2010 (9) TMI 401 - AT - Central Excise

Valuation Technical know-how for P or P medicine - sale of technical know-how in respect of 76 brands of P or P medicines and received25 crores from its sole customer - case of the Revenue was that technical know-how received free of cost and utilised the same in the manufacture of excisable goods - Circular cited and the ratio of the decision of the Tribunal in the Bangalore Pharma are to the effect that in the absence of a proper mechanism to quantify the value of technical know-how relatable to the goods cleared, duty cannot be demanded - appeal filed by the Revenue, rejected

Summary

Issues Involved:
1. Inclusion of Technical Know-How Value in Assessable Value
2. Determination of Money Value and Amortized Cost
3. Validity of Show Cause Notice
4. Invocation of Extended Period of Limitation

Detailed Analysis:

1. Inclusion of Technical Know-How Value in Assessable Value:
The Department appealed against the Commissioner's order that dropped the proposal to recover duty on Rs. 25 crores paid by M/s. Recon Health Care Ltd. (RHCL) to M/s. Wintac Ltd. for technical know-how required for manufacturing medicines. The authorities initially held that this amount should be included in the assessable value of the products manufactured by Wintac, as the technical know-how was essential for production. The Commissioner, however, found that the Show Cause Notice failed to specify the quantity of goods manufactured, their value, and the additional consideration to be included. Thus, the demand was deemed ab initio null and void.

2. Determination of Money Value and Amortized Cost:
The appellants claimed that the consideration was for the transfer of intellectual property, which is intangible and outside the levy of excise duty. They argued that the life of the know-how was perpetual and its value could not be easily amortized over the products manufactured. The Commissioner agreed, stating that it was impossible to determine the 'money value' and 'amortized cost' of the technical know-how for the goods manufactured by Wintac. The Tribunal upheld this view, noting the difficulty in apportioning the cost of technical know-how to the specific products manufactured.

3. Validity of Show Cause Notice:
The Commissioner found the Show Cause Notice lacked basic facts, such as the quantity of goods manufactured, their value, and the relevant dates for the demand. The Tribunal agreed, citing Section 11A of the Central Excise Act, which requires the notice to specify the amount of duty and the relevant date. The absence of these details rendered the notice improper and invalid.

4. Invocation of Extended Period of Limitation:
The Commissioner concluded that the extended period of limitation was not applicable, as the appellants had informed the Department about the agreements and revised price declarations. The Tribunal supported this finding, noting that the Show Cause Notice did not provide sufficient details to invoke the extended period. The Tribunal emphasized that the demand must be supported by clear facts and figures, which were missing in this case.

Conclusion:
The Tribunal upheld the Commissioner's order, rejecting the appeal filed by the Revenue. It emphasized the need for clear and specific details in the Show Cause Notice and recognized the challenges in determining the value of technical know-how for excise duty purposes. The Tribunal also noted the importance of proper mechanisms to attribute the value of technical know-how to the goods cleared. The decision aligns with previous case laws that require the amortized cost of inputs to be included in the assessable value, but only when a proper mechanism exists to determine such costs.