Cost Of Tools, Dies Used To Make Auto Parts Must Be Amortized For Excise Duty: CESTAT Delhi

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that the entire cost of tools and dies cannot be added to the assessable value of automobile parts. Only their amortized value can be included.

“There cannot be any dispute that the final products cannot be manufactured without the tools and dies and, therefore, their value should included. However, they are not used only once but over and over again. Therefore, the cost of the tool or die has to be spread over all the goods manufactured using it. This is done through an accounting method known as amortization in which the total value of the tool or die is divided over the number of final goods which are likely to be products using it and proportionate value of the tools and dies is added to each good,” the tribunal observed.

The bench comprising Officiating President Dr. Rachna Gupta and Technical Member P.V. Subba Rao was hearing an appeal filed by Mahindra CIE Automotive Ltd.

The company manufactures automobile parts and accessories for original equipment manufacturers (OEMs).

Mahindra uses tools, moulds, and dies to manufacture these parts. In some cases, customers supplied them free of cost. In others, Mahindra itself manufactured or procured them and recovered their cost from customers through separate invoices.

Where customers supplied the tools and dies, Mahindra included their amortized value in the assessable value of the finished products.

But where Mahindra itself manufactured or procured them and sold them to customers through separate invoices, it did not include either their full value or amortized value in the assessable value.

The department noticed this during an audit covering November 2015 to March 2017. It then issued a show cause notice demanding central excise duty on the entire cost of the tools, moulds, and dies recovered by Mahindra from its buyers under Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

Mahindra argued that even if the value of the tools and dies had to be included, only their amortized value should be considered. It also argued that the tools and dies qualified for captive-consumption exemption under Notification No. 67/95-CE. The company further contended that the demand was barred by limitation.

The tribunal agreed with Mahindra on the first issue. It held that the cost of the tools and dies had to be spread across the goods manufactured using them. The original authority was directed to calculate their amortized value.

The captive-consumption argument, however, was rejected. The tribunal noted that the exemption applies where the goods are used within the factory of manufacture. Here, Mahindra had sold the tools and dies to customers under separate invoices and then used them within its factory.

The tribunal therefore held that Notification No. 67/95-CE did not apply. The tools and dies were effectively no different from those procured and supplied by the customers themselves.

The limitation plea was also rejected. Mahindra had argued that it was under a bona fide belief that the value of the tools and dies did not have to be included.

The tribunal did not accept this. It noted that Mahindra was already including the amortized value of customer-supplied tools and dies in other cases. It therefore found no bona fide belief in Mahindra's failure to include the value in the present cases.

The matter was remanded to the original authority to recompute the excise duty demand by taking the amortized value of the tools and dies into account. Interest and penalty are also to be recalculated accordingly.

The appeal was allowed by way of remand.

For Appellant: Advocates Charanya Lakshmi Kumaran, Dhruv Tiwari and Mehak Mehta

For Respondent: Authorised Representative Rajat Malhotra