Value of Tools and Dies Includable in Assessable Value of Excisable Goods

PGP Glass Private Limited Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)

Introduction: The recent ruling by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Ahmedabad in the case between PGP Glass Private Limited and the Commissioner of Central Excise & ST sheds light on the complexities surrounding the assessment of goods, especially in the context of export. The crux of the case revolves around whether mould charges collected by PGP Glass should be considered as an additional consideration that forms part of the transaction value under Section 4 of the Central Excise Act, 1944.

The Bone of Contention: Mould Charges: The core issue in this case was whether the mould charges collected by PGP Glass Pvt. Ltd. from their customers should be treated as an additional consideration that would thus be part of the transaction value for calculating Central Excise Duty. The department contended that these charges should indeed be counted, citing Section 4 of the Central Excise Act, 1944.

Revenue Neutrality: A Counterargument: PGP Glass, represented by Chartered Accountant Shri Mehul Jivani, argued that the case was “Revenue neutral.” They explained that since the exported goods would have qualified for a duty refund, there would be no loss of Revenue to the government. They cited multiple case laws to support this argument, but it was ultimately rejected by the Tribunal.

Legal Framework: Section 4 and Rule 6: The Tribunal referred to Section 4 of the Central Excise Act, 1944, and Rule 6 of the Central Excise (Determination of Price of Excisable Goods) Rules, 2000, stating that the mould charges must be included in the assessable value of excisable goods. The Tribunal made it clear that the legally provided scheme of assessment must be followed, regardless of whether the goods are meant for export or domestic use.

Time Limitation and Penalties: The appellant also argued that the entire demand is barred by the period of limitation as the first show cause notice was issued beyond one year for the period 2014-15 to 2016-17. However, this aspect was not the focus of the Tribunal’s final judgment.

Conclusion: The CESTAT Ahmedabad Tribunal held that mould charges should be included in the transaction value for the purpose of calculating Central Excise Duty. The ruling clarifies that the legally provided scheme for the assessment of goods should be adhered to, irrespective of whether the goods are meant for export or domestic use. The case sets a precedent for future disputes involving similar issues and adds another layer to the interpretation of Section 4 of the Central Excise Act, 1944.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

1. The brief facts of the case are that appellant is engaged in the manufacture of glass bottles falling under Central Excise Chapter heading 70109000. During the course of audit of the office record of appellant, it has been observed by the audit party that during 2014-15 to 2016-17, the appellant has recovered an amount of Rs. 7,43,61,147/- from their customers as mould charges. The appellant while manufacturing empty glass bottles and vials, as per requirement of the customers they get developed various types of moulds and the amount of development of such moulds has been collected by the appellant from their customers as mould charges. It has been the contention of the department that amount so collected by the appellant from their customers as mould charges is an additional consideration and should form part of the transaction value, as per Section 4 of Central Excise Act, 1944 for the purpose of discharging Central Excise liability. After due enquiries, following two show cause notices as well as the orders-in-appeal have been issued to the appellant:-

Thus, the sole issue on which the Revenue has confirmed the demand holding that amount of the charges recovered by the appellant towards the value of moulds should have been added in the transaction value of the glass bottles supplied by the appellant to their customers the mould charges recovered from the buyers of bottles after clearances are, an additional consideration following back to the appellant as per Section 4 of the Central Excise Act, 1944 read with Rule 6 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000.

2. Learned Chartered Accountant Shri Mehul Jivani appearing on behalf of the appellant has primarily contended that mould charges recovered by the appellant in respect of goods exported and thereby even if the duty been paid by the appellant on such charges, the same would have got refunded to them. It has also been contended by them that excise duty applicable on domestic supplies has already been paid by them and the required evidence with regard to payment of duty on the supplies made to the domestic customers have already been produced by the appellant before the original adjudicating authority.

3. It is further contended by the learned Chartered Accountant that since the duty of excise leviable on the additional consideration collected from their customers as mould charges has already been deposited by them and the show cause notice in this case only demanding excise duty with regard to mould charges recovered by them from their foreign customers on the quantities of the bottles exported by them. It has been the contention of the learned Chartered Accountant that since the goods have been exported by them they would have paid Central Excise duty on the same even if proportionate mould charges would have got included in the value of exported goods. It has further been submitted that the appellant would have cleared goods on LUT or payment of duty or which would have been otherwise got refunded to them. In this way, the situation is absolutely Revenue neutral and there is no loss of Revenue to the government in this regard. Thus, it has been emphasized by the appellant that there is Revenue neutral and therefore, the impugned order-in-appeal is without any merit. Learned Chartered Accountant has relied upon the following judgments to support his arguments:-

(a) Tytan Organics Pvt. Limited – 2018 (362) E.L.T. 280 (Tri. – Mumbai)

(b) M/s Ultratech Cements Limited – 2015 (10) TMI 1058 CESTAT CHENNAI

(c) Sterlite Industries (India) Limited – 2012 (2) TMI 575 BOMBAY HIGH COURT

(d) E. Commercial Vehicles Limited – 2018 (15) G.S.T.L. 291 (Tri. Del.)

(e) E. Commercial Vehicles Limited – 2019 (31) G.S.T.L. 396 (S.C.)

(f) Felis Leo Engg. Pvt. Limited – 2017 (348) E.L.T. 681 (Tri. – Mumbai)

(g) Texyard International – 2015 (40) S.T.R. 322 (Tri. – Chennai)

(h) Indeos ABS Limited – 2010 (254) E.L.T. 628 (Guj.)

4. learned Chartered Accountant has also argued that the entire demand is barred by limitation as the first show cause notice was issued to them on 25.04.2019, demanding excise duty for the period 2014-15 to 2016-17 and since the entire demand is beyond the period of one year and there is no allegation of malafide intention or suppression of facts to evade payment of duty and therefore, extended period of five years is not applicable in their case. Since the goods have actually been exported, excise duty otherwise not leviable on the exported goods, the Adjudicating Authority should have dropped the show cause notice. Learned Chartered Accountant has also contended that there is no ground of levy of penalty under Section 11AC of Central Excise Act, 1944.

5. We have also heard Shri Rajesh K Agarwal, learned DR who has reiterated the findings given in the order-in-appeal as well as in order-in-original.

6. Having heard both the sides, we find that the only question which needs to be decided by us is “whether the charges of moulds separately recovered by the appellant from their customers, amount flowing of additional consideration to the appellant and should have formed part of transaction value for levy of excise duty or not. Before proceeding further, it will be relevant to have a look at the Section 4 of Central Excise Act, 1944 and Rule 6 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000:-

“Section 4 in the Central Excise Act, 1944

4. Valuation of excisable goods for purposes of charging of duty of excise.—

(1) 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 the assessee, for delivery at the time and place of the removal, the assessee and the buyer of 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.

Explanation.—For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.”

“RULE 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.

Explanation 2. – Where an assessee receives any advance payment from the buyer against delivery of any excisable goods, no notional interest on such advance shall be added to the value unless the Central Excise Officer has evidence to the effect that the advance received has influenced the fixation of the price of the goods by way of charging a lesser price from or by offering a special discount to the buyer who has made the advance deposit.”

From the above legal provision of Section 4 of Central Excise Act, 1944 read with Rule 6 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000, it can be seen that the value of tools, dies, moulds, drawings etc. used in production of excisable goods need to form the part of assessable value. In this case, there is no denying the fact that appellant has been collecting mould charges from the buyers of his product and therefore we hold that the amount of mould charges collected by the appellant forms an additional consideration flowing through the appellant and therefore the same need to be included in the assessable value of excisable goods.

7. The only argument the Learned Chartered Accountant has taken is that since the goods have been exported they will get a refund of additional duty which would have been paid at the amount of mould charges, included in the assessable value. In this regard we are of the opinion that as per the provision of Central Excise law, the excisable goods first need to be assessed as per provisions of the Section 4 of Central Excise Act, 1944 read with Rule 6 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000. It is irrelevant whether the goods have been cleared for domestic use for the export purpose. The legally provided scheme of assessment of the goods needs to be followed while clearing the goods even if they are meant for export.

8. In view of above we hold that the mould charges recovered from the buyers need to be included in the assessable value and therefore, we do not find any legal lacunae in the impugned order-in-original and thus, there is no merit in the appeals. The appeals are dismissed.

(Pronounced in the open court on 23.08.2023)