Whether value of bought out items includible in assessable value of goods ?

PJ/CASE LAW/2016-17/3146

Case:-BREW FORCE MACHINES PVT. LTD. VERSUS COMMISSIONER OF C. EX., DELHI-II

Citation:-2016 E.L.T. 468 (Tri. - Del.)

Brief Facts:-The appellant, M/s. Brew Force Machines (P) Ltd. are engaged in the manufacture of beer/IMFL machinery and storage tanks for storing/processing beer falling under Chapter sub-heading No. 8438 90 00 of CETA, 1985. They were not registered with the Central Excise department and were availing benefit of SSI exemption under Notification No. 8/2003-C.E., dated 1-3-2003. On intelligence received that the appellants were wrongly availing SSI benefit, a search was conducted in the manufacturing premises of the appellant, on 1-6-2004 in the presence of independent witness. The officers verified the stock of finished goods, semi-finished goods and raw material and also conducted scrutiny of records. It was observed that appellants had cleared goods valued Rs. 1,71,03,560/- in 2002-03 and goods valued Rs. 1,42,76,801/- during the year 2003-04 and had crossed the limit for availing the benefit of the SSI exemption. A show cause notice was issued to the appellants raising the above allegation on the basis that appellant issued parallel invoices for bought out items and did not include the value of bought out items in the value of manufactured goods. The appellants defended the notice contending that each tank is made as per requirement of the buyer and cannot be used by another buyer. Along with tanks, the appellants also supplied on invoice bought out items which were supplied as such to the buyer. That appellants are not manufacturing or clearing entire plant but only parts of brewing plant (storage tanks) and therefore, the value of bought out items ought not to be added to the value of manufactured items. The original authority observed that the value of manufactured items cleared during the relevant period without including the value of bought out items was below one crore and therefore, dropped the demand. The department filed appeal before the Commissioner (Appeals) who vide the order impugned herein allowed the appeal and confirmed the duty demand of Rs. 18,20,858/- with interest and also imposed penalty under Section 11AC of the Central Excise Act. Being aggrieved the appellants are before the Tribunal.

Appellant Contentions:- On behalf of the appellants, the learned counsel stated her argument by referring to the show cause notice. In the show cause notice, it is alleged that the appellants manufactured the complete brewing plant in the appellants’ factory with the bought out items. After manufacture of this complete plant, the appellants for convenience of transportation dismantled the same after testing and then erected/installed in the premises of the customer. That the bought out items supplied being integral part of the tanks, the value is includible in the transaction value charged by the appellant. It is submitted by the learned counsel that appellants do not manufacture complete brewing plant but only parts of the plant, i.e., storage tanks. These tanks are manufactured as per specifications provided in the purchase orders. The tanks are special tanks fitted with various appendages like agitators, having channel base of SS legs and specific design to enable it to be connected to huge network pipelines and other parts of brewery plant. Besides supply of tanks the appellants also undertake erection/installation of these tanks. For such installation, various other parts like pipes, bands, union, nipples, flow meters, tee, flanges, sockets, clamps, temperature gauge, etc., are needed. These are either purchased by appellant from open market as bought out items or purchased by buyer himself. The bought out items are either transported by the appellant or some items transported by suppliers directly to the buyer. In all case when bought out items were supplied by appellants, invoices were raised for the amount. That the bought out items are not part of the goods manufactured by appellant and that therefore, these value should not be included in the value of manufactured goods. Further, learned counsel advanced argument regarding the allegation that the appellants issued parallel invoices in regard to the bought out items. The counsel explained that the allegation has been raised because invoices show break in their sequential number. It is submitted that in cases where buyers were supplied with bought out items a separate invoice book was used and in case of buyer to whom storage tanks were supplied another book was used by the accountant. All these figures have been properly accounted and reflects in the ER-1 returns. The allegation of issuance of parallel invoices is without basis and that the original authority had dropped the demand after verifying and considering all these facts.

Respondent Contentions:-The learned DR reiterated the findings of the impugned order. He submitted that the Commissioner (Appeals) has observed that appellants were clearing goods on parallel invoices and has suppressed facts. On taking into account the value of the goods cleared through these parallel invoices of bought out items, the value of clearances would cross the limit of SSI exemption and the appellants are therefore, liable to pay the excise duty. The bought out items are supplied by the appellants and are essential part of the machinery/tanks and therefore, the cost of such items is to be loaded in the price of manufactured goods.

Reasoning of Judgment:- We have heard the rival submissions and perused the records carefully. At the outset it needs to be stated that even though a search was conducted in the manufacturing premises of the appellant; and verification of the stock and scrutiny of records was conducted there is no discrepancy detected with regard to the stock/accounts/figures. The only allegation is that appellant issued parallel invoices for bought out items and if the value of clearances of bought out items is loaded to the value of clearances of finished goods of the appellant, then such total would exceed Rs. one crore and would cross the SSI exemption limit. We think that it would be better to first examine the allegation of issue of parallel invoices. The appellant has placed the list of invoices before Tribunal. On perusal, it is seen that after invoice No. 1, dated 30-6-2002 issued to Gemini Distilleries Goa (P) Ltd., the sequential number stops at Invoice No. 21, dated 13-10-2002 which is an invoice issued to N.V. Distrilleries and Breweries, Patiala. Then again Invoice No. 1, dated 27-12-2002 is seen issued to Tawi Bottles and the sequence continues up to invoice No. 15, dated 29-3-2003 issued to Superior Inds. Ltd., Barely. There is break in sequential number in further dates. Thus apparently the invoices are not issued from same book. The learned counsel has explained this stating that in the cases where bought out items were supplied the invoices in one book was issued and then when manufactured tanks were cleared without bought out items invoices from another book was being issued by the accountant. On checking the description of goods in these invoices we have to say that this explanation is satisfactory. Further, merely because the invoices issued did not follow their sequential number it is not sufficient to hold that these are parallel invoices. The figures in these invoices tally with accounts. Further the department has investigated with the transporters M/s. Doors Transport Ltd. No discrepancy was detected. The allegation that appellant suppressed facts by issuing parallel invoices is factually wrong.
The main issue that arises for consideration is whether the bought out items supplied by appellants are essential parts of manufactured goods and whether the value of such items is includible in the transaction value of the finished goods.
The gist of allegation in the show cause notice is that appellant manufactured the complete brewery plant, using the bought out items, dismantled the same after testing and then transported to the buyers premises from where it was again installed and erected by the appellant. That the bought out items are therefore, essential part of the cleared finished goods and includible in the transaction value. The appellants contend that they are manufacturing only parts of brewery plant, i.e., storage tanks/machinery. The tanks are manufactured as per buyers specifications. The bought out items are used for erection/installation of the tank in the buyers premises and to connect the tank/machinery to other parts of brewery plant. The bought out items are also as per specifications of each tank. The tank and bought out items along with other machinery goes to form the brewery plant. The photograph of the plant with tanks was placed before Tribunal. On the look of these photographs, we have to say that the brewery plant is a massive structure and if once structured and fixed to the ground, it cannot be dismantled and transported without damaging it. Therefore, the case of the department that appellants manufactured complete plant and the bought out items are part of the complete plant manufactured by the appellant is untenable. In view of the above, the plea of the appellant that bought out items are not part of the excisable goods is acceptable.
The learned counsel has placed reliance on the judgment rendered by CESTAT in Neycer India Ltd.- 2005 (192) E.L.T. 620 (Tri. - Chennai) where the issue involved was the valuation of flushing cistern manufactured by the assessee, who manufactured only ceramic portion. In order to make it functional bought out items like handle assembly, ball valve assembly, over flow assembly, flush pipe assembly, etc., were fitted. It was held that value of bought out items is not includible in the assessable value of the cistern. This view was upheld by the Apex Court in the appeal filed by the department reported in CCEv. Neycer India Ltd. - 2015 (320) E.L.T. 28 (S.C.). The said decision is applicable to the facts of the present case.
From the foregoing, we hold that the impugned order is unsustainable and the same is set aside. The appeal is allowed with consequential reliefs, if any.

Decision:- Appeal allowed.

Comment:-The gist of the case is that values of clearance of bought out items is not includible in the assessable value of goods if the bought out items are not essential for the clearance of excisable goods. This is supported by the judgment rendered by CESTAT in Neycer India Ltd.

Prepared by: Mahesh Parmar

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PJ/CASE LAW/2016-17/3146

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