Free-supplied drawings and designs are not added to assessable value when used only as manufacturing specifications.
Notional cost of drawings and designs supplied free of charge by the buyer was held not includible in the assessable value of parts and components manufactured by the vendor for central excise valuation under the Central Excise Valuation Rules, 2002. The Tribunal treated the free drawings and designs as specifications used for manufacture, while the vendor's own detailed drawings formed part of the manufacturing activity. On that basis, no notional addition to value was justified, the duty demand could not be sustained, and the appeals were allowed.
Issues: Whether the notional cost of drawings and designs supplied free of cost by the buyer to the vendors was includible in the assessable value of the parts and components manufactured and cleared by the vendors for central excise duty purposes.
Analysis: The dispute turned on valuation under the Central Excise Valuation Rules, 2002. The Tribunal followed its earlier decision on the same question and accepted that the vendor manufactures the goods on the basis of specifications received from the buyer, while the detailed drawings and designs prepared by the vendor form part of the manufacturing activity. On that basis, the free supply of drawings and designs by the buyer did not warrant addition of any notional cost to the assessable value of the goods cleared by the vendors.
Conclusion: The notional cost of drawings and designs supplied free of cost by the buyer was not includible in the assessable value of the goods; the issue was answered in favour of the assessee.
Final Conclusion: The duty demand and the impugned orders based on inclusion of the notional value of free supply drawings and designs could not be sustained, and the appeals were allowed.
Ratio Decidendi: Free supply of drawings and designs by the buyer, when used only as specifications for manufacture, cannot be notionally added to the assessable value of the excisable goods cleared by the vendor.
TaxTMI 
AI Drafter ✕
TaxTMI 
