The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), observed that third party inspection charges are not includable in assessable/transaction value of goods and thereby quashed the excise duty demand.
The issue involved in the present appeals is that whether the special inspection charges or special testing charges incurred by the appellant, Transformers & Rectifiers India Ltd, on the request and on behalf of the customers for testing or inspection of finished excisable goods produced by the appellant and payment thereof made to a third party inspector and subsequently recovered from the customer will form part of the assessable value transaction value of the excisable goods under section 4 (post 01.07.2000) of the Central Excise Act, 1944 and hence chargeable to duty of excise.
M.G Yajnik, Advocate who appeared on behalf of the appellant submitted that any third party special inspection or testing undertaken by the manufacturer on instruction of the customers and for which the manufacture first pays inspection or testing charges to the said third part inspector or third party inspection agency and subsequently recovered the same from the said customers do not form a part of the assessable value of the excisable goods and hence such special inspection or testing charges for third party inspection or testing of finished goods on instruction of the customers are not chargeable to central excise duty.
P. Ganesan, Learned Superintendent (AR) who appeared won behalf of the Revenue reiterated the findings of the impugned order.
A Two-Member Bench comprising Ramesh Nair, Judicial Member and CL Mahar, Technical Member observed that “The appellant is not otherwise involved in the said third party inspection. It is only for the convenience purpose of the customer, the appellant coordinates such third party inspection for which the payment for such third-party inspection is though initially paid by the appellant but subsequently and finally incurred by the customer. Therefore, in this fact, in our considered view, the third party inspection charges cannot be included in the assessable value/ transaction value of the excisable final product i.e. transformers manufactured by the appellant.
“The third party inspection charges are not includable in the assessable/transaction value of the goods. Therefore, the demand on this ground confirmed by the Adjudicating authority and affirmed by the Commissioner (Appeal) is not sustainable” the Bench concluded.
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