2025 (2) TMI 514 - AT - Central Excise

Valuation of Excise duty - specifications drawings and designs supplied by Maruti to the appellant when sending requests for quotations (RFQ) - additional consideration for sale of the goods or not - HELD THAT - It is undisputed that if they form additional consideration for sale then their value must be included in the assessable value as per section 4(1) (b) of the Central Excise Act, 1944 Excise Act and Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 Valuation Rules and if they do not form additional consideration for sale then they cannot be included and the assessable value will be the transaction value itself as per section 4(1) (a) of the Excise Act. The question which arises is as to what is consideration and this term is not defined either in the Excise Act or in the Sale of Goods Act but is defined in the Indian Contract Act 1872 Contract Act the Act which covers all types of contracts including those of sale. Since every transaction of sale or purchase is also a contract- whether explicit or implicit- it is appropriate to examine the term consideration under the Contract Act in the absence of any other definition of this term under the Sale of Goods Act or the Excise Act. Section 3 of the Sale of Goods Act makes it explicit that the provisions of the Contract Act would apply to sales. For something to be consideration it must be something done or something abstained from doing at the desire of the promisor. This something could be done or abstained from doing either by the promise himself or by someone else but it must be at the desire of the promisor - It also needs to be noted that consideration could be in cash or some other valuable or simply something done or abstained from doing under the Contract Act but under Sale of Goods Act only price can be the consideration. Under the Central Excise Act consideration has to be for cash deferred payment or some other valuable consideration . For something to be an additional consideration for sale as per Section 4(1) (b) of the Central Excise Act and Rule 6 of the Valuation Rules it has to be consideration in the first place which as defined under the Indian Contract Act has to flow to the promisor from the promisee or anyone else at the desire of the promisor. Before the proposal of the appellant and its acceptance by Maruti there was no promise no promisor and no promisee. The specifications or drawings and designs supplied while inviting bids- regardless of its value- cannot be called consideration but can only be called articulation of the needs of Maruti. They were also not provided at the desire of the promisor(the appellant) but by Maruti (the promisee) on its own accord to elicit proposals (quotations). In Denso India Private Limited vs. Additional Director General (Adjudication) 2024 (3) TMI 686 - CESTAT NEW DELHI the Tribunal decided in favor of the appellants on an identical issue concluding that the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value for central excise duty purposes. Conclusion - The specifications drawings and designs provided by Maruti to the appellant do not constitute additional consideration for sale under the Central Excise Act and Valuation Rules. The impugned order cannot be sustained - Appeal allowed.

Summary

The core legal question considered in this judgment is whether the specifications, drawings, and designs provided by Maruti to the appellant, M/s. Sintercom India Limited, when sending requests for quotations (RFQ), can be considered as "additional consideration for sale" of the goods manufactured and sold to Maruti. The Revenue argues that they form additional consideration, while the appellant contends they do not.

The relevant legal framework includes Section 4(1)(b) of the Central Excise Act, 1944, and Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. According to these provisions, if the specifications, drawings, and designs form additional consideration for sale, their value must be included in the assessable value. Otherwise, the assessable value will be the transaction value itself as per Section 4(1)(a) of the Excise Act.

The Court's interpretation hinges on the definition of "consideration" and "sale." The Excise Act defines "sale" as the transfer of possession of goods for cash, deferred payment, or other valuable consideration. However, the term "consideration" is not defined in the Excise Act or the Sale of Goods Act but is defined in the Indian Contract Act, 1872. Under the Contract Act, consideration must be something done or abstained from doing at the desire of the promisor.

The Court examines whether the specifications, drawings, and designs supplied by Maruti to the appellant constitute consideration in the transactions between Maruti and the appellant. It is undisputed that these were valuable and provided by Maruti to the appellant. However, they were supplied during the RFQ stage, before any promisor-promisee relationship existed between Maruti and the appellant. Therefore, they cannot be considered consideration flowing from the buyer (Maruti) to the assessee (appellant) at the desire of the promisor (appellant).

The Court also considers the provisions of Rule 6 of the Valuation Rules, which include the value of certain goods and services supplied by the buyer free of charge or at reduced cost as additional consideration. However, the specifications, drawings, and designs were provided in connection with the RFQ process, not for use in the production or sale of goods. They were meant to help the appellant formulate its proposals and were not provided at the desire of the promisor (appellant).

In previous cases, such as Denso India Private Limited vs. Additional Director General (Adjudication), the Tribunal decided in favor of the appellants on an identical issue, concluding that the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value for central excise duty purposes. This decision was followed in subsequent cases, including Jay Nikki Industries and KK Abhishek Safety Systems Private Limited.

The significant holding in this case is that the specifications, drawings, and designs provided by Maruti to the appellant do not constitute additional consideration for sale under the Central Excise Act and Valuation Rules. The impugned order demanding additional duty and penalty is set aside, and the appeal is allowed with consequential relief to the appellant.