2025 (1) TMI 731 - AT - Central Excise

Valuation of Central Excise Duty - inclusion of notional cost of drawings and designs supplied free of cost by Maruti to the vendors in the assessable value - HELD THAT - It is pertinent to reproduce the findings of Division Bench of CESTAT Delhi in Denso India Private Limited 2024 (3) TMI 686 - CESTAT NEW DELHI wherein, the Tribunal after considering the provisions relating to valuation of goods as provided under Section 4 of Central Excise Act and also the Central Excise Valuation Rules, 2002 and few judgments of various courts on this issue has held that ' 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.' The impugned orders are not sustainable in law - Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the notional cost of drawings and designs supplied free of cost by Maruti Suzuki India Ltd. to its vendors should be included in the assessable value of parts and components manufactured by the vendors for the purpose of payment of central excise duty.
Whether the extended period of limitation could be invoked in the facts and circumstances of the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Inclusion of Notional Cost in Assessable Value

Relevant Legal Framework and Precedents: The primary legal provisions considered include Section 4 of the Central Excise Act, which deals with the valuation of excisable goods, and Rule 6 of the Central Excise Valuation Rules, 2000. The Tribunal also referred to previous judgments, including the decision in the case of Denso India Private Limited.
Court's Interpretation and Reasoning: The Tribunal interpreted that the notional cost of drawings and designs supplied free of cost by Maruti cannot be treated as an additional consideration under Section 4(1)(b) of the Central Excise Act or Rule 6 of the Valuation Rules. The Tribunal emphasized that such drawings and designs were provided to potential vendors before the letter of intent and were not used in the production process.
Key Evidence and Findings: The Tribunal found that the specifications provided by Maruti were merely layout or dimensions of the desired parts or components and were not sufficient for manufacturing. The vendors had to prepare detailed drawings and designs independently, often with technical support from other entities.
Application of Law to Facts: The Tribunal applied the provisions of the Central Excise Act and Valuation Rules to conclude that the notional cost of drawings and designs supplied by Maruti did not constitute an additional consideration for the sale of goods. Therefore, it should not be included in the assessable value.
Treatment of Competing Arguments: The Tribunal rejected the department's argument that the drawings were instrumental in the development of the product and constituted additional consideration. It clarified that such specifications were provided during the tender process and did not influence the transaction value post-manufacture.
Conclusions: The Tribunal concluded that the notional cost of drawings and designs supplied free of cost by Maruti should not be included in the assessable value of the parts and components for excise duty purposes.

Issue 2: Extended Period of Limitation

Relevant Legal Framework and Precedents: The Tribunal did not delve deeply into this issue due to the resolution of the primary issue concerning the inclusion of notional costs.
Conclusions: The Tribunal found it unnecessary to examine the extended period of limitation due to the resolution of the primary issue in favor of the appellants.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The inevitable conclusion, therefore, that follows from the aforesaid discussion is that 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."
Core Principles Established: The judgment reinforces the principle that only those considerations directly related to the sale and manufacture, and not preliminary specifications provided during the tender process, can be included in the assessable value for excise duty.
Final Determinations on Each Issue: The Tribunal set aside the impugned orders and allowed all six appeals, concluding that the notional cost of drawings and designs should not be included in the assessable value for excise duty purposes.

The judgment effectively clarifies the scope and application of valuation rules under the Central Excise Act, emphasizing the distinction between preliminary specifications and actual manufacturing inputs in determining assessable value.

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