2026-VIL-1643-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise – Valuation – Includibility of notional value of designs and drawings supplied free of cost by customer in assessable value under Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Appellant, a manufacturer of motor vehicle cabins, received designs and drawings free of cost from its customers - It amortised and added the cost of free inputs to the transaction value but did not do so for the drawings - Department held that the value of the drawings too ought to have been amortised and added under Explanation 1 to Rule 6 - Whether the notional value of the designs and drawings is includible in the assessable value of the cabins - HELD - Transaction value is the measure of duty under Section 4(1)(a) where the parties are unrelated and price is the sole consideration; Section 4(1)(b) applies only otherwise - Explanation 1 to Rule 6 requires the Revenue to establish that what was supplied by the buyer was consideration flowing for the sale, was for use in connection with production, and was either used in production or necessary for it - Material that merely tells the manufacturer what the buyer wants, without more, does not meet this test. This burden lies on the Revenue and is not discharged by assertion - The notice and the order in original proceeded merely on the fact that drawings were received free of cost, without any finding on whether they were production drawings or mere specifications of the customer's requirement, and without any finding that they were necessary for production - Treating free supply as automatically displacing the sole consideration condition assumes the very fact that needed to be proved. The distinction between detailed engineering drawings, which are includible, and specification drawings that only indicate layout and dimensions, which are not, is well settled and applies equally here - The unrebutted evidence shows the cabin design remains proprietary to the customer and the drawing is supplied only so the cabin will suit the customer's requirement, with nothing to show it was a production drawing - The appellant amortising the value of free inputs but not of drawings reflects a considered view of the law, not concealment - The notional value of the drawings was not includible in the assessable value and Rule 6 was not attracted; the finding rests on the Revenue's failure of proof, not on any finding as to what the drawings actually contained - Demand on this ground set aside and the appeal is allowed - Quantification of demand on a customer-suggested percentage – Quantification of demand based on a percentage volunteered by one customer, and applied uniformly to all customers - One customer stated that the value of its drawings could not be ascertained but suggested that 0.98%, its own tractor development cost, be adopted - Department applied this percentage to the value of cabins cleared to every customer - Whether such quantification is a determination of value known to the Act and the Valuation Rules - HELD - A figure volunteered by a customer is a suggestion, not evidence, and the duty of determining value rests with the Central Excise Officer alone - The figure related to tractor development cost, an entirely different subject matter, not to the value of cabin drawings. It came from one customer yet was applied to all customers, a course the Appellate Authority itself found incorrect - It was also applied to the wrong base, being expressed as a percentage of the value of cabins cleared, when Explanation 1 requires the value of what the buyer actually supplied - The SCN named no Rule under which the quantification was made; if Rule 6 did not apply, the only recourse was the residuary Rule 11, which requires reasonable means consistent with principle and a recorded basis, neither of which was shown - Section 14A, which allows a special audit by a cost accountant where value is not correctly declared, was available but never invoked - The 0.98% addition is not a determination of value but an assumption dressed up as a computation - Since a finding that quantification is unsustainable is in substance a finding that the demand itself is unsustainable, and the notice relied on no evidence of value, a remand to work out the amortised cost afresh was not permissible; a defect in the notice cannot be cured at the appellate or remand stage - Limitation – Invocation of extended period under proviso to Section 11A(1) of the Central Excise Act, 1944, and imposability of penalty under Section 11AC - Whether the extended period was available and penalty imposable - HELD - The extended period requires fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty; each requires a state of mind - The appellant filed periodical returns and was subject to periodical audit, and the omission surfaced during an audit of its own records - No positive act of concealment, withheld document or misdeclaration was identified - Mere failure to declare is not wilful suppression, and an audit report alone cannot justify invoking the extended period - The very customer who supplied the drawings said their value could not be ascertained, so it is difficult to see what the appellant could have concealed - The situation was revenue neutral, since duty paid would have been available as credit to the customers, and this factor, along with the returns filed, the audits conducted, and the interpretational nature of the issue, supports an absence of intent to evade. The extended period was not available - Penalty under Section 11AC rests on the same ingredients as the extended period proviso; since neither wilful suppression nor intent to evade is made out, the penalty does not survive, independent of the finding on merits - Interest and penalty must follow the fate of the duty demand, which fails in its entirety.
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