2025 (2) TMI 73 - AT - Central Excise

Interpretation of statute - Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 in conjunction with Section 4 of the Central Excise Act 1944 - inclusion in the assessable value cost of specifications provided by the manufacturer of the final products manufactured by the appellant and cleared to the manufacturer along with interest and penalty - invocation of extended period of limitation - HELD THAT - The issue raised in the case of Denso India Pvt Ltd. 2024 (3) TMI 686 - CESTAT NEW DELHI was whether the notional cost of specifications in the form of drawings and designs supplied free of cost by Maruti to the potential vendors should be included in the assessable value of the parts or components manufactured by the vendors and cleared to Maruti for their motor vehicles. To appreciate the said issue the Principal Bench considered the provisions of section 4 of the Central Excise Act 1944 and Rule 6 of the Valuation Rules and observed that anything which is supplied by the buyers to the manufacture before even identifying the potential seller/ manufacturer cannot be treated as additional consideration for sale. It was therefore held that something can be treated as an additional consideration for sale of goods only when there exists a contract of sale or an agreement to sale between two parties and in terms thereof the buyer pays something over and above the price agreed. It is also pertinent to take note of the fact that the Principal Bench had noted the distinction between mere specification and detailed engineering drawing as considered in the earlier decision in Mangalore Refinery Petrochemicals Ltd. Vs. CC Mangalore 2012 (9) TMI 712 - CESTAT BANGALORE where the Tribunal has held that there is a distinction between mere specifications and detailed engineering drawing. It is only the latter which is covered under rule 9(1)(b)(iv) of the Customs Valuation (Determination of Price of Imported Goods) Rules 1988 (which is now rule 10(1)(b)(iv) of the 2007 Customs Valuation Rules). Conclusion - The specifications in the nature of design/drawings provided by MSIL were merely layout or dimensions of the desired parts and components as they have to be necessarily manufactured as per the requisite dimensions so that they can be fitted in the vehicle manufactured by the Maruti. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this case was whether the notional cost of specifications, in the form of drawings and designs supplied free of cost by Maruti Suzuki India Pvt Ltd (MSIL) to the appellant, should be included in the assessable value of automotive parts and components manufactured by the appellant and cleared to MSIL. This issue involves the interpretation of Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, in conjunction with Section 4 of the Central Excise Act, 1944.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents: The legal framework primarily involved Section 4 of the Central Excise Act, 1944, and Rule 6 of the Central Excise Valuation Rules, 2000. The Tribunal relied on previous decisions, particularly the case of Denso India Pvt Ltd. vs. Additional Director General (Adjudication), Directorate General of GST Intelligence, New Delhi, which dealt with similar facts and legal questions.

Court's interpretation and reasoning: The Tribunal interpreted that for something to be treated as an additional consideration for the sale of goods, there must exist a contract of sale or an agreement between two parties where the buyer pays something over and above the agreed price. The Tribunal emphasized that anything supplied by the buyer to the manufacturer before identifying the potential manufacturer cannot be considered additional consideration.

Key evidence and findings: The Tribunal noted that MSIL provided specifications to potential vendors, including the appellant, free of cost before any contract or agreement to sell was finalized. These specifications were not detailed engineering drawings necessary for production but rather general requirements for parts and components.

Application of law to facts: The Tribunal applied the legal principles from the Denso India case and concluded that the specifications provided by MSIL did not constitute additional consideration under Section 4(1)(b) of the Central Excise Act or Rule 6 of the Valuation Rules. The specifications were not used in the production of goods nor necessary for their production as per the definitions in Rule 6.

Treatment of competing arguments: The Tribunal addressed the department's argument that the specifications should be included in the assessable value by distinguishing between mere specifications and detailed engineering drawings. It cited the Mangalore Refinery & Petrochemicals Ltd. case to support this distinction, emphasizing that only detailed engineering drawings necessary for production could be included in the assessable value.

Conclusions: The Tribunal concluded that the notional cost of specifications provided by MSIL should not be included in the assessable value of the final products manufactured by the appellant. The appeal was allowed, setting aside the impugned order.

SIGNIFICANT HOLDINGS

The Tribunal held that specifications provided by a buyer before identifying a potential manufacturer cannot be considered additional consideration for the sale of goods. It emphasized that only those drawings or designs prepared by the buyer and supplied to the manufacturer free of cost or at a reduced cost, which are necessary for production, can be included in the assessable value under Rule 6 of the Valuation Rules.

The Tribunal further clarified that specifications in the form of general requirements or dimensions do not qualify as detailed engineering drawings necessary for production and, therefore, cannot be included in the assessable value. This principle was supported by the distinction made in the Mangalore Refinery & Petrochemicals Ltd. case.

The final determination was that the appeal was allowed, and the impugned order was set aside, as the Tribunal found no basis for including the notional cost of specifications in the assessable value of the appellant's products.