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2025 (4) TMI 177 - AT - Central ExciseDemand of differential central excise duty on account of inclusion of the notional cost of drawings and designs supplied free of cost by Maruti Suzuki India Pvt Ltd. in the assessable value of parts and components of motor vehicles manufactured by the appellant and cleared to MSIL - HELD THAT - The issue raised in the case of Denso India Pvt Ltd. 2024 (3) TMI 686 - CESTAT NEW DELHI was whether the notional cost of specifications in the form of drawings and designs supplied free of cost by Maruti to the potential vendors should be included in the assessable value of the parts or components manufactured by the vendors and cleared to Maruti for their motor vehicles. To appreciate the said issue the Principal Bench considered the provisions of section 4 of the Central Excise Act 1944 and Rule 6 of the Valuation Rules and observed that anything which is supplied by the buyers to the manufacture before even identifying the potential seller/ manufacturer cannot be treated as additional consideration for sale. It was therefore held that something can be treated as an additional consideration for sale of goods only when there exists a contract of sale or an agreement to sale between two parties and in terms thereof the buyer pays something over and above the price agreed. In other words anything which is supplied by the buyer to the manufacturer even before identifying the potential manufacturer can never be treated as an additional consideration for sale. The Tribunal therefore concluded that the drawing and designs supplied by MSIL at the time of identification and short listing of potential vendors for supply of parts and components the provisions of section 4 1(b) of the Act read with Rule 6 of the Valuation Rules could not have been invoked as no consideration was received by the vendors from MSIL. It is also pertinent to take note of the fact that the Principal Bench had noted the distinction between mere specification and detailed engineering drawing as considered in the earlier decision in Mangalore Refinery Petrochemicals Ltd. Vs. CC Mangalore 2012 (9) TMI 712 - CESTAT BANGALORE where the Tribunal has held that there is a distinction between mere specifications and detailed engineering drawing. It is only the latter which is covered under rule 9(1)(b)(iv) of the Customs Valuation (Determination of Price of Imported Goods) Rules 1988 (which is now Rule 10(1)(b)(iv) of the Customs Valuation Rules 2007). The aforesaid decisions are squarely applicable to the facts of the present case and therefore the specifications in the nature of design/drawings provided by MSIL were merely layout or dimensions of the desired parts and components as they have to be necessarily manufactured as per the requisite dimensions so that they can be fitted in the vehicle manufactured by the Maruti. Conclusion - The notional cost of specifications provided by MSIL is not includable in the assessable value of the parts and components manufactured by the appellant leading to the setting aside of the impugned order. The impugned order deserves to be set aside - Appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal question considered in this judgment is whether the notional cost of specifications, in the form of drawings and designs supplied free of cost by Maruti Suzuki India Pvt Ltd. (MSIL) to its vendors, should be included in the assessable value of the parts and components manufactured by these vendors and cleared to MSIL for their motor vehicles under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The Tribunal examined the provisions of section 4 of the Central Excise Act, 1944 and Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The decision in Commissioner of Central Excise Jamshedpur vs. Tata Motors and the recent decision in Denso India Pvt Ltd. vs. Additional Director General (Adjudication), Directorate General of GST Intelligence were pivotal in guiding the Tribunal's analysis. Court's interpretation and reasoning: The Tribunal noted that for something to be considered as an additional consideration for the sale of goods, there must exist a contract or agreement between the buyer and seller where the buyer pays something over and above the agreed price. The Tribunal emphasized that specifications provided by MSIL to potential vendors before the identification of the manufacturer cannot be treated as additional consideration. Key evidence and findings: The Tribunal found that MSIL provided specifications to potential vendors through a Request for Quotation (RFQ) process without charging them. The appellant, selected as a vendor, used these specifications to prepare detailed drawings and designs with technical support from an overseas group company. The development cost for these drawings and designs was included in the assessable value of the final products. Application of law to facts: The Tribunal applied the legal principles established in the Denso India Pvt Ltd. case, concluding that the notional cost of specifications supplied by MSIL could not be included in the assessable value of the final products. The Tribunal noted that the specifications were merely requirements for parts and components and did not constitute detailed engineering drawings necessary for production. Treatment of competing arguments: The Tribunal considered the Department's argument that the specifications should be included in the assessable value. However, it found that the specifications were not used in the production of goods in a manner that would necessitate their inclusion under Rule 6 of the Valuation Rules. The Tribunal distinguished between mere specifications and detailed engineering drawings, as discussed in Mangalore Refinery & Petrochemicals Ltd. vs. CC, Mangalore. Conclusions: The Tribunal concluded that the specifications provided by MSIL were not includable in the assessable value of the final products manufactured by the appellant. The Tribunal set aside the impugned order and allowed the appeal. SIGNIFICANT HOLDINGS The Tribunal reaffirmed the principle that specifications provided by a buyer to a manufacturer before the identification of the potential manufacturer cannot be treated as additional consideration for the sale of goods. It emphasized that only those drawings and designs necessary for the production of goods and prepared by the buyer can be considered under Rule 6 of the Valuation Rules. The Tribunal reiterated the distinction between mere specifications and detailed engineering drawings, as established in previous cases, and concluded that the specifications in the present case were merely requirements and not detailed drawings necessary for production. The final determination was that the notional cost of specifications provided by MSIL was not includable in the assessable value of the parts and components manufactured by the appellant, leading to the setting aside of the impugned order and the allowance of the appeal.
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