By TIOL News Service

MUMBAI, DEC 26, 2013: THE appellant is a manufacturer of motor vehicle parts, IC Engine etc. Investigation conducted revealed that the appellant received drawing and design/development charges from the various customers, by raising either debit notes or invoices, but did not include the value of the same on the goods manufactured with these drawings and designs for the purposes of payment of duty. The appellant also issued debit notes for charges towards technical study and assistance to develop an indigenous 10PO8 pressure die cast item at the request of the customer. The appellant did not include the cost of amortization in the value of castings manufactured using these dies.

A SCN found its way demanding CE duty of Rs.15,28,000/- for the period 1998-1999 to 1999-2000.

Another SCN also popped up proposing to demand Service tax of Rs.4,77,500/- under the category of Consulting Engineers Service in respect of the drawings and designs developed by them.

Vide two different Orders, Excise duty demand of Rs.11,84,000/- & ST demand of Rs.3,73,750/- was confirmed with penalties and interest.

Since the Commissioner(A) upheld these orders, the appellant is before the CESTAT.

As regards the CE duty confirmation, it is submitted that the dies were captively consumed by them and they were eligible for the benefit of Exemption Notification 67/95-CE; therefore, the question of payment of duty on these amounts (towards charges of drawing and design, technical study) by including their cost in the goods manufactured would not arise. In the matter of ST demand, it is submitted that the department cannot simultaneously ask the appellant to pay excise duty on the charges collected as also Service Tax thereon.

The Revenue representative supported the order of the lower authorities.

The Bench after adverting to the Apex Court decision in Moriroku UT India (P) Ltd. Vs. State of UP - (2008-TIOL-45-SC-CT) held -

"…The argument of the appellant that they have developed the dies and captively used them and there is no excise duty liability on the captive consumption is wrong. The cost of the product sold would include not only the cost of raw materials, labour charges and other costs but also the various cost incurred in the manufacture such as cost of capital goods like machinery, tools, dies, etc. It is on this value, the liability to discharge excise duty arises and, therefore, if the appellant has not included the amortized cost of dies or the cost of drawings and designs developed for the manufacture of excisable goods, the consideration received would be includable in the assessable value of the goods manufactured using these drawings and designs. Therefore, the demand of excise duty in the present case has to be sustained in law."

As regards the demand of Service Tax, the Bench observed -

"…for the period prior to 1.5.2006, the law envisaged that the liability to pay Service Tax on rendering of Consulting Engineers Service would be on the Consulting Engineering firm. The appellant herein is a manufacturer and not a Consulting Engineer. Only w.e.f. 1.5.2006, the law was amended to include any ‘body corporate' rendering such services liable to pay Service Tax. Since in the present case, the period involved is prior to 1.5.2006, the Service Tax demand on the appellant is not sustainable in law."

In the matter of invocation of extended period, the Bench observed that the fact of developing designs/drawings etc. and collecting charges thereon separately were not disclosed by the appellant to the department and, therefore, the charge of suppression of facts and consequent invocation of extended period of time to demand excise duty is sustainable in law. The penalty imposed u/s 11AC was also upheld.

Thus, the appeal was partly allowed.

(See 2013-TIOL-1909-CESTAT-MUM)