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TMI Blog2012 (11) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants are being used captively the value thereof is required to be determined under the Valuation Rules and the value is being determined on the basis of costing basis after adding the profit element in the cost - while determining the cost of production the royalty charges are required to be limited upto the manufacturing stage only and the other activities like sales, erection and service are not to be taken into account while computing the cost of production of the components used captively - appellant has not declared to the department that they were paying royalty charges to their parent company - extended period has rightly been invoked by the adjudicating authority and consequently the penalty is rightly imposed under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that while arriving the assessable value of those components on costing basis, they have not included the amount of Royalty paid to the parent company in the assessable value of said product, cleared for captive consumption. Accordingly, show-cause notice was issued to 7th January 2003 demanding duty amounting to Rs. 24,36,098/- for the period April, 1997 to June, 2000. It was also proposed to charging of interest and imposition of penalty under Section 11AC and under Rule 173Q of the Central Excise Rules. The case was adjudicated by the Commissioner vide the impugned order under which the duty amount demanded in the show-cause notice was confirmed and the equal amount of penalty of Rs. 24,36,098/- was imposed on the appellant under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that appellants have added notional profit at the rate of 10% to the cost of manufacture. If the royalty amount is to be included in the cost of production then obviously the profit amount will stand reduced by the same quantum. Therefore, the amount which is already added as notional profit to the cost of production also includes the royalty paid by the appellant to the parent company. Therefore, the impugned order confirming the demand by addition of royalty is liable to be quashed. He further argued that there were no instructions/guidelines or circular to include the royalty paid on final products in the assessable value of parts and components used in the manufacture of final product and the issue is purely a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard on cost of production of goods issued for captive consumption. Under Heading of Direct Expenses, it is mentioned that the direct expenses included the royalty based on production. He therefore submitted that the royalty amount should not be included in the assessable value and there is no case for invocation of extended period of limitation and imposition of penalty on them. 6. The learned authorised representative appearing for the Revenue reiterated the finding of the Commissioner and submitted that the royalty amount which is paid by them to their parent company will be expenses incurred by them first therefore, it should definitely form the part of the cost of production of the parts/components of the goods. He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 dated 21 May 1996". ……………………. ……………………. Under Clause THIRD (a) it is stated as under : "In payment for the services to be performed by Otis pursuant to this Agreement, Otis-India agrees to pay to Otis a sum equal to the total of three and half (3.5%), subject to India taxes, on the net works billing price of the products, less the landed cost of imported components used in the manufacture of the products". From the agreement between the Otis India and the parent company it is found that the appellant are getting the engineering, technical and patent assistance in connection with the manufacture, sales, installation and serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of production the royalty charges are required to be limited upto the manufacturing stage only and the other activities like sales, erection and service are not to be taken into account while computing the cost of production of the components used captively. We therefore agree with the submission of the appellant that 3.5% of the entire bill price is not to be added in the cost of production of the components and 3.5% upto the manufacturing stage only required to be added to the cost of the components. 11. We also find that appellant has not declared to the department that they were paying royalty charges to their parent company. Therefore their argument that extended period is not invocable and penalty is not imposable cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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