Inclusion of Design Costs Upheld, Royalty Demand Set Aside; Penalty Reduced.

The Tribunal upheld the inclusion of design and drawings cost in the assessable value based on the established nexus between technical know-how and product price. However, the demand for royalty inclusion was set aside due to lack of evidence showing its impact on manufactured goods. The penalty imposed was reduced, considering the technical know-how and design costs. The appeal was disposed of accordingly.

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Issues:
Inclusion of design and drawings cost in assessable value
Inclusion of royalty in assessable value

Inclusion of design and drawings cost in assessable value:
The appellants appealed against the demand for Central Excise duty based on additional consideration for design and drawings. The Licensing Agreement between the appellants and a foreign collaborator established a nexus between the technical know-how and the negotiated price of the product. The agreement included provisions for technical documentation, drawings, and various forms of assistance necessary for manufacturing the product. The statement by a company official confirmed that the technical know-how fee enabled them to secure orders and manufacture products as per the collaborator's designs. The Tribunal found the inclusion of consideration for design and drawings in the price of goods justified based on the established nexus, upholding the demand.

Inclusion of royalty in assessable value:
Regarding the royalty amount, the Tribunal noted a lack of basis provided in the Show Cause Notice or previous orders for adding royalty to the assessable value of the goods. The appellants argued that the royalty paid was for using goodwill in marketing products and did not impact the manufactured goods. The Tribunal found no evidence indicating the burden of royalty was on the appellants, unlike the case cited by the Adjudicating Authority. The Tribunal differentiated the present case from precedents where royalty was included in assessable value due to an integral link between purchase obligations and royalty payment. Consequently, the Tribunal set aside the demand for royalty inclusion in the assessable value.

Conclusion:
The Tribunal sustained the demand for design and drawings cost in the assessable value due to the established nexus, while setting aside the demand for royalty inclusion. The penalty imposed was reduced based on the pro-rata value of technical know-how and design costs. The appeal was disposed of accordingly, with the operative part pronounced in court.

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