Notional Cost of Specifications Provided by Maruti Suzuki Deemed “Buyer’s Assist”: CESTAT Quashes Excise Duty Demand on Vendor [Read Order]

The Principal bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi held that specifications provided free of cost by Maruti Suzuki to its vendor are merely “buyer’s assist” and do not constitute additional consideration for sale.

The appellant, Mag Filters And Equipment Private Limited a vendor supplying parts and components to Maruti Suzuki India Ltd. (MSIL), challenged the Order-in-Original passed by the Additional Director General (Adjudication), Directorate General of GST Intelligence (DGGI), New Delhi.

The order included the cost of specifications supplied by MSIL in the assessable value of final products manufactured by the appellant and cleared to MSIL, along with interest and penalty, by revoking the extended period of limitation.

The appellant is an original equipment manufacturer (OEM) for MSIL and receives instructions in the form of specifications and plans from MSIL to manufacture the required parts. The dispute arose over the inclusion of the notional cost of these specifications in the assessable value of the goods under Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

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The DGGI, relying on the Tribunal’s earlier decision in Commissioner of Central Excise Jamshedpur vs. Tata Motors (2009 ), issued a show cause notice alleging that the cost of specifications supplied free of charge should be included in the excise valuation.

The appellant contended that the specifications provided by MSIL were merely requirements of dimensions and layouts of parts, shared with potential vendors through a Request for Quotation (RFQ) process. The appellant’s in-house engineering team prepared detailed drawings and designs, with technical support from its overseas group company.

Moulds were procured, tested, and supplied to MSIL on a returnable basis. Importantly, the development cost for the detailed drawings and designs was already included in the assessable value. The appellant argued that the specifications from MSIL were not detailed designs and therefore, should not be treated as additional consideration.

The appellant argued that the issue was already settled by the Tribunal in Denso India Pvt Ltd. and Others vs. Additional Director General (Adjudication), DGGI, New Delhi), where the Tribunal held that specifications supplied free of cost before the selection of a vendor cannot be treated as consideration for sale. Further, the specifications provided by MSIL merely communicated the requirements of parts and components; they were not detailed engineering drawings necessary for production.

Rule 6 of the Valuation Rules applies only to goods or services used in production that relieve the manufacturer from incurring costs.

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It was also contended that MSIL’s specifications did not reduce any manufacturing cost for the appellant; they cannot be included in the assessable value. Any payment made by MSIL after the letter of intent was solely for the goods supplied, and no additional consideration was received in connection with the specifications.

The Tribunal carefully considered the submissions and relied on the Denso India Pvt Ltd. ruling. It was observed that Section 4(1)(b) of the Central Excise Act, 1944, and Rule 6 of the Valuation Rules, require that only additional consideration received by the manufacturer from the buyer can be included in the assessable value.

Since the specifications were provided before the contract of sale and free of cost, they do not constitute additional consideration.

The Tribunal distinguished between mere specifications and detailed engineering drawings. Mere specifications are “buyer’s assist,” which help the manufacturer understand requirements but are not necessary for production. Only detailed drawings or designs, prepared for actual manufacture, may be included in assessable value.

The Tribunal referred to Mangalore Refinery & Petrochemicals Ltd. vs. CC, Mangalore (2014 ), which held that costs incurred for the buyer’s specifications do not form part of the value of goods in the hands of the supplier.

It was also noted that the specifications merely guided the manufacturing process. The development cost of detailed drawings and moulds, which were necessary for production, was already included in the assessable value, leaving no further cost attributable to MSIL’s specifications.

Based on these findings, the two-member bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) concluded that the impugned order was not justified. The notional cost of specifications supplied by MSIL cannot be included in the assessable value of the goods manufactured by the appellant. Consequently, the Tribunal set aside the excise duty demand, along with interest and penalty.

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