V.P. Gulati, Vice-President
1. The issue in the appeal relates to demand of duty in respect of Shear Blades and Gauges the value of which has been demanded by the authorities as Rs. 4,00,0007- as against the declared value of the appellants as Rs. 4,000/- and Rs. 3,360/- respectively as pleaded by the appellants in their reply to the show cause notice.
2. The appellants are absent. In their written submissions they have urged that the appellants had been awarded the contract by the Railway Board for supply of Tension Clamps. As a result of some delay in the execution of the work, the appellants got the work executed from the Calcutta Office and in the meantime the items in question which were manufactured by the appellants were cleared from their factory. It has been pleaded the appellants had incurred some expenses towards the design and development of the goods in question and they got a reimbursement of Rs. 1,00,000/- from the Railways for the same. It has been urged that this total amount of reimbursement given by the Railways cannot be taken to be attributable to the cost of the goods which according to the appellants stands at Rs. 14,7207- as set out in para 13 of their written submissions. They are not denying duty is payable by them but has pleaded that the demand of duty was in excess of what was due to be paid.
3. Heard the learned JDR Shri Murugandy. He has pleaded that the appellants had incurred expenses for development of the product in terms of the contract and since an amount of Rs. 1,00,000/- has been reimbursed by them from the Railways the whole amount should be taken to be attributable to the two sets of gauges and 2 sets of shear plates cleared by them ultimately goes to the Calcutta factory.
4. We have considered the pleas made by both the sides. We observe that when a product is manufactured to the requirements and specifications of a particular customer naturally some design and development expenses have to be incurred. These developments and design expenses though are relatable to be ultimate product which is manufactured and supplied, has to be taken amortised. All the expenses for development and design cannot be taken to be forming the part of the value of the first supply of goods for recovery. In a case like this therefore the proper course would be that in case amortisation is not possible to resort to Valuation Rules for this purpose. It may so happen in a given case a large amount may be spent on development of an item which is supplied in a few pieces against a large order. The product development may not also in the given case meet the desired standard and the total supply that is made may be a nominal quantity. In that case it will not be proper and fair to load all the development charges on a token supply or towards prototypes cleared. The valuation in such cases will have to be done in terms of Valuation Rules. In the present case since this has not been done, we hold that the learned lower authority’s order is not proper and we therefore set aside the same and remand the matter to the learned lower authority for de novo adjudication and decision in the light of our observations above.
(Pronounced and dictated in the open Court).