2024 (4) TMI 1225 - AT - Central Excise

Valuation of Excise duty - inclusion of notional cost of specifications in the form of drawings and designs supplied by the MSIL to the appellant free of cost in the assessable value - HELD THAT - The decision in Denso India Pvt. Ltd. 2024 (3) TMI 686 - CESTAT NEW DELHI squarely applies to the facts of the present case. MSIL is making vehicles of several models in its factories. For manufacturing these vehicles MSIL is required to purchase various OE components from several vendors. The components for any vehicle have to be made as per the OEM requirement only. The vehicle components are not general stand-alone items which can be manufactured as per any design/drawing /specification but have to be made as per OE specifications. Only then the same can be fitted to the vehicle except for proprietary items like nuts bolts etc. Once the vendor is finalized selected and price is agreed the vendor starts manufacturing the component according to the drawings/designs/specifications given to him by MSIL. MSIL is not selling drawings/designs/specifications to the component vendor i.e. the Appellant and is thus not charging any amount for the same. The royalty payment is made for the non-exclusive right to use the Licensed Information and Licensed Trademarks pertaining to whole vehicle or its parts and not for/any specific component or mould or die to be used in the vehicle or its parts. Conclusion - The notional cost of drawings and designs supplied free of cost by the principal manufacturer to vendors should not be considered in determining the assessable value for central excise duty. The impugned order needs to be set aside. Both the appeals are accordingly allowed.

Summary

The Appellate Tribunal, CESTAT Delhi, considered two appeals arising from the same impugned order-in-original no.70-92-CE/2023 dated 29.03.2023. The core legal issue in both appeals was whether the notional cost of specifications/drawings and designs supplied free of cost by Maruti Suzuki India Ltd. (MSIL) should be included in the assessable value of parts or components of motor vehicles manufactured by the appellants, leading to a differential amount of central excise duty. The Tribunal analyzed the facts and relevant legal provisions to determine the applicability of Rule 6 of the Central Excise Valuation Rules, 2000.In Appeal No. E/55230 of 2023, the appellant was engaged in manufacturing motor vehicle parts for MSIL under royalty agreements with Suzuki Motors Corporation (SMC). The Department contended that the notional cost of specifications provided by MSIL should be added to the assessable value of the final products. The Adjudicating Authority confirmed a demand of Rs. 21,19,762/- against the appellant based on the inclusion of lump sum royalty in the assessable value.In Appeal No. E/50008/2014, the appellant was an Original Equipment Manufacturer for MSIL and engaged in manufacturing Graphics, Stickers, Name Plates, and Black Out Tape. The appellant received drawings and designs from MSIL without any charge and developed the required products based on these specifications. The Adjudicating Authority held that the notional cost of specifications provided by MSIL should be included in the assessable value.The Tribunal considered the precedent set in the case of Denso India Pvt. Ltd. vs. Additional Director General (Adjudication), Directorate General of GST Intelligence, New Delhi, where it was established that the notional cost of drawings and designs supplied free of cost by Maruti to vendors cannot be included in the assessable value of parts and components for the purpose of central excise duty payment. The Tribunal noted that MSIL provided specifications to vendors for manufacturing components as per OE requirements, and the royalty paid by MSIL to SMC was for the non-exclusive right to use Licensed Information and Trademarks, not for specific components or designs.Based on the judicial pronouncement and the analysis of the facts, the Tribunal set aside the impugned order and allowed both appeals. The decision emphasized that the notional cost of specifications provided by MSIL should not be included in the assessable value of the manufactured parts or components for the purpose of central excise duty payment.The Tribunal's holding established a core principle that the notional cost of drawings and designs supplied free of cost by the principal manufacturer to vendors should not be considered in determining the assessable value for central excise duty. The Tribunal's final determination was to allow both appeals in favor of the appellants, based on the principles established in the Denso India Pvt. Ltd. case and the specific circumstances of the appeals before the Tribunal.