2013 (12) TMI 81 - AT - Central Excise

Manufacturer's Delay Costs Included in Excise Duty Value

The Tribunal held that deductions claimed by the buyer as compensation for delayed delivery by the manufacturer should be included in the assessable value ... Transaction value - liquidated damages - penalty - assessable value - price variation clause - Section 4 valuation of excisable goodsTransaction value - liquidated damages - penalty - assessable value - price variation clause - Section 4 valuation of excisable goods - Whether a deduction effected by the buyer as compensation for delayed supply (by application of a contractual clause described as 'liquidated damages' or 'penalty') during any period after 01.07.2000 is required to be reflected in the assessable value of excisable goods under Section 4 of the Central Excise Act. - HELD THAT: - The Court examined Section 4 as amended with effect from 1.7.2000 and the statutory definition of 'transaction value' in Section 4(3)(d), which treats transaction value as the price actually paid or payable for the goods and includes amounts the buyer is liable to pay or on behalf of the assessee in connection with the sale. Post-amendment, the statutory scheme mandates levy of duty on the transaction value paid or payable on each removal. Where, by the contractual terms, delay in delivery results in application of a clause that reduces the amount payable by the buyer (whether labelled 'liquidated damages' or 'penalty'), the resultant reduced price is the price actually paid or payable and therefore constitutes the transaction value. Decisions that treated post-removal adjustments for liquidated damages or penalties as irrelevant were either decided under the pre-1.7.2000 regime or did not engage with the amended definition of 'transaction value.' The Court accepted the reasoning in United Telecom Ltd. and HFCL that, on the facts where the contract itself provides for reduction of price for delayed delivery, the adjusted amount governs the transaction value and hence the assessable value for excise duty. [Paras 16, 19, 20]Deductions from the agreed price on account of contractual liquidated damages (or a clause so titled) that result in a lesser amount being payable constitute the transaction value for the purposes of Section 4 and are liable to excise duty; substantive appeals remitted to the regular Bench for disposal in accordance with this answer.Final Conclusion: Reference answered: for supplies made after 01.07.2000, where contractual stipulations reduce the amount payable on account of delayed delivery, the reduced amount is the transaction value and is liable to excise duty; the substantive appeals are remitted for consideration in light of this conclusion. Issues Involved:1. Whether any deduction claimed by the buyer of excisable goods as compensation for the delay in the supply of the goods by its manufacturer (assessee) under the contract between them, during any period after 01.07.2000, is liable to be included in the assessable value of the goods under Section 4 of the Central Excise Act.Issue-wise Detailed Analysis:1. Relevant Legal Provisions and Amendments:The judgment begins by highlighting the changes in Section 4 of the Central Excise Act, 1944, effective from 1.7.2000, due to the Finance Act, 2000. The pre-amendment Section 4 defined the value of excisable goods based on the 'normal price,' while the post-amendment Section 4 (1) (a) introduced the concept of 'transaction value,' which is the price actually paid or payable for the goods, inclusive of any amount the buyer is liable to pay to or on behalf of the assessee.2. Definition of 'Transaction Value':Clause (d) of Section 4 (3) defines 'transaction value' as the price paid or payable for the goods, including any amount the buyer is liable to pay in connection with the sale, excluding excise duty, sales tax, and other taxes. This definition is crucial in determining whether deductions for delays in delivery should be included in the assessable value.3. Case Background and Purchase Order Clauses:The assessee, a manufacturer of electrical transformers, supplied goods to various Distribution Companies (discoms) of the Andhra Pradesh State Electricity Board (APSEB). The purchase order included clauses for price variation based on raw material costs and penalties for delayed delivery, which could be up to 5% of the total contract value.4. Conflict of Opinion and Referral to Larger Bench:The referral order identified a conflict between Tribunal decisions, particularly between United Telecom Ltd. Vs CCE Bangalore and CCE Noida Vs Electron Energy Equipments Ltd., necessitating a reference to the Larger Bench.5. Supreme Court and High Court Precedents:The judgment references the Supreme Court decision in MRF Ltd. Vs CCE Madras, which held that subsequent price reductions do not alter the transaction value for duty purposes. This principle was followed by the Punjab and Haryana High Court in Mauria Udyog Ltd. Vs CCE.6. Tribunal Decisions on Liquidated Damages:Several Tribunal decisions were discussed, including Bhartia Cutler Hammer Ltd. Vs CCE New Delhi, which ruled that compensation for breach of contract (liquidated damages) is not part of the price and does not affect the assessable value. Similar views were reiterated in CCE Calicut Vs BPL Telecom Ltd., Faridkod Cooperative Sugar Mills Ltd. Vs CCE Ludhiana, and HPL Socomac Pvt. Ltd. Vs CCE Delhi-III (Gurgaon).7. United Telecom Ltd. Decision:The Tribunal in United Telecom Ltd. specifically addressed the definition of 'transaction value' post-amendment and concluded that liquidated damages for delayed delivery should be considered in determining the transaction value. This decision was followed in CCE Chandigarh Vs HFCL, where the transaction value was reduced due to liquidated damages.8. Analysis and Conclusion:The judgment concludes that post-amendment, the value payable after factoring in liquidated damages for delayed delivery constitutes the transaction value for excise duty purposes. This view aligns with the decisions in United Telecom Ltd. and HFCL, which considered the amended Section 4 and the definition of 'transaction value.'9. Reference Answered:The Tribunal answered the reference by holding that the resultant price, after accounting for liquidated damages due to delayed delivery, is the transaction value liable for excise duty, regardless of whether the clause is titled 'penalty' or 'liquidated damages.'10. Remittance for Disposal on Merits:The substantive appeals are remitted to the regular Bench for disposal on merits, in line with the reference answered.Conclusion:The judgment provides a detailed analysis of the legal provisions, conflicting decisions, and relevant precedents, ultimately concluding that deductions for delayed delivery, termed as liquidated damages, should be included in the transaction value for excise duty purposes.