At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai
By, THE HONORABLE JUSTICE: SULEKHA BEEVI C.S.
By, MEMBER AND THE HONORABLE JUSTICE: MADHU MOHAN DAMODHAR
For Petitioner: S. Durairaj, Advocate And For Respondents: Arjun Ragvendra, DC (AR)
1. After hearing both sides, the issue that comes up for decision is whether value of depreciation on technical know-how and the royalty paid to Directors of the assessee have to be included in the assessable value of the goods cleared by them. Show cause notice has alleged that all kinds of expenditure including the depreciation and royalty incurred for manufacture of P & P medicines on job work for ten products, should be taken into consideration for arriving at a transaction value of such goods. SCN has adopted a total amount of Rs. 36,82,925/- being the amount shown in the balance towards the depreciated amount of technical know-how and royalty and proposed demand of amount of Rs. 6,01,053/- towards Central Excise duty along with interest and penalties under various provisions of law. In adjudication, these proposals have been upheld along with imposition of equal penalty under Section 11AC of the Act. The order of the adjudicating authority has been upheld by the Commissioner (Appeals) vide the impugned order dt. 30.06.2010.
2. Ld. Advocate for appellants has argued that the technical know-how and royalty paid by appellant is only in respect of one product namely Methylcobalamin. SCN has proposed addition of the depreciated technical know-how charges and royalty in respect of nine other products also manufactured by them. Ld. Advocate also contends that at the most these such charges should have been amortized to the total clearances and there cannot be any demand that can be made on the total amount of know how/royalty. He takes support from Section 4(1) of the Central Excise Act, 1944 to contend that each clearance should be valued separately. Ld. Advocate also relies upon the Tribunal's decision in the cases of Man Industries (India) Ltd. vs. CCE Indore : 2015 (330) ELT 795 (Tri.-Del.) and Vineet Packaging Industries vs. CCE Delhi : 2016 (344) ELT 1122 (Tri.-Chan.)
3. On the other hand, on behalf of Revenue, Ld. A.R. Shri Arjun Ragvendra supports the impugned order.
4. Heard both sides.
5. We find that the issue is squarely covered in favour of appellant by the decision of Tribunal in the case of Man Industries (India) Ltd. vs. CCE Indore (supra) relied upon by Ld. Advocate. The relevant portion of that order is reproduced below:
"6. We have perused the show cause notice. In the show cause notice, the duty has been demanded from the appellant on the amount collected towards die development charges by the appellant during the impugned period. No effort has been made in the show cause notice for amortization of the cost of die and development charges toward the final product cleared by the appellant. Therefore, the show cause notice is defective. If, in the show cause notice the cost of die and development charges had been amortized, in that case definitely, the appellant was liable to pay duty, on amortized cost but same has not been done. In these circumstances, we are bound to follow the decision of this Tribunal in the case of Ashok Iron Works Ltd. (Supra) wherein this Tribunal has observed as under:
"We find that in this case development charges were recovered by the appellants separately. These developmental charges would have gone into the cost of the patterns manufactured and the duty could have been demanded only on the excisable goods, which were manufactured from these patterns developed by the appellants for manufacture of the casting. The number of casting which could have been manufactured from the patterns developed for which developmental charges were recovered was neither ascertained by the department nor the excisable goods which could have been manufactured from such patterns was worked out or called for from the appellants. Duty cannot be directly demanded on the developmental charges as these are not the excisable goods."
7. As in this case also, on the cost of amortization, the duty has not been demanded on the final product cleared by the appellant, therefore, the demand of duty on die development charges is not sustainable.
8. In these terms, we set aside the impugned order and allow the appeal with consequential relief if any."
6. The Tribunal in Vineet Packaging Industries (supra), has also taken a similar view. The relevant portion of the order is reproduced below:
"7. In the present case, we find that in the name of amortization what has been done, is simply to take the value of Dies/Moulds and charge excise duty on such value. No effort has been made by the Revenue to arrive at the amortization cost of Dies/Moulds on scientific basis on the lines indicated above. We find it difficult to approve such amortization on a summary basis simply by referring Rule 6. The appellant has argued that excise duty has already been paid on the value of such Dies/Moulds and hence there is no need to amortize the cost of the Dies/Moulds on to the goods manufactured by the appellant. We find that the Dies/Moulds though cleared on payment of duty to their customers were received in their factory under invoices. It is also on record that the appellant has availed the Cenvat credit of the duty paid on such Dies/Moulds upon their return to appellant's factory for use in the manufacture of goods for the customers. It is not clear whether through such invoices only the Cenvat duty paid on the Dies/Moulds have been returned or whether the cost of such Dies/Moulds also stands returned. In the latter case, the Dies/Moulds would effectively become free supply in the hands of the appellant.
8. The value of the goods manufactured by the appellant should include the appropriate fraction of the cost of Dies/Moulds as it has been given in the explanation of Rule 6, but from above paragraphs, we are not convinced that the amortization has been properly don
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e on a scientific basis. Accordingly, we are of the view that the matter needs to be remanded to the Original Adjudicating Authority for reexamination of the matter in the light of our observations in Para 6 (supra) and to arrive at the duty demand afresh. No doubt the appellant needs to be provided opportunity to represent his case." 7. Following the ratio laid down in the above decisions, we hold that in this case also, the SCN is defective and in consequence, the impugned order resultant of such notice, will not sustain and will have to be set aside, which we hereby do. Appeal is allowed with consequential relief, if any, as per law.