Randolph Palmer Tax authorities have issued numerous display-cause notices (SCNs) to car-aspect manufacturers (ACM) lately, looking for better extra excise duty on designs or drawings supplied by automobile groups to the ACMs to manufacture and manufacture vehicle components. Industry practice: Automobile organizations commonly enter into licensing agreements with their overseas parent agency for the licensing of a whole variety of intellectual assets rights, designs, drawings, and technical know-how while recognizing the numerous components and components of car manufacturing and vehicle businesses in India pay royalties to the overseas parent businesses as agreed below the licensing agreements. Designs and drawings are supplied to ACMs as a separate transaction for the cause of manufacturing the elements, which are then provided to car companies for incorporation into vehicles.
The tax department issued SCNs to various ACMs across the United States of America, alleging that the ACMs, in collusion with vehicle agencies, evaded excise duty by not adding the fee of designs or drawings to the last synthetic additives. The designs and drawings made available are alleged to be further attention and, therefore, at risk of excise responsibility.
Legal function: Section 4 of the Central Excise Act, 1944 (CEA) prescribes that if the client and vendor are not associated, and the price is the sole consideration, then excise duty calculation shall be based on the transaction value. However, section four(1)(b) states that otherwise, the obligation will be determined according to the rules. Therefore, strong reliance is placed using the department on rule 6 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000 (rules), where the cost of designs dra, wings, and blueprints are delivered to the attention in situations in which charge is not the sole consideration.
Unexpectedly, the branch brought this up after introducing the goods and services tax (GST). Not including the value of designs and drawings in the final attention is a many-year-old industry practice. However, under GST policies, automobile enterprises cannot get any credit for incremental excise duties paid by ACM.
Key arguments that may be followed through the ACM areas below:
The provision of designs and drawings is a condition of settlement and no longer extra attention. The designs and drawings supplied to ACMs are given because their miles are essential to manufacturing vehicle components according to the specs of the carmaker. They don’t shape any additional attention for the ACMs. A distinction should be made between technical and easy drawings or specifications. A specification does now not form part of the consideration for rule 6. However, it should be remembered that the courts have generally set an excessive bar for drawings or designs to prevent rule 6 by using the qualification as a specification.
The Customs Excise and Service Tax Appellate Tribunal (CESTAT), in the case of Commissioner of Central Excise v Tata Motors (2009), argued that drawings no longer capable of being converted to textual form cannot be easy drawings. There isn’t any method prescribed for the determination of the fee for designs or drawings. The values followed inside the SCNs are based on the royalty paid with the aid of the car producers to the overseas discern agency, which has a “scant nexus” with the transaction among ACMs and vehicle producers. Such a technique is completely incorrect, arbitrary, and extortionate.
Effectiveness of writ petitions: Numerous writs have been filed hard to initiate investigations under pre-GST taxes after implementing GST. However, the courts have always rejected such attempts, and it no longer appears to be a prudent and sound felony method. Nonetheless, considering the situation in its entirety, specifically the timing of such SCNs, an opportunity writ petition will be issued searching for instructions that the authorities have recourse to segment 11C of CEA. Section 11C states that if an industry exercise of treating a transaction specifically exists, the government has the electricity to issue an exemption to validate such exercise. This method seems worth exploring before the excessive courts, especially while the government has issued notifications beneath segment 11C on diverse issues and transactions after GST.
