NTN NEI Manufacturing India Pvt. Ltd. Vs Commissioner of Central Excise and Service Tax (CESTAT Chandigarh)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, Chandigarh Regional Bench, allowed the appeal filed by M/s NTN NEI Manufacturing India Pvt. Ltd. and set aside the impugned adjudication order confirming central excise duty of ₹23,58,248/- along with interest and an equal penalty. The adjudicating authority had dropped the remaining demand of ₹6,66,80,956/-. The dispute concerned whether the value of drawings/designs supplied free of cost by Maruti Suzuki India Ltd. (MSIL), together with royalty paid by MSIL to Suzuki Motor Corporation, Japan, could be included in the assessable value of automobile components manufactured by the appellant.
The appellant is an Original Equipment Manufacturer supplying automobile components to MSIL. MSIL provided specifications and drawings to prospective vendors. The Department alleged that the drawings/designs supplied free of cost constituted additional consideration and that royalty paid by MSIL to Suzuki Motor Corporation indirectly related to those drawings and therefore required proportionate loading into the assessable value under Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
The appellant contended that the drawings supplied during the vendor-selection/tender process were only indicative specifications intended to enable prospective vendors to understand the required quality, dimensions and standards and quote their prices. They were not detailed manufacturing drawings used for production. The appellant further contended that the royalty paid by MSIL related to intellectual property rights concerning MSIL’s manufacture, marketing and sale of motor vehicles and had no nexus with the manufacture or clearance of the appellant’s goods. It was also submitted that there was no evidence of any additional consideration flowing directly or indirectly from MSIL to the appellant.
The Tribunal noted that the central issue was whether the cost of drawings, designs or royalty paid by MSIL to Suzuki Motor Corporation could be added to the assessable value under Rule 6. The Tribunal followed the Principal Bench decision in Denso India Private Limited, which held that the notional cost of specification drawings and designs supplied free of cost by Maruti to potential vendors could not be included where those drawings merely communicated the buyer’s requirements and were not used or necessary for production. The Chandigarh Bench had subsequently followed that reasoning in M/s Precision Tech Enterprises.
The Tribunal reproduced and relied upon the reasoning in Denso. Under Section 4 of the Central Excise Act, 1944, transaction value applies where the statutory conditions are satisfied, while Rule 6 addresses additional consideration flowing directly or indirectly from the buyer. The Tribunal emphasised that an additional consideration must be connected with the sale and that goods or services contemplated by Explanation 1 to Rule 6 must satisfy the prescribed requirements, including being supplied by the buyer free of charge or at reduced cost for use in connection with production and sale.
The reasoning distinguished mere buyer specifications from detailed engineering drawings necessary for manufacture. The specifications provided by Maruti were supplied at the Request for Quotation stage to enable potential vendors to quote. The appellant was responsible for preparing detailed drawings and designs, with technical support from Denso, Japan, and the appellant had included the cost of its detailed drawings and designs in the assessable value. The Tribunal also referred to the relevant specification for generator assembly, which expressly required suppliers to design the part or assembly in accordance with Suzuki’s requirements.
The Tribunal considered Revenue’s reliance on decisions concerning drawings supplied after a sale agreement and used for production, including decisions concerning Tata Motors and Avtec Ltd. It found those cases distinguishable because the present drawings were supplied at the tender and vendor-identification stage and the vendors subsequently prepared their own detailed manufacturing drawings. The Supreme Court decision in Moriroku was also held not to assist Revenue because it concerned amortisation of tooling costs for purposes of VAT under the Uttar Pradesh VAT Act rather than the issue involved in the present excise valuation dispute.
The Tribunal ultimately held that the notional cost of drawings and designs supplied free of cost by Maruti to vendors could not be included in the assessable value of the parts and components supplied to Maruti. It therefore held that Rule 6 was not attracted on the facts. The impugned order was set aside and the appellant’s appeal was allowed with consequential relief, if any, as per law. The Tribunal considered it unnecessary to examine the appellant’s separate contention concerning invocation of the extended period of limitation.
Cases Discussed
- Denso India Private Limited vs. Additional Director General (Adjudication) [MANU/CE/0076/2024]
- M/s Precision Tech Enterprises vs. Commissioner of CGST & Central Excise, Gurugram [Final Order No. 60054-60059/2025 dated 08.01.2025]
- Mangalore Refinery & Petrochemicals Ltd. vs. C.C., Mangalore, 2014 (313) E.L.T. 353 (Tri.-Bang.)
- G.E. Plastics India Ltd. vs. Commissioner of Customs, Mumbai-I, MANU/CE/0271/2004 : 2004 (169) E.L.T. 46 (Tri.-Del.)
- Commissioner of Customs v. Ferodo India Pvt. Ltd.
- TATA Motors and Avtec Ltd. — decisions relied upon by Revenue and distinguished by the Tribunal
- Moriroku — Supreme Court decision relied upon by Revenue and distinguished by the Tribunal
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The present appeal is directed against the impugned Order-in-Original No. 124-148/2023-CE dated 28.04.2023 passed by the Principal Additional Director General (Adjudication), New Delhi, whereby the learned Adjudicating Authority has confirmed a demand of central excise duty of ₹23,58,248/- under Section 11A(10) of the Central Excise Act, 1944, along with interest under Section 11AA of the Act and an equal penalty under Section 11AC(1)(c) of the Act, while dropping the remaining demand of ₹6,66,80,956/-.
2. Briefly stated, the facts of the case are that the Appellant, M/s NTN NEI 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 Show Cause Notice dated 20.12.2019 was issued to the Appellant, which was adjudicated via the impugned Order-in-Original dated 28.04.2023, confirming the demand of central excise duty along with interest and penalty as noted supra. Hence, the present appeal.
3. Heard both sides and perused the material on record.
4. The learned Counsel for the Appellant submits that the impugned order is not sustainable in law as it has been passed without properly appreciating the facts, the law, and the binding judicial precedents.
4.1 He further submits that the drawings and specifications supplied by MSIL were merely indicative specifications provided during the vendor selection/tender process to ensure quality and standardization of the automobile components. Such drawings were supplied free of cost to prospective vendors solely to enable them to understand the technical requirements and quote their prices accordingly. The same neither constituted any additional consideration flowing from the buyer to the Appellant, nor were they utilized as detailed manufacturing drawings for the actual production of goods. No separate monetary value was attributable to such drawings, and therefore, the cost thereof is not includible in the assessable value under Section 4 of the Central Excise Act, 1944 read with the Central Excise Valuation Rules, 2000.
4.2 He further submits that the royalty paid by MSIL to Suzuki Motor Corporation pertains to the use of intellectual property rights in relation to the manufacture, marketing, and sale of motor vehicles by MSIL, and has no nexus with the manufacture or clearance of goods by the Appellant. The Appellant is neither a party to such royalty agreements nor derives any benefit, right, or technical know-how therefrom. Accordingly, such royalty payment cannot be treated as an additional consideration flowing to the Appellant and is, therefore, not includible in the assessable value of the goods manufactured and supplied by the Appellant.
4.3 He also contends that the Department has failed to produce any cogent evidence establishing that the Appellant received any additional consideration, directly or indirectly, from MSIL in the form of drawings, designs, or royalty payments. In the absence of any material evidencing flow back of consideration over and above the transaction value, the assessable value cannot be enhanced 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 paid by MSIL to Suzuki Motor Corporation Japan can be added to the assessable value of the goods manufactured and supplied by the Appellant under Rule 6 of the Central Excise Valuation Rules, 2000.
6.1 We find that this issue is no longer res integra and stands settled by the Principal Bench of the Tribunal in the case of Denso India Private Limited (supra), wherein the Tribunal has held as under:
“23. The issue that arises for consideration in these appeals 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 –
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 are not sold, be the value determined in such manner as may be prescribed.”
26. It would be seen from a bare perusal of sub-section (1) of section 4 that it provides for determination of the value of excisable goods in the circumstances enumerated in (a) and (b) of section 4(1). Clause (a) deals a situation where the goods are sold by the assessee and the assessee and the buyer are not related and the price is sole consideration for the sale. In this situation the transaction value has to be taken into consideration for the purposes of charging duty of excise. However, in any other case including a case where the goods are not sold, the value, under clause (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 manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value.
Explanation 1 – For removal of doubts, it is hereby clarified that 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 of such goods, to the extent that such value has not been included in the price actually paid 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 even identifying the potential manufacturer as the supplier can never be treated as an additional consideration for sale. It also transpires that the specification drawings and designs were supplied by Maruti to the potential vendors free of cost before the letter of intent was issued and after the letter of intent was issued to the appellant the price of goods was paid by Maruti to the appellant and no other amount was paid, and it is not even the allegation made in the show cause notice that the buyer had paid any amount to the appellant over and above the consideration price after the letter 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 plain reading of clauses (ii) and (iv) of Explanation (1) to rule 6 of the 2000 Valuation Rules leaves no manner of doubt that only those specified goods and services are covered which are used in the production of goods in question or which are undertaken elsewhere than in the factory of production and necessary for the production of goods in question.
32. It is clear that the purpose behind rule 6 is to levy excise duty on all those expenses which are incurred by a buyer on behalf of the seller-manufacturer and relieves the seller-manufacturer from incurring such expenses. Thus, the expressions ‘drawings, blue prints, technical maps and charts 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 flowing directly or indirectly from the buyer to the appellant would be includable in view of the provisions of rule 6 of the 2000 Valuation Rules.
34. It is not possible to accept this contention of the learned authorised representative for the department. The specification drawings were supplied by Maruti to the potential vendors for the purpose of short-listing the vendors for supply of components of vehicle. What is important to notice is that the item that is under consideration in the present case is an engineering 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 sufficient for the manufacture of parts and components, there would have been no necessity for the appellant to seek technical support for manufacture in the form of detailed designs and specifications and pay a huge royalty. The manufacture of the spare parts and components by the appellant was, therefore, not possible from the specification and designs supplied by Maruti. The manufacture of the parts and components was possible only from the detailed drawings prepared by the appellant.
36. Even if Maruti had to spend some amount for getting these drawings by making payment of royalty to Suzuki Maruti Corporation, Japan, the position would not change as this cannot be said to form an additional 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, namely:-
(i) materials, components, parts and similar items incorporated in the imported goods;
(ii) tools, dies, moulds and similar items used in the production of the imported goods;
(iii) materials consumed in the production of the imported goods;
(iv) engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods.”
38. Rule 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 clause (iv) of article 8.1(b) of the GATT Agreement. The relevant portion of the book is reproduced below:
“Detailed specifications, including various dimensions noted on a drawing of the machine, are included in the buyer’s order, so as to advise the exporter/manufacturer of what the buyer needs. The cost of engineering and drawing are not part of customs value, even if undertaken outside the country to which the machine is shipped, to the extent that they are an appropriate way of ordering the machine -that is, of telling the manufacturer the specifications of what is being ordered. Only if the engineering or drawing goes further should it be deemed to be a part of the production process. Up to that point, each specification and instruction is 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.”
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 identify such requirements. These specifications are in the nature of “buyers’ assist” and the cost incurred for getting such specifications cannot become part of value of the goods in the hands of the supplier.
9.4 When a sophisticated technology is involved in the manufacture of any products and the process involved in the manufacture is a patented one, the equipments required have to be compatible with the patented process and 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, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods” requires to be added.
(c) The Rule permits inclusion of only engineering drawing, design, etc., “necessary for the production of the imported goods”. Rule does not envisage remote connection between “engineering drawing, design, etc.” and “the imported goods”. The gap between Basic Engineering Drawings and detailed drawing is vast. The one provides all the detailed inputs for undertaking manufacture. The other merely indicates the lay out, relative size etc. From the size specifications alone construction of engineering equipment is not feasible. “Telling the manufacturer, the specification of what is being ordered” is only in the nature of buyers’ assist. Cost 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.”
41. The same view was taken by the Tribunal in G.E. Plastics India Ltd. vs. Commissioner of Customs, Mumbai-I MANU/CE/0271/2004 : 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. “necessary for the production of the imported goods”. That is to say, the material in question should be directly necessary for the production of the imported goods. The gap between Basic Engineering Drawings and detailed drawing is vast. The one provides all the detailed inputs for undertaking manufacture. The other merely indicates the lay out, relative size etc. From 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 technology to manufacture the products. As such, the technology has been patented by the parent company of the appellant, namely Denso, Japan for which the appellant has also been paying running royalty amount for receipt of technical support. The appellant has also included the cost incurred towards preparation of detailed drawings and designs in the assessable value of the final products.
43. To appreciate this issue, reference can also be made to the specifications provided by Maruti to the potential vendors for ‘generator assembly’ for manufacture of alternators. It bears the endorsement ‘THIS IS A DESIGN SPECIFICATIONS DRAWING It is also mentioned that ‘this drawing specifies the conditions that Suzuki requires from suppliers on shape, dimensions, functions, qualities etc., part(s)/assembly’ and suppliers shall 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. *****”
46. This would show that it is the responsibility of the appellant to design and manufacture the parts or components. Thus, the specification drawings are neither used in the production of the components nor are they necessary for the production of the components. Rule 6 of the 2000 Valuation Rules is, therefore, not attracted.
47. Learned authorized representative appearing 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 the sale price of auto components, as in the case of excise duty under Central Excise Act, 1944. In other words, the issue was whether the department was right in equating sales tax to excise duty.
49. The present appeals do not relate to toolings being supplied free of cost by Maruti to the appellant. In fact, the show cause notice also admits that tooling cost has been amortised and excise duty has been paid.
50. The inevitable conclusion, therefore, that follows from the aforesaid discussion is that the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value of the parts and components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty.
51. In this view of the matter, it would not be necessary to examine the contention that has been raised by the learned counsel for the appellants that the extended period of limitation could not have been invoked in the facts and circumstances of the present case.
52. Thus, for all the reasons stated above, all the Excise Appeals have to be allowed. The five Excise Appeals filed by traders have also to be allowed for the additional reason that in any view of the matter central excise duty could not have been levied on them.
53. In the result, the impugned orders ***** passed by the adjudicating authority deserve to be set aside and are set aside. All the Excise Appeals are, accordingly, allowed.”
6.2 We also find that the above-said decision of the principal bench has been subsequently followed by the Chandigarh Bench of the Tribunal in the case of M/s Precision Tech Enterprises (supra).
7. In view of our above observations, we are of the considered opinion that the ratio laid down by the Tribunal in the case Denso India Private Limited (supra), is squarely applicable to the facts and circumstances of the present case and by following the same, we set aside the impugned order and allow the appeal filed by the Appellant with consequential relief, if any, as per law.
(Order pronounced in the open court on 24.08.2026)
