WHAT IS MOULD?
A mould is a hollowed-out block that is filled with a liquid or pliable material such as plastic, glass, metal or ceramic raw material. The liquid hardens or sets inside the mould, adopting its shape, which is called cast.
WHAT IS AMORTISATION COST?
Amortized cost is that accumulated portion of the recorded cost of a fixed asset that has been charged to expense through either depreciation or amortization.Amortisation cost is listed with cost of goods sold if the expense associated with the fixed asset is used in the direct production of inventory.
MOULD SENT FREE OF COST TO JOB WORKER:
As stated in Rule 10A of Central Excise Valuation Rules, 2000, Job worker is a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, using any inputs or goods supplied by the said principal manufacturer or by any other person authorised by the prinicipal manufacturer.
DUTY LIABILITY ON JOB WORKER:
Since excise duty is on ‘manufacture’, duty liability arises only when the goods are manufactured during job work. The test as to whether the process amounts to manufacture or not would be determined as per Sec.2(f) of Central Excise Act, 1944 which is relevant defines manufacture as including any process incidental or ancillary to the completion of the manufactured product.
If the process undertaken by the job worker amounts to manufacture/ deemed manufacture as per the definition or case precedents, the job worker would be liable to pay duty of excise on the goods so manufactured unless the principal manufacturer who has supplied him the goods for job work, furnishes a declaration under Notification No. 214/86 dated 25.03.1986 which exempts goods manufactured by a job worker from duty of excise provided the said goods after job work are returned to the principal or cleared for export or cleared for home consumption on payment of duty of excise.
In M/s International Auto Ltd Vs CCE, Bihar – 2005 (183) ELT 239 (SC), it was held that the job worker need not include the value of inputs, supplied to them free of cost by the customer, in the assessable value of the component manufactured and cleared back by them to the customer.
The Hon’ble Apex Court has delivered the said decision based on the eligibility of the CENVAT credit to the principal manufacturer. Therefore, following shall be exceptions to the above, for which Rule 6 of Central Excise Valuation Rules, 2000, shall apply:
- Where the cost of the inputs supplied free of cost by the principal manufacturer are not included in the final product manufactured and cleared by the principal manufacturer. (Eg. If the intermediate products are accessories of final products, cleared along with the final products, the value of which is not subjected to duty).
- Where the goods supplied by the job worker are not in the nature of intermediate products but are final products. To amplify it further, if the goods supplied by the job worker are not used in the further manufacture of excisable goods at the hands of the principal but are being sold as such (trading).
- Where the goods manufactured by the principal manufacturer, are not subjected to duty of excise.
The same has been affirmed by the Supreme Court in SRF Ltd vs Commissioner – 2016 (331)
E.L.T. A138 (SC).
Apart from deciding the issue in favour of the assessee, the Tribunal has also remarked that the entire issue, in any case, is tax neutral. This aspect could not be disputed by the Department. It would be futile to go into the issue if it is tax neutral.
INTERPRETATION OF THE INTERNATIONAL AUTO CASE:
Let us deliberate the above decision under the following circumstances:
Circumstance 1: When the inputs are supplied by the manufacturer and the product received from the Job worker is subjected to further manufacturing of the final product
With the reference to the above case, anything given free of cost shall not be considered as additional consideration, if CENVAT credit has been taken by the manufacturer and the material has been returned. i.e. assessable value shall not include amortisation cost.
Circumstance 2: When the inputs are supplied by the manufacturer and there is additional purchase by job-worker and the product received from the Job worker is subjected to further manufacturing of the final product
Notification No.214/86-CE does not prohibit a job worker from utilizing other inputs in addition to raw material received by him and recover charges therefore from the principal manufacturer. Therefore, the above decision holds good in this situation as well.
Circumstance 3: When the inputs are supplied by the manufacturer and the product is transferred to the customer of manufacturer directly
This scenario is the same as exception no.2 mentioned in the preceding case law. i.e. Goods supplied by the job-worker are not used in the further manufacture of excisable goods at the hands of the principal but are being sold as such. Hence, Rule 6 shall be applied.
Circumstance 4: When the inputs are supplied by the manufacturer and there is additional purchase by job-worker and the product received from the Job worker is subjected to further manufacturing of the final product
This situation matches the first exception. i.e. where the cost of inputs supplied free of cost by the principal manufacturer are not included in the final product manufactured and cleared by the principal manufacturer. Therefore, Rule 6 shall apply.
Therefore, from the case law referred above, we can conclude that amortisation cost of moulds sent to job-worker, for which CENVAT credit is taken, and received back by the principal manufacturer within the prescribed time limit, need not form part of the assessable value.
Shailaja Alagesan,Chartered Accountant, SAPAA