Kirloskar Cummins Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. the appellants manufacture i.c. engines and components thereof falling under chapter 84 of central excise tariff act. they are availing modvat credit of duty on the inputs used in the manufacture of the final products. m/s. poona shrims, an ssi unit, supplied them components of i.c. engines valued at rs. 9310. in the relevant gate pass dated 27-10-1987 duty of rs. 60,000/- had been paid on one time design and development charges' charged by the suppliers to the appellants for designing the particular component for the appellants.these charges had been shown separately in the gate pass in addition to the value of the component. m/s. poona shrims had paid duty @ 10% ad valorem as an ssi unit under notification no. 175/86 and the appellants had taken credit @ 20% amounting to rs. 1,20,000/- as per rule 57b of central excise rules. show cause notice dated 5-3-1988 was issued for recovery of the amount on the ground that design and development charges are not specified inputs for modvat purposes under rule 57a of central excise rules. the jurisdictional asstt. commissioner of central excise adjudicated the matter by his order dated 3-8-1988 disallowing the credit of rs. 1,20,000/- and also imposing penalty of rs. 5,000/- on the appellants. commissioner of central excise (appeals) in the impugned order has upheld the asstt. commissioner's order. it has been observed by that authority that the outlay on design and development charges is unbelievably disproportionate to both the resources at the command of an ssi unit and also to the relatively small value of the 'components supplied. it has been concluded that it is a stratagem adopted to enable the appellants to take higher notional credit under rule 57b.2. ld. counsel shri a.v. phadnis for the appellants argued that design and development charges though shown separately are part of the cost of the goods supplied on whose value duty has been paid. hence, credit of duty has been rightly taken, urged the ld. counsel, as it is now well settled that design and development charges form part of assessable value of final product.3. shri s.v. singh, the ld. dr referred to the improbable features of this case highlighted in the commissioner (appeals) order and pointed out that there is also absence of proportional allocation of the charges among the goods supplied, and the charges are not relatable to the items covered by the gate pass only.4. on considering the rival submissions, it is seen that it is now the settled position in law that design and development charges are to be included in the assessable value of excisable goods under section 4 of central excise act. the appellants have also explained in the grounds of appeal that it is not possible to know in advance as to the quantity that would be supplied to the customer ultimately and that therefore the proportion of the value to be added to each input cannot be determined at the earlier stage. it is for this reason, the appellants say that duty is paid separately on design and development charges.therefore, it is evident that duty has been paid on these charges as they form part of the assessable value of the goods cleared and not that the duty had been paid treating the charges themselves as excisable goods. in any event, we are of the view that the asstt.commissioner in this case should have got the matter cleared by making enquiries with the asstt. commissioner having jurisdiction over the factory of the supplier of input, if he doubted the genuineness of the particulars of duty payment in the gate pass in question. the circumstances of collection of duty on design and development charges by the asstt. commissioner at the suppliers end is a necessary data in the circumstances of this case in view of the appellants' explanation referred to above, without which the denial of modvat will not be justified. in this view of the matter, we set aside the impugned order and remand the case to the jurisdictional asstt. commissioner to take action as indicated above, and to extend the credit to the appellants depending on the result of the enquiry with the asstt. commissioner having jurisdiction over the factory of the input supplier.

Judgment:
1. The appellants manufacture I.C. engines and components thereof falling under Chapter 84 of Central Excise Tariff Act. They are availing Modvat credit of duty on the inputs used in the manufacture of the final products. M/s. Poona Shrims, an SSI unit, supplied them components of I.C. engines valued at Rs. 9310. In the relevant gate pass dated 27-10-1987 duty of Rs. 60,000/- had been paid on one time design and development charges' charged by the suppliers to the appellants for designing the particular component for the appellants.

These charges had been shown separately in the gate pass in addition to the value of the component. M/s. Poona Shrims had paid duty @ 10% ad valorem as an SSI unit under Notification No. 175/86 and the appellants had taken credit @ 20% amounting to Rs. 1,20,000/- as per Rule 57B of Central Excise Rules. Show cause notice dated 5-3-1988 was issued for recovery of the amount on the ground that design and development charges are not specified inputs for Modvat purposes under Rule 57A of Central Excise Rules. The jurisdictional Asstt. Commissioner of Central Excise adjudicated the matter by his order dated 3-8-1988 disallowing the credit of Rs. 1,20,000/- and also imposing penalty of Rs. 5,000/- on the appellants. Commissioner of Central Excise (Appeals) in the impugned order has upheld the Asstt. Commissioner's order. It has been observed by that authority that the outlay on design and development charges is unbelievably disproportionate to both the resources at the command of an SSI unit and also to the relatively small value of the 'components supplied. It has been concluded that it is a stratagem adopted to enable the appellants to take higher notional credit under Rule 57B.2. Ld. Counsel Shri A.V. Phadnis for the appellants argued that design and development charges though shown separately are part of the cost of the goods supplied on whose value duty has been paid. Hence, credit of duty has been rightly taken, urged the ld. Counsel, as it is now well settled that design and development charges form part of assessable value of final product.

3. Shri S.V. Singh, the ld. DR referred to the improbable features of this case highlighted in the Commissioner (Appeals) order and pointed out that there is also absence of proportional allocation of the charges among the goods supplied, and the charges are not relatable to the items covered by the gate pass only.

4. On considering the rival submissions, it is seen that it is now the settled position in law that design and development charges are to be included in the assessable value of excisable goods under Section 4 of Central Excise Act. The appellants have also explained in the grounds of appeal that it is not possible to know in advance as to the quantity that would be supplied to the customer ultimately and that therefore the proportion of the value to be added to each input cannot be determined at the earlier stage. It is for this reason, the appellants say that duty is paid separately on design and development charges.

Therefore, it is evident that duty has been paid on these charges as they form part of the assessable value of the goods cleared and not that the duty had been paid treating the charges themselves as excisable goods. In any event, we are of the view that the Asstt.

Commissioner in this case should have got the matter cleared by making enquiries with the Asstt. Commissioner having jurisdiction over the factory of the supplier of input, if he doubted the genuineness of the particulars of duty payment in the gate pass in question. The circumstances of collection of duty on design and development charges by the Asstt. Commissioner at the suppliers end is a necessary data in the circumstances of this case in view of the appellants' explanation referred to above, without which the denial of Modvat will not be justified. In this view of the matter, we set aside the impugned order and remand the case to the jurisdictional Asstt. Commissioner to take action as indicated above, and to extend the credit to the appellants depending on the result of the enquiry with the Asstt. Commissioner having jurisdiction over the factory of the input supplier.