2013 (9) TMI 18 - AT - Central Excise

Valuation - Demand of differential duty Whether the product development charges and the consultancy charges collected by the assesse by raising debit notes were liable to be included in the assessable value of the job-worked medicaments cleared to the latter during the period of dispute Revenue contended that the product development charges and consultancy charges should also be included in conversion charges so as to be part of the assessable value of the goods - Held that - Any expense which was not attributable to the job work cannot be included in the cost of conversion and hence cannot be added to the assessable value - The inclusion of product development charges in the conversion charges for the job-worked medicaments, regardless of the fact that only some of the medicaments specified in the debit note were supplied by the job worker would ipso facto indicate the fallacy of the Department s claim that the product development charges covered by the debit note were to be treated as part of the cost of conversion Decided against revenue.

Summary

Issues:
Appeal against dropping of demand of differential duty based on consultancy and product development charges in the assessable value.

Analysis:
The case involves an appeal by the Department against the dropping of a demand for differential duty by the Commissioner(Appeals) in favor of the respondent, a manufacturer of medicaments on job work basis. The Department contended that consultancy and product development charges collected by the respondent should be included in the assessable value of the job-worked goods. The original authority upheld the demand, imposing penalties, which was later challenged by the respondent in an appeal to the Commissioner(Appeals), who ruled in favor of the respondent. The main issue revolved around whether these charges should be part of the assessable value.

The Department argued that the charges were for indirect expenses related to conversion and should be included in the assessable value. On the other hand, the respondent contended that these charges were not attributable to the job work and should not be considered as part of the conversion cost. The respondent highlighted specific debit notes showing the nature of charges collected, emphasizing that some medicaments specified were not even supplied to the principal manufacturer. Reference was made to a previous case where charges had to be amortized per unit, indicating the need for a similar treatment in this scenario.

The Tribunal carefully considered the submissions and found that the assessable value was determined in accordance with the Ujagar Prints formula, including raw material and conversion costs. The Tribunal agreed with the Commissioner(Appeals) that expenses not directly linked to job work should not be part of the conversion cost. It noted that the Department failed to prove that the product development and consultancy charges were integral to the conversion process. Additionally, the fact that service tax was paid on these charges further supported the respondent's argument against including them in the assessable value.

Conclusively, the Tribunal dismissed the Department's appeal, acknowledging the respondent's strong case on the merits. The plea of limitation was not examined as the respondent's arguments were deemed sufficient to reject the appeal. The decision was pronounced at the conclusion of the hearing, upholding the ruling in favor of the respondent.