2016 (12) TMI 1458 - AT - Central Excise

Valuation - inspection charges - The inspection agency is deputed by the customer/government body. Payment for such inspection are paid by the customer directly to the inspecting agency. However, in few cases the payment of inspection charges was made by the respondent to the inspecting agency on behalf of the customer and subsequently such payment was collected as reimbursement - whether inspection charges to be included in assessable value? Held that - As per Section 4, any amount which is paid or payable on behalf of the goods will form the transaction value. In the present case, as per the contract, the respondent is not under obligation to undertake the inspection and bear the expenses thereof. As regards the inspection it is a contract between the inspection agency and the customer and the payment transactions invariably made between both of them. Therefore, in few cases, whatever payment was borne by the respondent, for the inspection, the same was collected from the customer as reimbursements which cannot form part of transaction value as the subject amount is not paid or payable on account of sale of goods. Reliance placed in the case of Commissioner of Central Excise, Raipur v. Bhaskar Ispat Pvt. Ltd. 2004 (3) TMI 102 - CESTAT, NEW DELHI , where it was held that cost of additional testing conducted at customer s request and borne by the customer is not includible in the assessable value of the goods. The inspection charges is not includable in the assessable value - appeal dismissed - decided against Revenue.

Summary

Issues:
Whether inspection charges should be included in the assessable value for duty calculation.

Analysis:
The case involved the issue of whether inspection charges should be included in the assessable value for duty calculation under Section 4 of the Central Excise Act, 1944. The respondent, engaged in the manufacture of MS pipes, had customers arranging third-party inspections, with payment made directly to the inspection agency in most cases. The department contended that inspection charges should be part of the assessable value, while the adjudicating authority dropped the demand on such charges. The Revenue appealed this decision.

The Revenue argued that goods become marketable only after inspection, thus inspection charges should be included in the assessable value. They referred to a judgment in Hindustan Gas & Industries Ltd case. On the other hand, the respondent's counsel relied on several judgments, including Commissioner of Central Excise, Raipur v. Bhaskar Ispat Pvt. Ltd., to support the dropping of the demand on inspection charges.

The Tribunal carefully considered the submissions and found that the inspection agency was deputed by the customer/government body, with payments made directly to the agency. The respondent, in some cases, paid the inspection charges on behalf of the customer and later collected reimbursement. The contract clearly outlined this arrangement. The Tribunal held that as per Section 4, any amount paid or payable on behalf of the goods forms the transaction value. Since the inspection charges were not directly related to the sale of goods and were reimbursed by the customer, they should not be included in the assessable value.

The Tribunal cited various judgments, such as Commissioner of Central Excise, Raipur v. Bhaskar Ispat Pvt. Ltd., Bhaskar Industrial Development. Ltd. v. Commissioner of Central Excise, Kolkata III, and others, to support their decision. They concluded that inspection charges should not be included in the assessable value, upholding the order that dropped the duty demand on inspection charges. Consequently, the Revenue's appeal was dismissed.