The cost of components supplied by a principal/customer to a job worker for the manufacture of intermediate goods is not required to be included in the assessable value of such intermediate products, and non-payment of duty based on a bonafide belief does not justify invoking the extended period of limitation.

PER: P.A. AUGUSTIAN

The issue in the present appeal is while manufacturing intermediate products, if Appellant received the goods from the customer as a job worker, whether the Appellant is liable to include the cost of such free supply of goods in the assessable value.

2. The brief facts are on scrutiny of the documents, it is observed that for the period from August, 2010 to August, 2013, the Appellant has not included the value of parts /components /accessories supplied by their customer for computing the assessable value for payment of central excise duty which are used by them in the activity of designing, manufacturing and clearance of excisable goods like 'CNC machines' and 'Grinding' machines of various types. Thus, alleging undervaluation, proceedings were initiated and show cause notice dated 12.08.2014 was issued demanding duty and proposing penalty under various provision of law. Thereafter, Adjudication authority as per Order-in Original dated 29.05.2015 confirmed the demand rejecting the transaction value and confirmed the demand by adding the cost of such parts and spares. The Adjudication authority also confirmed demand of interest and imposed penalty. Aggrieved by said order, an appeal was filed before the Commissioner (Appeals) and Commissioner (Appeals) as per the impugned order dated 24.10.2017 rejected the appeal filed by the Appellant. Aggrieved by said order, present appeal is filed.

3. When the appeal came up for hearing, the Learned Chartered Accountant (CA) for the Appellant submits that the issue is no more res integra and covered by the judgment of the Hon’ble Supreme Court in the matter of M/s. International Auto Ltd Vs. CCE, Bihar -2005 (183) E.L.T 239 (SC). In the said matter, the Tribunal held that value of such goods should be included in the value of floor plate assembly manufactured by the job worker. However, in appeal the Hon’ble Supreme Court held that:-

“6. We are of the view that the submission of the appellant is correct. The Tribunal appears to have been confused between the manufacture of the final product, namely, excavators and the manufacture of the intermediate product, namely, the floor plate assemblies. The scheme of Modvat permits the person who clears the ultimate final product to take the benefit of the Modvat scheme at the time of clearance of such final product. The manufacturer of the final product, in this case TELCO, would therefore, be entitled not only to adjust the credit on the inputs supplied by it to the intermediate purchaser such as the appellant but also to the credit for the duty paid by the intermediate purchaser on its products. The reliance on the decision in Burn Standard Company Ltd. (supra) by the Tribunal was misplaced. That case has no doubt held that the value of the free inputs were to be included in the final product. In that case, the final product was wagons and the question was whether the items which were supplied free by the Railway Board to the assessee could be included in the value of the wagons. This Court came to the conclusion that it could. The first distinguishable feature is that this Court in that case was neither concerned with the Modvat scheme, nor with the provisions of Rule 57F(2)(b). Furthermore, the Court was not considering a situation where the question was of the liability of an intermediate product being subjected to excise duty. What was in consideration was the final product, namely, wagons.

7. In this appeal as we have already noted, the final product was the excavator. According to the Modvat scheme, it is the Modvat of such final product which wou