Pvt. Ltd vs Cce & St-Ltu, Delhi

The appellant is a manufacturer of engineering goods. In some cases they manufactured goods as per the drawings and designs supplied by their customers but for this, they did not charge any extra price. The department is of the view that 10 per cent of the value of the goods should be added as the additional consideration for drawings and designs, as supply of drawings and designs amounts to additional consideration and their value has to be added to the value of the goods. It is on this basis that the Commissioner by the impugned order dated 31/12/2012 has confirmed duty demand of Rs. 2,60,09,115/- for the period from October, 2004 to July, 2011 along with interest on it under section 11AB and has imposed the penalty of equal amount on them under section 11AC.

2. Against this order of the Commissioner, this appeal has been filed.

3. Heard both sides and perused the records.

4. Sh. Ashutosh Upadhyay, Advocate, ld. Counsel for the appellant, pleads that the goods were sold by the appellant to all the buyers at the same price and no extra price was charged from the buyers who did not supply their old drawings and designs, that transaction value to independent buyers at the factory gate is available and that price has to be adopted as assessable value, in respect of sales to Customers who were supplying the drawings and designs, that when the price under section 4(1) (a) is available, there is no justification for applying section 4(1) (b) and the Central Excise Valuation Rules, that drawings and designs by the customs had not constituted additional consideration and that accordingly the impugned order is not correct.

5. Sh. Pramod Kumar, ld. JCDR defended the impugned order by reiterating the findings of the Commissioner. He pointed out to the Commissioners findings in para 22.2. of the impugned order where the Commissioner has relied upon the Tribunals judgment in the case of BHEL Vs. CCE-Vishakhapatnam reported in 2011 (TIOL) 1674 CESTAT-Bang wherein it was held that the value of drawings and designs is includible in the value of the goods. He also pleaded that the goods manufactured by the appellant for different customers were not identical but were tailor made as per the requirement of each customer and, hence, in the case where the goods were manufactured on the basis of the drawings supplied by the customers, the value of the same would have to be included, as in the cases where the customers did not supply the drawings and designs, the appellant had prepared the drawings and designs.

6. Sh. Ashutosh Upadhyay cited the judgment of Tribunal in the case of CCE Chennai Vs. Luna Agro Industries Pvt. Ltd. 2009 (242) ELT 130 wherein it was held that the cost of drawings and designs supplied by the customer is not additional consideration and is not includible in the assessable value. He also stated that in any case, if the value of the drawings and designs is held to be includible in the assessable value of the goods, it should be taken as 0.1 per cent of the value of the goods as certified by chartered engineer and not 10% of the value of the goods which is totally arbitrary.

7. We have considered the submissions from both the sides and perused the records.

8. The appellant is manufacturing engineering goods which are as per the specification of the customers. In the cases where the customers had not supplied the drawings and designs, the appellant prepared the drawings and designs. The dispute is in this case where the drawings and designs of the goods were supplied by the customers. Accordingly, the point of dispute is as to whether in the cases where drawings and designs have been supplied by the customers, whether the same are to be treated as additional consideration and their value is includible in the assessable value of the goods in terms of Rules, 6 of the Central Excise Valuation Rules, 2000 according to which where the assessable goods are sold in the circumstances specified under clause (a) of section 4 (1) of the Act except the circumstance where price is not the sole consideration for sale, the value of said goods shall be deemed to be the aggregate of such transacting value and the amount of money value of any additional consideration following directly or indirectly from the buyers or assessee. Explanation-I to Rule 6 explains that among other things, the value of tools, dies, moulds, drawings, blueprints technical charges and similar items used in the production of such goods which was supplied by the buyer are to be treated as additional consideration.

Since in this case the goods being manufactured by the appellant are custom made and as per the requirements of each customer, for determining the value of the goods manufactured for a particular customer, the price of the goods supplied to other customers cannot be applied. In these circumstances, we are of the view that in the cases where the goods were manufactured by using the drawings supplied by the customers, the value of the drawings would have to be included in the assessable value of the goods. However, in this regard, the Commissioner has adopted value of the drawing as 10 per cent of the value and the goods for which he has not given any justification. On the other hand, the appellants plea is that in the cases where the drawings and designs have been supplied by the customer, their cost is 0.1% of the value of the goods and in this regard, they rely upon the Chartered Engineers Certificate. While cost of drawings and designs as 10% of the value of the goods adopted by the department is arbitrary, unreasonable and without any basis and same cannot be accepted, the Commissioner while rejecting the value claimed by the appellant based on the chartered engineering certificate has to give reasons for the same.

9. In view of this, the impugned order is set aside and the matter is remanded back to the Commissioner for requantification of the duty demand and for this purpose if he finds that the value of the drawings and designs as certified in the chartered engineering certificate is not acceptable, he should give the reasons for the same and adopting any other value, he must give justification for the same. But arbitrary value like 10 per cent of the goods cannot be adopted for this purpose, without giving adequate basis for the same.

(Rakesh Kumar) (Ashok Jindal)

Member (Technical) Member (Judicial)

Ritu