2018 (5) TMI 1457 - AT - Central Excise

Valuation - inclusions - whether value of depreciation on technical know-how and the royalty paid to Directors of the assessee have to be included in the assessable value of the goods cleared by them? - Held that - the issue is squarely covered in favour of appellant by the decision of Tribunal in the case of Man Industries (India) Ltd. Vs CCE Indore 2015 (11) TMI 515 - CESTAT NEW DELHI , where it was held that In the show cause notice, the duty has been demanded from the appellant on the amount collected towards die development charges by the appellant during the impugned period. No effort has been made in the show cause notice for amortization of the cost of die and development charges toward the final product cleared by the appellant. Therefore, the show cause notice is defective. In this case also, the SCN is defective - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the value of depreciation on technical know-how and royalty paid to directors should be included in the assessable value of goods cleared by the appellant.

Analysis:
The issue at hand revolves around the inclusion of depreciation on technical know-how and royalty paid to directors in the assessable value of goods cleared by the appellant. The show cause notice alleged that all expenses, including depreciation and royalty for manufacturing medicines, should be considered in determining the transaction value of the goods. The notice proposed a demand for Central Excise duty based on the total amount of depreciation and royalty. The adjudicating authority upheld these proposals, imposing penalties under Section 11AC of the Act, a decision affirmed by the Commissioner (Appeals).

The appellant's argument centered on the fact that the technical know-how and royalty were related only to one product, Methylcobalamine, not the other nine products mentioned in the show cause notice. The appellant contended that these charges should have been amortized to the total clearances, citing Section 4(1) of the Central Excise Act, 1944. The appellant also relied on precedents, including the Tribunal's decisions in cases such as Man Industries (India) Ltd. vs. CCE Indore and Vineet Packaging Industries vs. CCE Delhi.

The Revenue, represented by Ld.A.R Shri Arjun Ragvendra, supported the impugned order. However, the Tribunal found in favor of the appellant, citing the decision in the case of Man Industries (India) Ltd. vs. CCE Indore. The Tribunal emphasized the need for proper amortization of costs and ruled that the demand for duty on the depreciated technical know-how charges and royalty was not sustainable. The Tribunal also referred to the decision in Vineet Packaging Industries, reinforcing the necessity for a scientific basis for amortization.

Consequently, the Tribunal held that the show cause notice was defective, leading to the setting aside of the impugned order and allowing the appeal with consequential relief, if any, as per the law. The judgments in the cited cases guided the Tribunal's decision, emphasizing the importance of proper amortization and calculation of duty demands in such cases.

In conclusion, the Tribunal's detailed analysis and reliance on legal precedents led to the setting aside of the impugned order, providing relief to the appellant based on the principles of proper valuation and amortization in determining the assessable value of goods.