2023 (8) TMI 896 - AT - Central Excise

Valuation - special inspection charges or special testing charges incurred by the appellant on the request and on behalf of the customers - recovery from customer will form part of the assessable value transaction value of the excisable goods under section 4 (post 01.07.2000) of the Central Excise Act, 1944 - HELD THAT - As per the facts of the present case there is no dispute that before carrying out the third party inspection as per the requirement of the customer. The goods have been fully manufactured. The excise duty paid by the appellant is on the transaction value fixed between the appellant and their customers. It is the customer who wants to get a special testing and inspection done through third party agency. As regard this third party inspection the appellant is not obliged to get this special testing and special inspection done on the product, it is solely on the requirement of the customer who gets this special testing and inspection done on the product. Therefore, the appellant is not otherwise involved in the said third party inspection. It is only for the convenience purpose of the customer, the appellant coordinates such third- party inspection for which the payment for such third-party inspection is though initially paid by the appellant but subsequently and finally incurred by the customer. The third- party inspection charges cannot be included in the assessable value/ transaction value of the excisable final product i.e. transformers manufactured by the appellant. This issue has come up for consideration time and again and in various judgment it was held that in the identical fact the third-party inspection charges for special inspection/ testing on behalf of the customer paid by the manufacturer and recovered from the customer is not includible in the assessable/transaction value of the goods on which such special inspection/ testing was conducted. In the present case, the third party inspection charges are not includible in the assessable/transaction value of the goods. Therefore, the demand on this ground confirmed by the Adjudicating authority and affirmed by the Learned Commissioner (Appeal) is not sustainable. The impugned orders are set aside. Appeals are allowed.

Issues Involved:
1. Whether special inspection charges or special testing charges incurred by the appellant on behalf of customers and paid to a third-party inspector, subsequently recovered from the customer, form part of the assessable value of excisable goods under Section 4 of the Central Excise Act, 1944, and are thus chargeable to excise duty.

Summary:

Issue 1: Inclusion of Special Inspection/Testing Charges in Assessable Value

The primary issue in the appeal is whether special inspection charges or special testing charges incurred by the appellant on behalf of customers, paid to a third-party inspector, and subsequently recovered from the customer, should be included in the assessable value of excisable goods under Section 4 of the Central Excise Act, 1944, making them chargeable to excise duty.

The appellant argued that these charges do not form part of the assessable value as the goods were already subjected to normal inspection and testing as per the manufacturer's standards. The special inspection or testing was done solely at the customer's request, and the costs were initially borne by the manufacturer but ultimately reimbursed by the customer. Thus, these charges should not be included in the assessable value. The appellant cited several judgments supporting this position, including Bhaskar Ispat Pvt Ltd, A. Infrastructures Ltd, Paxma Axle & Springs (P) Ltd, Bhaskar Industrial Development Ltd, Raghavendra Pre-Stress Products (P) Ltd, Siddharth Tubes Ltd, J.J Confectionary Pvt. Ltd, and IDCOL Kalinga Iron Works Ltd.

The Revenue, represented by Shri P. Ganesan, reiterated the findings of the impugned order, maintaining that the charges should be included in the assessable value.

Upon careful consideration, the Tribunal noted that the goods were fully manufactured and the excise duty was paid on the transaction value fixed between the appellant and the customers. The special testing and inspection were done solely at the customer's request, and the appellant was not otherwise involved in the third-party inspection. The Tribunal concluded that the third-party inspection charges could not be included in the assessable value/transaction value of the excisable final product.

The Tribunal referred to several judgments, including Bhaskar Ispat Pvt Ltd, which held that charges paid for inspection or testing by a third party at the buyer's option cannot form part of the assessable value. Other supporting judgments included A. Infrastructures Ltd, Paxma Axle & Springs (P) Ltd, Bhaskar Industrial Development Ltd, and others, which consistently ruled that such charges are not includible in the assessable value if borne by the customer.

In view of these judgments and the Tribunal's discussion, it was held that the third-party inspection charges are not includible in the assessable/transaction value of the goods. Therefore, the demand confirmed by the Adjudicating Authority and upheld by the Commissioner (Appeals) was not sustainable.

The impugned orders were set aside, and the appeals were allowed.

(Pronounced in the open court on 17.08.2023)

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