Assessable value of design and engineering charges depends on their contractual link to equipment manufacture and proper duty segregation.

Design and engineering charges under a contract were examined for inclusion in assessable value, with the analysis distinguishing between drawings linked to civil construction and those tied to equipment manufacture. Charges attributable to engineering and design of the supplied equipment were treated as includible, while an undifferentiated levy on the entire aggregate was not accepted without proper contractual breakup. Non-disclosure of the charges in the relevant returns supported invocation of the extended limitation period. Because duty had been computed without separating the distinct contractual components, the matter was remanded for de novo consideration and fresh quantification on the correct basis.

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Issues: (i) whether design and engineering charges relating to the contract were includible in the assessable value of the goods; (ii) whether invocation of the extended period of limitation was sustainable; (iii) whether the matter required remand for reworking of the duty demand.

Issue (i): whether design and engineering charges relating to the contract were includible in the assessable value of the goods.

Analysis: The contract provided separate payments for engineering and design activity against different stages of work, including general arrangement drawings, load data drawings for civil construction, fabrication/component drawings, and erection and maintenance manuals. On the terms of the contract, only the load data drawings were linked to civil construction, while the remaining drawing-related payments were connected with the engineering and design of the equipment supplied. The claim that all such charges were purely post-manufacturing or unrelated to manufacture was therefore not accepted in full.

Conclusion: The design and engineering charges, to the extent attributable to drawings connected with the equipment supplied, were includible in the assessable value and the assessee's challenge on this issue failed in part.

Issue (ii): whether invocation of the extended period of limitation was sustainable.

Analysis: The charges were not disclosed to the Department through the relevant returns, and the non-disclosure was treated as misuse of the concession under the procedural requirement relating to price declaration. On those facts, the ingredients for invoking the extended period were found to exist.

Conclusion: Invocation of the extended period of limitation was upheld.

Issue (iii): whether the matter required remand for reworking of the duty demand.

Analysis: The duty had been computed on the entire amount received towards engineering and design without separating the different kinds of drawings and activities contemplated by the contract. Since the liability had to be confined to the proper break-up of the relevant drawing-related payments, fresh examination by the original authority was necessary.

Conclusion: The matter was remanded for de novo consideration and fresh quantification of duty.

Final Conclusion: The impugned order was set aside and the appeals were allowed by way of remand, with the substantive levy issues left for fresh determination on the correct contractual break-up.

Ratio Decidendi: Where a contract separately provides for engineering and design payments tied to drawings and technical specifications, the assessable value may include only those charges that are shown to relate to the manufacture-linked equipment activity, and a demand based on an undifferentiated aggregate requires fresh quantification on the proper contractual basis.

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