2013 (6) TMI 483 - AT - Central Excise

Valuation - Job Work - inclusion of product development charges and consultancy charges - assessee had taken into consideration the cost of raw materials packing charges conversion charges for valuation of the goods. - Held that - The view taken by the learned Commissioner(Appeals) is that, as far as a job worker is concerned, any expense which is not attributable to the job work cannot be included in the cost of conversion and hence cannot be added to the assessable value. We are in full agreement with this view of the learned Commissioner (Appeals). - No demand on account of differential duty - decided in favor of assessee.

Summary

Issues:
- Whether product development and consultancy charges collected by the respondent are liable to be included in the assessable value of job-worked goods.
- Whether the charges collected are part of the cost of conversion.
- Whether the charges should be considered as part of the assessable value based on Ujagar Prints formula.
- Whether the charges can be included in the assessable value if not attributable to the job work.
- Whether the charges are subject to Central Excise duty if service tax has been paid on them.

Analysis:
1. The appeal was against the dropping of demand of differential duty ordered by the Commissioner(Appeals) in favor of the respondent, who was engaged in manufacturing medicaments on job work basis. The Department contended that consultancy and product development charges collected by the respondent should be part of the assessable value of job-worked goods. The original authority confirmed the duty demand, but the appellate authority set it aside, stating that the charges were not part of raw material or conversion cost.

2. The Additional Commissioner argued that the charges were for indirect expenses related to conversion and should be included in the assessable value. The respondent's consultant countered that the charges were not attributable to job work and were not part of conversion cost. Reference was made to debit notes showing charges for quality control, inspection, and product development. The consultant argued that the charges were not part of conversion and should not be included in the assessable value.

3. The Tribunal found that the assessable value was determined according to the Ujagar Prints formula, including raw material and conversion costs. The dispute centered on whether consultancy and product development charges should be part of conversion costs. The Tribunal agreed with the appellate authority that expenses not related to job work should not be included in conversion costs. The Department failed to prove that the charges were part of conversion costs, especially regarding product development charges not amortized despite not all specified medicaments being supplied.

4. Additionally, the respondent had been paying service tax on product development charges, supporting the argument that these charges should not be subjected to Central Excise duty. The Tribunal concluded that the respondent had a strong case on merits, leading to the dismissal of the Department's appeal.

5. The Tribunal did not delve into the plea of limitation, as the respondent successfully argued against the inclusion of consultancy and product development charges in the assessable value. Consequently, the appeal was dismissed.