The Conundrum of Excise Duty on Drawings and Designs

June 25,2019
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Lalitendra Gulani (Palit & Co., Advocates & Solicitors)
Mr. Pallav Palit

Death and taxes! There’s never any convenient time for any of them

-          Margaret Mitchell, Gone with the Wind

The indirect tax structure underwent a tectonic shift on July 1st, 2017 with the advent of Goods and Services Tax (‘GST’) regime. The new regime has engulfed the entire spectrum of distinct levies, such as excise duty, service tax and value added tax. As the nation implemented the colossal regime, it was anticipated that new litigation under excise law will douse. However, the revenue recently has raked up a novel issue concerning excise duty on drawings and designs received by automobile component manufacturers from vehicle manufacturers. Before proceedings to the revenue’s assertions, it is pertinent to briefly outline the nature of transaction involved. 

A single passenger car is made up of approximately 30,000 parts. The vehicle manufacturers in a bid to increase their efficiency undertake manufacture of only crucial parts, like engine and ECU. The manufacture of the other parts is predominantly outsourced to component manufacturers. The parts manufactured by such component manufacturers can be broadly classified into the following groups. 

Group I

Standard parts, such as nuts and bolts

Group II

Parts which are specifically made for a particular vehicle, but do not require any inputs from component manufacturers, such as plastic parts

Group III

Parts which are specifically made for a particular vehicle and require technical inputs from component manufacturers, such as gaskets and control arms

The vehicle manufacturers issue specifications of the parts in form of 2D drawings and 3D models for the parts falling under Group II and Group III.

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