2025 (2) TMI 478 - AT - Central Excise

Valuation of Excise duty - inclusion of notional cost of the drawings and designs provided by Maruti to the appellant in the assessable value - additional consideration for sale or not - HELD THAT - It is undisputed that if they form additional consideration for sale then their value must be included in the assessable value as per section 4(1) (b) of the Central Excise Act, 1944 Excise Act and Rule 6 of the Central Excise Valuation (Determinationof Price of Excisable Goods) Rules 2000 Valuation Rules and if they do not form additional consideration for sale then they cannot be included and the assessable value will be the transaction value itself as per section 4(1) (a) of the Excise Act. For something to be consideration it must be something done or something abstained from doing at the desire of the promisor. This something could be done or abstained from doing either by the promisee himself or by someone else but it must be at the desire of the promisor - the consideration could be in cash or some other valuable or simply something done or abstained from doing under the Contract Act but under Sale of Goods Act only price can be the consideration. Under the Central Excise Act, consideration has to be for cash deferred payment or some other valuable consideration . Thus the scope of the consideration under the three Acts varies somewhat but what does not vary is that it has to be at the desire of the promisor done either by the promisee or by someone else. The question however is whether these specifications drawings and designs of value are consideration in the transactions between Maruti and the appellant. As discussed for something to be a consideration it must be at provided at the desire of the promisor by either the promisee or someone else - For a promise to come into existence there must be a proposal (or offer) from the seller and its acceptance by the buyer. Until the proposal is made and accepted there is no promise. Once the offer is made and accepted the promise makes the seller the promisor and the buyer the promisee. Before the offer and its acceptance there is neither any promise nor any promisor-promisee relationship between them as they were only prospective seller and prospective buyer. When the appellant submitted its quotations and Maruti accepted them Maruti became the promisee and the appellant the promisor. In a batch of appeals decided by this Tribunal in Denso India Private Limited vs. Additional Director General (Adjudication) 2024 (3) TMI 686 - CESTAT NEW DELHI appeals in respect of other vendors of Maruti were decided in favour of the appellants on an identical issue. Conclusion - The specifications and designs provided by Maruti were not to be included in the assessable value for excise duty purposes. The impugned order cannot be sustained - Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this judgment is whether the specifications, drawings, and designs supplied by Maruti Suzuki India Limited (Maruti) to its vendor, Rane NSK Steering Systems Private Limited (the appellant), should be considered as "additional consideration for sale" of goods manufactured and sold by the appellant to Maruti. The resolution of this issue determines whether the notional cost of these specifications and designs should be included in the assessable value for the purpose of calculating excise duty under the Central Excise Act, 1944.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents

The legal framework involves Section 4(1) of the Central Excise Act, 1944, which deals with the valuation of excisable goods for the purpose of charging excise duty. Specifically, Section 4(1)(b) and Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, are pertinent. These provisions address the inclusion of additional consideration in the assessable value of goods. The relevant legal definitions of "sale" and "consideration" from the Excise Act, Sale of Goods Act, 1930, and the Indian Contract Act, 1872, are also considered.

Court's interpretation and reasoning

The Court examined the definitions of "sale" and "consideration" under the relevant statutes. It noted that under the Excise Act, "sale" includes the transfer of possession for cash or deferred payment or other valuable consideration, whereas under the Sale of Goods Act, it involves the transfer of property for a price. The term "consideration," although not defined in the Excise Act or Sale of Goods Act, is defined in the Contract Act as something done or abstained from doing at the desire of the promisor.

In this context, the Court reasoned that for something to be considered "additional consideration for sale," it must be provided at the desire of the promisor (seller) by the promisee (buyer) or another party. The Court found that the specifications and designs were provided by Maruti not as consideration but as part of the request for quotations (RFQ) process, which occurred before any promisor-promisee relationship was established between Maruti and the appellant.

Key evidence and findings

The Court acknowledged that the specifications and designs were valuable and developed by Suzuki Motor Corporation Limited, Japan, for which Maruti paid a fee. However, these were provided to the appellant and other vendors free of charge during the RFQ process to facilitate the submission of bids, not as part of the sale transaction between Maruti and the appellant.

Application of law to facts

The Court applied the definitions and principles from the relevant statutes to determine that the specifications and designs were not "consideration" in the transaction between Maruti and the appellant. They were provided prior to the formation of any contractual relationship and were intended to aid in the bidding process rather than serve as compensation for the sale of goods.

Treatment of competing arguments

The Revenue argued that the specifications and designs constituted "additional consideration for sale" and should be included in the assessable value. The appellant contended that these items were not consideration but were provided to facilitate the RFQ process. The Court sided with the appellant, emphasizing that the items were not provided at the desire of the promisor and did not constitute consideration under the Contract Act.

Conclusions

The Court concluded that the notional cost of the drawings and designs supplied by Maruti to the appellant could not be included in the assessable value of the goods for excise duty purposes. The specifications and designs were not "additional consideration for sale" as they were not provided at the desire of the promisor and were not part of the sale transaction.

SIGNIFICANT HOLDINGS

The Court held that the specifications, drawings, and designs provided by Maruti during the RFQ process were not "additional consideration for sale" under Section 4(1)(b) of the Central Excise Act and Rule 6 of the Valuation Rules. This holding aligns with previous decisions in similar cases, such as Denso India Private Limited vs. Additional Director General (Adjudication) and Jay Nikki Industries vs. Additional Director General.

Preserve verbatim quotes of crucial legal reasoning

The Court stated: "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 for something to be considered "consideration," it must be provided at the desire of the promisor and relate to the promise. It also clarifies that items provided during the RFQ process to facilitate bidding do not constitute consideration for the sale of goods.

Final determinations on each issue

The Court set aside the impugned order, ruling in favor of the appellant, and allowed the appeal with consequential relief. The specifications and designs provided by Maruti were not to be included in the assessable value for excise duty purposes.