Free-of-cost buyer-supplied specification drawings used for tendering are not includible in assessable value.

The Appellant manufactured automobile parts classifiable under Chapter 87 of the Central Excise Tariff Act, 1985, and supplied them to Maruti Suzuki India Ltd. (“MSIL”) as an original equipment manufacturer. MSIL supplied drawings and specifications free of cost during the vendor-selection and tender process.

The Department alleged that the value of these drawings and designs was includible in the assessable value under Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. It further alleged that royalty paid by MSIL to Suzuki Motor Corporation, Japan, for intellectual property rights had an indirect nexus with the drawings supplied to the Appellant and was consequently includible in the assessable value. A show-cause notice dated 20 December 2019 was issued. The adjudicating authority confirmed central excise duty of ₹23,58,248, with interest and an equal penalty, while dropping the balance demand of ₹6,66,80,956. The Appellant challenged the order before the Tribunal.

1. Whether the notional value of drawings and specifications supplied free of cost by MSIL during the tender or vendor-selection process was includible in the assessable value of the automobile components under Section 4 of the Central Excise Act, 1944 read with Rule 6 of the 2000 Valuation Rules.

2. Whether the royalty paid by MSIL to Suzuki Motor Corporation, Japan, could be treated as additional consideration flowing directly or indirectly from the buyer to the Appellant and added to the assessable value under Rule 6.

Section 4(1)(a) of the Central Excise Act, 1944 provides for adoption of the transaction value where the goods are sold to an unrelated buyer and the price is the sole consideration; Section 4(1)(b) applies where the goods are not sold, the parties are related, or the price is not the sole consideration.

Rule 6 of the Central Excise Valuation Rules, 2000 permits addition of the money value of additional consideration flowing directly or indirectly from the buyer to the assessee. Its Explanation 1 covers specified goods and services supplied free of cost or at reduced cost for use in connection with production and sale, including drawings, blueprints, designs, engineering work, plans and sketches necessary for production. In Denso India Private Ltd. v. Additional Director General (Adjudication), the Tribunal held that drawings or specifications supplied to potential vendors during the tender process, merely to communicate the buyer’s requirements, are not additional consideration and are not includible unless they are used in, or necessary for, production. The same principle was followed in M/s Precision Tech Enterprises v. Commissioner of CGST & Central Excise, Gurugram, Final Order Nos. 60054–60059/2025.

The Tribunal held that Rule 6 applies only where there is additional consideration connected with the sale and where the buyer-supplied goods or services are used in, or are necessary for, production. MSIL’s drawings were supplied to prospective vendors at the request-for-quotation stage to communicate dimensions, layout and functional requirements and to enable vendors to quote prices. They were not detailed manufacturing drawings used by the Appellant to produce the components.

The Appellant was responsible for preparing the detailed designs and drawings required for manufacture, and the final products were produced on that basis. The Tribunal also found that royalty paid by MSIL to Suzuki Motor Corporation could not be treated as additional consideration flowing to the Appellant. The Appellant was not a party to the royalty arrangement, did not receive any right or technical know-how under it, and the Department failed to establish any direct or indirect flow-back of consideration. Applying Denso India, the Tribunal concluded that the notional value of the tender-stage specifications and the royalty payment had no legally sufficient nexus with the assessable value of the goods.

The impugned order confirming duty of ₹23,58,248, interest and equal penalty was set aside, and the appeal was allowed with consequential relief, if any, in accordance with law.