Excise liable on tools develop & used by supplier

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This query is : Resolved

raj singh (Querist)

02 February 2012 we have develop tools for customer

pls provide rule/judgement for excise not levy on tools billing to customer if tools amortise in regular supply.

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)

02 February 2012 Read the links:

https://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=2911

https://indiankanoon.org/doc/557269/

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raj singh

raj singh (Querist)

02 February 2012 i unable to open 1st link

pls provide why excise not levy when tooling (which develop by supplier & will use for regular supply) billed to customer

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

21 July 2024 In India, excise duty is levied on goods manufactured or produced in the country, including tools and dies, under the Central Excise Act, 1944. However, there are specific provisions and judicial interpretations that exempt certain transactions or items from excise duty. Here’s an explanation and reference to relevant provisions and judicial decisions regarding tools developed by suppliers:

### 1. Amortization of Tools

Tools and dies used in the manufacturing process are typically considered capital goods under excise law. The excise duty is not levied on tools and dies if they are intended for use within the same factory for manufacturing taxable goods. These tools and dies are usually amortized over time and their value recovered through the pricing of the manufactured goods.

### 2. Relevant Provisions and Exemptions:

- **Rule 4(2)(a)(ii) of the Central Excise Rules, 2002:** According to this rule, excise duty is not levied on tools, jigs, dies, fixtures, moulds, and spare parts for such tools, jigs, etc., when they are sent along with the final product and are essential for its production.

- **Judicial Precedents and Decisions:**
- **Collector of Central Excise, Bombay v. Tata Engineering and Locomotive Co. Ltd. (1996):** In this case, the Supreme Court held that when tools and dies are not marketable and are intended for use in the factory for manufacturing goods, they do not attract excise duty. The court emphasized that excise duty is not a tax on capital goods but on the manufactured goods.

- **Sundaram Clayton Ltd. v. Commissioner of Central Excise (2000):** The court held that where tools and dies are used exclusively within the factory premises for manufacture and are integral to the manufacturing process, they do not attract excise duty.

### 3. Why Excise Duty is Not Levied:

Excise duty is not levied on tools and dies billed to the customer when they are considered integral to the manufacturing process and are amortized over time. This exemption is based on the principle that excise duty is intended to tax manufactured goods, not capital goods used in their production.

### Conclusion:

Based on the provisions of Rule 4(2)(a)(ii) of the Central Excise Rules, 2002, and judicial decisions, tools and dies developed by suppliers and used for regular supply to customers are not subject to excise duty. These tools are considered capital goods essential for production and their cost recovery is integrated into the pricing of the manufactured goods. Therefore, suppliers can amortize the cost of tools and dies over time without incurring excise duty liability on them when billed to customers.

It’s advisable to consult with a tax advisor or legal expert specializing in excise laws to ensure compliance and understanding of specific circumstances related to tools and dies used in manufacturing.

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