The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that type testing charges collected by a manufacturer from Power Grid Corporation of India must be included in the assessable value for central excise duty.
The bench of Satendra Vikram Singh (Technical Member) and Dr. Ajaya Krishna Vishvesha (Judicial Member) upheld a duty demand of ₹2,17,291 with interest, but reduced the penalty from an equal amount to ₹35,000.
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The dispute concerned assessee’s supplies of conductors during April 2016 to June 2017. Excise officers found that the company had collected ₹17,38,331 from Power Grid towards testing charges without adding that amount to the value on which it paid duty. The adjudicating authority confirmed the demand in May 2019, and the Commissioner (Appeals) upheld it in August 2019.
Before CESTAT, the company argued that the “type test” was an additional test conducted by a third party, Tag Corporation in Chennai, at Power Grid’s request. It said the buyer had reimbursed the testing expense, which was separately stated in the purchase order, and that the company sold goods to other customers without conducting this test.
The company relied on decisions holding that the cost of optional testing or inspection carried out at a buyer’s request need not be included in the value of manufactured goods. It also argued that the transaction was revenue neutral: Power Grid could have claimed Cenvat credit of any additional duty, while the manufacturer could have claimed credit relating to the testing service.
The department maintained that the charges were paid in connection with the sale. Relying on Section 4 of the Central Excise Act, 1944, and the Supreme Court’s decision in CCE v. TVS Motor Company Ltd., it argued that an amount the buyer must pay for the sale to take place forms part of the transaction value.
The Bench of Judicial Member Dr. Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh identified the decisive question as whether the type tests were optional or required for the conductors supplied to Power Grid.
The Tribunal examined the role of type tests under IS 398 (Part II). It noted that these tests assess the design, material quality and manufacturing process of ACSR conductors used in electricity transmission. They address whether the conductors can withstand mechanical, thermal and electrical stresses and meet the applicable quality requirements.
On that basis, the Bench held that the type tests at issue could not be treated as optional testing merely because a third party conducted them or the buyer paid a separately identified charge. The test report was required for the sale to Power Grid; without it, the sale would not have taken place. The charges were therefore connected with the sale and includible in the conductors’ assessable value.
That finding also distinguished the decisions cited by the manufacturer concerning additional tests undertaken solely at a customer’s option.
CESTAT rejected the revenue neutrality argument as a basis for setting aside the demand. It said liability to pay excise duty and eligibility to claim Cenvat credit arise under separate provisions, and a possible credit claim could not determine whether duty was payable.
The Tribunal accordingly confirmed the ₹2,17,291 duty demand with interest. Taking a lenient view on penalty, it reduced the amount imposed under Rule 25 of the Central Excise Rules, 2002, to ₹35,000. The appeal was partly allowed only to that extent.
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