TaxTMI 
TaxTMI 
2026 (8) TMI 1502
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....Manufacturing India Pvt. Ltd., is engaged in the manufacture of automobile parts classifiable under Chapter 87 of the Central Excise Tariff Act, 1985. The Appellant is an Original Equipment Manufacturer (OEM) supplying components to M/s Maruti Suzuki India Ltd. ('MSIL'). MSIL provides specifications and drawings for the manufacture of dies, moulds, and components required for automobile parts. An investigation was initiated by the Directorate General of GST Intelligence ('DGGI') alleging that the Appellant received drawings/designs from MSIL free of cost, and the value of such drawings should be included in the assessable value of the goods in terms of Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The Department further alleged that MSIL pays royalty to M/s Suzuki Motor Corporation, Japan, for the use of intellectual property rights, and therefore, such royalty indirectly relates to the drawings and designs shared with vendors, including the Appellant. On this basis, the Department attempted to load a proportionate cost of royalty into the assessable value of the goods manufactured by the Appellant. Consequently, a S....
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....d on assumptions and presumptions, which is contrary to Section 4 of the Central Excise Act, 1944 read with the Central Excise Valuation Rules, 2000. 4.4 He further submits that the issue involved in the present appeal is no longer res integra and stands conclusively settled in favour of the assessee by the New Delhi Bench of the Tribunal in the case of Denso India Private Limited vs. Additional Director General (Adjudication) [MANU/CE/0076/2024], wherein it was categorically held that the notional value of drawings/designs supplied free of cost by the buyer is not includible in the assessable value. The said decision has been subsequently followed by the Chandigarh Bench of the Tribunal in the case of M/s Precision Tech Enterprises vs. Commissioner of CGST & Central Excise, Gurugram [Final Order No. 60054-60059/2025 dated 08.01.2025]. 5. On the other hand, the learned Authorized Representative for the Revenue-Respondent reiterates the findings of the impugned order. 6. We have considered the submissions made by both the parties and perused the material on record. We note that the only issue involved in the present case is whether the cost of drawings, designs or royalty p....
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.... (b) has to be determined in such manner as may be prescribed 27. Thus, section 4(1)(b) deals with the following situations: (1) Where the goods are not sold by the assessee; or (2) Where the assessee and the buyer are related persons; or (3) Where the price is not the sole consideration for sale between the manufacturer and buyer and there is an additional consideration for sale of the goods. 28. The relevant portion of rule 6 of the 2000 Valuation Rules, on which reliance has been placed in the show cause notice and the impugned order, is reproduced below: "6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub- section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Provided that where price is not the sole consideration for sale of such excisable goods and they are sold by the assessee at a price less than manufactu....
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....ter of intent was issued. It, therefore, follows that neither section 4(1)(b) of the Excise Act nor rule 6 of the 2000 Valuation Rules could have been invoked in the facts and circumstances of the case as no additional consideration towards sale has been received by the appellant from Maruti. 30. Even under rule 6 of the 2000 Valuation Rules, the value of four categories of goods and services specified therein can be treated as the amount of additional consideration that can be added to the assessable value of the goods. What transpires from Explanation (1) to rule 6 is that: (i) Specified goods and services must be supplied directly or indirectly by the buyer; (ii) Such supplies must be made free of charge or at reduced cost; (iii) Such supplies must be made for use in connection with the production and sale of goods; (iv) The addition in the assessable value must be made to the extent that the value of such goods and services has not been included in the price actually paid or payable; and (v) The goods or services in question must fall within any of the four clauses (i) to (iv) mentioned in Explanation (1). 31. A pla....
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....ngineering item. A buyer may like to first identify the potential vendors who can supply the parts and components of engineering items, and unless the potential vendor is made aware of what is the requirement by way of design and drawing, the vendor may not be in a position to quote a price for the supply. Thus, what information is supplied at the time of tender process by way of specifications and drawings for inviting bids from potential vendors is the specific requirement supplied free of cost to all those who would participate in the tender process. 35. What is important to note is that the appellant had to prepare detailed drawings and designs for which it received technical support from its present company Denso Corporation. License Agreements were entered into between the appellant and Denso Corporation for grant of a non-exclusive right to the appellant to manufacture, use and sell the licensed articles. In terms of the License Agreements, the appellant paid running royalty to Denso Japan at the rate of 3 % of the net sales of the licensed articles and the appellant paid service tax on this amount. If the specifications and designs supplied by the Maruti were suffi....
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....e 10(1)(b) has been borrowed from article 8.1(b) of the Agreement on Implementation of Article VII of the General Agreement of Tariffs and Trade10. Under the GATT Agreement as also the 2007 Customs Valuation Rules, the specified goods and services are informally known as 'assists', the value of which is includable in the assessable value of imported goods. The expression 'necessary for the production of the imported goods' appearing in clause (iv) of rule 10(1)(b) of the 2007 Customs Valuation Rules has been interpreted in the context of 'assists' not to include those design which merely specify the requirement of a buyer or dimension of the product. 39. In this connection, it would be useful to reproduce the relevant portion of Customs Valuation - Commentary on the GATT Customs Valuation Code by Saul L. Sherman and Hinrich Glashoff. The learned authors have observed that the value of detail specifications, including various dimensions noted on a drawing of the machine, which merely provide the requirement of the buyer and inform the manufacturer of the specifications of what is being ordered, cannot be said to be dutiable 'assists' under cl....
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....nd assistance may be required before ordering such equipments. In such a case, the Engineering services utilized for preparing tender documents will be in the nature of "buyers' assist" and the same cannot be treated as necessary in the hands of the manufacturer of the equipments for the purpose of manufacture of such equipments. ***** 11. A close analysis of the legal provisions extracted in para 9.1 above and the decisions relied upon by both sides, the following important guidelines/principles emerge : (a) As already noted, the transaction value to be determined under Rule 4 of the Customs (Valuation) Rules envisages adjustments to be made in accordance with the provisions of Rule 9 of the said Rules. This is evident from the observation contained in the decision dated 21-2-2008 of the Hon'ble Supreme Court in the case of Commissioner of Customs v. Ferodo India Pvt. (b) The value of certain goods and services meant "for use in connection with the production and sale for export of imported goods" requires to be added to arrive at the transaction value as per Rule 9(1)(b). In particular, the value, of "engineering, development, art work,....
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....rom the size specifications alone construction of engineering equipment is not feasible. From a perusal of the process chart, it is clear that it only indicated the layout and volume specifications of individual equipment. It is merely a sketch representation of the plant. It was not possible to manufacture equipment based on this. Further, if it were to be so, the appellant would not engage another engineering firm, namely, Davy Power Gas India Pvt. Ltd. for developing the detailed design/engineering drawing. *****" 42. In the present case, Maruti provided specifications of the parts or components to be fitted in the motor vehicles manufactured by Maruti to the potential vendors. The parts or components have necessarily to be manufactured as per the requisite dimensions of the parts or components so that they can be fitted in the vehicles manufactured by Maruti. It is for this reason that Maruti shared the requirements at the 'Request for Quotation' stage. The detailed drawings and designs were prepared by the Research and Development Division of the appellant with the help of technical support received from Denso, Japan. Maruti does not have the necessary technol....
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....ing for the department has placed reliance upon the decisions of the Tribunal in TATA Motors and Avtec Ltd. These decisions deal with cases of drawings supplied by the motor vehicle manufacturers to the manufacturers of parts and components free of cost, but the designs were supplied after the sale agreement was executed and the manufacturer used the same for producing the components. There is nothing in these decisions which may indicate that the specification drawings were supplied at the stage of tender process and identification of vendors, nor does it transpire from the said decisions that after receipt of specification from buyer, the vendors prepared their own detail drawings and designs on the basis of which the final components were manufactured. 48. Learned authorized representative appearing for the department has also placed reliance upon the decision of the Supreme Court in Moriroku. This judgment of the Supreme Court does not come to the aid of the department. The said judgment deals with the provisions of UP VAT Act for levy of VAT on the sale of goods. The issue that arose before the Supreme Court was whether amortization cost of toolings was includible in ....