Whether the cost of additional testing conducted on the request of the customer and documentation charges collected in this respect are includible in the assessable value or not.

PJ/CASE LAW/2016-17/3167

Case: - M/s BHARAT BIJLEE LTD Vs COMMISSIONER OF CENTRAL EXCISE, MUMBAI

Citation:- 2016-TIOL-495-CESTAT-MUM

Issue: - Whether the cost of additional testing conducted on the request of the customer and documentation charges collected in this respect are includible in the assessable value or not.

Brief Facts: -This appeal is directed against Order in Appeal No. AT/75 & 76/Bel/2007 dated 8.3.2007.The appeal which has been preferred by the appellants is 3 rd round of litigation. Earlier litigation before the Tribunal resulted in remand of the case to the first appellate authority to reconsider the issue of inclusion of cost of additional testing charges conducted at the request of customer and inclusion of cost of documentation charges. The Tribunal had remanded the matter with a specific direction to consider the judgment of the Tribunal in the case of Bhaskar Ispat Pvt Ltd. 2004 (167) ELT 189 = 2004-TIOL-277-CESTAT-DEL-LB.

Appellant’s Contention:-The first appellate authority has not considered the view of the larger bench in its proper perspective. It was submitted that the issue of inclusion of additional testing charges is settled in their favor. As regards the inclusion of the cost of documentation charges, copy of the specimen purchase order was submitted in order to claim that the drawings which are given with the order are not charged but it is the set of drawings that are charged and the value does not get included as these documentation charges are post clearance expenses. Reliance was placed on the judgment of the Tribunal in the case of Shree Pipes Ltd 1992 (59) ELT 462 = 2002TIOL111CESTATDELSB and it was submitted that this judgment has been maintained by the Supreme Court as reported in 1992 (61) ELT A 63 (SC).

Respondent’s Contention:-Learned departmental representative reiterates the findings of the first appellate authority. He submits that the cost of additional testing needs to be included in the assessable value as the said tests are required as per the Indian standards. He would draw our attention to the statement of technical persons of the appellant and submit that the charges which were recorded were the minimum testing required for marketing of the product manufactured by the appellant.

Reasoning Of Judgment: On perusal of the records it transpires that the first appellate authority has come to conclusion that the cost of additional testing needs to be included in the assessable value by recording a finding that 16 tests are required to be conducted on the transformer in the appellants plant; were essential to market the transformer as per Indian standards 2026 and also on the statement of the technical personnel. The statement of Deputy General Manager indicates that the tests which

are required to be conducted on the Transformers, the statement also records that the appellant conducts all the tests and which are required for their own quality control tests to market the final products. The Tribunal did not find anything in the statement which states that the appellant has recovered the cost of this mandated testing from the customers. The appellant has been stating before the lower authorities that that additional testing which is carried out by the appellant is at the behest of their customers; the revenue is unable to bring on record that these tests were not carried out on request of the appellant's customers. Revenue has not produced any evidence to negate the claim of the appellant. Tribunal find that the learned Counsel was correct in submitting that the issue in now squarely settled by the Apex Court in the case of Shree Pipes Ltd. The Tribunalin the case of Shree Pipes Ltd held as under:"

The admitted facts are that the goods are sold after the quality control by the appellants' own quality control department and after certifying by the ISI. The testing in dispute is conducted at the request of the PHED. It is also not disputed that the goods are sold without the testing by the DGS & D to other wholesale dealers as the Assistant Collector gave a categorical finding that the goods are sold to other dealers without subjecting the goods to, the additional testing by the DGS & D. It is also an admitted fact that the customer, namely, PHED in this case, is bearing the expenditure incurred for carrying out the testing by the DGS & D. Although, according to the agreement, the appellants were paying initially and getting it reimbursed by PHED. It is also true that these tests are conducted before the goods are removed from the factory. It is also an admitted fact that the additional testing is optional. It is also not disputed that the normal testing charges to the satisfaction of ISI which are necessary for making the goods marketable are included in the assessable value.

In this case, the duty is chargeable on the price which the manufacturer gets at the time and place of removal of goods. The appellant is not charging anything from the customers towards the additional testing conducted at their instance. The clause of the contract provides that the inspection charges shall be borne by the department but the same shall be paid initially by the contractor and shall be claimed in full in the respective bill for 98% payment through bank. Therefore, the manufacturer is not getting anything extra except the price which he is getting from other wholesale dealers. Therefore, since the excise duty is payable on the price which the manufacturer gets in the wholesale market at the time and place of removal, the cost of additional testing charges are not includible in the assessable value although the tests are conducted within the factory gate. Further, these are optional. Secondly, it is evident that the price to wholesale dealers does not include the additional testing charges carried out at the instance of PHED. The finding of the Collector that the testing is necessary to make the goods marketable, is based on no evidence as the Assistant Collector gave a categorical finding that there are sales to other dealers without subjecting it to DOS & D test. Further, it is admitted fact that ISI testing is already done. We, therefore, are of the view that the additional testing charges conducted at the instance of customers and whose cost is borne by the customers is not includible in the assessable value.

Decision:-Appeal allowed.

Comment:- Hon’ble Tribunal has held that the cost of additional testing and documentation charges cannot be included in the assessable value as these are post clearance expenses. Accordingly, the excise duty is not payable on the same. This judgment is squarely given by relying on the judgment of Supreme Court as cited by the appellant.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3167

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