Per C.N.B. Nair :

M/s. Motherson Sumi Systems Ltd. is a manufacturer of wiring harnesses. The manufacture is carried out according to specific orders of automotive and air conditioning industry, against specific contracts. In some cases the appellant received certain component parts of wiring harness, free of charge, from their buyers. These components were also incorporated in the wiring harness. In such cases, the value of the free supply component parts were not added to the prices of wiring harnesses while fixing their assessable value and paying excise duty on them. The order impugned in this appeal has demanded duty attributable to the price of such components and has imposed penalties on the manufacturer as well as the officers of the company. The period of duty demand extends from March, 1995 to January, 1997. The show cause notice was issued on 13.3.2000.

2. The law relating to the inclusion of the price of free supply items in the assessable value of goods produced with the free supply materials is well settled, that their value is required to be included. Therefore, that issue is not in contention in the present appeal. The appellants, however, have submitted that the entire duty demand was time barred inasmuch as the show cause notice was not issued within the normal time limit of six months provided in Section 11A of the Central Excise Act. They have contended that the ingredients stipulated in proviso to that section for invoking the extended period of five years for raising demand are absent in the present case.

3. The appellant's contention regarding time bar is that there was no suppression of facts in the present case with intent to evade payment of duty as held in the impugned order and in the absence of intent to evade payment of duty a demand beyond six months is not maintainable. They have pointed out that the free supply components in the present case had been received by them under Rule 57F of the Central Excise Rules from their buyers. These buyers had purchased the components and retained the modvat credit in respect of those components with themselves and had transferred the components to the appellant for carrying out the job work of processing under Rule 57F (3) of the Central Excise Rules. The appellants have pointed out that the said rule permitted the sending of materials for processing to another factory and that for sending the goods under Rule 57F (3), the sending manufacturer had taken the permission of their jurisdictional central excise authorities and the goods were sent under prescribed challans. After assembling the components into the wiring harness, the harness were sent back by the appellants to their buyers who were the senders of the components. Particulars relating to the receipt of the components were also entered in the documents under which the wiring harnesses were returned. It has been specifically pointed out by the appellants that they and their buyers who sent the free supply components were located in the jurisdiction of the Dy. Commissioner of Central Excise who had given the buyers the permission to send the free supply components under Rule 57F (3). It is their further submission that the purchase orders placed by the appellant's buyers specifically stated that the parts in question will be supplied free by them and their value was not included in the purchase order for the wiring harness. The appellants had mentioned the purchase order numbers in the invoice under which the goods were sold. It is their contention that since the components were received by them under Rule 57F (3) challans with the permission of the Central Excise authorities and the modvat credit in respect of those components were retained by the senders (for payment of duty on the final product) and the value of the free supply components were not included in terms of the purchase orders, they were under the bona fide belief that the value of the free supply components was not be added to the asses