CESTAT: When Pre-Delivery Inspection is Mandatory, Inspection Charges are Included in Assessable Value for Sale of Goods

CESTAT: When Pre-Delivery Inspection is Mandatory, Inspection Charges are Included in Assessable Value for Sale of Goods

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata by its division member bench of P.K. Chaudhary (Judicial Member) and K. Anpazhakan (Technical Member) has observed that, that pre-delivery inspection charges are includible in the assessable value when such pre-delivery inspection is mandatory and an essential condition for the sale of the goods.

In the present case, the appellant/assessee- M/s.Viswa Industrial Company Limited (Formerly M/s. Vishwa Industrial Company Private Limited) sold their goods mainly to government agencies, collieries, etc. The inspection was not mandatory but conducted at the option of the buyer. Even though they have their own quality control department, the inspection was undertaken by some agencies engaged by them. Initially, the appellants paid the ‘inspection charges’ and later got them reimbursed from the buyers.

The appellant was not getting any excess amount reimbursed over and above the actual amount of ‘inspection charges’ paid by them. The inspection charges reimbursed were not profits in the hands of the appellant. There cannot be additional income from the sale of such goods.

It was submitted by the appellant that the inspection charges reimbursed by the buyer cannot not form part of the assessable value.

Per contra, the department was of the view that the appellant had not submitted any evidence regarding the payment made by them to the third-party inspection agency first, and the amount was reimbursed by the customer later. Hence, it was an additional consideration for the sale and, accordingly, includable in the assessable value.

The CESTAT observed that, pre-delivery inspection charges are includible in the assessable value when such pre-delivery inspection is mandatory and an essential condition for the sale of the goods.

However, it observed that in the present case the pre-delivery inspection was not a mandatory one. It was conducted only at the instance of the customer and the customer has reimbursed the same charges paid by the Appellant to the inspection agency. There was no evidence available on record to establish that the Appellant has collected any amount over and above the inspection charges initially paid by them to the inspection agency.

In this regard, the Tribunal ruled, “in the absence of any such evidence, it cannot be held that the inspection charges are additional consideration received in connection with the sale of the goods and includible in the assessable value.”

Accordingly, the CESTAT allowed the appeal and held that in the present case inspection charges were not includible in the assessable value and hence the demand was not sustainable.