Excise valuation: buyer-supplied RFQ drawings and designs were not additional consideration and could not be added to assessable value.
Additional consideration for central excise valuation under section 4 and Rule 6 arises only where the buyer's supply has the character of consideration flowing to the seller at the seller's desire in relation to the sale. Specifications, drawings and designs furnished by the buyer at the RFQ stage merely to invite bids and state requirements, before acceptance of the quotation, do not satisfy that test. They are not consideration for the sale and their notional value cannot be added to the assessable value. The demand and penalty based on such inclusion were therefore not sustainable, and relief followed for the assessee.
Issues: Whether the specifications, drawings and designs supplied by Maruti to the appellant at the RFQ stage constituted additional consideration for sale so as to be includible in the assessable value of the goods cleared to Maruti.
Analysis: Additional consideration under section 4 of the Central Excise Act, 1944 and Rule 6 of the Central Excise Valuation Rules, 2000 must first satisfy the character of consideration. The term was tested with reference to the Indian Contract Act, 1872 and the law of sale, under which consideration must flow at the desire of the promisor and in the context of an existing promisor-promisee relationship. The drawings and designs were supplied by Maruti before the appellant's quotation was accepted, only to invite bids and articulate Maruti's requirements. They were not supplied at the appellant's desire and were not consideration flowing from the buyer to the assessee in relation to the sale. The value of such RFQ material therefore did not fall within the deeming scope of additional consideration under Rule 6.
Conclusion: The specifications, drawings and designs supplied at the RFQ stage were not additional consideration for sale and could not be added to the assessable value; the issue is decided in favour of the assessee.
Final Conclusion: The demand and penalty based on inclusion of the notional value of the drawings and designs could not be sustained, and the assessee was entitled to relief.
Ratio Decidendi: Material supplied by a buyer free of charge at the quotation stage is includible in assessable value only if it is consideration flowing to the assessee in relation to the sale and at the desire of the promisor; pre-contract RFQ specifications used merely to invite bids do not constitute additional consideration for sale.
TaxTMI 
AI Drafter ✕
TaxTMI 
