2024 (3) TMI 686 - AT - Central Excise

Valuation - inclusion of notional cost of drawings and designs supplied free of cost by Maruti to the vendors in the assessable value of parts or components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty or not - demand of differential central excise duty from the vendors - Extended period of limitation - HELD THAT - In the present case, Maruti provided specifications of the parts or components to be fitted in the motor vehicles manufactured by Maruti to the potential vendors. The parts or components have necessarily to be manufactured as per the requisite dimensions of the parts or components so that they can be fitted in the vehicles manufactured by Maruti. It is for this reason that Maruti shared the requirements at the Request for Quotation stage. The detailed drawings and designs were prepared by the Research and Development Division of the appellant with the help of technical support received from Denso, Japan. Maruti does not have the necessary technology to manufacture the products. As such, the technology has been patented by the parent company of the appellant, namely Denso, Japan for which the appellant has also been paying running royalty amount for receipt of technical support. The appellant has also included the cost incurred towards preparation of detailed drawings and designs in the assessable value of the final products. The specifications provided by the Maruti were merely layout or dimensions of the desired parts or components. The appellant prepared detailed drawings and designs for alternator assembly in line with the specifications provided by Maruti. The designs prepared by the appellant contain details of various elements to be used in the manufacture of alternator assembly. It contains 23 sub-components required for manufacturing alternator assembly, which is not even referred to in the specification drawings provided by Maruti to the appellant. This would show that it is the responsibility of the appellant to design and manufacture the parts or components. Thus, the specification drawings are neither used in the production of the components nor are they necessary for the production of the components. Rule 6 of the 2000 Valuation Rules is, therefore, not attracted. Learned authorized representative appearing for the department has placed reliance upon the decisions of the Tribunal in COMMISSIONER OF CENTRAL EXCISE JAMSHEDPUR VERSUS TATA MOTORS 2008 (12) TMI 129 - CESTAT KOLKATA and M/S. AVTEC LTD., M/S. FORD INDIA (P) LTD. VERSUS CCE, LTU, NEW DELHI 2017 (3) TMI 996 - CESTAT NEW DELHI These decisions deal with cases of drawings supplied by the motor vehicle manufacturers to the manufacturers of parts and components free of cost, but the designs were supplied after the sale agreement was executed and the manufacturer used the same for producing the components. There is nothing in these decisions which may indicate that the specification drawings were supplied at the stage of tender process and identification of vendors, nor does it transpire from the said decisions that after receipt of specification from buyer, the vendors prepared their own detail drawings and designs on the basis of which the final components were manufactured. The present appeals do not relate to toolings being supplied free of cost by Maruti to the appellant. In fact, the show cause notice also admits that tooling cost has been amortised and excise duty has been paid - thus, the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value of the parts and components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty. Extended period of limitation - HELD THAT - It would not be necessary to examine the contention that has been raised by the learned counsel for the appellants that the extended period of limitation could not have been invoked in the facts and circumstances of the present case. The impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Inclusion of the notional cost of drawings and designs in the assessable value for central excise duty.
2. Validity of the demand for differential central excise duty.
3. Invocation of the extended period of limitation.
4. Imposition of penalties on vendors and traders.

Summary:

1. Inclusion of Notional Cost of Drawings and Designs:
The primary issue in the appeals was whether the notional cost of drawings and designs supplied free of cost by Maruti to its vendors should be included in the assessable value of parts or components manufactured by the vendors for the purpose of central excise duty. The vendors argued that the cost incurred towards the manufacturing activity includes the development cost of detailed drawings and designs prepared by them. The department contended that the cost of specifications provided by Maruti should be included in the assessable value as per rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

2. Validity of the Demand for Differential Central Excise Duty:
The adjudicating authority confirmed the duty demand by including the cost of specifications provided by Maruti in the assessable value of the final products. However, the Tribunal held that the specification drawings provided by Maruti were merely for shortlisting potential vendors and were not used in the actual production of parts or components. The detailed drawings and designs necessary for production were prepared by the vendors themselves. Thus, the notional cost of these specifications could not be included in the assessable value for central excise duty.

3. Invocation of the Extended Period of Limitation:
The show cause notices invoked the extended period of limitation under section 11A(4) of the Central Excise Act, 1944. The Tribunal did not find it necessary to examine this contention since the primary issue was decided in favor of the appellants.

4. Imposition of Penalties on Vendors and Traders:
Penalties were imposed on the vendors, but the adjudicating authority dropped the proposal to impose penalties on the employees of Maruti. The Tribunal set aside the penalties imposed on the vendors and traders, stating that central excise duty could not be levied on traders who were not engaged in manufacturing activities.

Conclusion:
The Tribunal concluded that the notional cost of drawings and designs supplied free of cost by Maruti to the vendors could not be included in the assessable value of the parts and components for central excise duty purposes. Accordingly, all the appeals were allowed, and the impugned orders were set aside.