2015 (10) TMI 1103 - AT - Central Excise

Valuation - Determination of assessable value - Invocation of extended period of limitation - whether the charges paid to appellant No.2 by EID Parry India Ltd. or Triveni Engineering Works Ltd. were relating to the engineering, designing and various equipment before manufacturing or these charges are relating to post manufacturing activity - Held that - Entirely in agreement with the findings of the Commissioner that most of the activities are relating to pre-fabrication, engineering and design stage. It is on the basis of this designing that the appellant is fabricating various equipment, instruments, pipings, insulations etc. The expenditure on such activities would, therefore, form part of the assessable value of the machinery and equipment manufactured by appellant No.1. In fact without these engineering drawings, it was not possible for appellant No.1 to fabricate and manufacture the equipments which they have supplied. Whole plant was fabricated and assembled by appellant No.1 as per the engineering design by appellant No.2. Keeping in view all these facts, we are of the considered view that the amounts paid to appellant No.2 would form part of the assessable value. We also note that these critical facts were not submitted along with the price declarations and, therefore, the extended period of limitation has been correctly invoked. Revenue has added the engineering design charges for the same reasons. It is immaterial that those engineering and design charges were recovered from Triveni Engg. Pvt. Ltd. initially for the said purpose and later on as damages. It was based upon the engineering designs and drawings supplied by appellant No.2 at the initial stage that appellant No.1 fabricated those equipments. For the reasons which are applicable to the supplies made to EID Parry India Ltd., these amounts will also form part of the assessable value. Here again, the extended period of limitation is correctly invoked and the penalty imposed under Section 11AC is correct. - However, penalty under Rule 173Q is reduced. - Decided partly in favour of assessee.

Issues Involved:
1. Inclusion of consultancy charges in the assessable value of equipment.
2. Inclusion of forfeited advances in the assessable value.
3. Invocation of extended period of limitation.
4. Imposition of penalties under Rule 173Q and Section 11AC.

Issue-wise Detailed Analysis:

1. Inclusion of Consultancy Charges in the Assessable Value of Equipment:
The core issue was whether the consultancy charges paid to appellant No.2 (IBIC) by EID Parry India Ltd. should be included in the assessable value of the equipment supplied by appellant No.1 (IBI). The Revenue argued that the consultancy and engineering services provided by IBIC were essential for the manufacturing process and, therefore, should be part of the assessable value. The Tribunal agreed with the Commissioner's findings that these services were directly related to the pre-fabrication and engineering stage, essential for manufacturing the equipment. The Tribunal noted that without these engineering drawings, it was not possible for IBI to fabricate and manufacture the equipment. Therefore, the consultancy charges were rightly included in the assessable value.

2. Inclusion of Forfeited Advances in the Assessable Value:
The second issue was whether the engineering, designing, and consultancy charges received by IBIC from Triveni Engg. Works Ltd., which were later forfeited as liquidation charges, should be included in the assessable value of the goods supplied by IBI to Vamorganic Chemicals Ltd. The Tribunal upheld the Revenue's stance that these charges were initially meant for the same purpose of engineering and designing and thus should form part of the assessable value. The Tribunal emphasized that the source of the payment was immaterial, and what mattered was the purpose of the charges, which was related to the manufacturing process.

3. Invocation of Extended Period of Limitation:
The Tribunal examined whether the extended period of limitation under Section 11A was applicable. The Revenue argued that critical facts were suppressed from the department, justifying the invocation of the extended period. The Tribunal agreed with this contention, noting that the relevant details were not disclosed in the price declarations. Therefore, the extended period of limitation was correctly invoked.

4. Imposition of Penalties under Rule 173Q and Section 11AC:
The Tribunal reviewed the penalties imposed on the appellants. For appellant No.1, the penalty under Rule 173Q was considered excessive given that some activities were post-manufacturing for which separate amounts were not available. Consequently, the penalty was reduced to Rs. 1,00,000/-. Similarly, for appellant No.2, the penalty under Rule 209A was also deemed excessive and reduced to Rs. 1,00,000/-. The Tribunal rejected the argument that appellant No.2 did not deal with the goods, noting their significant role in the designing and ensuring the proper functioning of the equipment.

Conclusion:
The appeals were rejected except for the modification of the penalty amounts. The consultancy charges were rightly included in the assessable value as they were essential for the manufacturing process. The forfeited advances were also included in the assessable value for similar reasons. The extended period of limitation was correctly invoked due to the suppression of critical facts. The penalties were reduced considering the overall circumstances and the nature of the activities involved.

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