Buyer-Funded Tool Cost Must Be Amortised; Extended Period Rejected: CESTAT Chennai

Sankar Sealing Systems Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)

Summary: CESTAT Chennai held that the cost of tools such as jigs, fixtures, molds and dies, which were paid for by buyer-customers and used by the appellant for manufacturing components for those buyers, was required to be included in the cost of production and amortised for payment of Central Excise duty on the final products under Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

The appellant, a manufacturer of aluminium and rubber gaskets, had manufactured tools for customers, collected their cost through excise invoices and retained the tools in its factory for manufacturing gaskets. The department alleged that the tool value was neither included in the cost of production nor amortised, resulting in a duty demand of Rs.7,85,993/- with interest and equal penalty.

The appellant contended that duty had already been paid on the tools, that another levy would amount to double taxation, that Notification No.67/95-CE dated 16.03.1995 exempted tools captively used in manufacture and that the extended period under Section 11A(1) was unavailable. The Tribunal followed its decision in M/s Best Cast IT Ltd, which had considered Commissioner of Central Excise, Mumbai I Vs Mega Rubber Technologies Pvt Ltd and the Larger Bench decision in Mutual Industries Ltd Vs Commissioner of Central Excise, Mumbai. It held that whether the tools were manufactured in the appellant’s own factory or outsourced did not alter the valuation principle where their cost was borne by the buyer.