2015 (10) TMI 357 - SC - Central Excise

Supreme Court Upholds Duty Calculation Rules, Excludes Post-Clearance Price Escalation

C.C.E. DELHI-III Versus M/s HITKARI FIBRES LTD.

The Supreme Court dismissed the appeal and affirmed the decision of CESTAT in a case involving non-disclosure of additional amounts received by the ... Valuation - price escalation clause - levy of interest on differential duty - Demand of interest u/s 11AB - Whether the interest was not leviable under Section 11AB of the Act particularly in view of the fact that the price indicated in the purchase orders were final during the period of supply of goods - Held that:- Time when the goods were cleared, the price which was charged from M/s. Maruti and the duty was paid on the said price. No doubt, some additional amount is received thereafter, on account of price escalation. However, it is not coming on record as to under what circumstances such price escalation was given. No such case was set up by the Revenue that the price was understated or depressed at the time of clearance of the goods and the additional amount was received subsequently, by a suspicious kind of arrangement. Even when the inquiries were made, we are conscious of the fact that the respondent-assessee had not appeared when summons were issued to clarify the position. However, in any case, the inquiries were made from M/s.Maruti and therefore, the concerned officer could find out from M/s. Maruti as to under what circumstances, price escalation was given and whether that was a factor contributing to the depression of price at the time of clearance of the goods. - it is difficult to hold that the aforesaid additional amount received at a subsequent stage was to be added for the purpose of arriving at the transaction value. - Decided against Revenue. Issues:1. Non-disclosure of additional amount received by the assessee on account of price escalation.2. Show Cause Notice issued by the Department under Section 11A of the Central Excise Act.3. Challenge of the order before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).4. Interpretation of Section 11A of the Act in relation to the transaction value for excise duty calculation.5. Comparison of judgments in 'MRF Limited v. CCE, Madras' and 'Commissioner of Central Excise v. International Auto Ltd.'6. Application of amended Section 11A of the Act.7. Consideration of additional amount received for price escalation in determining transaction value.Analysis:The judgment by the Supreme Court pertains to a case where the respondent-assessee, engaged in manufacturing non-woven carpets, received an additional amount due to price escalation during a specific period. The Department issued a Show Cause Notice under Section 11A of the Central Excise Act as the assessee did not disclose this amount. The Adjudicating Authority confirmed a demand and imposed penalties. The assessee challenged this before CESTAT, arguing that excise duty was correctly paid based on the ex-factory price at the time of clearance, excluding the subsequent escalation amount. CESTAT accepted this argument, citing 'MRF Limited v. CCE, Madras.' The Supreme Court analyzed the case, noting the absence of appearance by the respondent and the Revenue's argument against the application of 'MRF Limited' based on 'Commissioner of Central Excise v. International Auto Ltd.'Upon reviewing the judgments, the Supreme Court found that the amended Section 11A retained the demand of excise duty at the ex-factory stage. The Court emphasized that duty is payable based on the price at the time of goods clearance. In this case, the price charged to the main customer and duty paid were in alignment during clearance. The Court highlighted the lack of evidence suggesting the escalation amount was suspicious or related to initial price manipulation. Despite the respondent's non-appearance during inquiries, the Court considered the absence of facts linking the escalation to price depression during clearance.Consequently, the Supreme Court dismissed the appeal, affirming CESTAT's decision. The Court concluded that the additional amount received for price escalation post-clearance should not be included in determining the transaction value for excise duty calculation. The judgment clarified the application of Section 11A and upheld the decision based on the specific circumstances of the case.