1998 (5) TMI 190 - AT - Central Excise

Summary

Issues:
1. Modvat credit on design and development charges.
2. Inclusion of design and development charges in the assessable value of excisable goods.
3. Proportional allocation of charges among the goods supplied.

Analysis:
1. The appellants, engaged in manufacturing I.C. engines, availed Modvat credit on inputs used in the final products. A dispute arose when duty was paid on design and development charges separately by a supplier of components for the engines. The Asstt. Commissioner disallowed the credit, imposing a penalty, which was upheld by the Commissioner of Central Excise (Appeals). The argument was made that design and development charges, though shown separately, are part of the cost of the goods supplied, and hence, the duty credit was rightfully claimed.

2. The settled legal position is that design and development charges are to be included in the assessable value of excisable goods under Section 4 of the Central Excise Act. The appellants clarified that the charges were paid separately as the quantity supplied to the customer could not be determined in advance, justifying the duty payment on these charges. The Tribunal noted that the Asstt. Commissioner should have made inquiries with the supplier's jurisdictional authority to verify the duty payment on the charges. Without this verification, the denial of Modvat credit was deemed unjustified. Consequently, the Tribunal set aside the previous order and remanded the case for further investigation.

3. The absence of proportional allocation of charges among the goods supplied and the charges not being solely related to the items covered by the gate pass were highlighted. The Tribunal emphasized the need for a thorough examination of the duty collection on design and development charges at the supplier's end to justify the denial of Modvat credit. The case was remanded to the jurisdictional Asstt. Commissioner for appropriate action based on the outcome of the inquiry with the supplier's authority.

This detailed analysis of the judgment provides insights into the complex legal issues surrounding Modvat credit and the inclusion of design and development charges in the assessable value of excisable goods, ensuring a comprehensive understanding of the case.