2015 (11) TMI 515 - AT - Central Excise

Duty demand - Duty on die research and development charges recovered separately by the appellant by way of debit note - Held that - In the show cause notice, the duty has been demanded from the appellant on the amount collected towards die development charges by the appellant during the impugned period. No effort has been made in the show cause notice for amortization of the cost of die and development charges toward the final product cleared by the appellant. Therefore, the show cause notice is defective. If, in the show cause notice the cost of die and development charges had been amortized, in that case definitely, the appellant was liable to pay duty, on amortized cost but same has not been done. - on the cost of amortization, the duty has not been demanded on the final product cleared by the appellant, therefore, the demand of duty on die development charges is not sustainable. - Impugned order is set aside - Decision in the case of Ashok Iron Works Ltd. (2004 (2) TMI 482 - CESTAT, BANGALORE) followed - Decided in favour of assessee.

Summary

Issues:
1. Duty demanded on research and development charges not included in assessable value.
2. Amortization of research and development charges in final product.
3. Defective show cause notice lacking amortization details.

Analysis:
Issue 1:
The appellant appealed against the duty demanded on research and development charges separately collected from customers. The appellant, a manufacturer of aluminum products, collected these charges but did not include them in the assessable value of the goods cleared. The lower authorities confirmed the duty demand, along with interest and penalty, for the period 1999-2004. The appellant argued that the duty cannot be confirmed on these charges as they were not included in the assessable value. The appellant relied on a previous tribunal decision to support this contention. The appellant's argument was considered, and it was noted that the duty was demanded on the charges collected, without considering the amortization of these charges in the final product.

Issue 2:
The appellant admitted to collecting research and development charges but failing to amortize them in the final product's cost. The appellant's failure to amortize these charges resulted in a short payment of duty. The show cause notice did not mention the quantity or value of finished goods cleared, leading to a lack of clarity in the assessment. The authorities suggested remanding the matter for reconsideration and a proper order. The failure to amortize the charges in the final product's cost was a crucial factor in determining the duty liability.

Issue 3:
The show cause notice was found to be defective as it did not address the amortization of research and development charges in the final product's cost. The tribunal emphasized the importance of considering the amortized cost in determining duty liability. Referring to a previous tribunal decision, it was established that duty could only be demanded on excisable goods manufactured from patterns developed using the collected charges. Since the duty was not demanded on the final product based on amortized cost, the demand on research and development charges was deemed unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief.