Principal manufacturer's free drawings and designs to component vendors excluded from central excise assessable value

CESTAT DELHI held that notional cost of drawings and designs supplied free of cost by principal manufacturer to component vendors should not be included in assessable value for central excise duty. The tribunal found that vehicle components must be manufactured per OEM specifications only, and the principal manufacturer does not sell these specifications to vendors. Following precedent in Denso India case, the tribunal distinguished between royalty payments for general licensing rights versus specific component specifications. The impugned order was set aside and appeals were allowed.

---

---

The Appellate Tribunal, CESTAT Delhi, considered two appeals arising from the same impugned order-in-original no.70-92-CE/2023 dated 29.03.2023. The core legal issue in both appeals was whether the notional cost of specifications/drawings and designs supplied free of cost by Maruti Suzuki India Ltd. (MSIL) should be included in the assessable value of parts or components of motor vehicles manufactured by the appellants, leading to a differential amount of central excise duty. The Tribunal analyzed the facts and relevant legal provisions to determine the applicability of Rule 6 of the Central Excise Valuation Rules, 2000.In Appeal No. E/55230 of 2023, the appellant was engaged in manufacturing motor vehicle parts for MSIL under royalty agreements with Suzuki Motors Corporation (SMC). The Department contended that the notional cost of specifications provided by MSIL should be added to the assessable value of the final products. The Adjudicating Authority confirmed a demand of Rs. 21,19,762/- against the appellant based on the inclusion of lump sum royalty in the assessable value.In Appeal No. E/50008/2014, the appellant was an Original Equipment Manufacturer for MSIL and engaged in manufacturing Graphics, Stickers, Name Plates, and Black Out Tape. The appellant received drawings and designs from MSIL without any charge and developed the required products based on these specifications. The Adjudicating Authority held that the notional cost of specifications provided by MSIL should be included in the assessable value.The Tribunal considered the precedent set in the case of Denso India Pvt. Ltd. vs. Additional Director General (Adjudication), Directorate General of GST Intelligence, New Delhi, where it was established that the notional cost of drawings and designs supplied free of cost by Maruti to vendors cannot be included in the assessable value of parts and components for the purpose of central excise duty payment. The Tribunal noted that MSIL provided specifications to vendors for manufacturing components as per OE requirements, and the royalty paid by MSIL to SMC was for the non-exclusive right to use Licensed Information and Trademarks, not for specific components or designs.Based on the judicial pronouncement and the analysis of the facts, the Tribunal set aside the impugned order and allowed both appeals. The decision emphasized that the notional cost of specifications provided by MSIL should not be included in the assessable value of the manufactured parts or components for the purpose of central excise duty payment.The Tribunal's holding established a core principle that the notional cost of drawings and designs supplied free of cost by the principal manufacturer to vendors should not be considered in determining the assessable value for central excise duty. The Tribunal's final determination was to allow both appeals in favor of the appellants, based on the principles established in the Denso India Pvt. Ltd. case and the specific circumstances of the appeals before the Tribunal.

---