Valuation (Central Excise) - Inspection charges paid to outside agency for inspection in quality of manufactured excisable goods whether includible - Practice of assessment to be ascertained before taking final decision - Central Excise - 6/3/85-CX.1

Valuation (Central Excise) - Inspection charges paid to outside agency for inspection in quality of manufactured excisable goods whether includible - Practice of assessment to be ascertained before taking final decision F. No. 6/3/85-CX.1 Dated 13-1-1986 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Central Excise - Value for assessment of duty - Whether charges paid to outside agency conducting inspection in quality of manufactured excisable goods should be included in the assessment value - Regarding. Please refer to the Minutes of the 19th East Zone Tariff-cum-General Conference held in November, 1985 at Calcutta, issued vide F. No. 172/8/84- CX.4, dated the 20th December, 1985 (relevant portion enclosed). 2. In respect of Point No. 2 discussed in the said Conference, it was concluded that since the similar issues might be the concern of different Collectorates, the practice of assessment in these cases should be ascertained, before taking any final decision. 3. You are accordingly requested to intimate the practice of assessment in this regard in your Collectorate in respect of any units manufacturing Points and Crossings in your Collectorate. RELEVANT EXTRACTS OF THE MINUTES OF THE 19TH EAST ZONE TARIFF CUM GENERAL CONFERENCE, 1985 Point No. 2 : Central Excise - Value for assessment of duty - Whether charges paid to outside agency conducting inspection in quality of manufactured excisable goods should be included in the assessable value The sponsoring Collector, CE, Calcutta-I stated that 'points and crossings' and other goods of railway track are being manufactured by a unit in that Collectorate out of rails supplied by the Railway Board. The said goods were manufactured according to the specifications of the Railways. After manufacture, the railway authorities in all cases as per contract with the manufacturing firm got them inspected by an outside agency viz., M/s. Rail India Technical and Economic Services Ltd., before delivery from the factory. The railways paid the inspection charges direct to that agency. The central excise duty on the products was paid on the value determined according to the full cost of the materials and fabrication cost of the products. The C AG's Audit has, however , raised objection against non-inclusion in the assessable value of the inspection charges paid by the railways to the inspecting agency. The Conference observed that the inspection charges were not included in the assessable value on the ground that the manufacturing firm was an independent manufacturer manufacturing the products with its own plants and machines and labour. The firm could not be said to have manufactured the goods on behalf of railways although the raw materials were supplied to them free of cost and the goods were manufactured as per the specifications of the railways. In this connection the Supreme Court judgment in the case of M/s. Cibatul was also referred to which would support the interpretation that railways could not be regarded as a manufacturer in this case and charges such as inspection charges paid to an outside agency may not, therefore, be includible in the assessable value. Once railways are not treated as a manufacturer the fabricator would then have to be considered as a manufacturer and since the benefit of payment of inspection charges does not go to them, the Conference felt that such charges should not be included in the assessable value. Director (P A) in the C AG's office, who was present, pointed out that the D.A.P in this case has been admitted by the Department. He further observed that the question to be seen in this case is whether conducting of inspection was crucial to the quality of the products manufactured. It was agreed that in the case of items like points and crossings of the railways, conducting of such an inspection was vital from the point of view of safety and hence these charges could not be regarded in the nature of optional charges. After discussions the Conference concluded that there is a case for re-examination of the main issue involved here even though the D.A.P may have been admitted in the specific case. Since points and crossings are being manufactured by other factories, the Conference also felt that the practice of assessment as obtaining in other Collectorates should also be ascertained by the Board before a final decision is taken.