2015 (12) TMI 256 - AT - Central Excise

Valuation of goods - whether the additional amount received by appellant towards the third party inspection charges undertaken at the instance of the buyer is includable in the transaction value or otherwise and whether the duty liability arises or not - Held that - We notice from the purchase orders placed that the said orders are given by the Government authorities to the appellant and one of the order of the Thermal Power Station specifically talks about the material should be despatched after inspection by the representative of Thermal Power Station while the South Eastern Coalfields Ltd. purchase order talks about the inspection of the goods by third party inspectors as per the instructions of South Eastern Coalfields Ltd. We see from the orders that the said orders are specific inasmuch as their cables have to meet standards of ISI which according to the appellant is done so by their in-house laboratory and undisputed by the Revenue. - it is very clear that the inspection charges received as reimbursement by the appellant on third party inspection charges at the instance of the buyer is not includable in the assessable value of the products cleared by them. - impugned order is not sustainable and liable to be set aside - Decided in favour of assessee.

Issues Involved:
1. Includability of third-party inspection charges in the transaction value.
2. Duty liability on the additional amount received for third-party inspection charges.
3. Interpretation of relevant case laws and judgments.

Issue-wise Detailed Analysis:

1. Includability of Third-Party Inspection Charges in the Transaction Value:

The primary issue is whether the additional amount received by the appellant for third-party inspection charges, undertaken at the instance of the buyer, should be included in the transaction value for the purpose of calculating duty liability. The lower authorities concluded that such charges are part of the consideration for the sale of goods and thus should be included in the transaction value. Consequently, they confirmed the duty liability with interest and imposed an equivalent penalty.

The appellant argued that the third-party inspection was conducted at the buyer's request and the charges were reimbursed by the buyer. The appellant's product was marketable after internal testing, but the buyer insisted on additional third-party inspection. The appellant cited several precedents, including the Larger Bench decision in Bhaskar Ispat Pvt. Ltd., the High Court of Madhya Pradesh in Union of India v. Siddharth Tubes Ltd., and Tribunal decisions in Grasim Industries Ltd. and Lubi Submersibles Ltd., which held that third-party inspection charges incurred at the buyer's insistence are not includable in the assessable value.

2. Duty Liability on the Additional Amount Received for Third-Party Inspection Charges:

The Department Representative (D.R.) argued that the purchase orders from Thermal Power Station and South Eastern Coalfields Ltd. specified that goods would not be accepted without third-party inspection. Therefore, these charges were deemed pre-delivery inspection charges necessary for the product to become marketable, thus includable in the assessable value for Central Excise duty.

The Tribunal, however, found that the lower authorities misconstrued the issue. The Tribunal noted that the purchase orders from government authorities required third-party inspection, but the appellant's in-house laboratory already ensured compliance with ISI standards. The Tribunal cited the Madhya Pradesh High Court's decision in Siddharth Tubes Ltd., which held that inspection charges borne by customers are not includable in the assessable value when additional testing is at the customers' request.

3. Interpretation of Relevant Case Laws and Judgments:

The Tribunal referenced several key judgments:
- Siddharth Tubes Ltd.: The High Court ruled that inspection charges for tests conducted at the request of specific customers, borne by the customers, are not includable in the assessable value.
- Grasim Industries Ltd.: It was held that testing charges for customer-owned tonners are not includable in the assessable value of liquid chlorine.
- Lubi Submersibles Ltd.: The Tribunal held that pre-delivery inspection (PDI) charges incurred at the buyer's option are not includable in the assessable value.

The Tribunal distinguished the case from others cited by the D.R., such as Maruti Suzuki India Ltd., Southern Structurals Ltd., and Rai Agro Industries Ltd., noting differences in factual matrices and legal interpretations. The Tribunal concluded that the third-party inspection charges reimbursed by the buyer are not includable in the assessable value of the products.

Conclusion:

The Tribunal set aside the impugned order, ruling that the third-party inspection charges reimbursed by the buyer are not includable in the assessable value. The appeal was allowed, and the duty demand, interest, and penalty were deemed unsustainable.

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