2021 (10) TMI 638 - AT - Central Excise

Tribunal Upholds Inclusion of Compensation in Goods' Value: Central Excise Duty Ruling

M/s RAJASTHAN PRIME STEEL PROCESSING CENTER PVT. LTD. Versus COMMISSIONER CENTRAL EXCISE AND CGST, ALWAR

The Tribunal affirmed the decision of the Commissioner (Appeals) in a case involving the inclusion of compensation received from Honda India in the ... Valuation - Nature of amount received - Recovery of Central excise duty with interest and penalty - amount received by the appellant from M/s. Honda Siel Car India Ltd. [Honda India], for the loss suffered by the appellant on account of the cancellation of the contract for supply of auto parts used in the manufacture of vehicles - HELD THAT:- Section 4(1) of the Excise Act deals with valuation of excisable goods for purposes of charging of duty of excise. It provides that where the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall be, if the assessee and the buyer of goods are not related and the price is the sole consideration for the sale, be the transaction value. Transaction value has been defined under section 4(1)(d) of the Excise Act to mean the price actually paid or payable for the goods. The dispute in the present appeal relates to the amount which the appellant received from Honda India due to cancellation of the contract. This amount obviously was to make up for the reduced price which the appellant received from the sale of auto parts manufactured by the appellant. The Department alleges that this was infact the balance consideration received by the appellant from Honda India under the guise of compensation and, therefore, should be included in the transaction value - It clearly transpires from the business arrangement that the appellant had received a substantial amount from Honda India, even though the terms of the contract did not provide for payment of any amount to the appellant if the contract of supply of auto parts was cancelled by Honda India. What is also important to notice is that even for the subsequent year the appellant also claimed that it had to sell the auto parts as scrap since the contract was cancelled. It transpires from the business arrangement between the appellant, Honda India and the buyers that the appellant received some amount from the buyers of scrap and some amount from Honda India for the value of the auto parts and there is no good reason as to why this amount received by the appellant from Honda India should not be included in the transaction value of the goods - the contention of the appellant that the amount cannot be included in the transaction value since the consideration must flow only from the buyer to the seller of goods, in view of the business arrangement arrived at in the present case, cannot be accepted. Rule 5 of the Central Excise (Valuation) Rules, 1975 also talks of additional consideration flowing directly or indirectly from the buyer to the assessee. In view of the peculiar nature of the business arrangement between the appellant, Honda India and the buyers of auto parts, it is clear that the amount received by the appellant from Honda India has flown indirectly from the buyers. There is, therefore, no error in the order passed by the Commissioner (Appeals) - appeal dismissed. Issues Involved:1. Inclusion of compensation received in the transaction value.2. Applicability of the extended period of limitation.3. Imposition of penalty and interest.Detailed Analysis:1. Inclusion of Compensation Received in the Transaction Value:The primary issue revolves around whether the compensation received by the appellant from Honda India should be included in the transaction value of the goods. The appellant contended that the compensation was for the loss incurred due to the cancellation of the contract and not related to the sale of goods. The appellant argued that the amount received was in the nature of liquidated damages and not includible in the transaction value as per section 4(3)(d) of the Excise Act and rule 5 of the Central Excise (Valuation) Rules, 1975.However, the Department argued that the compensation received was directly related to the goods sold at a lesser value due to the non-lifting of goods by Honda India. The Commissioner (Appeals) and the adjudicating authority found that the amount received from Honda India was indeed for the auto parts initially intended for Honda India but sold as scrap to other buyers. The authorities concluded that this amount should be included in the transaction value as it was part of the consideration for the goods sold.The Tribunal upheld this view, stating that the compensation received indirectly flowed from the buyers of the scrap and was part of the transaction value. The Tribunal distinguished this case from previous rulings, noting the unique business arrangement between the appellant, Honda India, and the buyers.2. Applicability of the Extended Period of Limitation:The appellant challenged the invocation of the extended period of limitation under section 11A(4) of the Central Excise Act, 1944. The show cause notice was issued on 29.03.2017, alleging that the consideration received from Honda India was liable to be included in the transaction value.The Tribunal did not find merit in the appellant’s argument against the extended period of limitation. The authorities had sufficient grounds to believe that the appellant had not disclosed the true nature of the compensation received, justifying the invocation of the extended period.3. Imposition of Penalty and Interest:The appellant also contested the imposition of penalty and interest. The Additional Commissioner had confirmed the demand with interest and imposed an equal penalty. The Commissioner (Appeals) upheld this decision but extended the benefit of cum-duty price.The Tribunal agreed with the lower authorities, noting that the appellant had received compensation from Honda India, which was part of the consideration for the goods. The imposition of penalty and interest was deemed appropriate given the circumstances and the appellant’s failure to include the compensation in the transaction value.Conclusion:The Tribunal dismissed the appeal, affirming the order of the Commissioner (Appeals). The compensation received from Honda India was held to be includible in the transaction value of the goods, justifying the demand for central excise duty, interest, and penalty. The Tribunal found no error in the lower authorities' decisions and upheld the invocation of the extended period of limitation.