Oil Lube Systems Vs Commissioner of Central Excise (CESTAT Chandigarh)
Introduction: This article covers the recent CESTAT Chandigarh order in the case of Oil Lube Systems Vs. Commissioner of Central Excise. The appeal involves the inclusion of the value of bought-out items in the assessable value of service equipment systems. The CESTAT quashes the excise duty demand due to lack of proof that the bought-out items are essential for the functioning of the supplied goods.
Analysis: The appellants, Oil Lube Systems, were alleged to have violated excise duty rules by not including the value of certain bought-out items in the assessable value of goods cleared by them. A show-cause notice was issued, demanding duty, cess, interest, and penalties. The Original Authority confirmed the demand, which was later reduced on appeal.
The appellant’s argument was that the bought-out items, like compressors and battery chargers, had independent functioning and were not required to be supplied along with the excisable goods. The appellant supplied the goods along with bought-out items upon customer request, but the Department included the value of only four out of 103 bought-out items in the assessable value. The Department relied on statements from experts in the field, but the statements confirmed that the items had independent functions and were supplied together for customer convenience.
The CESTAT found no cogent evidence proving that the bought-out items were integral to the equipment manufactured by the appellants. The Department failed to demonstrate that the bought-out items were essential for the functioning of the supplied goods. The CESTAT quashed the excise duty demand, partially allowing the appeal.
Conclusion: The CESTAT Chandigarh order partially allows the appeal filed by Oil Lube Systems, quashing the excise duty demand on bought-out items. The Department could not prove that the bought-out items were integral to the equipment manufactured, leading to the successful challenge by the appellant.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The appellants, M/s Oil Lube Systems, are engaged in manufacture of excisable goods; officers of Anti Evasion Wing visited the premises of the appellants on 13.04.2009 and observed that there are some violations including that the appellants are not including the value of certain bought out items in the assessible value of the goods cleared by them; the appellants deposited Rs.20 Lakhs during the investigation. A show-cause notice dated 01.04.2010 was issued demanding duty of Rs.40,36,615/- along with the applicable Cess, interest and penalties. The Original Authority confirmed the demand and imposed equal penalty; on an appeal filed, Commissioner (Appeals), vide Order dated 29.03.2012, the impugned order, reduced the duty after allowing cum-duty benefit and confirmed duty demand of Rs.35,29,617/-; the appellants accepted the duty demand of Rs.23,50,637/- and paid the same along with interest and 25% of the penalty and have disputed the issue relating to the inclusion of the value of the bought out items in the assessable value. Hence, this appeal.
2. Shri N.K. Sharma, learned Counsel appearing on behalf of the appellants submits that the Appellate Authority has confirmed the view of the Original Authority that the bought out items are essential for completing the manufacture of the items cleared by the appellants that is service equipment system; however, the contention that the bought out items form part of the equipment manufactured by the appellants is wrong; the bought-out items have independent functioning; they were not required to be supplied along with the excisable goods; only for the ease of business, customers requested them to supply the bought out items also. He further submits that Central Excise duty is on the manufacture of goods and not on bought out items which are traded; whereas the appellant is procuring and selling more than 100 bought out items, the Department picked up only four items for the purpose of inclusion in the assessable value; the fact that the items have independent function has been confirmed by the statement, of an expert Shri Neeraj Maheswari, AGM, dated 11.08.2009 and the statement of Shri Deepak Joshi, Service Executive of M/s Honda Siel Car India Limited dated 17.08.2009; in view of the statements, it is incorrect to conclude that the service equipment system is incomplete without the said bought out items is wrong; the appellant supplies the manufactured goods along with bought out items purchased from the market; the appellant does not subject the bought out items to any manufacturing process; the activity does not amount to manufacture in terms of Section 2(f) of Central Excise Act, 1944. He relies upon the following cases:
