Only proportionate amortised tooling cost attributable to manufactured goods is includible in assessable value.

M/s. Lear Automotive India Pvt. Ltd. received tooling advances of ₹1,42,03,000 from Mahindra & Mahindra Ltd. during 2011–12 to 2015–16.

The Department issued a show-cause notice proposing Central Excise duty of ₹17,12,144, with interest and penalty under Section 11AC of the Central Excise Act, 1944, on the basis that the entire tooling advance constituted additional consideration includible in the assessable value of the finished goods.

The appellant contended that only the proportionate tooling cost attributable to the finished goods manufactured using the tools was includible, and that such amortised cost had already been included in the assessable value and discharged through supplementary invoices.

The adjudicating authority accepted the appellant’s amortisation methodology and dropped the proceedings. On departmental appeal, the Commissioner (Appeals) remanded the matter for fresh determination, principally because the appellant had relied on a Chartered Accountant’s certificate rather than a Cost Accountant’s certificate. The appellant challenged the remand order before the Tribunal.

1. Whether the entire tooling advance of ₹1,42,03,000 was includible in the assessable value upon receipt, or whether only the proportionate/amortised tooling cost attributable to the finished goods was includible?

2. Whether the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 was invocable, and whether the consequential interest and penalty under Section 11AC were sustainable?

The Tribunal applied Section 4 of the Central Excise Act, 1944, concerning valuation based on transaction value, read with Rule 6 of the Central Excise Valuation Rules, 2000, under which the money value of additional consideration flowing directly or indirectly from the buyer is includible, including the value of tools, dies, moulds and similar items, “apportioned as appropriate,” when used in the manufacture of excisable goods.

The governing principle is therefore proportionate attribution or amortisation of tooling cost rather than automatic inclusion of the entire advance in a single clearance.

The Tribunal relied on Flex Industries Ltd. v. Commissioner of Central Excise, 1997 (91) E.L.T. 120 (Tribunal), for apportionment having regard to the expected life and production capability of the tooling, and Mutual Industries Ltd. v. Collector of Central Excise, 2000 (117) E.L.T. 578 (Tri.-LB), for treating the proportionate value of buyer-supplied moulds as additional consideration.

Circular No. 170/4/96-CX dated 23 January 1996 was held to provide guidance on proportionate valuation and to permit acceptance of a Cost Accountant’s certificate, but not to impose such certificate as a mandatory statutory precondition.

For limitation and penalty, suppression with intent to evade duty must be established; mere adoption of an allegedly incorrect valuation methodology, particularly where the relevant facts were disclosed to the Department, is insufficient.

The Tribunal also relied on Sankar Sealing Systems Pvt. Ltd. v. Commissioner of GST & Central Excise, 2024 (6) TMI 1175 (CESTAT-Chennai), and Brakes India Pvt. Ltd. v. Commissioner of Central Excise, 2025 (6) TMI 758 (CESTAT-Chennai).

The Tribunal held that Rule 6 required inclusion only of the tooling value appropriately apportioned to the goods manufactured with the aid of the tools; it did not permit treating the entire tooling advance as assessable value merely because it was received from the buyer.

The appellant’s tooling records, manufacturers’ invoices, production documents, supplementary invoice, payment records and Chartered Accountant’s certificate collectively established the tooling cost, expected production or tool life, amortisation rate, quantities cleared and corresponding duty payment.

The Department did not identify any specific error in the tool values, expected life, production quantities, amortisation rates or any particular clearance involving unpaid amortised tooling cost.

The requirement in the circular for a Cost Accountant’s certificate was therefore not treated as a ground for rejecting otherwise reliable evidence or sustaining a remand.

On limitation, the Tribunal found that the Department had become aware of the tooling advances and the appellant’s proposed amortisation methodology during audit in October–November 2013, well before issuance of the show-cause notice dated 14 December 2015.

Since the dispute was essentially about valuation methodology and the material particulars had been disclosed, wilful suppression or intent to evade duty was not established. Consequently, the extended period, penalty and related interest could not be sustained.

It held that only the proportionate/amortised tooling cost attributable to the finished goods was includible in the assessable value and that the entire tooling advance could not be loaded merely upon receipt.

The extended period under Section 11A(4) was held inapplicable, and the proposed interest and penalty under Section 11AC were consequently unsustainable.

The Commissioner (Appeals)’ remand order was set aside, the adjudicating authority’s order dropping the proceedings was restored, and the proposed demand of ₹17,12,144, together with interest and penalty, was held not to survive. The appeal was allowed with consequential relief in accordance with law.