TaxTMI 
TaxTMI 
2025 (1) TMI 731
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....2023 Rs. 21,21,552/- 2013-14 to 2017-18 2. E/60195/2023 Rs. 83,190/- 2013-14 to 2017-18 3. E/60196/2023 Rs. 11,58,361/- 2013-14 to 2017-18 4. E/60202/2023 Rs. 12,18,628/- 2013-14 to 2017-18 5. E/60360/2023 Rs. 1,79,216/- 2013-14 to 2017-18 6. E/60366/2023 Rs. 2,62,939/- 2013-14 to 2017-18 2. Briefly the facts of the present case are that the show cause notices were issued to all the vendors including the appellant who supplied parts/components manufactured by them to M/s Maruti Suzuki India Ltd. for further manufacture of motor Vehicles falling under Chapter 87 of Central Excise Tariff Act, 1985. These show cause notices were issued by Gurgaon Branch of DGGSTI on the issue of less payment of Central Excise duty due to non addition of cost of drawings and designs received by them on Free of Cost (FOC basis) from M/s MSIL, in the assessable value of the components/parts manufactured by them and supplied to M/s MSIL, demanding differential duty along with interest from them and also proposed to impose mandatory penalty upon them by invoking the extended period of limitation on the ground of misdeclaration, suppression of facts etc. with an inte....
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.... is whether the department is justified in demanding the differential central excise duty from the vendors by including the notional cost of specification drawings and deigns supplied free of cost by Maruti in the assessable value of parts or components of motor vehicles manufactured by the appellants and cleared to Maruti. 24. To appreciate this issue, it would be useful to refer to the relevant provisions of the Central Excise Act and the 2000 Valuation Rules. 25. Section 4 of the Central Excise Act deals with 'valuation of excisable goods' for the purposes of charging of duty of excise and the relevant portion is reproduced below: "4. Valuation of excisable goods for purposes of charging of duty of excise- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall- (a) in a case where the goods are sold by assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale be the transaction value; (b) in any other case, including the case where the goods ....
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....aid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely:- (i) value of materials, components, parts and similar items relatable to such goods; (ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods; (iii) value of material consumed, including packaging materials, in the production of such goods; (iv) value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods." 29. It clearly transpires from the aforesaid provisions 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 sell between the two parties and in terms of such an agreement the buyer pays something over and above the price agreed, either in cash or in kind to the manufacturer. Thus, anything which is supplied by the buyer to the manufacturer before....
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....ts and similar items' mentioned in clause (ii) of Explanation (1), and 'design work and plans and sketches' mentioned in clause (iv) of Explanation (1) can only mean those drawings and designs which a manufacturer would have prepared for use in the manufacture of the product but were prepared by the buyer and supplied to such manufacturer on free of cost or at reduced cost. This is clear from the language used in clauses (ii) and (iv) of Explanation (1) to rule 6 of the 2000 Valuation Rules. It covers drawings which are used in the production of such goods and those designs which are necessary for the production of such goods. 33. The contention of the learned authorized representative appearing for the department, however, is that the drawings/designs supplied by Maruti were only and exclusively instrumental in development of the product by the appellants. Learned authorized representative also pointed out that it is not even the case of the appellant that they could have manufactured the parts or component without reference to the specification drawings supplied to them by Maruti free of cost. Thus, the price was not the sole consideration and the additional consideration flowi....
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....itional consideration for sale of parts or components. It also needs to be noted that these specification drawings provided by Maruti to the potential vendors cannot be said to be used in the production of the components or necessary for the production of the components in terms of rule 6 of the 2000 Valuation Rules. Thus, clauses (ii) or (iv) to Explanation (1) of rule 6 of the 2007 Valuation Rules cannot be invoked in the facts and circumstances of the present case. 37. At this stage, it would also be appropriate to compare Explanation (1) to rule 6 of the 2000 Valuation Rules to an analogous rule 10(1)(b) of the 2007 Customs Valuation Rules. This rule 10(1)(b) is reproduced below: "10. Cost and services - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods- (a) ***** (b) the value, apportioned as appropriate, of the following goods and services whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable,....
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.... more appropriately regarded as an added requirement or burden imposed upon the manufacturer, rather than a form of assistance. Otherwise expressed, these are buying costs, not costs of the seller from which he is being relieved by the buyer." (emphasis supplied) 40. The Tribunal in Mangalore Refinery & Petrochemicals Ltd. vs. C.C., Mangalore [2014 (313) E.L.T. 353 (Tri. - Bang.)] also held that there is a distinction between mere specifications and detailed engineering drawing. It is only the latter which is covered under rule 9(1)(b)(iv) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (which is now rule 10(1)(b)(iv) of the 2007 Customs Valuation Rules). The relevant portion of the decision of the Tribunal is reproduced below: "9.3 When a person buys a product available, off-the-shelf, he need not be concerned with the Engineering Design and services which have gone into the manufacture of such product. He has to merely order by giving the specifications. If a person wants to buy an air-conditioner, he may specify whether it should be window type or split type and also specify the tonnage besides the brand name. He may consult a specialist to....
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....t incurred towards buyers' assist cannot be included in the value of imported goods. (d) When the technical know-how and engineering services are not related to the equipment designs but are for the purpose of preparation of tender documents and for recommending for selection of the equipments the cost of the same cannot be included in the value of imported goods." (emphasis supplied) 41. The same view was taken by the Tribunal in G.E. Plastics India Ltd. vs. Commissioner of Customs, Mumbai-I [2004 (169) E.L.T. 46 (Tri. - Del.)] and the observations are as follows: "6. It is the Revenue's case that the process diagram and equipment specification supplied by M/s. GE Plastics India Pvt. Ltd. BV, Netherlands were vital for the preparation of detailed engineering drawings for the manufacture of the imported equipment and that is sufficient to attract the provisions of the Rule. The Commissioner (Appeals) has noted that the enquiry documents were prepared on the basis of Basic Engineering Package. This reasoning of the Commissioner is not supported by the Rule. Rule does not take in such remote connection. The Rule permits inclusion of only engineering drawings, designs etc. "....
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....l be responsible for designing the part(s)/assembly to meet Suzuki's requirements shown in the drawing without infringing upon any third party's intellectual property rights and submit the drawing'. 44. It is apparent from the aforesaid that the specifications provided by the Maruti were merely layout or dimensions of the desired parts or components. The appellant prepared detailed drawings and designs for alternator assembly in line with the specifications provided by Maruti. The designs prepared by the appellant contain details of various elements to be used in the manufacture of alternator assembly. It contains 23 sub-components required for manufacturing alternator assembly, which is not even referred to in the specification drawings provided by Maruti to the appellant. 45. The Letter of Intent issued to the appellant also states that: "We are pleased to inform that you have been selected as one of our vendors for the following components. We intend placing an order on you for the design, manufacture, testing and supply of the subject component(s) for MARUTI vehicles at prices indicated below. *****" (emphasis supplied) 46. This would show that it is the responsibili....