Full Judgment
2. The facts are that the applicants are manufacturers of motor vehicle parts falling under sub-heading 8708.00. They manufacture assembly fifth wheel coupling and assembly link rod. They receive coupling plates from M/s. Telco Ltd. free of cost as input. They include the value of the coupling plates in the value of their final products which consist of the coupling plates in question. In their declaration dated 26.9.2000, the cost declared of the coupling plates received from M/s.
Telco Ltd. free of cost as input, is reduced to half as compared to the cost declared for the same product prior to 24.6.2000. It so happened that the price for the coupling plates declared earlier by the applicants was Rs.2,857.27 per piece whereas the cost of the same plates received on or after 14.6.2000 was only Rs. 1,411.07 per piece.
The department alleged that the applicants undervalued the cost of raw material (received from M/s. Telco Ltd.) which had an impact on computation of the value of the final products resulting in short payment of central excise duty to the tune of Rs. 1,33,510/- on the final products cleared during the period 3.8.2000 to 19.2.2001. This allegation has been upheld by the Commissioner (Appeals) even though he reduced the penalty to Rs.5,000/- from Rs.40,000/-.
3. The applicants argued before us that the supplier of raw material (M/s. Telco Ltd.) themselves reduced the price of coupling plates from Rs.2,857.27 per piece to Rs. 1,411.07 per piece with effect from 1.7.2000 when the Central Excise Valuation (Determination of Prices of Excisable Goods) Rules, 2000 according to which if clearances are not by way of sale but for use in production of other articles by the assessee or on his behalf, the value is required to be determined with reference to the cost of production. M/s. Telco Ltd. have calculated the cost of production of the coupling plates and arrived at a value of Rs. 1,411.07/-. Accordingly, the value as determined by M/s. Telco Ltd, for the product manufactured by them can alone be taken by the applicants when they make use of the said plates in the manufacture of their products. The department's allegation that the applicants have undervalued their final product by reducing the cost of the input (coupling plates) is not sustainable. If the department were to suspect that the value of the coupling plates has not been properly determined by M/s. Telco Ltd. who are the manufacturers, demand for differential duty calculated on the real value should be raised against the manufacturers, i.e. M/s. Telco Ltd., and not on the applicants.
4. We have heard both sides. We observe that the applicants have a strong prima facie case in their favour. As users of inputs supplied by somebody, they cannot determine the value of those inputs. It is the manufacturer of the inputs who has to decide the value of the goods manufactured by him. We also observe that the department does not allege that there is any flow-back from the buyers. The transaction value declared by the applicants therefore prima facie appears to be correct. The various issues raised should be gone into at a later stage.
5. Having regard to these facts, we waive the pre-deposit of duty and penalty demanded and imposed on the applicants and stay recovery of the same pending disposal of the appeal.