Bought-Out Optional Plywood Tops Value Not Includible In Excise Duty on Folding Cots: CESTAT Kolkata

In partial relief to Shree Durga Industry, the Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that while fabrication of steel folding cots amounts to “manufacture” under the Central Excise Act, the value of optional plywood tops procured from the open market cannot be added to the assessable value for levy of excise duty.

The bench of Judicial Member R. Muralidhar and Technical Member K. Anpazhakan was hearing appeals filed by Shree Durga Industry and its partner Goldi Sethi against an order confirming a demand of Rs 3,32,10,665 in excise duty along with interest and penalties for the period 2011–12 to 2014–15 (up to May 2015).

The company, a small-scale unit holding Directorate General of Supplies and Disposals (DGS&D) rate contracts, supplied folding steel cots to Indian paramilitary forces. The department alleged that it had manufactured and cleared folding cots with plywood tops without paying appropriate central excise duty.

Before the Tribunal, the appellant argued that the fabrication of folding cot steel frames did not amount to “manufacture” under Section 2(f) of the Central Excise Act, 1944. It further contended that plywood tops were bought-out trading items supplied optionally as per customer requirements and that their value could not be included for duty purposes.

During adjudication, however, the company admitted that if the activity were treated as manufacture, duty of Rs 58,59,681 would be payable after availing the benefit of the SSI exemption.

After examining the process undertaken, the Tribunal held that cutting, bending and welding of MS pipes resulted in a distinct and marketable product, namely folding cots, and therefore amounted to manufacture under Section 2(f) of the Act.

The bench observed that “the 'folding cots' get manufactured at the end of the appellant and the same would be exigible to payment of Excise Duty.”

On the question of valuation, the tribunal found that the plywood tops were general commercial plywood boards procured from third-party traders and supplied either separately or along with the cot frame, depending on customer requirement. The folding cot could be used either with cotton tape or with a plywood top, and the plywood was not a specialized or integral component manufactured by the appellant.

The bench held:

"We hold that supply of Plywood Tops by the appellant by procuring the same from the third party sources, would be a trading activity and hence the value of the same cannot be added to arrive at the Assessable Value of the Folding cots. The confirmed demand, interest and penalty on this count is fully set aside."

Accordingly, the tribunal sustained excise duty liability only to the extent of Rs 58,59,681 on folding cots, subject to adjustment of amounts already paid and along with applicable interest. It set aside the major portion of the confirmed demand of about Rs 2.74 crore relating to inclusion of plywood tops, along with interest and penalties, and also set aside the penalties imposed on both the firm and Goldi Sethi.

While the appeal of the firm was partly allowed, the appeal of the partner was allowed in full.

For Appellant: Advocate Indranil Banerjee and Mukul Agarwal

For Respondent: Authorized Representative, A. Mukherjee