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2008 (5) TMI 286 - SC - Central ExciseWhether the amount of Rs. 43 lakhs received by the respondent towards charges for designs, drawings, tooling, jigs and fixtures etc. as per the agreement dated May 10, 1991 could have been loaded on the value of the machine made and delivered subsequently as per the separate written orders? Held that - The order passed by the Commissioner does not indicate that no machines were subsequently manufactured by the respondent after using drawings, designs, jigs, fixtures, tooling etc. supplied by the ITC. Therefore, loading of the entire amount of Rs. 43 lakhs without such a finding and recovery of duty thereon was not permissible at all. The order of the Commissioner does not indicate adequate reasons to invoke proviso to Section 11A(1). On the basis of vague allegations made in the show cause notice neither the proviso to Section 11A(1) could have been invoked nor penalty could have been imposed upon the respondent under Rule 173Q of the Central Excise Rules. On the facts and in the circumstances of the case, this Court is of the opinion that the Tribunal did not commit any error in setting aside the order passed by the Commissioner and the instant appeal which lacks merits, deserves dismissal. Appeal dismissed.
Issues:
- Whether duty and penalty imposed by the Commissioner of Central Excise on the additional consideration received by the respondent for the preparation of designs, drawings, patterns, jigs, etc., is justified. Analysis: 1. Background: The respondent, a company manufacturing machine tools, entered into an agreement with another party for manufacturing machines as per specified drawings and patterns. The respondent received an additional consideration of Rs. 43 lakhs for this agreement. 2. Commissioner's Decision: The Commissioner of Central Excise, Belgaum, confirmed the duty demand of Rs. 7,41,750 and imposed a penalty of Rs. 75,000 on the respondent for the additional consideration received, based on Rule 6(2) of the Central Excise Rules, 1944. 3. Tribunal's Decision: The respondent appealed to the Customs Excise & Gold (Control) Appellate Tribunal, which set aside the Commissioner's order, leading to the current appeal. 4. Key Issue: The main issue was whether the amount received for designs and drawings could be added to the value of the machines manufactured subsequently. 5. Agreement Analysis: The agreement between the parties detailed the manufacturing process, specifications, and pricing of the machines. It was a comprehensive contract covering design, drawing, manufacture, and excise duty payment. 6. Nexus Requirement: The Court emphasized the need for a nexus between the consideration received and the value of the assessable goods. The lack of evidence linking the additional consideration to the machine prices rendered the duty demand unjustified. 7. Contractual Interpretation: The Court highlighted that the contract must be viewed holistically, not in isolated parts. It noted that the Commissioner failed to consider the agreements for machine supply in conjunction with the drawings and designs issue. 8. Legal Flaws: The Court criticized the lack of reasoning in the Commissioner's order to invoke Section 11A(1) and impose penalties under Rule 173Q. Vague allegations without concrete evidence were deemed insufficient for duty imposition. 9. Tribunal's Decision Justified: Ultimately, the Court upheld the Tribunal's decision, stating that the order lacked merit and deserved dismissal. The loading of the entire additional consideration without proper findings was deemed impermissible. 10. Conclusion: The appeal was dismissed, with no costs awarded. The judgment highlighted the importance of establishing a clear nexus between additional consideration and assessable goods' value before imposing duties and penalties.
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