2024 (9) TMI 1021 - AT - Central Excise

Testing charges paid by customers for third-party testing cannot be included in assessable value of excisable goods

Smita Conductors Ltd Versus Commissioner of C.E. & S.T. -Daman

CESTAT Ahmedabad held that testing charges conducted by third parties at customer's request and reimbursed by the customer are not includible in ... Valuation - inclusion of charges for testing conducted by third party on the request of the customer and reimbursement of such testing charges from the customer M/s Power Grid Corporation of India Limited in the assessable value - HELD THAT:- In the facts of the present case the testing was conducted not as a part of the obligation of the appellant but in a special case when the request was made by the customer to conduct such test. The test was conducted by third party on the request of the customer M/s Power Grid Corporation, in such case the testing charges cannot be part and partial of the manufacture of excisable goods in the hand of the appellant consequently the same is not includible in the assessable value of the excisable goods. On the identical facts and circumstances various judgments have been delivered wherein, it was held that the testing charges conducted on behalf of the appellant by third party and taking reimbursement of such testing charges by the manufacturer supplier is not includible in the assessable value. This issue has been considered by larger bench of this Tribunal in the case of BHASKAR ISPAT PVT. LTD [2004 (3) TMI 102 - CESTAT, NEW DELHI] wherein, the larger bench answered the reference holding that 'cost of additional testing conducted at the request of the customer and the cost of such testing being borne by the customer, are not includible in the assessable value of the goods.' Thus, it is settled law that any testing charges for the testing done by third party on the request of the customer and reimbursement of the same to the manufacturer supplier, the said testing charges is not includible in the assessable value of the excisable goods supplied on payment of duty. The issue in hand is no longer res-integra in the light of the above judgments. Therefore, in the present case the testing charges is not includible in the assessable value of excisable goods manufactured and cleared by the appellant on payment of duty. The impugned order is set aside to the extent it upheld the demand, interest and penalty - Appeal allowed. Issues Involved:1. Whether charges for testing conducted by a third party on the request of the customer and reimbursement of such testing charges from the customer are includible in the assessable value of excisable goods supplied.Issue-Wise Detailed Analysis:1. Inclusion of Third-Party Testing Charges in Assessable Value:The primary issue in this case is whether the charges for testing conducted by a third party, at the request of the customer, and subsequently reimbursed by the customer, should be included in the assessable value of the excisable goods supplied.Appellant's Argument:The appellant, represented by Shri Vipul Khandhar, argued that the testing was conducted at the specific request of the customer, M/s Power Grid Corporation of India Limited, and the charges were reimbursed separately. The appellant contended that since the testing was not an obligation for the completion of the manufacture of goods, these charges should not be included in the assessable value. The appellant cited several judgments to support this position, including LB-BHASKAR ISPAT PVT. LTD., Commissioner v. Goyal M.G. Gases Pvt. Ltd., LUBI SUBMERSIBLES LTD, and PAM PHARMACEUTICAL & ALLIED MACHINERY CO. LTD.Respondent's Argument:The respondent, represented by Shri Sanjay Kumar, reiterated the findings of the impugned order, which included the testing charges in the assessable value.Tribunal's Findings:The Tribunal carefully considered the submissions from both sides and reviewed the records. It was found that the testing was conducted based on a specific request from the customer and not as part of the appellant's obligation. The Tribunal examined a bill for reimbursement of the testing charges, which confirmed that the test was conducted as per the customer's request.Legal Precedents:The Tribunal referred to several legal precedents to support its decision:- BHASKAR ISPAT PVT. LTD.: The larger bench of the Tribunal held that charges for inspection or testing by a third party at the option of the buyer cannot form part of the assessable value. The Tribunal in Shree Pipes Ltd. v. Collector of Central Excise and subsequent cases upheld that additional testing charges borne by the customer are not includible in the assessable value.- Goyal M.G. Gases Pvt. Ltd.: The Tribunal observed that cylinder rental and maintenance charges, as well as testing charges done at the customer's request, are not includible in the assessable value. This decision was upheld by the Supreme Court.- LUBI SUBMERSIBLES LTD: The Tribunal reiterated that inspection charges at the option of the buyer are not required to be included in the assessable value, following the precedent set by the larger bench in Bhaskar Ispat Pvt. Ltd.Conclusion:Based on the above judgments and the settled legal position, the Tribunal concluded that testing charges for tests conducted by a third party at the customer's request and reimbursed by the customer are not includible in the assessable value of excisable goods. The impugned order was set aside to the extent it upheld the demand, interest, and penalty. The appeal was allowed with consequential relief.Final Order:The appeal was allowed, and the impugned order was set aside, providing consequential relief to the appellant.Pronouncement:The judgment was pronounced in the open court on 13.09.2024.