2017 (4) TMI 221 - AT - Central Excise

Tribunal rules in favor of appellants in excise valuation case, excluding liquidated damages from assessable value.

The tribunal ruled in favor of the appellants, M/s. Vimlachal Print & Pack Pvt. Ltd. and Rashminbhai Shah, in a case involving excise valuation ... Liquidated damages not includable in assessable value - transaction value - additional consideration received from buyer - application of Rule 6 of the Central Excise Valuation Rules to buyer supplied or buyer related tooling - reversal of input credit for unused inputs - duty on amounts recovered for extra wastage upheld - penalty on director when no specific role provedLiquidated damages not includable in assessable value - transaction value - additional consideration received from buyer - application of Rule 6 of the Central Excise Valuation Rules to buyer supplied or buyer related tooling - Whether amounts recovered from the buyer towards unapportioned cost of cylinders are includable in the assessable value of the finished goods. - HELD THAT: - The Tribunal found that the appellant itself purchased the cylinders and recovered from the buyer the unapportioned cost where the buyer reduced offtake; these recoveries were characterised as compensation/liquidated damages for short lifting and not as value of buyer supplied tooling. Rule 6 (and its explanations) dealing with value of goods or value of buyer supplied materials/tools is inapplicable because the buyer did not supply the cylinders free or at reduced cost. Relying on precedents holding that liquidated damages (short lifting compensation) are not part of the transaction value, the Tribunal held that the amounts recovered are liquidated damages and therefore not includable in assessable value, setting aside the demand on that ground. [Paras 6, 7]Demand based on inclusion of the recovered cylinder costs in assessable value is set aside as those amounts are liquidated damages and not includable in transaction value.Reversal of input credit for unused inputs - Whether reversal of credit (input tax credit) ought to be directed in respect of unused inputs for which cost was recovered from buyers. - HELD THAT: - The Commissioner (Appeals) had dropped the demand but directed reversal of credit. The appellant contended the goods were not written off or disposed and were used in manufacture of other goods in the factory. On the material before it the Tribunal held that reversal of credit was not justified in the circumstances and that the demand on this ground is not sustainable. [Paras 8]Direction to reverse credit in respect of unused inputs overturned; demand on this ground not sustained.Duty on amounts recovered for extra wastage upheld - Whether duty is payable on amounts recovered on account of extra wastage arising in manufacture of wrapper. - HELD THAT: - The Tribunal noted that this ground of demand was not contested by the appellant. In consequence, the impugned demand insofar as it related to recoveries for extra wastage was upheld by the Tribunal. [Paras 9]Demand relating to amounts recovered for extra wastage is upheld.Penalty on director when no specific role proved - Whether penalty should be imposed on the director. - HELD THAT: - The Tribunal observed that no specific role of the director in the alleged violation had been pointed out in the proceedings. Given the absence of any particularised finding of culpability, the Tribunal found no reason to impose penalty on the director. [Paras 10]Penalty imposed on the director set aside.Final Conclusion: Appeal allowed in part: demand for inclusion of recovered cylinder costs in assessable value set aside as liquidated damages; direction to reverse input credit disallowed; demand for amounts recovered on extra wastage upheld; penalty on the director cancelled. Issues Involved:1. Inclusion of additional consideration in the assessable value.2. Reversal of credit on unused inputs.3. Duty on amounts recovered due to extra wastage.4. Imposition of penalty on the director.5. Invocation of the extended period of limitation.Issue-wise Detailed Analysis:1. Inclusion of Additional Consideration in the Assessable Value:The primary issue revolves around whether the amount of Rs. 17,83,447/- received by the appellant from M/s. Hindustan Lever Ltd. should be included in the assessable value of the goods. The appellant argued that only the proportion of the cylinder cost attributable to the actual production should be included, referencing Rule 6 of the Central Excise Valuation Rules and several tribunal decisions. The tribunal noted that the appellant purchased the cylinders and recovered part of the cost from the buyer as damages due to reduced quantity orders. It was held that Rule 6 was not applicable since the cylinders were not supplied free of cost by the buyer. The tribunal concluded that the amount recovered was in the nature of liquidated damages, not additional consideration, and thus not includable in the assessable value, citing precedents like Inox Air Products Ltd. and Faridkod Cooperative Sugar Mills Ltd.2. Reversal of Credit on Unused Inputs:The second issue concerned the reversal of credit on unused inputs. The first appellate authority had dropped the demand but directed the reversal of credit. The appellant contended that these inputs were not cleared from the factory and were used in manufacturing other goods, arguing that no reversal was necessary. The tribunal agreed with the appellant, stating that the reversal of credit was unjustified as the inputs were used in further production.3. Duty on Amounts Recovered Due to Extra Wastage:The appellant did not contest the demand related to amounts recovered due to extra wastage in manufacturing wrappers. Therefore, the tribunal upheld this demand.4. Imposition of Penalty on the Director:The appellant argued against the penalty of Rs. 10,000/- imposed on the director, stating no specific rule violation was pointed out and the issue involved interpretation. The tribunal found no reason to impose the penalty, as no specific role of the director was identified in the proceedings.5. Invocation of the Extended Period of Limitation:The appellant argued that there was no suppression of facts or intent to evade duty, challenging the invocation of the extended period of limitation. The tribunal did not explicitly address this argument in the final decision but focused on the nature of the amounts recovered and their non-inclusion in the assessable value.Conclusion:The tribunal set aside the demand related to the inclusion of liquidated damages in the assessable value and the reversal of credit on unused inputs. The demand related to extra wastage was upheld as it was not contested. The penalty on the director was also set aside. Consequently, the appeals of M/s. Vimlachal Print & Pack Pvt. Ltd. and Rashminbhai Shah were allowed.