2025 (2) TMI 621 - AT - Central Excise

Specifications and designs supplied free by manufacturer to vendors cannot be included in excise duty assessable value under Section 4

CESTAT NEW DELHI held that notional cost of specifications, drawings and designs supplied free by manufacturer to potential vendors cannot be included in ... Valuation of Excise duty - inclusion of cost of specifications provided by the manufacturer in the assessable value of the final products manufactured by the appellant and cleared to the manufacturer - HELD THAT:- The issue raised in the case of Denso India Pvt Ltd. [2024 (3) TMI 686 - CESTAT NEW DELHI] was whether the notional cost of specifications in the form of drawings and designs supplied free of cost by Maruti to the potential vendors should be included in the assessable value of the parts or components manufactured by the vendors and cleared to Maruti for their motor vehicles. To appreciate the said issue, the Principal Bench considered the provisions of section 4 of the Central Excise Act, 1944 [The Act] and Rule 6 of the Valuation Rules and observed that anything which is supplied by the buyers to the manufacture before even identifying the potential seller/ manufacturer cannot be treated as additional consideration for sale. It was, therefore, held that something can be treated as an additional consideration for sale of goods only when there exists a contract of sale or an agreement to sale between two parties and in terms thereof the buyer pays something over and above the price agreed. In other words anything which is supplied by the buyer to the manufacturer even before identifying the potential manufacturer can never be treated as an additional consideration for sale. The Tribunal, therefore, concluded that the drawing and designs supplied by MSIL at the time of identification and short listing of potential vendors for supply of parts and components, the provisions of section 4 1(b) of the Act read with Rule 6 of the Valuation Rules, could not have been invoked as no consideration was received by the vendors from MSIL. Conclusion - The specifications in the nature of design/drawings provided by MSIL were merely layout or dimensions of the desired parts and components as they have to be necessarily manufactured as per the requisite dimensions so that they can be fitted in the vehicle manufactured by the Maruti. The impugned order deserves to be set aside and the appeals are, accordingly allowed. The issues presented and considered in the legal judgment are as follows:1. Whether the cost of specifications provided by the manufacturer should be included in the assessable value of final products manufactured by the appellant.2. Whether the notional cost of drawings and designs supplied free of cost by Maruti Suzuki India Pvt Ltd. should be included in the assessable value of parts and components of motor vehicles manufactured by the appellant.Issue-wise detailed analysis:Issue 1:- Relevant legal framework and precedents: Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 [Valuation Rules], Section 4 of the Central Excise Act, 1944.- Court's interpretation and reasoning: The Tribunal considered that the specifications provided by the manufacturer were merely requirements and not detailed drawings and designs necessary for manufacturing the final products.- Key evidence and findings: The appellant received specifications from the manufacturer for manufacturing parts and components of motor vehicles.- Application of law to facts: The Tribunal concluded that the notional cost of the manufacturer's specifications should not be included in the assessable value of the final products.- Treatment of competing arguments: The appellant argued that the specifications were provided free of cost and were not additional consideration for the sale of goods.- Conclusions: The Tribunal set aside the impugned order and allowed the appeals.Issue 2:- Relevant legal framework and precedents: Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, now Rule 10(1)(b)(iv) of the 2007 Customs Valuation Rules.- Court's interpretation and reasoning: The Tribunal distinguished between mere specifications and detailed engineering drawings, holding that the former should not be considered as part of the value of goods.- Key evidence and findings: The Tribunal considered the nature of the specifications provided by Maruti Suzuki India Pvt Ltd.- Application of law to facts: The Tribunal applied the principle that certain specifications are merely buyers' assistance and should not be included in the assessable value of goods.- Treatment of competing arguments: The appellant argued that the specifications provided were not detailed engineering drawings.- Conclusions: The Tribunal found that the specifications provided by Maruti Suzuki India Pvt Ltd. were merely layout or dimensions of the desired parts and components, and therefore, should not be included in the assessable value of the final products.Significant holdings:- The Tribunal held that the notional cost of specifications provided by the manufacturer should not be included in the assessable value of final products.- The Tribunal also held that the specifications in the form of design/drawings provided by Maruti Suzuki India Pvt Ltd. were merely layout or dimensions of the desired parts and components and should not be considered as part of the value of the goods.In conclusion, the Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeals.