2025 (1) TMI 1372 - AT - Central Excise

Notional cost of free drawings and designs from buyer cannot be included in assessable value under section 4(1)(b) and Rule 6

FREUDENBERG-NOK PRIVATE LIMITED Versus ADJUDICATION DIRECTORATE GENERAL (ADJUDICATION) DIRECTORATE GENERAL OF GST INTELLIGENCE-NEW DELHI

FREUDENBERG-NOK PRIVATE LIMITED Versus ADJUDICATION DIRECTORATE GENERAL (ADJUDICATION) DIRECTORATE GENERAL OF GST INTELLIGENCE-NEW DELHI - TMI The core issue in this legal judgment revolves around whether the notional cost of specifications, in the form of drawings and designs supplied free of cost by Maruti Suzuki India Pvt. Ltd. (MSIL), should be included in the assessable value of the parts and components manufactured by the appellant and cleared to MSIL. This involves the interpretation of Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, read with Rule 11, and the application of Section 4 of the Central Excise Act, 1944.The relevant legal framework includes Section 4 of the Central Excise Act, 1944, which deals with the valuation of excisable goods for the purpose of charging duty of excise, and Rule 6 of the Central Excise Valuation Rules, which provides guidance on determining the assessable value of goods. The Tribunal also referenced previous decisions, notably the case of Commissioner of Central Excise Jamshedpur vs. Tata Motors and Denso India Pvt. Ltd. vs. Additional Director General (Adjudication), which addressed similar issues regarding the inclusion of specification costs in the assessable value.The Tribunal's interpretation emphasized that for something to be considered an additional consideration for the sale of goods, there must be a contract or agreement between the buyer and the manufacturer where the buyer pays something over and above the agreed price. The Tribunal concluded that the specifications provided by MSIL were not additional considerations because they were shared with potential vendors before any contract of sale was established. The Tribunal found that the specifications were merely requirements for the parts and components to be manufactured and did not constitute detailed engineering drawings necessary for production.In the Denso India case, the Tribunal held that specifications provided by MSIL were not includable in the assessable value because they were supplied before the identification of potential vendors and did not involve any additional payment by MSIL to the appellant. The Tribunal noted that the specifications were shared as part of the Request for Quotation process, which allowed potential vendors to understand MSIL's requirements and provide price quotations. The Tribunal emphasized that the specifications were not detailed drawings necessary for production but rather general requirements or layouts.The Tribunal addressed competing arguments by differentiating between mere specifications and detailed engineering drawings. It referenced the Mangalore Refinery & Petrochemicals Ltd. case, which distinguished between general specifications, considered as 'buyers' assist,' and detailed engineering designs, which could affect the assessable value. The Tribunal concluded that the specifications provided by MSIL were akin to general specifications and not detailed engineering designs, thus not affecting the assessable value under Rule 6 of the Valuation Rules.The Tribunal's significant holdings include the reaffirmation that notional costs of specifications provided by a buyer before the establishment of a sale contract do not constitute additional consideration under Section 4 of the Central Excise Act. The Tribunal clarified that Rule 6 of the Valuation Rules is intended to cover expenses incurred by a buyer on behalf of a manufacturer, which relieve the manufacturer from incurring such expenses. In this case, the specifications were not considered as such expenses.The Tribunal concluded by setting aside the impugned order and allowing the appeal, thereby determining that the notional cost of MSIL's specifications should not be included in the assessable value of the final products manufactured by the appellant. The Tribunal's decision reflects a consistent application of the legal principles established in previous cases, emphasizing the distinction between general specifications and detailed engineering drawings in the context of excise duty valuation.