Design and development charges to a sister concern were excluded from assessable value because they lacked nexus with sale price.

Design and development charges paid to a sister concern for services used in manufacturing welding machines were held not to form part of the assessable value for central excise. The goods were sold to independent buyers at transaction value, and the services were obtained on a principal-to-principal basis against payment rather than supplied free by customers. As the expenditure was booked in the assessee's profit and loss account and was not separately recovered from buyers, it had no direct nexus with the sale price. The duty demand was therefore unsustainable.

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Issues: Whether design and development charges paid to a sister concern for services used in manufacture of welding machines were includible in the assessable value of the goods for central excise duty.

Analysis: The goods were sold to independent unrelated buyers on transaction value. The design and development services were not received free of cost from customers, but were obtained from the sister concern on a principal-to-principal basis against payment. The amount paid was an expenditure of the assessee, was accounted for in the profit and loss account, and was not separately recovered from the buyers. Since the charges had no direct connection with the sale price charged to independent customers, they could not be added to the assessable value.

Conclusion: The design and development charges were not includible in the assessable value and the duty demand was unsustainable, in favour of the assessee.

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