Customs, Excise and Gold Tribunal - Delhi
South East Electronic Components P. ... vs Commissioner Of Central Excise on 12 December, 2002
Equivalent citations: 2003(88)ECC395, 2003(160)ELT389(TRI-DEL)
JUDGMENT V.K. Agrawal, Member (T)
1. These two appeals have arisen out of a common Order-in-Appeal No. 102-CE/MRT/2002 dated 26.4.2002 by which the Commissioner (Appeals) has confirmed the demand of Central Excise duty amounting to Rs. 16,08,186 against M/s. South East Electronics Components Pvt. Ltd. and penalty of Rs. 13,07,017 on the Company and Rs. 15,000 on Shri I.S. Banan, Director.
2. Shri B.L. Narsimhan, learned Advocate, submitted that the Appellant Company manufactures various components of machines as per the orders of their customers;, that they had, in view of the need of the customers, also developed tools/dyes as per drawings provided by the customers; that tools, so developed, are used in the manufacture of components; that after paying the duty on the tools so developed, the tools are retained by them for use in the manufacture of final products; that the Additional Commissioner under the Adjudication Order No. 46/2000 dated 29.9.2000 confirmed the demand of duty and imposed penalty on the ground that the cost of the tools should be amortized to the value of the final products and also/ on account of short accountal of production. The learned Advocate, further, submitted that the Commissioner (Appeals), while confirming the demand on account of amortization has not taken cognizance of the submissions made by them that amortization has to be in accordance with the life span of the tools; that the Department cannot adopt the depreciation as the basis of amortization; that they had produced a Certificate given by a Chartered Valuer; that if the cost is appropriately amortized based on the price of the tools, number of pieces that could be produced using the said tool; the liability for duty, if any, would be very small and not as confirmed by the Commissioner in the impugned Order; that the Commissioner has not accepted the Certificate given by the Chartered Valuer on the ground that when the reputed firms can play mischief, no credence can be given to the certificate issued by Chartered Valuer engaged by the Appellants themselves; that the disregard shown by the Commissioner (Appeals) in not accepting the certificate on flimsy reason is not in accordance with the law and the factual position. He relied upon the decision in the case of Protech Engineering Industries Pvt. Ltd. and Anr. v. Commissioner of Central Excise, New Delhi, 2002 (51) RLT 133 (CEGAT). Reliance has also been placed on the decision in the case of Automobile Corporation of Goa Ltd. v. Commissioner of Central Excise, 1999 (107) ELT 266 wherein it has been held by the Tribunal that the depreciation method is designed for different purpose and the matter was remanded for amortization in accordance with the life span of the dyes and fixtures in the light of the Tribunal's decision in the case of Flex Industries v. Commissioner of Central Excise, 1997 (91) ELT 120 (Tri). Regarding duty on components, the learned Advocate submitted that the components were removed under the cover of proper invoice and appropriate duty was paid thereon. We also heard Mrs. Krishna. A. Mishra, learned Senior Departmental Representative.
3.1 It is settled law that the cost of tools and dyes has to be amortized and added in the assessable value of the final products. It has been held by the Tribunal in the case of Flex Industries Ltd. v. Commissioner of Central Excise (Supra) that the cost has to be added with reference to the expected life and capability of the tool. In fact the Tribunal in the case of Flex Industries referred to Board's Circular No. 170/4/96 CX dated 23.1.96 wherein the Board has clarified the exact method of amortization as under:
"It is hereby clarified that the proportionate cost of pattern has to be included in the assessable value of the castings even in cases, where such patterns are being supplied by the buyers of the castings or are got prepared/manufactured by the job worker at the cost of the buyer. In cases where there is difficulty in apportioning the cost of the pattern, apportionment can be made depending on the expected life and capability of the pattern and the quantity of casting that can be made from it and thus working the cost to be appropriated per unit. For this purpose, a certain (sic) from a Cost Accountant may be accepted."
3.2 Following the ratio of the decision in Flex Industries case, this Tribunal in the case of Protech Engineering (Supra) has held that the amortization of the case has to be done on the basis of life expectancy. The decision in Flex Industries case has been approved by the Larger Bench of the Tribunal in the case of Mutual Industries Ltd. v. Commissioner of Central Excise Mumbai, 2000 (117) ELT57S. Thus, the cost has to be amortized on the basis of life span of the tools and the expected number of finished products which can be manufactured by use of the tools.
4. The demand of duty has also been confirmed on account of shortage of components noticed by the Central Excise officers on their visit of the unit of the Appellants factory premises on 9.7.98. The Additional Commissioner has given his finding in this regards as under:-
"A shortage of 5600 pcs, 5000 pcs and 450 pcs pertaining to production slip dated 25.6.98 and 3200 pcs pertaining to production slip dated 13.6.98 were not found entered in the RG I register of M/s. SEECPL. In their defence reply dt. 22.8.2000 M/s. SEECPL had admitted that due to inadvertence the said components left to be entered in the RG I register (Para 2 on P-27). They had submitted that they had paid Central Excise duty of Rs. 31,891 on the said 5600 pcs+5000 pcs+450 pcs and 52000 pcs. The proportionate duty on 32,000 pcs of mounting lug comes to Rs. 7,776 (i.e. 12,636*32000/52000). Thus they have claimed that they had paid Rs. 9274 + Rs. 7794 + Rs. 2187 + Rs. 7776 = Rs. 27,031 on the said goods found short/not entered in RG I register. But the duty on the said goods was to the tune of Rs. 61,020 as per show cause notice (P-7), so they had short paid duty amounting to Rs. 33,989 on said goods. Thus M/s. SEECPL are required to pay the said amount of Rs. 33,989 out of said Rs. 61,020."
5. We find that the Appellants have not satisfactorily rebutted the finding of the Additional Commissioner. In view of these facts we confirm the demand of duty of Rs. 33,989 in respect of shortages of components. The remaining amount of duty is set aside. The Appellants are eligible to include the cost of tools in the assessable value on proportionate basis depending on the expected life and capability of the tools. The penalty is imposable on the Appellant No. I. However, the same is reduced to Rs. 5,000 only, The penalty on the Director under Rule 209 A of the Central Excise Rules is also set aside as the role played by him has not been discussed in the Adjudication Order. The present matter is not a fit case warranting confiscation of land, building, plant and machinery under Rule 173Q of the Central Excise Rules. Accordingly, we set aside the confiscation of the land, building, plant and machinery. The appeals are disposed of in the above terms.