2011 (3) TMI 385 - AT - Central Excise

Insurance claim not part of sale price for excise duty. Commissioner's decision upheld.

The Commissioner (Appeals) allowed the respondents' appeal against the order confirming the demand of excise duty, interest, and penalty, setting it ... Valuation - Damaged Goods - Since,insurance claim received by the respondents was in respect of the goods which were damaged in the flood and which were subsequently sold as scrap - Therefore, Revenue allegation is the insurance claim received in relation to such damaged goods should form additional consideration received by the respondents in relation to the scrap and it should be considered as vital factor to arrive at the normal price in respect of the damaged finished goods in terms of Section 4(1)(a) of the Central Excise Act, 1944 - Hence, the Commissioner (Appeals)held that the respondents though had received certain amount of compensation from the insurance company in relation to the damaged goods, they had also incurred expenses for rectification and repairs of part of the damaged goods - the department has not been able to establish that the compensation received from the insurance company was forming part of the sale price of the ultimate product cleared and disposed of by the respondents - Compensation in relation to the damage suffered - Decided against the revenue. Issues:1. Appeal against order confirming demand of excise duty, interest, and penalty.2. Consideration of insurance claim received in relation to damaged goods as part of the sale price.3. Disposal of damaged goods as scrap and payment of excise duty accordingly.4. Contention regarding additional consideration received for scrap in relation to insurance claim.5. Appeal challenging the order of the adjudicating authority.Issue 1:The appeal arose from an order confirming the demand of Rs. 1,53,367/- along with interest and penalty of equal amount, besides a penalty of Rs. 20,000/- under Rule 173Q(1) read with Rule 9(2) of the Central Excise Rules, 1944. The Commissioner (Appeals) allowed the appeal filed by the respondents against the order of the adjudicating authority, setting it aside.Issue 2:The respondents, engaged in the manufacture of excisable goods, received an insurance amount of Rs. 30,91,171/- due to damage caused by a flood to their factory and office premises, including finished and semi-finished products, furniture, and machinery. The department contended that the insurance claim received should be considered as additional consideration in determining the normal price of the damaged finished goods under Section 4(1)(a) of the Central Excise Act, 1944.Issue 3:The respondents disposed of the damaged finished goods as scrap and paid excise duty accordingly. A show cause notice was issued, which the respondents contested. The adjudicating authority confirmed the demand based on the department's argument regarding the insurance claim received in relation to the damaged goods.Issue 4:The Commissioner (Appeals) set aside the order of the adjudicating authority, noting that the respondents had also incurred expenses for rectification and repairs of part of the damaged goods. The Commissioner held that the department's contention regarding the insurance claim as additional consideration was not justified, considering the circumstances of the case.Issue 5:The appellate tribunal found that the department failed to establish that the compensation received from the insurance company formed part of the sale price of the ultimate product cleared and disposed of by the respondents. As the compensation was related to the damage suffered by the respondents and not part of the sale price, the tribunal upheld the decision of the Commissioner (Appeals) and dismissed the appeal.This detailed analysis of the legal judgment highlights the issues involved, the arguments presented by the parties, and the rationale behind the decisions made by the adjudicating authority, Commissioner (Appeals), and the appellate tribunal.