Assessment of Central Excise for a Manufactured Good

[Prasad Kudva]

Dear Sir,

In my Query to You, I am executing an Project for manufacturing of a Product with following Terms:

1. X % against NRE Charges (Design, Engineering, Services & Consultancy)

2. X %against Delivery

Against the Pt No 1, I have Paid VAT as the same is a Part of Designing of the Equipment thereby facilitating to its Production.

However, the Customer calls it as a service. Let me know if the Service Tax is Liable to be Paid or it comes under the ambit of Central Excise Act 1944 where it clearly indicates that Design and Engineering activity relating to the Production of the Equipment calls for Excise Payment...

Look forward to your reply.

Regards,

Prasad.

[KASTURI SETHI]

Dear Querist,

After reading the following word for, if you have any doubt you may post further query in this forum.

Extract of Board's circular No.334/1/2007-TRU dated 28.2.2007

6.7 Design services [section 65(105)(zzzzd)] : Services in relation to conceptualizing, outlining, creating the designs and preparing patterns for costumes, apparels, garments, clothing accessories, jewellery or any other articles intended to be worn by human beings are leviable to service tax under fashion designing service [section 65(105)(zv)] and services in relation to planning, design or beautification of spaces is leviable to service tax under interior decorator’s service [section 65(105)(q)]. Design services, other than the above specifically mentioned taxable services, like furniture design, aesthetic design, consumer or industrial products, logos, packaging, production of three dimensional models, etc. will be taxable under this category.

2015 (330) E.L.T. 739 = 2015 (10) TMI 1103 - CESTAT MUMBAI(Tri. - Mumbai) INDO BEROLINA INDUSTRIES PVT. LTD. Versus COMMISSIONER OF C. EX., MUMBAI-IV

[Prasad Kudva]

Dear Sir,

I went through Your reply, But had Queries:

My Contract says : Order Value 100/-

1. Non Recurring Charges : Example 10/- (Design,Engineering,Consultancy & Support)

2. Delivery against Manufacture-90/-

Note: Product is Drawings are shared by Customer, based on which we Study and manufacture the Product and Supply

2. Based on Madras High Court Judgment of 1994 in first ding the accessible value of Product, we have Paid VAT

3. Contract refers Service Tax to be Paid. Hence Customer has declined for Payment.

4. Is there any Judgment subsequent to Madras High Court Ruling in 1994 which says Design and Engineering for Manufacturing being part if the total Sale value comes under the Excise/ Vat.

5. As such Service Tax may not be applicable as no consultantly service is extended. More so in Engineering Industry Design is a Part of total Sale Value.

6. Your Guidance is sought if asserting whether Service Tax or Excise Duty is applicable against NRE Charges as defined in Contract.

[KASTURI SETHI]

Give complete citation of Madras High court.

[Prasad Kudva]

Dear Sir,

Good Afternoon:

I am hereby enclosing the following Extracts:

1. Central Excuse Act of 1944 (Where Design, Engineering is referred as a Part of Accesable Value)

2. Madras High Court Order 1991

Please share Your feedback, guidance and mail id for further guidance......

Note: I have Paid VAT on Design & Engineering, but Customer says Service Tax is to be Paid. So I have referred the Judgement of Madras High Court and Central Excise Act,1944

Request Your reply and thoughts...

Enclosed:

Madras High Court

American Refrigerator Co. Ltd. vs State Of Tamil Nadu on 3 September, 1991 = 1991 (9) TMI 331 - MADRAS HIGH COURT

Central Excise Act:1944

(DETERMINATION OF PRICE OF EXCISIABLE GOODS) RULES, 2000

[M.F. (D.R.) Notification No. 45/2000-C.E. (N.T.), dated 30-06-2000 as amended by Notification No. 11/2003-C.E. (N.T.), dated 01.03.2003,

60/2003-C.E. (N.T.), dated 05.08.2003 and 09/2007-C.E. (N.T.), dated 01.03.2007,]

[KASTURI SETHI]

Dear querist,

You have referred to the judgement of year 1991 when Service Tax law was not born. The concept Service Tax law was introduced for the first time in 1994. Designing, Engineering & Consultancy are services. You may have not used consultancy services. Service and Sale both go in opposite directions. You cannot take a plea that you have paid VAT and hence Service Tax is not leviable. When a product is manufactured, services are also integral part of that product. It is a lengthy discussion and all the related docs have to be examined before arriving at a concrete decision.

AI Summary

Design and engineering services may be taxable as services rather than subsumed into excisable goods' value. Whether charges for design, engineering and consultancy are includible in excisable goods' value or taxable separately as services hinges on the factual nature of the supply, contractual allocation, and applicable valuation rules; board guidance treats many design activities as taxable services and the Determination of Price of Excisable Goods rules govern inclusion in excisable value, while prior case law predating the service tax regime has limited bearing.