Lakshmi Machine Works Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Cost fully amortized – additional casting cleared using same pattern – demanding continuation of amortization on additional casting legally unsustainable.
Facts-
The appellant received patterns from their customers to whom they supply the casting manufactured using the patterns. In one of the order the total cost of pattern was amortized and accordingly the appellant did not took into consideration the value of pattern while clearing the additional order.
To that, department contended that the appellant failed to include the amortized cost of patterns in respect of additional clearance in contravention of rule 4, 6 and 8 of Central Excise (No. 2) Rules, 2001.
Conclusion-
We find that the appellants have amortized the full value of patterns supplied to them by their client. It is neither legal nor proper to ask the appellants to continue the amortisation while clearing the additional castings using the same patterns whose value has been already amortised.
It is not the case of the department that the appellants have received new set of patterns whose value remains to be amortised. It is also not the case of the department that the appellants received any additional consideration for the same patterns. Under the circumstances, it cannot be said that the appellants have evaded duty by not amortising the patterns received by them.
Note –
Where the appellants have amortised the full value of patterns supplied to them by their client it is neither legal nor proper to ask the appellants to continue the amortisation while clearing the additional castings using the same patterns whose value has been already amortised.
Where it is not the case of the department that the appellants have received new set of patterns whose value remains to be amortised or is also not the case of the department that the appellants received any additional consideration for the same patterns, the demand confirmed against them cannot be upheld to be legal and proper.
APPEARANCE:
Shri J. Shankarraman, Advocate For the Appellant
Shri Arul C. Durairaj, Superintendent (Authorized Representative) For the Respondent
FULL TEXT OF THE CESTAT CHENNAI ORDER
M/s.Lakshmi Machine Works Ltd., the appellants herein, are engaged in the manufacturers CNC Lathes, CNC Machining Centre and Iron Castings. The appellants received patterns from their customers to whom they supply the castings manufactured using the patterns. The present appeal pertains to the castings received by the appellants from M/s.Bharat Earth Movers Ltd. (BEML, for short) for manufacture and supply of –
(i) 25 no’s of Cylinder Block 125s castings
(ii) 75 no’s of Cylinder Block 140s castings and
(iii) 75 no’s of Cylinder Block 170s castings.
Subsequently, the customer i.e. BEML have placed orders for further manufacture of castings using the same patterns. For the purpose of valuation of the castings manufactured and cleared by the appellants, they have taken into consideration the cost at which the said patterns are supplied by M/s.BEML, for the manufacture of castings initially. The entire cost of the patterns was amortised for 25, 75 and 75 numbers of different castings as cited above. As the total cost of the patterns was amortised, the appellant did not take into consideration the value of the patterns while clearing the castings cleared on additional orders to their client i.e. BEML. The department contended that the appellants failed to include the amortised cost of patterns in respect of clearances to M/s.BEML in contravention of Rules 4, 6 and 8 of Central Excise (No.2) Rules, 2001.A show cause notice dated 28.04.2006 has been issued and the same was confirmed by the lower authority vide order dated 30.09.2010 and was upheld by the appellate authority vide order dated 17.01.2011. The appellants have carried the case to the Tribunal.
2. The Tribunal vide Final Order No.43212/2017 dated 18.12.2017 upheld the order-in-appeal relying on the judgment of Larger Bench in the case of Mutual Industries Vs CCE Mumbai – 2000 (117) ELT 578 (Tri.). Being aggrieved by the same, the appellants preferred an appeal before Hon’ble High Court of Madras vide C.M.A.No.2555 of 2019. The Hon’ble High Court of Madras vide order dated 17.06.2019 have given the following order and directions:
“4. Learned Counsel for the Revenue, however, sought to justify the impugned order passed by the Tribunal.
5. Having heard the learned counsel appearing for the parties, we are of the opinion that the order passed by the learned Tribunal is a non-speaking order and except relying on the Larger Bench decision, the Tribunal failed to appreciate the contention in a proper perspective and the finding as to whether any additional Excise Duty is payable by the Assessee or not is based on factual aspects, the Tribunal ought to have been undertaken this exercise and after considering the objections of the Assessee in this regard and giving reasons for arriving such a conclusion, ought to have demanded the additional Excise Duty, if any.”
3. Learned Counsel for the appellant submits that cost of free patterns supplied by BEML for manufacturing 25/75/75 pieces of castings has been duly amortised. The amortization cost was equal to the total cost of patterns divided by number of pieces of castings Thus, Central Excise duty was paid in full on the cost of patterns by way of amortization. When the appellants had produced more pieces than what was initially certified by M/s.BEML, there was no amount left to be amortised and as such the Central Excise duty was paid as applicable.
4. Learned counsel further submits that amortization was carried out by them. By way of the following example, he submits that applicable duty was paid on the cost of amortization irrespective of castings:
