2014 (8) TMI 184 - AT - Central Excise

Valuation of goods - supply of missiles and other products - Inclusion of documentation expenses, NRE, project management, training and training aids and Hub extension supplied to army - Notification No. 64/95 CE dated 16.03.95 - appellants have claimed that documents supplied are classified under CETH 49.01 and therefore are completely exempted even if they are related to missiles supplied by them - Held that - Training or training aids cannot be considered as an activity undertaken in relation to sale of goods being valued. This is definitely a post sale activity. Further there is no clear finding as regards the nature of training, place of training, the kind of training etc. According to the counsel, training aids were bought out items. There is no contra finding to this submission. Therefore we have to take a view that this is a post sale activity and unless the missile is ready, produced and ready to fire, there cannot be any training. Therefore we consider that this cannot be included. As regards project management, development for overall coordination activity to be undertaken by the appellant, it is definitely relatable to sale of goods being valued. Therefore it is includible. As regards non recurring expenditure, admittedly this is accepted to be paid to the appellant for research and development and up-gradation of the systems etc. which is definitely related to production of missile and sale of the same. Therefore in our opinion this is also includible. In the absence of exact amount recovered under these heads in detail and the amount of central excise duty payable, the matter has to be remanded to the original authority for quantification of duty payable with interest. Whether the appellant is eligible for the benefit of Sl. No. 3 and 21 in respect of supplies to Navy - Held that - it would be appropriate to take a view that the appellant is eligible for the benefit especially in view of the fact that the certificate from the officers named in the notification have been produced - all the details are not available to us in view of the secrecy involved which navy would not like to disclose. Therefore conclusions are based on records available and the details available even though they are not to the full requirement. Further we also take a view that in all these cases the Government of India is the consumer and tax is paid by Ministry of Defence that is by the Army and Navy. Extended period could not have been invoked and penalty could not have been imposed in view of the specific provision in the contract itself that taxes and duties would be on the buyer account. Therefore there cannot be any malafide intention to evade tax Government of India being the customer and having agreed to bear the duties and taxes as applicable. Therefore the demand is to be limited to the normal period in the case of supplies to the Army as considered by us above and amounts payable quantified with interest. There can be no question of penalty on the appellant - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Early hearing of the stay application.
2. Applicability of Rule 6 of Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000.
3. Inclusion of documentation charges, training, training aids, non-recurring expenditure (NRE), and project management charges in the central excise duty.
4. Eligibility for exemption under Notification No. 64/95 CE dated 16.03.95 for supplies to the Indian Navy.
5. Invocation of the extended period for demand and imposition of penalties.

Detailed Analysis:

1. Early Hearing of the Stay Application:
Revenue sought an early hearing of the stay application due to substantial revenue involvement. Both parties agreed to proceed with final arguments instead of granting a stay. Consequently, the early hearing application was allowed, the requirement of pre-deposit was waived, and the appeal was taken up for a final decision.

2. Applicability of Rule 6 of Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000:
The appellant argued that Rule 6 was not applicable as there was no additional consideration paid by the buyer. Rule 6 specifies that the value of excisable goods should include any additional consideration flowing directly or indirectly from the buyer to the assessee. The learned AR opposed this, stating that documentation charges related to the production and sale of missiles fall under clause (iv) of Explanation (1) to Rule 6. The Tribunal agreed with the AR, noting that documentation charges are an additional consideration and must be included in the valuation.

3. Inclusion of Documentation Charges, Training, Training Aids, NRE, and Project Management Charges:
- Documentation Charges: The Tribunal held that these charges are includible as they relate to the production and sale of missiles.
- Training and Training Aids: These were considered post-sale activities and not includible in the valuation. The Tribunal noted the absence of clear findings regarding the nature and place of training.
- Project Management: This was deemed relatable to the sale of goods being valued and hence includible.
- Non-Recurring Expenditure (NRE): Accepted as related to research, development, and upgradation of missile systems, making it includible in the valuation.
- Hub Extension: The matter was remanded for fresh adjudication as the appellant claimed it was a duty-paid item but had not provided evidence.

4. Eligibility for Exemption under Notification No. 64/95 CE dated 16.03.95 for Supplies to the Indian Navy:
The appellant claimed exemption for supplies to the Navy under Sl. No. 3 and 21 of the notification. The Tribunal examined whether missiles could be considered as stores or required for the construction of naval vessels. Based on a Board clarification, it was concluded that missiles could be required for construction and use on warships. The Tribunal accepted the appellant's eligibility for exemption, noting that certificates from the specified officers had been produced.

5. Invocation of the Extended Period for Demand and Imposition of Penalties:
The Tribunal found that the extended period could not be invoked, nor penalties imposed, as the contract explicitly stated that taxes and duties would be borne by the buyer (Government of India). There was no malafide intention to evade tax. The demand was limited to the normal period, and penalties were not imposed.

Conclusion:
The appeal was disposed of with directions to remand certain issues for fresh adjudication, limit the demand to the normal period, and exclude penalties. The operative portion of the order was pronounced in open court on 30.06.2014.