By TIOL News Service

MUMBAI, DEC 16, 2015 : THIS is an appeal filed by the assessee a decade ago.

The question is whether the additional amount received by appellant towards the third party inspection charges undertaken at the instance of the buyer is includable in the transaction value or otherwise and whether the duty liability arises or not. The period involved is August 1997 to March 2002.

Both the lower authorities held that such charges are consideration for the sale of the goods and, therefore, the same is includible in the transaction value. Resultantly, the duty liability was confirmed with interest and equivalent penalty.

Before the CESTAT, the appellant submitted that it is not in dispute that the appellant had on instructions and instance of the buyer undertook third party inspection for which charges were later on reimbursed by the buyer;that the product is marketable as soon as the manufacturing and internal testing is done in their own laboratory, but an additional requirement of inspection by third party is insisted by the buyer. It is also submitted that the issue is now settled by the Larger Bench in the case of Bhaskar Ispat Pvt. Ltd. - 2004-TIOL-277-CESTAT-DEL-LB, Grasim Industries Ltd. - 2014-TIOL-573-CESTAT-DEL and Luby Submersibles Ltd. - 2014-TIOL-1077-CESTAT-AHM

The AR emphasized that the purchase orders/contracts are very clear that the goods will not be accepted unless the inspection is carried out by third party inspectors and, therefore, since the product becomes marketable after third party inspection, these charges are includible for discharging Central Excise duty. Reliance is placed on the decision in Southern Structurals Ltd. - 2008-TIOL-154-SC-CX. It is also submitted that these charges are akin to pre-delivery inspection charges and same are required to be included in AV in view of the decision in Maruti Suzuki India Ltd. - 2010-TIOL-1127-CESTAT-DEL-LB.

The Bench observed that the undisputed facts are that the appellant is conducting his own inspection on the finished goods as a manufacturer would do so before clearance and the products are further tested on the specific instruction of various buyers; all buyers do not insist on third party inspection; charges which are to be paid to the inspecting authorities is borne by the buyers and not by the appellant as the amounts paid as third party inspection chargers are reimbursed by the buyers.

It was further noted that the said purchase orders are given by the Government authorities to the appellant and one of the order of the Thermal Power Station specifically mentions that the material should be dispatched after inspection by the representative of Thermal Power Station while the South Eastern Coalfields Ltd. purchase order talks about the inspection of the goods by third party inspectors as per the instructions of South Eastern Coalfields Ltd.; that the said orders are specific inasmuch as their cables have to meet standards of ISI which according to the appellant is done so by their in-house laboratory and this fact was undisputed by the Revenue.

Observing that the lower authorities had misconstrued the entire issue while upholding the demand, interest thereof and penalty, by treating the inspection charges as pre-requisite or pre-delivery inspection charges, the CESTAT referred to the case laws cited by the appellant and also noted that the Larger Bench decision in Maruti Suzuki India Ltd. was distinguished in the case of Luby Submersibles.

In fine, the Bench held that the amount received as reimbursement by the appellant of third party inspection charges undertaken at the instance of the buyer is not includable in the assessable value of the products cleared by them.

The impugned order was set aside and the appeal was allowed.

(See 2015-TIOL-2683-CESTAT-MUM)