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TMI Blog2025 (1) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... f the parts and components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty.' The impugned orders are not sustainable in law - Appeal allowed. - MR. S. S. GARG, MEMBER (JUDICIAL) AND MR. P. ANJANI KUMAR, MEMBER (TECHNICAL) Shri Ram Chander Chaudhary, Advocate for the Appellant Shri Aniram Meena with Shri Raman Mittal, Authorised Representatives for the Respondent ORDER These six appeals are directed against the two impugned orders dated i.e. 10.01.2023 and 29.03.2023 passed by the Principal Additional Director General (Adjudication), New Delhi. The issue involved in all the six appeals is identical, therefore, all the appeals are taken up together for discussion and disposal. The details of all the six appeals are given here in below: Sl. No. Appeal No. Duty demand confirmed (in Rs.) Period of dispute in Appeal 1. E/60194/2023 Rs. 21,21,552/- 2013-14 to 2017-18 2. E/60195/2023 Rs. 83,190/- 2013-14 to 2017-18 3. E/60196/2023 Rs. 11,58,361/- 2013-14 to 2017-18 4. E/60202/2023 Rs. 12,18,628/- 2013-14 to 2017-18 5. E/60360/2023 Rs. 1,79,216/- 2013-14 to 2017-18 6. E/60366/2023 Rs. 2,62,939/- 2013-14 to 2017-18 2. Briefly the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vendors of Maruti Suzuki India Ltd which is engaged in the manufacture of motor vehicles and procures the desired parts and components from vendors, is whether the notional cost of drawings and designs supplied free of cost by Maruti to the vendors should be included in the assessable value of parts or components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty. 8. Here, it is pertinent to reproduce the findings of Division Bench of CESTAT Delhi in the above noted case wherein, the Tribunal after considering the provisions relating to valuation of goods as provided under Section 4 of Central Excise Act and also the Central Excise Valuation Rules, 2002 and few judgments of various courts on this issue has held as under : 23. The issue that arises for consideration in these appeals is whether the department is justified in demanding the differential central excise duty from the vendors by including the notional cost of specification 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 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration flowing directly or indirectly from the buyer to the assessee. Provided that where price is not the sole consideration for sale of such excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value. Explanation 1 - For removal of doubts, it is hereby clarified that 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 of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices in question must fall within any of the four clauses (i) to (iv) mentioned in Explanation (1). 31. A plain reading of clauses (ii) and (iv) of Explanation (1) to rule 6 of the 2000 Valuation Rules leaves no manner of doubt that only those specified goods and services are covered which are used in the production of goods in question or which are undertaken elsewhere than in the factory of production and necessary for the production of goods in question. 32. It is clear that the purpose behind rule 6 is to levy excise duty on all those expenses which are incurred by a buyer on behalf of the seller-manufacturer and relieves the seller-manufacturer from incurring such expenses. Thus, the expressions drawings, blue prints, technical maps and charts and similar items mentioned in clause (ii) of Explanation (1), and design work and plans and sketches mentioned in clause (iv) of Explanation (1) can only mean those drawings 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 Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fications and designs supplied by the Maruti were sufficient for the manufacture of parts and components, there would have been no necessity for the appellant to seek technical support for manufacture in the form of detailed designs and specifications and pay a huge royalty. The manufacture of the spare parts and components by the appellant was, therefore, not possible from the specification and designs supplied by Maruti. The manufacture of the parts and components was possible only from the detailed drawings prepared by the appellant. 36. Even if Maruti had to spend some amount for getting these drawings by making payment of royalty to Suzuki Maruti Corporation, Japan, the position would not change as this cannot be said to form an additional consideration for sale of parts or components. It also needs to be noted that these specification drawings provided by Maruti to the potential vendors cannot be said to be 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The relevant portion of the book is reproduced below: Detailed specifications, including various dimensions noted on a drawing of the machine, are included in the buyer s order, so as to advise the exporter/manufacturer of what the buyer needs. The cost of engineering and drawing are not part of customs value, even if undertaken outside the country to which the machine is shipped, to the extent that they are an appropriate way of ordering the machine that is, of telling the manufacturer the specifications of what is being ordered. Only if the engineering or drawing goes further should it be deemed to be a part of the production process. Up to that point, each specification and instruction is more appropriately regarded as an added requirement or burden imposed upon the manufacturer, rather than a form of assistance. Otherwise expressed, these are buying costs, not costs of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equires to be added. (c) The Rule permits inclusion of only engineering drawing, design, etc., necessary for the production of the imported goods . Rule does not envisage remote connection between engineering drawing, design, etc. and the imported goods . The gap between Basic Engineering Drawings and detailed drawing is vast. The one provides all the detailed inputs for undertaking manufacture. The other merely indicates the lay out, relative size etc. From the size specifications alone construction of engineering equipment is not feasible. Telling the manufacturer, the specification of what is being ordered is only in the nature of buyers assist. Cost incurred towards buyers assist cannot be included in the value of imported goods. (d) When the technical know-how and engineering services are not related to the equipment designs but are for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng royalty amount for receipt of technical support. The appellant has also included the cost incurred towards preparation of detailed drawings and designs in the assessable value of the final products. 43. To appreciate this issue, reference can also be made to the specifications provided by Maruti to the potential vendors for generator assembly for manufacture of alternators. It bears the endorsement THIS IS A DESIGN SPECIFICATIONS DRAWING . It is also mentioned that this drawing specifies the conditions that Suzuki requires from suppliers on shape, dimensions, functions, qualities etc., part(s)/assembly and suppliers shall be responsible for designing the part(s)/assembly to meet Suzuki s requirements shown in the drawing without infringing upon any third party s intellectual property rights and submit the drawing . 44. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree of cost by Maruti to the appellant. In fact, the show cause notice also admits that tooling cost has been amortised and excise duty has been paid. 50. The inevitable conclusion, therefore, that follows from the aforesaid discussion is that the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value of the parts and components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty. 51. In this view of the matter, it would not be necessary to examine the contention that has been raised by the learned counsel for the appellants that the extended period of limitation could not have been invoked in the facts and circumstances of the present case. 52. Thus, for all the reasons stated above, all the Excise 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 adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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