Value Of Bought Out Items Supplied Along With Manufactured Goods Cannot Be Included In Assessable Value Of Manufactured Goods: CESTAT

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the value of bought-out items supplied along with manufactured goods cannot be included in the assessable value of the manufactured goods.

The bench of Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) has observed that the manufacture of lattice masts is an independent manufacturing activity for which, except for the material used in making lattice masts, no further bought-out items are required. Therefore, they bought out items in any way without taking part in the manufacture of lattice mast.

The appellant is engaged in the manufacture of ‘lattice masts (high masts or poles) falling under Chapter 73 of the first schedule to the Central Excise Tariff Act, 1985, which are cleared on payment of excise duty. The appellant is registered with the Service Tax Department for providing taxable services under the category of erection and commissioning. Lattice masts manufactured by the appellant are cleared in the domestic market on payment of excise duty as well as being cleared for export. In some cases, the customers who buy lattice mast manufactured by the appellant for their convenience also place orders on the appellant for the supply of winches, NN wire rope, electric motor, control panel, eight fixtures, etc. (hereinafter referred to as the "bought out items) to be used by the customers for the erection and commissioning of high mast towers.

In some cases, the customers also place purchase orders with the appellants for the supply of bought-out items only. The appellant purchased the bought-out items either from the manufacturer or the traders. The appellants do not take Cenvat credit for excise duty paid on such bought-out items as they are not used for the manufacture of their finished goods. The appellant is paying VAT and CST on such sales.

However, in a few cases where a customer requires an appellant to supply arm brackets that are to be fixed on poles, the value of such arm brackets is included in the assessable value and excise duty is paid as they are part and parcel of the manufactured pole. Periodical show cause notices were issued to the appellant, proposing the demand of differential duty on the ground that the value of the bought-out items purchased is includible in the assessable value of the so-called high mast tower cleared by the appellant.

The adjudicating authority confirmed a demand against the appellant, and penalties have been imposed.

The appellant submits that the value of the bought-out items need not be added to the assessable value of the lattice mast manufactured and cleared by the appellants. It is a settled legal position that even though bought-out items are essential for the functioning of machines used along with the manufactured items, the value of the bought-out items is not included in the value of lattice mast.

The appellant contended that merely because the appellants have given a warranty in respect of the bought-out items cleared by them does not mean that the same is true of the lattice mast cleared by the appellants.

The tribunal noted there are also cases where the appellant is supplying only bought-out items as a trading activity and not lattice mast. This shows that the bought-out items are optional for the customers to buy from the appellant, which manufactures lattice mast.

Case Title: Transrail Lighting Limited Versus Commissioner of Central Excise & ST, Silvasa

Case No.: Excise Appeal No. 10512 of 2017-DB

Date: 11.04.2023

Counsel For Appellant: Anand Nainawati

Counsel For Respondent: Ghanasyam Soni

Click Here To Read The Order