9911796707
TMI Blog2024 (3) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... /52435/2022, E/51271/2023, E/52393/2022, E/52417/2022, E/52436/2022, E/51272/2023, E/52394/2022, E/52418/2022, E/52437/2022, E/51273/2023, E/52395/2022, E/52420/2022, E/52438/2022, E/51274/2023, E/52396/2022, E/52421/2022, E/52439/2022, E/51275/2023, E/52397/2022, E/52422/2022, E/52440/2022, E/51276/2023, E/52398/2022, E/52423/2022, E/52441/2022, E/51277/2023, E/52399/2022, E/52424/2022, E/52442/2022, E/51729/2023, E/52400/2022, E/52425/2022, E/52443/2022, E/53920/2023, E/52407/2022, E/52426/2022, E/52444/2022, E/53921/2023, E/52408/2022, E/52428/2022, E/52445/2022, E/53922/2023, E/52409/2022, E/52429/2022, E/52470/2022, E/52410/2022, E/52430/2022, E/52471/2022, E/52412/2022, E/52431/2022, E/50028/2023, E/52406/2022, E/52411/2022, E/52427/2022, E/52472/2022, E/51985/2023, E/51739/2023, E/51964/2023, E/52491/2023, E/52873/2023, E/51952/2023, E/51965/2023, E/52492/2023, E/52874/2023, E/51953/2023, E/51966/2023, E/52632/2023, E/52875/2023, E/51954/2023, E/52481/2023, E/52637/2023, E/52876/2023, E/51955/2023, E/52482/2023, E/52638/2023, E/52877/2023, E/51956/2023, E/52483/2023, E/52639/2023, E/54676/2023, E/51957/2023, E/52484/2023, E/52640/2023, E/54744/2023, E/51958/2023, E/52485/202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prepared by the vendors. According to the vendors, the cost incurred by them towards the manufacturing activity includes the development cost incurred in the preparation of the detailed drawings and designs by them. 3. The department, however, believed that the cost of the specifications supplied by Maruti to the vendors free of cost should be included in the assessable value of the final products manufactured by the vendors in terms of rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 [The 2000 Valuation Rules]. Accordingly, show cause notices were issued to the vendors. The adjudicating authority confirmed the duty demand holding that the cost of the specifications provided by Maruti has to be included in the assessable value of the product manufactured by the vendors and cleared to Maruti. 4. It has, therefore, to be determined 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. 5. To appreciate this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew cases, where alternators are to be manufactured for a new model of vehicle, third parties prepare their own drawings and designs for the necessary tooling/ dies/moulds [Moulds] manufactured and sold to the appellant. The appellant sold the moulds to Maruti and Maruti, in turn, supplied the moulds to the appellant free of cost in terms of rule 4(5)(b) of the CENVAT Credit Rules, 2004 [Credit Rules]. The appellant, thereafter, manufactured the final products with the help of detailed drawings and designs as well as the moulds (wherever required) after amortising the cost of moulds and cleared the final products to Maruti on payment of the applicable central excise duty. 10. The appellant incorporated all costs incurred towards its manufacturing activity, including the development cost incurred towards preparation of the detailed drawings and designs. A copy of the Chartered Accountant certificate showing inclusion of such development cost for preparation of the detailed drawings and designs in the assessable value of the final products for payment of duty has been placed on record by the appellant. 11. According to the appellant, the aforesaid practice and valuation methodology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as the notional cost of specifications provided by Maruti. Accordingly, partial duty demand has been confirmed against the appellant under the extended period of limitation along with interest and penalty has also been imposed equal to the duty demand. The impugned order has dropped the proposal to impose penalty on the employees of Maruti. 15. The facts of the other appeals, except five Excise Appeal No's. 52406, 52411, 52427, 52472 of 2022 and Excise Appeal No. 51985 of 2023, are more or less similar. These five Excise Appeals have been filed by traders to whom show cause notices were also issued on the assumption that they are manufacturers and excise duty has been fastened upon them. One such trader, namely, Minda D-Ten India Pvt. Ltd. (Excise Appeal No. 52411 of 2022), at the time of recording of the statement on 20.12.2018, specifically stated that it was engaged in trading of car infotainment systems and did not undertake manufacturing activities, but still a show cause notice was issued and though this fact that it was not a manufacturer but a trader was also brought to the notice of the adjudicating authority, the adjudicating authority without considering this submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules 2000. ***** 20.5 It has been contended by the Noticees that Sh. Anil Sahani, DGM Finance of M/s MSIL in his five voluntary statements stated that MSIL merely provided its requirement for the components to be manufactured to the vendors as it is a pre-requisite that the component must conform to the drawing/ specification provided by MSIL. I find the contention that the MSIL issues only specifications of the final product, the Internal/child parts are developed and conceptualized by Notices itself does not make any difference as the amount of R&D Incurred by the Noticees on the drawing supplied by MSIL would any way is already accounted for in the assessable value of the final product. However the technical specification supplied by MSIL and cast incurred by MSIL is not included in the moulds/dies manufactured by the vendors. Whether it is shared by MSIL voluntarily or not has no relevance. Whether the vendor is working on the said specification in their own R&D centre to fine tune the said drawing or to design the child parts is of no consequence as the initial specification / drawings that are supplied by MSIL and the cost incurred on such drawings remained to be includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned order shows complete callousness and arbitrariness on the part of the department to somehow fasten huge duty liability on the appellant, without considering the correct factual aspects, even though pointed out at the time of investigation itself. Elaborating this submission, learned counsel pointed out that show cause notices were issued even to traders who had not even manufactured the components on the presumption that they were manufacturers and though even before the issuance of the show cause notice and also in reply to the show cause notice this factual position was pointed out but neither the show cause notice or the adjudication order deal with this aspect; (ii) The show cause notice refers to a specific purchase agreement of the year 2007, which has been enclosed as Annexure-19, but this agreement is not relevant to the dispute raised in this appeal; (iii) The provisions of section 4(1)(b) of the Excise Act and rule 6 of the 2000 Valuation Rules are not invokable in the facts and circumstances of the case. Something can be treated as an additional consideration for the sale of the goods only when there exists a sale contract or at least an agreement to sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid clauses (ii) and (iv) of Explanation (1) to rule 6 of the 2000 Valuation Rules can be better understood by analysing the said provisions of the 2007 Customs Valuation Rules; (viii) The decision of the Tribunal in Commissioner of Central Excise, Jamshedpur vs. Tata Motors [2009 (237) ELT 147 (Tri.-Kolkata)] and AVTEC Ltd. vs. CCE, Indore; and AVTEC Ltd. vs. CCE, New Delhi [2017 (358) ELT 700 (Tri.-Del)] relied upon by the department are not applicable to the facts and circumstances of the case; (ix) The extended period of limitation under section 11A(4) of the Excise Act is not invokable in the present case; (x) Penalties are also not imposable under section 11AC of the Excise Act; (xi) The duty demand confirmed in respect of the vendors operating as registered dealers of excisable goods is not sustainable; and (xii) The appellant is entitled to the benefit of cum-duty price. 20. Shri Vikash Agarwal, learned counsel appearing in Excise Appeal No. 55093 of 2023; Shri Shashi Mathews, learned counsel appearing in Excise Appeal Nos. 55317 of 2023, 55318 of 2023 and 55319 of 2023; Shri Puneet Bansal, learned counsel appearing in Excise Appeal Nos. 50004 of 2023; 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation drawings and deigns supplied free of cost by Maruti in the assessable value of parts or components of motor vehicles manufactured by the appellants and cleared to Maruti. 24. To appreciate this issue, it would be useful to refer to the relevant provisions of the Central Excise Act and the 2000 Valuation Rules. 25. Section 4 of the Central Excise Act deals with 'valuation of excisable goods' for the purposes of charging of duty of excise and the relevant portion is reproduced below: "4. Valuation of excisable goods for purposes of charging of duty of excise- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall- (a) in a case where the goods are sold by assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale be the transaction value; (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed." 26. It would be seen from a bare perusal of sub-section (1) of section 4 that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sale of the goods being valued and aggregated accordingly, namely:- (i) value of materials, components, parts and similar items relatable to such goods; (ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods; (iii) value of material consumed, including packaging materials, in the production of such goods; (iv) value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods." 29. It clearly transpires from the aforesaid provisions 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 sell between the two parties and in terms of such an agreement the buyer pays something over and above the price agreed, either in cash or in kind to the manufacturer. Thus, anything which is supplied by the buyer to the manufacturer before even identifying the potential manufacturer as the supplier can never be treated as an additional consideration for sale. It also transpires that the specification drawin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awings and designs which a manufacturer would have prepared for use in the manufacture of the product but were prepared by the buyer and supplied to such manufacturer on free of cost or at reduced cost. This is clear from the language used in clauses (ii) and (iv) of Explanation (1) to rule 6 of the 2000 Valuation Rules. It covers drawings which are used in the production of such goods and those designs which are necessary for the production of such goods. 33. The contention of the learned authorized representative appearing for the department, however, is that the drawings/designs supplied by Maruti were only and exclusively instrumental in development of the product by the appellants. Learned authorized representative also pointed out that it is not even the case of the appellant that they could have manufactured the parts or component without reference to the specification drawings supplied to them by Maruti free of cost. Thus, the price was not the sole consideration and the additional consideration flowing directly or indirectly from the buyer to the appellant would be includable in view of the provisions of rule 6 of the 2000 Valuation Rules. 34. It is not possible to accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e used in the production of the components or necessary for the production of the components in terms of rule 6 of the 2000 Valuation Rules. Thus, clauses (ii) or (iv) to Explanation (1) of rule 6 of the 2007 Valuation Rules cannot be invoked in the facts and circumstances of the present case. 37. At this stage, it would also be appropriate to compare Explanation (1) to rule 6 of the 2000 Valuation Rules to an analogous rule 10(1)(b) of the 2007 Customs Valuation Rules. This rule 10(1)(b) is reproduced below: "10. Cost and services - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods- (a) ***** (b) the value, apportioned as appropriate, of the following goods and services whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely:- (i) materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the importe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seller from which he is being relieved by the buyer." (emphasis supplied) 40. The Tribunal in Mangalore Refinery & Petrochemicals Ltd. vs. C.C., Mangalore [2014 (313) E.L.T. 353 (Tri. - Bang.)] also 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). The relevant portion of the decision of the Tribunal is reproduced below: "9.3 When a person buys a product available, off-the-shelf, he need not be concerned with the Engineering Design and services which have gone into the manufacture of such product. He has to merely order by giving the specifications. If a person wants to buy an air-conditioner, he may specify whether it should be window type or split type and also specify the tonnage besides the brand name. He may consult a specialist to identify such requirements. These specifications are in the nature of "buyers' assist" and the cost incurred for getting such specifications cannot become part of value of the goods in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of preparation of tender documents and for recommending for selection of the equipments the cost of the same cannot be included in the value of imported goods." (emphasis supplied) 41. The same view was taken by the Tribunal in G.E. Plastics India Ltd. vs. Commissioner of Customs, Mumbai-I [2004 (169) E.L.T. 46 (Tri. - Del.)] and the observations are as follows: "6. It is the Revenue's case that the process diagram and equipment specification supplied by M/s. GE Plastics India Pvt. Ltd. BV, Netherlands were vital for the preparation of detailed engineering drawings for the manufacture of the imported equipment and that is sufficient to attract the provisions of the Rule. The Commissioner (Appeals) has noted that the enquiry documents were prepared on the basis of Basic Engineering Package. This reasoning of the Commissioner is not supported by the Rule. Rule does not take in such remote connection. The Rule permits inclusion of only engineering drawings, designs etc. "necessary for the production of the imported goods". That is to say, the material in question should be directly necessary for the production of the imported goods. The gap between Basic Engineering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is apparent from the aforesaid that the specifications provided by the Maruti were merely layout or dimensions of the desired parts or components. The appellant prepared detailed drawings and designs for alternator assembly in line with the specifications provided by Maruti. The designs prepared by the appellant contain details of various elements to be used in the manufacture of alternator assembly. It contains 23 sub-components required for manufacturing alternator assembly, which is not even referred to in the specification drawings provided by Maruti to the appellant. 45. The Letter of Intent issued to the appellant also states that: "We are pleased to inform that you have been selected as one of our vendors for the following components. We intend placing an order on you for the design, manufacture, testing and supply of the subject component(s) for MARUTI vehicles at prices indicated below. *****" (emphasis supplied) 46. This would show that it is the responsibility of the appellant to design and manufacture the parts or components. Thus, the specification drawings are neither used in the production of the components nor are they necessary for the production of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise Appeals have to be allowed. The five Excise Appeals filed by traders have also to be allowed for the additional reason that in any view of the matter central excise duty could not have been levied on them. 53. In the result, the impugned orders dated 29.07.2022, 25.08.2022, 30.11.2022, 30.12.2022, 10.01.2023, 23.02.2023, 30.03.2023 and 28.04.2023 passed by the adjudicating authority deserve to be set aside and are set aside. All the Excise Appeals are, accordingly, allowed. (Order Pronounced on 12.03.2024) Cause list sl. no. Appeal No. Duty demand confirmed (in Rs.) Show Cause Notice dated Period of dispute in Appeal Period time barred Duty demand confirmed for the normal period (in Rs.) Order dated 29.07.2022 7 E/52247/2022 38,845 21.02.2019 April 2013 to June 2017 Upto January 2017 (April 2013 to January 2014 is beyond 5 years) 2,229 8 E/52248/2022 2,05,782 10.01.2020 April 2014 to June 2017 Upto June 2017 (April 2014 to December 2014 is beyond 5 years) - 9 E/52249/2022 24,86,810 07.02.2019 April 2013 to June 2017 Upto January 2017 (April 2013 to January 2014 is beyond 5 years) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 E/52392/2022 34,60,002 09.05.2019 April 2014 to June 2017 Up to March 2017 1,70,690 29 E/52393/2022 1,21,29,234 04.02.2019 November 2013 to June 2017 Up to December 2016 (November 2013 to December 2013 is beyond five years) 10,74,560 30 E/52394/2022 1,14,758 01.02.2019 April 2017 to June 2017 Not applicable 1,14,758 31 E/52395/2022 1,51,33,338 12.02.2019 November 2013 to June 2017 Up to January 2017 (November 2013 to January 2014 is beyond five years) 13,33,940 32 E/52396/2022 1,68,60,063 01.02.2019 November 2013 to June 2017 Up to December 2016 (November 2013 to December 2013 is beyond five years) 12,86,858 33 E/52397/2022 41,70,890 01.02.2019 November 2013 to June 2017 Up to December 2016 (November 2013 to December 2013 is beyond five years) 4,13,578 34 E/52398/2023 22,92,994 09.05.2019 April 2014 to June 2017 Up to March 2017 75,186 35 E/52399/2022 49,97,368 08.02.2019 November 2013 to June 2017 Up to December 2016 (November 2013 to December 2013 is beyond five years) 3,46,885 36 E/52400/2022 19,35,238 25.04.2019 November 2013 to June 2017 Up to March 2017 (Nov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 to June 2017 Up to January 2017 (November 2013 to January 2014 is beyond five years) 1,10,201 54 E/52423/2022 28,12,870 21.05.2019 April 2014 to June 2017 Up to April 2017 (April 2014 is beyond five years) 87,629 55 E/52424/2022 14,90,800 13.02.2019 November 2013 to June 2017 Up to January 2017 (November 2013 to January 2014 is beyond five years) 77,864 56 E/52425/2022 45,28,757 12.02.2019 November 2013 to June 2017 Up to January 2017 (November 2013 to January 2014 is beyond five years) 3,20,412 57 E/52426/2022 26,18,362 29.05.2019 April 2014 to June 2017 Up to April 2017 (April 2014 is beyond five years) 66,829 58 E/52427/2022 1,90,188 07.05.2019 October 2015 to June 2017 Not Applicable Not Applicable 59 E/52428/2022 2,97,236 22.05.2019 April 2014 to June 2017 Up to April 2017 (April 2014 is beyond five years) 9,536 60 E/52429/2022 49,68,377 25.01.2019 November 2013 to June 2017 Up to December 2016 (November 2013 to December 2013 is beyond five years) 4,16,136 61 E/52430/2022 5,69,222 04.02.2019 November 2013 to June 2017 Up to Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 to January 2014 is beyond five years) 1,50,198 77 E/52470/2022 3,81,1096 12.03.2019 April 2012 to June 2017 78 E/52471/2022 6,80,707 18.02.2019 November 2013 to January 2017 Up to January 2017 (November 2013 to January 2014 is beyond five years) 49,835 79 E/52472/2022 10,30,308 14.05.2019 April 2014 to June 2017 Not Applicable Not Applicable 81 E/50028/2023 10,18,587 03.05.2019 April 2014 to June 2017 Up to March 2017 49,919 82 E/50044/2023 9,30,970 07.02.2019 November 2013 to June 2017 Up to December 2016 (November 2013 to December 2013 is beyond five years) ) 92,595 83 E/50055/2023 15,36,099 05.03.2019 November 2013 to June 2017 Up to January 2017 (November 2013 to January 2014 is beyond five years) 1,17,271 84 E/50056/2023 3,11,032 25.04.2019 November 2013 to June 2017 Up to March 2017 (November 2013 to March 2014 is beyond five years) 9,740 85 E/51271/2023 5,59,904 04.04.2019 November 2013 to June 2017 Up to February 2017 (November 2013 to February 2014 is beyond five years) 37,365 86 E/51272/2023 3,03,973 14.02.2019 November 2013 to June 2017 Up to January 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2019 May 2014 to June 2017 Up to April 2017 63,295 102 E/51960/2023 19,38,124 (19,25,809 + 12,315) 19.03.2019 March 2014 to June 2017 Up to February 2017 1,05,865 103 E/51961/2023 2,05,580 24.05.2019 May 2014 to June 2017 Up to April 2017 1,121 104 E/51962/2023 16,34,346 23.05.2019 May 2014 to June 2017 Up to April 2017 52,290 105 E/51963/2023 2,04,36,353 (2,00,63,450 + 3,73,203) 01.02.2019 January 2014 to June 2017 Up to December 2016 19,15,854 106 E/51964/2023 55,61,303 (55,25,479 + 35,824) 13.03.2019 March 2014 to June 2017 Up to February 2017 3,08,104 107 E/51965/2023 2,81,518 (2,76,247 + 5,271) 20.03.2019 February 2014 to June 2017 Up to February 2017 14,832 108 E/51966/2023 74,27,270 (73,07,155 + 1,20,115) 06.02.2019 January 2014 to June 2017 Up to December 2016 7,30,472 110 E/52481/2023 62,646 (62,601 + 45) 21.02.2019 February 2014 to June 2017 Up to January 2017 6,964 111 E/52482/2023 3,24,015 11.04.2019 April 2014 to June 2017 Up to March 2017 16,302 112 E/52483/2023 1,30,392 (1,28,668 + 1,724) 18.02.2019 February 2014 to June 2017 Up to January 2017 11,560 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 2014 to June 2017 Entirely time barred Entirely time barred 134 E/52874/2023 1,28,005 09.05.2019 April 2014 to June 2017 Up to March 2017 12,414 135 E/52875/2023 7,82,092 19.08.2019 August 2014 to June 2017 Entirely time barred Entirely time barred 136 E/52876/2023 14,83,153 (14,66,710 + 16,443) 13.02.2019 February 2014 to June 2017 Up to January 2017 1,32,118 137 E/52877/2023 70,34,455 (68,82,479 + 1,51,979) 28.01.2019 January 2014 to June 2017 Up to December 2016 6,14,115 170 E/54676/2023 26,27,467 (26,03,969 + 23,498) 20.02.2019 November 2013 to June 2017 Up to January 2017 3,15,619 171 E/54744/2023 9,73,637 (9,63,787 + 9,850) 14.02.2019 February 2014 to June 2017 Up to January 2017 81,083 172 E/54746/2023 66,63,317 (65,65,910 + 97,407) 02.01.2019 January 2014 to June 2017 Up to November 2016 6,63,648 174 E/54969/2023 15,15,040 21.05.2019 May 2014 to June 2017 Up to April 2017 75,622 175 E/54970/2023 12,68,677 (12,60,617 + 8,060) 01.02.2019 February 2014 to June 2017 Up to December 2016 1,35,821 Order dated 30.12.2022 138 E/53887/2023 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51 (1,29,32,475 + 2,06,576) 04.02.2019 January 2014 to June 2017 Up to December 2016 12,45,838 160 E/53909/2023 2,07,657 (2,05,289 + 2,368) 11.02.2019 February 2014 to June 2017 Up to January 2017 18,761 161 E/53910/2023 32,76,430 (32,48,467 + 27,963) 11.02.2019 February 2014 to June 2017 Up to January 2017 2,88,609 162 E/MISC/50542/ 2023 E/53911/2023 1,53,80,656 (1,50,90,471 + 2,90,185) 28.01.2019 January 2014 to June 2017 Up to December 2016 13,47,988 163 E/53912/2023 4,21,981 22.08.2019 August 2014 to June 2017 Entirely time barred Entirely time barred 164 E/53913/2023 3,50,702 (3,46,780 + 3,922) 06.03.2019 February 2014 to June 2017 Up to January 2017 22,527 165 E/53914/2023 91,722 16.08.2019 August 2014 to June 2017 Entirely time barred Entirely time barred 166 E/53915/2023 4,08,487 30.12.2019 December 2014 to June 2017 Entirely time barred Entirely time barred 173 E/54968/2023 8,94,863 18.11.2019 November 2014 to June 2017 Entirely time barred Entirely time barred 176 E/54971/2023 15,14,065 16.08.2019 August 2014 to June 2017 Entirely time barred Entirely time barred 190 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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