Excise – Cestat Ahmedabad: When transportation costs are incurred by the buyer after clearance from factory, the same cannot be included in the assessable value; Value of free gifts cannot be included in the assessable value; Staff deputed not for the purpose of manufacturing the goods but only for supervision and quality control cannot be part of the assessable value [Order attached]
Order Date – 10 January 2023
Parties: M/s. Leamak Healthcare P Ltd. (LHL) Vs C.C.E.-Ahmedabad-ii
- The Appellant, M/s. Leamak Healthcare P Ltd. (LHL) are engaged in the manufacture of confectionary items on behalf of M/s. ITC Ltd. on job work basis. As per the agreement entered between LHL and ITC, the packing material has been supplied by ITC and the goods manufactured by the LHL were handed over to ITC at factory gate.
- A show cause notice was issued by revenue alleging that ITC and LHL have interest directly or indirectly in the business of each other and therefore, the two are related in terms of Section 4(3)(b) of the Central Excise Act, 1944 and therefore, the assessable value should be governed by Rule 9 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000.
- Whether advertisement and publicity charges, borne by the dealers/buyers are to be excluded from the assessable value?
- The Tribunal observed that the goods are handed over by LHL to the transporter designated by ITC at the factory gate. In these circumstances any expenses incurred after clearance from the factory cannot form part of the assessable value in terms of Section 4(1)(a).
- It was held that inclusion of marketing costs in the assessable value is beyond the scope of Section 4(1)(a). In this circumstances, when such costs are incurred by the buyer after clearance from factory the same cannot be included in the assessable value.
- ITC has supplied gifts valued at Rs.1.5 Crores which are to be backed with the products manufactured by LHL is free gifts to be supplied to the customers. Relying the decision of the tribunal in the case of Oswal Fats & Oils v CCE - 2003(156) ELT 112 (T-Del). It was held that the value of free gifts cannot be included in the value.
- It was also held that the staff deputed not for the purpose of manufacturing the goods but only for the purpose of inspection and supervision and quality control cannot be part of the assessable value of the goods.
- Hence no excise duty needs to be paid on the outward freight from Leamak to ITC, Marketing spends by ITC and fixed costs of ITC relating to activities of ITC other than provision of moulds at concessional cost and matter is remanded to the Commissioner for fresh adjudication.