Case Law Details
Techno Packers Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that the demand of duty alleging that cost of free supply material has to be included in the assessable value is not sustainable and liable to be set aside.
Facts- The appellants are engaged in the manufacture of wooden crates falling under Chapter 44151000 of CETA, 1985. Based on the intelligence that the appellant was receiving the consumables free of cost and has not included the value of such free materials in the assessable value of the finished product, the documents and records of the appellants were verified. It was noticed that the appellant was undervaluing their final product by not including the value of the materials mainly thermocol, foam, bell pins, blue ink supplied free of cost by their buyers M/s.Saint Gobain Glass India Pvt. Ltd. through gate passes.
Show cause notice dated 08.10.2010 was issued to the appellant for the period April 2008 to February 2009 proposing to demand short paid duty along with interest and for imposing penalties. After due process of law, the original authority confirmed the duty along with interest and imposed penalty. On appeal, the Commissioner (Appeals) upheld the same. Hence this appeal.
Conclusion- The very same issue was considered in the case of CCE Vs Rane Brake Linings Ltd. 2017 (8) TMI 1388 CESTAT CHENNAI, wherein, it was held that such addition of free supplied parts is not to be included in the assessable value.
Held that the demand of duty alleging that cost of free supply material has to be included in the assessable value cannot sustain and requires to be set aside which we hereby do. Impugned order is set aside.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts of the case are that appellants are engaged in the manufacture of wooden crates falling under Chapter 44151000 of CETA, 1985. Based on the intelligence that the appellant was receiving the consumables free of cost and has not included the value of such free materials in the assessable value of the finished product, the documents and records of the appellants were verified. It was noticed that the appellant was undervaluing their final product by not including the value of the materials mainly thermocol, foam, bell pins, blue ink supplied free of cost by their buyers M/s.Saint Gobain Glass India Pvt. Ltd. through gate passes. Show cause notice dated 08.10.2010 was issued to the appellant for the period April 2008 to February 2009 proposing to demand short paid duty along with interest and for imposing penalties. After due process of law, the original authority confirmed the duty along with interest and imposed penalty. On appeal, the Commissioner (Appeals) upheld the same. Hence this appeal.
2. On behalf of the appellant, Ld. Counsel Shri M. Karthikeyan appeared and argued the matter. It is submitted that the appellant is engaged in manufacture of wooden crates which are used as packing material by M/s.Saint Gobain Glass India Pvt. Ltd. who are manufacturers of glass. The appellants have been clearing the wooden crates manufactured by them on payment of appropriate duty of excise on the transaction value. The raw material used for manufacturing wooden crates is timber and nails. Since M/s.Saint Gobain is using the wooden crates for transportation of “Glass” manufactured by them, and in order to avoid breakages of glass during transit, M/s.Saint Gobain needed to affix Thermocol and Foam on the wooden crates. Accordingly, M/s.Saint Gobain had supplied such material, namely Thermocol, Foams, Bell pins, Blue ink, BOPP tape clear, Chit protector etc. free of cost under cover of a delivery challan. M/s.Saint Gobain had availed cenvat credit of duty paid on such materials.
3. The free materials so supplied were affixed on the wooden crates by the appellant and were cleared to their customer on payment of duty on the transaction value. The cost of free materials received by them is not to be included in the assessable value. The delivery challans under which the free materials were supplied were closed after despatch of the wooden crates. These wooden crates are used as packing material for the glass manufactured by M/s.Saint Gobain who discharged appropriate duty at the time of clearance of their final product viz. glass.
4. The department has raised the demand alleging that the appellant has not included the cost of free supply materials in the assessable value for payment of excise duty on wooden crates cleared by them. The issue is settled by the decision of Hon’ble Apex Court in the case of International Auto Ltd. Vs CCE Bihar – 2005 (183) ELT 239 (SC). The said decision has been followed in various decisions as follows :
i) Commissioner Vs Motherson Sumi Systems Ltd. – 2008 (228) ELT A64 (SC)
ii) Lawkim Ltd. Vs CCE Pune-II – 2007 (218) ELT 142 (Tri-Mumbai)
iii) SRF Ltd. Vs CCE Chennai-I 2007 (220) ELT 201 (Tri.-Chennai) affirmed by Apex Court – 2016 (331) ELT A138 (SC);
iv) Commissioner Vs Ghatge Patil Inds. Ltd. – 2015 (322) ELT A28 (SC); 2015 (320) ELT 646 (Tri.-Mumbai).
5. This Bench in the case of Makwuds India P. Ltd. Vs CCE Chennai-IV – 2018 (6) TMI 707 – CESTAT CHENNAI had held that while clearing the finished goods to the principal manufacturer, the cost of free issue materials supplied by the principal need not be included in the assessable value. He prayed that the appeal may be allowed.
6. A.R supported the findings in the impugned order. The decision in the case of Burn Standard Co. Ltd. Vs. Union of India – 1992 (60) ELT 671 (SC) was relied by the Ld. A.R.
7. Heard both sides.
8. The issue is whether value of free supplies have to be included in the assessable value for payment of central excise duty on the wooden crates cleared by the appellant M/s.Saint Gobain Glass India Pvt. Ltd. The Tribunal in the case of Makwuds India P. Ltd. Vs CCE Chennai-IV – 2018 (6) TMI 707 – CESTAT CHENNAI had occasion to consider a similar issue. The relevant paragraph of the Tribunal decision reads as under :
“5. The issue is whether the free issue materials supplied by their customer M/s. Saint Gobain is to be included in the value of wooden crates / finished products by the appellant. The issue stands decided by the Tribunal in the case of Rane Brake Lining cited supra. The Tribunal in the said case discussed as under:-
“5. The issue is that the respondents after job work, while clearing the goods to their Principal did not include the cost of free inputs / raw materials supplied. The respondents are engaged in manufacture of automobile parts. In Ghatge Patil Inds. Ltd (supra) the Tribunal has relied upon International Auto Products case to hold that such addition of free supplied parts is not to be included in the assessable value. The same view has been maintained by Apex Court by dismissing the Civil appeal filed by department reported in 2015 (322) E.L.T. A28 (S.C.). In SRF Ltd (supra) the Tribunal was of the view that the entire exercise would be revenue neutral and therefore the demand cannot sustain. This view was maintained by the Hon’ble Supreme Court by dismissing the appeal filed by department as reported in 2016 (331) E.L.T. A138 (S.C.). Following the judgment in the case of SRF Ltd (supra) we are of the considered view that the situation being a revenue neutral one, the authorities below have rightly dropped the proceedings. The impugned order calls for no interference. The appeal is dismissed.”
6. Following the same, we hold that the demand cannot sustain. The impugned order is set aside and the appeal is allowed with consequential relief, if any.”
The Tribunal in the said case had followed the decision of International Auto Ltd. – 2005 (3) TMI 132 (SC). The very same issue was considered in the case of CCE Vs Rane Brake Linings Ltd. – 2017 (8) TMI 1388 CESTAT CHENNAI. The relevant paragraph of the Tribunal’s decision reads as under :
“5. The issue is that the respondents after job work, while clearing the goods to their Principal did not include the cost of free inputs / raw materials supplied. The respondents are engaged in manufacture of automobile parts. In Ghatge Patil Inds. Ltd (supra) the Tribunal has relied upon International Auto Products case to hold that such addition of free supplied parts is not to be included in the assessable value. The same view has been maintained by Apex Court by dismissing the Civil appeal filed by department reported in 2015 (322) E.L.T. A28 (S.C.). In SRF Ltd (supra) the Tribunal was of the view that the entire exercise would be revenue neutral and therefore the demand cannot sustain. This view was maintained by the Hon’ble Supreme Court by dismissing the appeal filed by department as reported in 2016 (331) E.L.T. A138 (S.C.). Following the judgment in the case of SRF Ltd (supra) we are of the considered view that the situation being a revenue neutral one, the authorities below have rightly dropped the proceedings. The impugned order calls for no interference. The appeal is dismissed.”
9. Ld. A.R has adverted to the discussions made by Commissioner (Appeals) in para-7 of the impugned order and also the decision of the Hon’ble Apex Court in Burn Standard Co. Ltd. Vs Union of India – 1992 (60) ELT 671 (SC). The Hon’ble Apex Court while deciding case of International Auto Ltd. (supra) considered and distinguished the ratio laid down in Burn Standard Co. Ltd. (supra). The facts of the present case are more akin to decision in International Auto Ltd. as well as Makwuds India Ltd. Vs CCE Chennai Pune. We are of the considered opinion that the view taken by the Commissioner (Appeals) that the decision in Burn Standard Co. Ltd. would apply is erroneous.
10. Further, in the case of Dymos Lear Automotive India Ltd. Vs CCE Chennai-IV – 2019 (366) ELT 898 (Tri.-Chennai) this Bench had occasion to consider identical issue. The Tribunal followed the proposition laid by Apex Court in International Auto Ltd. (supra). The decision of the Tribunal was affirmed by the Hon’ble Apex Court and dismissed the appeal filed by Revenue as reported in Commissioner Vs Dymos Lear Automotive India P. Ltd. – 2019 (366) ELT A186 (SC).
11. After appreciating the facts and following the decision in the case of International Auto Ltd. (supra), we are of the considered view that the demand of duty alleging that cost of free supply material has to be included in the assessable value cannot sustain and requires to be set aside which we hereby do. Impugned order is set aside. Appeal is allowed with consequential relief, if any, as per law.
(pronounced in open court 07.03.2023)
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