Customer-supplied drawings form part of assessable value, but only proportionate cost applies where they cover multiple units.

Free customer-supplied drawings were held includible in the assessable value where they were essential to manufacture and formed part of the indirect consideration received by the manufacturer. The contract price was therefore not treated as the sole consideration, making the special valuation rule applicable rather than the normal-price concept. However, because the drawings related to a broader project and only one unit had been manufactured, only a proportionate part of the drawing cost could be added to the value of the goods actually cleared. In the same factual setting, personal penalty was set aside and the matter was remitted for fresh computation.

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Issues: (i) whether the cost of drawings supplied free of charge by the customer was includible in the assessable value of the manufactured goods; (ii) whether the contract price could be treated as the sole consideration so as to attract valuation under the normal-price rule rather than the special valuation rule; (iii) whether the entire cost of the drawings could be added, or only a proportionate part relatable to the goods actually manufactured, and whether personal penalty was justified.

Issue (i): whether the cost of drawings supplied free of charge by the customer was includible in the assessable value of the manufactured goods.

Analysis: The value of material, design or drawing supplied by the customer is part of the value of the finished product where those inputs are essential for manufacture and form part of the consideration indirectly received by the manufacturer. The reasoning applied the principle that, if such drawings had not been supplied, the goods could not have been manufactured in the contracted form.

Conclusion: Yes. The cost of the customer-supplied drawings was includible in the assessable value.

Issue (ii): whether the contract price could be treated as the sole consideration so as to attract valuation under the normal-price rule rather than the special valuation rule.

Analysis: The price fixed in the contract was not the sole consideration because the manufacturer also derived value from the free supply of drawings necessary for manufacture. Once the agreed price was influenced by this additional non-monetary consideration, the normal-price concept could not be applied in isolation and the special valuation method became applicable.

Conclusion: No. The contract price was not the sole consideration, and the special valuation rule could be invoked.

Issue (iii): whether the entire cost of the drawings could be added, or only a proportionate part relatable to the goods actually manufactured, and whether personal penalty was justified.

Analysis: The drawings related to the entire line and were usable for multiple units, while only one unit had been manufactured and supplied. The value attributable to the drawings therefore had to be apportioned with reference to the goods actually cleared. In the same factual setting, and in view of divergent tribunal decisions, personal penalty was not warranted.

Conclusion: Only a proportionate part of the drawing cost was to be added, and the personal penalty was set aside.

Final Conclusion: The appeal succeeded only to the limited extent of apportionment of drawing cost and deletion of penalty, while the inclusion of drawing value in assessable value was upheld in principle and the matter was sent back for fresh computation.

Ratio Decidendi: Where free supplies from the customer are essential to manufacture and enhance the value of the finished product, their value forms part of assessable value, but where the supplied material relates to a larger project or multiple units, only the proportion attributable to the goods actually manufactured can be included.

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