2000 (9) TMI 502 - AT - Central Excise

Summary

Issues:
1. Inclusion of the cost of drawing supplied by the customer in the assessable value of the final product.
2. Applicability of Section 4(1)(a) of the Central Excises Act, 1944.
3. Interpretation of Rule 5 of the Central Excise Valuation Rules, 1975.
4. Proportionate addition of the value of drawings to the value of the final product.
5. Imposition of a personal penalty on the appellants.

Issue 1: Inclusion of the cost of drawing in the assessable value:
The dispute revolved around whether the cost of drawings supplied by the customer should be added to the price of the final product manufactured by the appellants. The authorities had added the cost of drawings in the assessable value of the goods, leading to a demand of duty and imposition of a personal penalty. The appellants argued that the drawings were the property of the customer and were not charged separately. The Tribunal referred to a previous decision where the value of certain components supplied free of cost by the customer had to be included in the assessable value of the final product. The Tribunal found that without the drawings supplied by the customer, the appellants could not have manufactured the final product, hence rejecting the appellants' contention.

Issue 2: Applicability of Section 4(1)(a) of the Central Excises Act:
The appellants contended that the normal assessable value under Section 4(1)(a) should be adopted, and there was no need to invoke Rule 5 of the Central Excise Valuation Rules, 1975. However, the Tribunal held that the price fixed in the contract between the parties was not the sole consideration for the sale of the finished product, as the value of the drawings supplied by the customer was essential for manufacturing the product. Therefore, the price could not be considered the sole consideration, and Rule 5 was applicable.

Issue 3: Proportionate addition of the value of drawings:
The Tribunal agreed with the appellants that the value of the drawings should be added to the value of the final product on a proportionate basis. Since the drawings were for the entire Lead Quenching Line and the appellants had only manufactured and supplied one component, the value of the drawings should be added proportionately. The matter was remanded to the original authority for re-calculation of the duty demand based on this proportionate addition.

Issue 4: Imposition of a personal penalty:
Given the conflicting decisions of the Tribunal on the issues involved, the Tribunal found no justification for imposing a personal penalty on the appellants. Therefore, the penalty was set aside in this case.

This judgment clarified the inclusion of costs of drawings supplied by the customer in the assessable value of the final product, the applicability of Section 4(1)(a) and Rule 5 of the Central Excise Valuation Rules, the need for proportionate addition of the value of drawings, and the decision regarding the imposition of a personal penalty.