2016 (9) TMI 226 - AT - Central Excise

Invalidity of Show Cause Notice for Central Excise Duty based on Royalty Charges

The Tribunal held that the Show Cause Notice (SCN) dated 05-05-2006, which demanded Central Excise Duty based on including royalty charges in the ... Valuation - includability - amount of royalty paid by customers in the assessable value of CD-ROMs manufactured - Held that:- it is found that Annexure-D to the SCN is relevant to be examined, to find out whether the quantification is presumptive in nature. We find that the agreements subsequent to the period of dispute in the SCN were taken into consideration to arrive at the amount of royalty charges paid by third party per CD for the period, subsequent to the period covered by the SCN and those were applied to the number of CD recorded by the appellant during the period from 01-04-2001 to 18-02-2002 to arrive at the assessable value for the period involved in SCN which represents the presumptive assessable value arrived at, due to inclusion of royalty charges of subsequent period to the clearance of earlier period and such assessable value was worked out at ₹ 86,16,596/- and duty demand of ₹ 13,78,655/- was calculated on said presumptive assessable value of ₹ 86,16,596/-. Therefore, the SCN is presumptive and hence, the impugned SCN is not sustainable. - Decided in favour of appellant Issues:1. Central Excise Duty demand based on inclusion of royalty charges in assessable value of CD-ROMs.2. Validity of Show Cause Notice (SCN) dated 05-05-2006.3. Applicability of Rule 9(1)(c) of Customs Valuation Rules for addition of royalty and license fee to assessable value.4. Time-barred nature of the SCN.Central Excise Duty Demand:The case involved the appellants, engaged in manufacturing CD-R/ CD-RW, CD-ROM, and CD-ROM (Software), facing a Central Excise Duty demand due to the inclusion of royalty charges in the assessable value of CD-ROMs. The Revenue contended that the royalty paid by customers should be included in the assessable value. The dispute arose from a Show Cause Notice dated 05-05-2006, leading to an Order-in-Original confirming the demand and imposing a penalty, which was challenged before the Commissioner (Appeals) and subsequently appealed before the Tribunal.Validity of Show Cause Notice:The appellants argued that the SCN was not sustainable as it was presumptive in nature. The quantification of royalty charges was based on agreements subsequent to the period covered by the SCN, leading to a presumptive assessable value. The Tribunal examined Annexure-D of the SCN and concluded that the inclusion of royalty charges from a subsequent period to calculate the assessable value for the earlier period rendered the SCN presumptive. Consequently, the Tribunal held the SCN dated 05-05-2006 as not sustainable and allowed the appeal with consequential relief.Applicability of Customs Valuation Rules:The appellants contended that Rule 9(1)(c) of Customs Valuation Rules required cumulative satisfaction of conditions for the addition of royalty and license fee to the assessable value of imported goods. Since the appellants had no obligation for royalty payment, they argued against its inclusion in the assessable value. The appellants also cited various case laws to support their position.Time-barred Nature of the SCN:The appellant's counsel argued that the SCN was time-barred based on the relevant date. However, the Tribunal did not delve into this argument as it found the SCN to be presumptive in nature due to the inclusion of royalty charges from a subsequent period. Consequently, the Tribunal's decision on the presumptive nature of the SCN rendered the time-barred argument irrelevant in the final judgment.