2015 (10) TMI 1779 - AT - Central Excise

Valuation - Determination of assessable value - Inclusion of cost of additional and secondary inspections - Held that - sale of Inserts was to Railways or to others on behalf of Railways and inspection by RITES was a necessary condition of sale. It was not in the nature of secondary or optional inspection and therefore the Commissioner (Appeals) was not right in holding the inspection charges to be not includible in the assessable value on that ground. As a matter of fact, the said goods could not be sold without the said inspection by RITES and therefore cost of inspection is clearly includible in the assessable value under Section 4 of the Central Excise Act, 1944. The need for an elaborate discussion on this issue is obviated in the wake of the CESTAT judgment in the case of Hindustan Gas & Industries Ltd. (1995 (3) TMI 276 - CEGAT, NEW DELHI) which covers an identical issue in identical circumstances. - This aspect, the absence of optionality and the existence of every buyer insisting upon tests by RITES do not appear to have been present in Hindustan Development Corporation v. C.C.E. In that case, the Tribunal has recorded a finding of the fact that the inspection charges were paid, not by the manufacturer, but incurred by the Railways, the only buyer. The ratio of that judgment, and of the judgment in Shree Pipes 1991 (12) TMI 146 - CEGAT, NEW DELHI , would not apply to the facts before us - Decided in favour of Revenue.

Summary

Issues:
1. Inclusion of inspection charges in the assessable value for duty calculation.

Analysis:
The case involved an appeal by the Revenue against an Order-in-Appeal that set aside an Order-in-Original confirming a duty demand of Rs. 27,724 along with interest and penalties. The dispute centered around whether inspection charges paid to RITES by the respondents should be included in the assessable value for duty calculation. The original adjudicating authority held in favor of inclusion, while the Commissioner (Appeals) disagreed, citing precedents where charges for additional inspections requested by buyers were deemed non-includible.

The Revenue contended that the inspection by RITES was not optional but a necessary condition of sale, contrary to the Commissioner (Appeals)' view. The Revenue relied on a CESTAT judgment in a similar case to support its position. The Tribunal examined the facts and determined that the inspection by RITES was indeed a prerequisite for the sale of "Inserts" to Railways or other parties on behalf of Railways. Therefore, the Tribunal concluded that the inspection charges were to be included in the assessable value under Section 4 of the Central Excise Act, 1944.

The Tribunal referenced the CESTAT judgment in the case of Hindustan Gas & Industries Ltd., which had addressed a comparable issue and concluded that charges for mandatory inspections necessary for marketability should be considered part of the assessable value. The Tribunal highlighted the distinction between optional inspections and inspections required by every buyer, emphasizing that in this case, the goods could not be sold without RITES' testing and approval. Consequently, the Tribunal allowed the Revenue's appeal, setting aside the previous order and upholding the inclusion of inspection charges in the assessable value for duty calculation.