The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has recently, in an appeal filed before it, held that the value of nuts, bolts, etc., are not includible in the assessable value of transmission line towers that are manufactured.
The aforesaid observation was made by the Ahmedabad CESTAT, when an appeal was filed before it by the assessee, with the issue involved being as to whether, the value of bought out items supplied as such along with manufactured goods, is liable to be included in the assessable value of manufactured goods cleared on payment of excise duty.
The brief facts of the case were that the appellant was engaged in the manufacture of ‘lattice mast’ (also referred to as High Mast/Pole), falling under Chapter 73 of the first schedule to the Central Excise Tariff Act, 1985 which were cleared on payment of excise duty. The appellant was registered with Service Tax department for providing taxable services under the category of Erection & Commissioning, and the lattice mast manufactured by the appellant were cleared in the domestic market on payment of excise duty as well as were cleared for export.
In some cases, the customers who bought lattice mast manufactured by the appellant for their convenience, also placed orders on the appellant for supply of Winches, NN Wire Rope, Electric Motor, Control Panel, eight fixture etc. (bought out items), to be used by the customers for erection/commissioning of High Mast Tower. And, in some other cases, the customers also placed purchase orders on the appellants for supply of bought out items only.
The appellant purchased the bought-out items either from the manufacturer or the traders, and did not take Cenvat credit of excise duty paid on such bought out items, as they were not used for the manufacture of their finished goods, and the appellant was paying VAT/CST on such sales. However, in few cases where customer required the appellant to supply Arm Brackets which were to be fixed on poles, the value of such Arm Brackets was included in the assessable value and excise duty was paid, as they were part and parcel of the manufactured pole.
It so happened that periodical show cause notices were issued to the appellant proposing demand of differential duty, on the ground that the value of the bought-out items purchased was includible in the assessable value of the so-called High Mast Tower cleared by the appellant.
The Adjudicating Authority, confirmed the demand against the appellant, with penalties being imposed, and it is therefore, that the present appeal is filed by the appellant before the Ahmedabad CESTAT.
Hearing the opposing contentions of both sides as presented by Shri Anand Nainawati, the Counsel appearing on behalf of the appellant, and by Shri Ghanasyam Soni, the Addl. Commissioner (AR), appearing on behalf of the Revenue, as well as perusing the materials available on record, the Ahmedabad CESTAT observed:
“We have carefully considered the submissions made by both the sides and perused the record. We find that there is no dispute on the fact that appellant is manufacturing lattice mast and during the course of manufacture no bought out items are used in the manufacture. The bought-out items which is subject matter of the present dispute are purchased and thereafter sold as trading activity by the appellant. Even though the bought-out items are supplied by the appellant as trading activity but the same is not part and parcel of the manufacture of lattice mast. At the most, this bought out items are used for completing and erection and installation of High Mast Tower. There is clear distinction between lattice mast manufactured by the appellant and High Mast Tower erected and installed at the site of the customers. The appellant has provided the details of the use of the bought-out items at the site. From the details of the bought-out items and its uses, it is clear that bought out items are neither used as parts nor accessories of the lattice mast, as they are not required for manufacture of lattice mast. Therefore, trading activity of above items is separate activity, which is independent from the manufacturing activity of the appellant.”
“It is also not even a case that appellant has provided the standard set of bought out items along with lattice mast but only in few cases it is supplied along with lattice mast. There are also cases where appellant is supplying only bought out items as a trading activity and not with lattice mast. This shows that the bought-out items are optional for the customers to buy from the appellant manufacturing lattice mast. We find that the manufacturing of lattice mast is an independent manufacturing activity for which except the material used in making lattice mast no further bought out items are required. Therefore, the bought-out items in any way not taking part in the manufacture of lattice mast. This issue has been considered in various judgments that if any bought out items are supplied along with manufactured items, the value of the same cannot be included in the value of manufactured goods”, the Coram of Ramesh Nair, the Member (Judicial) and C L Mahar, the Member (Technical), added, relying on various judgements in this regard.
Thus, the CESTAT finally held:
“Likewise, there are so many judgments cited by the learned Counsel wherein it was consistently held that value of bought out items supplied along with manufactured goods cannot be included in the assessable value of the manufactured goods. Therefore, the issue is no longer res-integra. Since we have decided the matter on merits, the other issues raised by the appellant are not taken up. Accordingly, the impugned orders are set-aside and the appeals are allowed with consequential relief.”
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