Case Note & Summary
The appeals arose from a dispute between job workers engaged in body-building of motor vehicles and the Central Excise and Service Tax Department. The appellants received chassis from manufacturers for body building. Excise duty was paid by the manufacturers on the chassis at 110% of the cost of manufacture under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. After completion of body building, the job workers cleared the completed motor vehicles by availing CENVAT credit on the duty paid on the chassis, but they computed the assessable value excluding the 10% notional profit that had been included in the chassis valuation. The Department issued show cause notices invoking the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944, alleging wilful misstatement or suppression of valuation of body-built vehicles. The Central Excise and Service Tax Appellate Tribunal (CESTAT), in its Larger Bench decision in Eicher Motors Ltd., held that the 10% notional profit must be included in the assessable value, relying on M/s Ujagar Prints (II) and (III) and Empire Industries. The assessees filed appeals before the Supreme Court under Section 35L of the Act. The respondent raised a preliminary objection that the appeal was not maintainable as it did not involve rate of duty or valuation. The Court rejected this objection, holding that the issue had an inextricable link with valuation of goods for assessment. On merits, the Court upheld the CESTAT Larger Bench view that the value of chassis at 110% of cost of manufacture, inclusive of 10% profit, formed part of the statutorily fixed value of the intermediate product and must be included in the job worker's assessable value of the completed vehicle. The Court distinguished Pawan Biscuits and General Engineering Works on facts. On limitation, relying on Larsen & Toubro, Continental Foundation Joint Venture Holding, and CCE v. Kolety Gum Industries, the Court held that extended limitation under proviso to Section 11A requires wilful misstatement or suppression with intent to evade duty. Since the Department was aware that chassis were cleared at 110% cost, the job worker's omission to add the 10% could not be treated as suppression. Consequently, the extended period of limitation was not available and penalty could not be imposed. The appeals were disposed of accordingly, with the valuation principle decided against the assessees but the extended limitation and penalty set aside.
Headnote
A) Central Excise - Valuation of Excisable Goods - Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Assessable value of body-built vehicle must include 10% notional profit included in chassis value - Court upheld CESTAT Large Bench decision that value of chassis cleared at 110% of cost of manufacture includes manufacturer's profit margin, which forms part of intermediate product value and cannot be excluded by job worker - Held that assessee liable to include the 10% in computing excise duty on completed vehicle (Paras 4-12). B) Central Excise - Extended Limitation - Proviso to Section 11A of Central Excise Act, 1944 - Invocation requires wilful misstatement or suppression with intent to evade duty - Department knew manufacturer cleared chassis at 110% cost, hence job worker's omission to add 10% not suppression - Extended period not available and penalty not justified - Held that when facts are known to both parties, omission does not amount to suppression (Paras 13-16). C) Central Excise - Appeal Maintainability - Section 35L of Central Excise Act, 1944 - Appeal maintainable when issue inextricably linked with valuation of goods - Preliminary objection rejected because core issue in Show Cause Notice related to valuation of body-built vehicles - Held that court not inclined to relegate matter after long pendency (Paras 3-4).
Issue of Consideration
Whether the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944 was available to the Department; whether the 10% notional profit included in the value of chassis under Rule 8 of the Central Excise Valuation Rules, 2000 must be included by a job worker in the assessable value of the completed body-built vehicle; and whether the appeal was maintainable under Section 35L of the Central Excise Act, 1944
Final Decision
The Supreme Court held that appeal maintainable, upheld inclusion of 10% notional profit in job worker's assessable value, but held extended limitation under proviso to Section 11A not invocable as facts known to Department and no wilful suppression; penalty not justified.
Law Points
- Assessable value of body-built vehicle cleared by job worker must include the 110% cost of chassis comprising cost plus 10% notional profit under Rule 8
- extended limitation under proviso to Section 11A requires wilful misstatement or suppression with intent to evade duty
- when facts are known to both parties
- omission by one party does not constitute suppression
- penalty not leviable in absence of wilful suppression
- appeal under Section 35L maintainable when valuation is core issue
