DGGI drops major demand of excise duty on inclusion of value of Drawings & Designs in assessable value of automotive components

We apprised you regarding on-going litigation on inclusion of value of Drawings & Designs in assessable value of automotive components for payment of excise duty.

NITYA Tax Associates represented several taxpayers before Directorate General of GST Intelligence (‘DGGI’). We are happy to inform that after considering all arguments, DGGI has passed Order and given major relief to taxpayers by dropping more than 90% of demand on the ground that running royalty cannot be reckoned towards cost of Drawings & Designs. DGGI has further dropped personal penalty proposed against managerial personnel of the taxpayers as well as against OEM.

NITYA Comments: This comes as a major relief for automotive components industry. However, there were multiple legal arguments which DGGI failed to consider while confirming balance 10% demand. Taxpayers who received similar SCNs, may immediately file reply / additional submissions and attend hearing before DGGI for getting similar relief. Further, taxpayers against whom order is issued, may consider filing of appeal before CESTAT contesting balance demand.

This issue is equally relevant under Customs law. Rule 10(b) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 provides that engineering, development, art-work, design work, and plans and sketches is includible in value of imported goods when supplied by buyer free of cost or at reduced cost. Hence, wherever importer provides Drawings & Designs to exporter, customs authorities may dispute valuation.

Similar disputes may not arise under GST law since FOC goods or services provided as condition of contract are not includible in value of supply under Section 15(2) of the CGST Act.

To throw light upon correct legal position and way forward for handling these litigations, our Managing Partner, Mr. Puneet Bansal, had discussed this issue, correct legal position along with NITYA’s take in short video titled ‘Excise Duty on cost of Drawings and Designs’ available at https://youtu.be/kgudhi__krY.

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