TaxTMI 
TaxTMI 
2026 (9) TMI 1499
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....hority for arriving at the appropriate amortised cost, on the basis of which the revised duty liability was directed to be determined. 2. Relevant facts are that the appellant is a manufacturer of motor vehicle cabins and cabin parts, duly registered with the department. During an audit, it was observed that the appellant had received cabin designs and drawings, as well as certain inputs, free of cost from its customers. The appellant arrived at the transaction value by adding the cost of the inputs so received. Department was of the view that the appellant had not amortized and added the cost of the cabin designs as required by Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. A Show Cause Notice dated 26.10.2015 was accordingly issued demanding excise duty of Rs.22,49,164/- for the period October 2010 to March 2015 with interest, invoking the extended period of limitation and proposing penalty under Section 11AC of the Central Excise Act, 1944. After due process of law, the Adjudicating Authority confirmed the demand with interest and imposed an equivalent penalty vide Order in Original No.13/2017-CE dated 10.03.2017. The appeal pr....
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.... that the exercise is revenue neutral, the duty if paid being available as credit to the OEM, relying on Nirlon Limited vs. CCE, Mumbai, 2015 (320) ELT 22 (S.C.). It was also contended that the appellant filed returns regularly and was periodically audited, and hence its practice was well known to the department. These circumstances too would preclude the Department from invoking extended period of limitation. Reliance was placed on the decisions in CCE, Noida vs. M/s. Accurate Chemical Industries, 2014 (2) TMI 770-Allahabad High Court, Standard Drums and Barrels Mfg. Co. vs. Commissioner of Central Excise, Mumbai-II, 2018 (7) TMI 1590-CESTAT MUMBAI : MANU/CM/0117/2018, Popular Vehicles and Services Ltd. vs. The Commissioner of Central Excise, 2010 (18) STR 493 (Tri.-Bang.): Manu/CB/0004/2010, and Final Order No.40543-40544/2023 dated 11.07.2023 in M/s. Indo Shell Cast Pvt. Ltd. (Unit-I) vs. The Commissioner of GST & Central Excise, 2023 (7) TMI 429-CESTAT CHENNAI. He prays that the appeal may be allowed. Submissions on behalf of the respondent 5. Ms. G. Krupa, Ld. Authorised Representative for the respondent, reiterated the findings in the impugned order. She supported the v....
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....d. 9. We notice that Section 4(1)(a) makes the transaction value the measure of duty where the goods are sold for delivery at the time and place of removal, the assessee and the buyer are not related, and the price is the sole consideration for the sale. Only in any other case does value fall to be determined under Section 4(1)(b) in the manner prescribed. That the appellant and its customers are unrelated has never been in dispute, and the case of the Revenue rests wholly on the third condition. Rule 6, as it stood during the relevant time, provides that where goods are so sold, except where the price is not the sole consideration, the value shall be deemed to be the aggregate of the transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Explanation 1 then treats the value, apportioned as appropriate, of goods and services supplied by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, as such money value. Clause (ii) covers the value of tools, ....
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....at those drawings were. There is no finding whether they were manufacturing drawings from which a cabin could be produced, or statements of the customer's requirement as to shape, dimension, fitment and function which left it to the appellant to design and engineer the cabin. There is no finding that they were supplied for use in connection with production, and none on whether their worth was already absorbed in the negotiated price. The contention of the Ld. Advocate that the respondent never examined or verified the nature and relevance of the drawings stands uncontroverted before us, the Ld. Authorised Representative having done no more than reiterate the impugned order. 13. What the Adjudicating Authority did instead is set out in paragraph 11.2 of the order in original, where he reasoned that though the assessee and the buyers are not related, the price is not the sole consideration for sale as it involves free supplies from the buyer which enhance the value of the goods to be supplied. To our mind, that is to assume the very thing which had to be found. A free supply does not of itself displace the sole consideration condition. It displaces that condition only if it satisf....
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....ure, testing and supply, and that the cost of the detailed drawings had been included by the vendor in the assessable value. On those facts the specification drawings were held to be neither used in production nor necessary for it, so that Rule 6 was not attracted. Rane NSK Steering Systems Private Limited follows that view. Sintercom India Ltd. reaches the same result. Testing the expression additional consideration against Section 2(d) of the Indian Contract Act, 1872, which governs contracts of sale by virtue of Section 3 of the Sale of Goods Act, 1930, the Tribunal held that consideration is something done at the desire of the promisor, that until offer and acceptance there is neither promise nor promisor, and that drawings furnished to all bidders while quotations are invited are furnished when no promisor and promisee relationship exists at all. We find that reasoning sound and we adopt it. 17. The unrebutted material before us is that the appellant manufactures cabins for motor vehicle manufacturers, that the cabin design is proprietary to the vehicle manufacturer, and that the drawing is furnished so that the cabin will answer the requirements of the vehicle for which it....
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....r infirmities, each fatal by itself. It is, first, a suggestion and not evidence. A buyer's suggestion as to how its vendor's duty liability may conveniently be computed proves the money value of nothing, and Section 4(1)(b) read with the Rules casts the duty of determining value upon the Central Excise Officer, a function which cannot be made over to a party to the very transaction under scrutiny. Secondly, the figure relates to a different subject matter. It is the total development cost for tractors. It is not the value of the cabin drawings, nor even the development cost of motor vehicle parts, which the customer said had not been identified. Thirdly, it was given by one customer and applied to clearances made to every customer, a course which the Appellate Authority itself found incorrect and in that limited finding was plainly right. Fourthly, and this appears to have escaped notice at both stages below, the percentage was applied to the wrong base. Explanation 1 requires the value of what the buyer supplied, apportioned as appropriate. What was added was 0.98% of the value of the cabins cleared by the appellant. The worth of a drawing furnished by a buyer bears no arithmetic....
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....e. It is an assumption presented as a computation, and no demand can rest upon it. 25. We proceed to address the decisions relied upon by the appellate authority and find that not one of the three decisions supports the order under appeal. S.R. Enterprises vs. Commissioner of Central Excise, Raipur, 2017 (7) GSTL 466 (Tri.-Del.), concerned castings manufactured for the Bhilai Steel Plant against drawings supplied by that customer, the department having added fifteen per cent of the value of the design. The Tribunal, did observe that the value of the design would have to be added under Explanation 1 to Rule 6, but went on to hold that the design was about twenty two years old, that copyright was inapplicable to it, that it was in the public domain, and that its value as certified by a Chartered Engineer was nil. The demand was set aside and the appeals were allowed. Read as a whole the decision is authority that a notional percentage cannot be substituted for proof of value and that an unrebutted Chartered Engineer's certificate must be given effect. To extract from it the single sentence that value has to be added, while passing over the conclusion that the value to be added was....
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....ch at Chennai held the extended period not invocable, on facts materially similar, namely drawings supplied free of cost, a question turning on the interpretation of the Valuation Rules, no material indicating suppression with intent to evade, and credit available to the recipient companies. 26. The Appellate Authority therefore drew from these decisions a proposition none of them lays down, and the course it then took cannot be supported either. Having recorded that the methodology of quantification was incorrect and that a percentage derived from a single customer could not be applied across the board, it ought to have carried that finding to its logical end. The quantification was not a severable part of the demand. It was the demand. A finding that the quantification is unsustainable is in substance a finding that the demand is unsustainable. Instead the Appellate Authority kept the demand alive and remitted the matter so that the amortised cost might be worked out afresh. 27. In our considered view, that course was not open, for a reason going beyond discretion. It is not in dispute that the notice relies upon no evidence of value other than a reply which says that value....
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....n five years only where the non levy or short levy arose by reason of fraud, collusion, wilful misstatement or suppression of facts, or contravention of the Act or the Rules, with intent to evade payment of duty. Each expression imports a state of mind. The law was recently restated in Lipi Boilers Ltd. vs. Commissioner of Central Excise, Aurangabad, (2025) 36 Centax 210 (SC): 2025 INSC 1297, where, after noticing Pahwa Chemicals Private Limited vs. Commissioner of Central Excise, Delhi, (2009) 4 SCC 658 and Continental Foundation Joint Venture Holding vs. C.C.E., (2007) 10 SCC 337, the Supreme Court held as follows. "Judged by these principles laid down by this Court on the application of the proviso to Section 11A(1) of the Act, 1944, we find that the assessee is justified to contend that the extended period of limitation could not have been invoked in the present case since the assessee bona fide believed that the bought out items are not to be included in the assessable value of the boiler. A perusal of the show cause notice would show that the revenue itself admits that the assessee had filed the RT-12 returns with the revenue, which means that the revenue had the mat....
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....t found no mala fide or intent to evade, found the exercise in addition revenue neutral, and held the extended period not invocable on that combination of circumstances. We are conscious of the caution in Precision Moulds and Dies vs. Commissioner of CGST, Meerut, 2025 (394) ELT 363 (All.), that revenue neutrality cannot become an answer to every non payment since that would negate the scheme of Cenvat credit. That caution was addressed to an assessee invoking revenue neutrality to justify not paying duty at all. It does not touch the narrower use which Nirlon sanctions, as one of the circumstances from which an absence of intent to evade may be inferred, and it is in that narrower sense alone that we use it, in combination with the returns, the audits, the disclosure and loading of the free supplied inputs and the interpretational character of the question. It was not disputed before us that duty, if paid, would have been available as credit to the vehicle manufacturers. 33. We accordingly hold that the ingredients of the proviso to Section 11A(1) were not made out and that the extended period was not available. Had the matter rested on limitation alone the demand would have su....