2018 (3) TMI 59 - AT - Central Excise

Valuation - inclusion of cost of free supply of drawings - Section 4 of the Central Excise Act, 1944 - Held that - In principle, as per Rule 6 of Central Excise Valuation Rules, 2000 the value of free of cost drawing used for the manufacture of final product for the customer must be included in the value of automobile parts - However, it is observed that the Adjudicating Authority has taken 0.90% which is overall R & D expenses of M/s Mahindra & Mahindra Ltd. which obviously cannot be the cost of drawing supplied by M/s Mahindra & Mahindra Ltd. It is also fact that the appellant also did not make any effort to provide the cost of drawing either by obtaining from M/s Mahindra & Mahindra Ltd. or Chartered Engineer certificate, therefore dispute cannot be resolved at this stage in the given facts - the appellant must obtain Chartered Engineer certificate for certifying the cost of each drawing and on that basis the demand can be determined on the cost of such drawings. Appeal allowed by way of remand.

Issues:
- Inclusion of the cost of free supply of drawings in the assessable value of automobile components under Section 4 of the Central Excise Act, 1944.
- Determination of the cost of drawings provided free of cost by M/s Mahindra & Mahindra Ltd.
- Violation of principles of natural justice in the adjudication process.
- Reliance on data provided by M/s Mahindra & Mahindra Ltd. in the absence of data from the appellant.
- Interpretation of Rule 6 of Central Excise Valuation Rules, 2000 regarding the valuation of free of cost drawings.

Analysis:
The case involved a dispute regarding the inclusion of the cost of free supply of drawings in the assessable value of automobile components under Section 4 of the Central Excise Act, 1944. The appellant, a manufacturer of automobile parts, received drawings free of cost from M/s Mahindra & Mahindra Ltd. for the manufacturing process. The Adjudicating Authority confirmed the demand of excise duty attributed to the cost of these drawings. The appellant challenged this decision before the Commissioner (Appeals) who upheld the original order, leading to an appeal before the Appellate Tribunal.

During the proceedings, the appellant argued that the cost of R & D of M/s Mahindra & Mahindra Ltd. was inaccurately considered as the cost of drawings, emphasizing that the overall R & D cost includes various product developments, not just the drawings provided. The appellant also raised concerns about the lack of relevant data provided by the authority for determining the cost of the drawings and questioned the basis for the 0.90% cost addition. The appellant failed to provide any data on the cost of the drawings when queried by the Bench.

On the other hand, the Revenue representative reiterated the findings of the impugned order, highlighting the absence of data from the appellant, which led the Adjudicating Authority to rely on information provided by M/s Mahindra & Mahindra Ltd. The Tribunal acknowledged the necessity of including the value of free drawings in the automobile parts' valuation but noted that the 0.90% cost addition based on overall R & D expenses was inappropriate. The Tribunal directed the appellant to obtain a Chartered Engineer certificate certifying the cost of each drawing to determine the duty liability accurately. The matter was remanded to the Adjudicating Authority for further assessment based on the certificate provided by the appellant.

In conclusion, the Tribunal set aside the impugned order and emphasized the importance of obtaining a Chartered Engineer certificate to determine the actual cost of the drawings accurately. This decision aimed to resolve the dispute regarding the inclusion of the cost of free drawings in the assessable value of automobile components, ensuring a fair and precise valuation process in compliance with the Central Excise Valuation Rules.

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