Mandatory Type Testing Charges Includible In Excise Value Of ACSR Conductors: CESTAT Ahmedabad

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 23 September held that mandatory type-testing charges collected from a buyer form part of the assessable value of ACSR conductors for central excise purposes.

A Bench comprising Judicial Member Dr. Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh upheld the central excise duty demand against Smita Conductors Ltd. on testing charges collected from Power Grid Corporation of India Ltd. for type testing of ACSR conductors. It held:

“...the additional amount received by the appellant towards “type test charges” was in relation to sale of ACSR Conductors to M/s. Power Grid Corporation India Limited as without such certificate/ report, sale would not happen. Thus, the amount received by the appellant is in connection with sale of goods and accordingly, includible in the value of goods (ACSR conductors) for the purpose of payment of excise duty…”

Smita Conductors manufactures AAC and ACSR conductors. The dispute concerned Rs. 17.38 lakh collected from Power Grid towards type-testing charges between April 2016 and June 2017. The Department demanded central excise duty of Rs. 2.17 lakh on the amount, along with interest and penalty.

The company argued that the type test was an additional test conducted by a third-party agency at Power Grid's specific request and that the charges were reimbursed by the buyer. The Department submitted that the amount was paid by the buyer in connection with the sale of the finished goods and was therefore includible in the transaction value under Section 4 of the Central Excise Act.

The Tribunal examined whether the type testing was optional or mandatory. It noted that IS 398 (Part II) prescribes various tests for ACSR conductors, including mechanical, electrical and material-related tests, to ensure their safety and quality for high-voltage electricity transmission.

It found that the type tests were required to verify the design, material quality and manufacturing process of ACSR conductors and were mandatory under the applicable standards. It observed:

“...Type tests prescribed under IS 398 (Part II) are required for ensuring proper quality of ACSR Conductors used for transmission of electricity from the generation point to the substation or from one substation to another. Therefore, type tests undertaken as per the mandate and requirement of IS 398 (Part II) are to ensure safety in transmission of electricity from one place to other and are thus, mandatory test. These cannot be considered as optional testing...”

The Bench held that the sale of the conductors to Power Grid would not take place without the requisite type-test certificate or report. Therefore, the testing charges were “in connection with the sale” of the goods and had to be included in their assessable value, following the Supreme Court's ruling in CCE, Mysore v. TVS Motors Company Ltd.

On penalty, it noted that Smita Conductors had already received show cause notices on the same issue for earlier periods. However, taking a lenient view, it reduced the penalty under Rule 25 of the Central Excise Rules from an amount equal to the duty to Rs. 35,000.

Accordingly, the CESTAT upheld the duty demand and interest, while reducing the penalty to Rs. 35,000. The appeal was partly allowed to this extent.

For Appellant: Shri Vipul Khandhar, Chartered Accountant

For Respondent: Shri Mihir G Rayka, Additional Commissioner