2008 (12) TMI 547 - AT - Central Excise

Tribunal Upholds Inclusion of Free Gifts in Excise Duty Calculation, Increases Penalty

The Tribunal upheld the inclusion of the cost of free gifts in the assessable value for excise duty calculation, considering them as part of sale ... Valuation - Free gifts - Demand - Limitation - Suppression Issues involved: The issues involved in this case are the inclusion of the cost of free gifts provided along with goods in the assessable value for excise duty calculation and the imposition of penalty under Sec. 11AC.Details of the Judgment:Issue 1: Inclusion of cost of free gifts in assessable valueThe case involved the manufacturing of lubricating oils on a job work basis and the inclusion of the cost of free gifts such as gold/silver coins, sunglasses, and watches provided by the buyer in the assessable value. The Commissioner (Appeals) held that free gifts contained in the units of clearance of excisable goods must be included in the assessable value, citing relevant Tribunal decisions. The Tribunal upheld this decision, stating that free gifts are considered as sales promotion incentives and are part of sale expenses, thus necessitating their inclusion in the cost of production for excise duty calculation.Issue 2: Penalty under Sec. 11ACThe Tribunal considered the penalty under Sec. 11AC as a mandatory penalty equivalent to the duty evaded, as per the Supreme Court decision in a related case. The penalty imposed by the Commissioner (Appeals) was enhanced from Rs. 5 lakhs to Rs. 19,81,961/-, aligning with the duty amount demanded.The Tribunal rejected the appeal filed by the assessee challenging the duty, interest, and penalty demands, while allowing the appeal filed by the Revenue to enhance the penalty amount. The decision emphasized the mandatory nature of the penalty under Sec. 11AC and the inclusion of the cost of free gifts in the assessable value for excise duty calculation.