in such a scenario, CENVAT cannot be imposed on a third-party fabricator when the chassis is duty-paid and the final sale occurs after the vehicle is returned to the manufacturer.

CESTAT set aside the impugned order while referencing a prior judgment of the Principal Bench in a similar matter filed by the same Appellant while affirming that excise duty is payable only on the value added by the body builder, not on the entire vehicle.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram  for quick updates