Mahindra CIE Automotive Ltd. Vs Commissioner (CESTAT Delhi)
Summary: CESTAT Delhi dealt with valuation of tools, moulds and dies used by Mahindra CIE Automotive Ltd. in manufacturing automobile parts supplied to original equipment manufacturers. In some cases, customers supplied tools and dies free of cost and the appellant included their amortized value as additional consideration in the assessable value of final products. In other cases, the appellant manufactured or procured tools and dies, raised separate invoices on customers for their cost, and thereafter continued using them in its factory, but did not include either their full value or amortized value in the assessable value of final products. An audit covering November 2015 to March 2017 resulted in a show cause notice dated 02.12.2020 demanding central excise duty on the entire cost of tools/moulds/dies recovered from buyers under Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The original authority confirmed the proposed valuation and demand, and the Commissioner (Appeals) upheld the findings on merits while remanding for limited verification.
The Tribunal held that tools and dies were necessary for manufacture of the final products and their value therefore had to form part of the assessable value. However, because the tools and dies were used repeatedly over a period rather than for only one product, their cost had to be spread over the goods manufactured using them through amortization. The appellant itself followed this method where customers supplied tools and dies free of cost. Accepting the appellant’s first submission, CESTAT held that only the amortized value, and not the total sale value of the tools and dies, should be included in the assessable value. Since the amortized value required calculation, the matter was remanded to the original authority for this purpose.
The Tribunal, however, rejected the appellant’s plea for exemption under Notification No. 67/95-CE. It held that captive-consumption exemption applies where goods are not sold but are used within the factory for manufacture because their value gets credited to the value of final products. Here, the appellant had sold the tools and dies to customers through separate invoices and thereafter used them within its factory. CESTAT considered them effectively no different from tools and dies procured and supplied by customers and held that the exemption would not apply. The limitation plea was also rejected. Since the appellant itself included amortized value where customers supplied the tools and dies, the Tribunal held that it was fully aware of the requirement and did not accept the claimed bona fide belief for non-inclusion in the other cases. Accordingly, the matter was remanded to the original authority to recompute duty under Rule 6 by reckoning the amortized value of tools and dies in the value of final products cleared during the relevant period. Interest and penalty were also directed to be recomputed accordingly, and the appeal was allowed by way of remand.
FULL TEXT OF THE ORDER OF CESTAT DELHI
M/s Mahindra CIE Automotive Ltd.1 filed this appeal to assail the order-in-appeal dated 13.05.2022 passed by the Commissioner of CGST (Appeals), Dehradun in which he remanded the matter to the original authority for denovo adjudication for the limited purpose of verifying the appellant’s contention that they had removed goods, as such, after reversal of proportionate credit after affording opportunity of being heard to the appellant. On merits, the Commissioner (Appeals) upheld the findings of the original authority in his order dated 13.10.2021.
2. The facts of the case, in brief, are that the appellant manufactures automobile parts and accessories and sells them to original equipment manufacturers (OEMs) who are manufacturers of automobiles. In order to manufacture the parts, the appellant requires tools and dies. In some cases, these were supplied to the appellant free of cost by the customers and in other cases, the appellant had manufactured the tools and dies and billed the customers. Where the tools and dies or moulds were supplied by the customers, the appellant had included the amortized value of such tools and dies as additional consideration for sale in the assessable value of the final products which were manufactured and sold. In those cases, where the appellant itself had manufactured and sold the tools and dies to the customers, it had not included the value (either in full or amortized value) of such tools and dies in the assessable value of the final product. The appellant’s records were audited for the period November 2015 to March 2017, this discrepancy was noticed and a show cause notice dated 02.12.20202 was issued to the appellant demanding central excise duty on the entire cost of tool/moulds/dies recovered by the appellants from its buyers in terms Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 20003.
3. The value increase and the demand proposed in the show cause notice was confirmed by the original authority and upheld by the Commissioner (Appeals) in the impugned order except to the limited extent of some verification. Aggrieved, this appeal has been filed by the appellant.
4. We have heard learned counsel for the appellant and learned authorized representative for Revenue and perused the records.
5. There is no dispute that the final products cannot manufactured without the tools, moulds or dies and, therefore, they should form part of the assessable value. Since they are used for a period of time only, the amortized value of these should be included in the assessable value of the final products. In cases where tools and dies were supplied by the customers free of cost, the appellant had included the amortized value of such tools and dies in the value of the final products. There is no dispute to that extent.
6. However, where the appellant had itself manufactured or procured the tools and dies and recovered the cost from the customers through separate invoices issued to them, the appellant had not included either their total value or the amortized value in the assessable value of the final products.
7. The first submission of the learned counsel for the appellant is that the central excise duty must have been calculated by including only the amortized value of tools and dies in the assessable value of the final products as per Rule 6 of the Valuation Rules. The SCN and both the lower authorities have erred in demanding duty on the total sale value of such tools and dies. The second submission of the learned counsel is that since the tools and dies were used captively within the factory, they were exempt from payment of duty in terms of Notification No. 67/95-CE. The third submission by the learned counsel is that extended period of limitation could not have been invoked in this case and the demand of duty is time barred and penalty is also not imposable nor is interest recoverable for this reason.
8. Learned authorized representative for Revenue vehemently supported the impugned order and asserted that the Commissioner (Appeals) committed no error in upholding the demand on the value of tools and dies by including them under Rule 6 of the Valuation Rules.
9. We have considered the submissions advanced by both sides.
10. There cannot be any dispute that the final products cannot be manufactured without the tools and dies and, therefore, their value should included. However, they are not used only once but over and over again. Therefore, the cost of the tool or die has to be spread over all the goods manufactured using it. This is done through an accounting method known as amortization in which the total value of the tool or die is divided over the number of final goods which are likely to be products using it and proportionate value of the tools and dies is added to each good. The appellant had done so where the tools and dies were supplied by the customers. However, the appellant did not do so when it produced the tools and dies and sold them to the customers through separate invoices. We have no reason to believe the appellant was not aware that the amortized value of tools and dies was to be added to the final products when it had done so in those cases where the tools and dies were supplied by the customers.
11. The first submission of the appellant is that only the amortized value should be included and not the total value of the tools and dies. We agree. The amortized value has to be calculated which should be possible as such a calculation was already done in cases where the tools and dies were supplied by the customers. For this purpose, the matter needs to be remanded to the original authority.
12. The second submission of the appellant is that the tools and dies were captively used in the factory premises, therefore, were exempted from payment of duty as per Notification No. 67/95-CE. The submission is misplaced. The exemption for goods captively used within the factory applies to those cases where they are not sold but are used within the factory or manufacture because their value gets automatically credited to the value of the final products. In this case, the appellant sold the tools and dies to the customers under separate invoices and then used them within the factory of manufacture. Effectively, they are not different from those which the customers themselves had procured and supplied. Therefore the exemption for captive consumption under Notification No. 67/95-CE would not apply to the appellant.
13. The third submission of the appellant is that the entire demand is time barred and extended period of limitation is not invokable because the appellant was under the bonafide belief that the value of the tools and dies need not be included in the value of the final products. We do not agree. The appellant itself was including the amortized value of tools and dies in the final products in other cases and, therefore, it was fully aware that it needs to be included. We do not find any bonafide belief in not including such value the tools and dies used within the factory of manufacture.
14. In view of the above, we find that the matter needs to be remanded to the original authority to re-compute the demand of duty under Rule 6 of the Valuation Rules by reckoning the amortized value of the tools and dies in the value of the final products cleared by the appellant duing the period. The amount of interest and penalty also need to be recomputed accordingly.
15. The appeal is allowed by way of remand to the original authority.
(Order pronounced in open court on 09/09/2026.)
Notes:
1. the appellant
2. SCN
3. Valuation Rules
