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

CESTAT Ahmedabad held that testing charges conducted by third parties at customer's request and reimbursed by the customer are not includible in assessable value of excisable goods. The appellant was not obligated to conduct testing; it was done specifically upon customer's request. Following precedent from BHASKAR ISPAT PVT. LTD, the tribunal ruled that such charges, being customer-borne costs for additional testing, do not form part of manufacturing process and therefore cannot be included in assessable value. The impugned order was set aside regarding demand, interest and penalty. Appeal allowed.

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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.

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