2011 (5) TMI 863 - AT - Central Excise

Valuation of goods - Whether the third party additional inspection charges incurred by the customers on behalf of their customers and subsequently reimbursed to them by their customers are required to be added in the assessable value or not - Held that - Board s circular relates to pre-delivery inspection conducted by the manufacturer itself. There is no dispute in the present case that such inspection was being carried out by the respondent at the instance of their customers and from a third party. The expenses originally incurred by them, were being reimbursed by their clients. As such, nothing came to the pocket of the respondent. The Commissioner (Appeals) has rightly observed that the assessee s customers could have paid the entire inspection charges to the party inspecting the goods instead of routing the same though the assessee, in which case, the question of the same being added in the assessable value of the assessee s product, would not arise - Decided against Revenue.

Summary

Issues:
Whether third party additional inspection charges reimbursed by customers are required to be added in the assessable value or not.

Analysis:
The issue in this case revolves around determining whether third party additional inspection charges, which were incurred by customers on behalf of their clients and subsequently reimbursed, should be included in the assessable value. The Commissioner (Appeals) set aside the original order confirming the demand of duty, stating that the cost of additional testing borne by the customer is not part of the assessable value, citing relevant tribunal decisions and the issue of limitation.

The Revenue argued that pre-delivery inspection charges should be included in the assessable value as per a Board's Circular and the new Section 4 of the Central Excise Act, emphasizing the transaction value concept. They referred to a Supreme Court judgment to support their contention that all components enriching the value of goods should be added. The Revenue also alleged suppression of facts regarding the inspection charges.

The Tribunal analyzed the submissions and found no merit in the Revenue's arguments. They clarified that the Board's circular related to manufacturer-conducted inspections, whereas in this case, inspections were carried out by a third party at the customers' request. The Tribunal agreed with the Commissioner (Appeals) that since the expenses were reimbursed and did not enrich the manufacturer, they should not be added to the assessable value.

Regarding the Revenue's reliance on a Supreme Court judgment, the Tribunal noted that it did not pertain to third party inspection charges, making it inapplicable. They emphasized that the charges were paid to the inspection agency and not retained by the manufacturer, thus not contributing to the assessable value. The Tribunal upheld the Commissioner's decision on this aspect.

Lastly, the Tribunal addressed the issue of limitation, stating that without evidence of mala fide intention or deliberate evasion, the demand could not be sustained beyond the limitation period. They concurred with the Commissioner that the demand was time-barred. Ultimately, the Tribunal rejected the Revenue's appeal, affirming the Commissioner (Appeals) decision.

This detailed analysis showcases the Tribunal's thorough examination of the issues raised, the legal principles involved, and the application of relevant precedents to arrive at a well-reasoned judgment.