2022 (10) TMI 512 - AT - Central Excise

Tribunal excludes Earnest Money Deposit from transaction value in scrap sale

M/s. Crompton Greaves Ltd. Versus Commissioner of Central Excise, Mumbai-III

The Tribunal ruled that the forfeited Earnest Money Deposit (EMD) should not be included in the transaction value for the sale of scrap. It held that ... Recovery of amount of duty on the additional consideration to the extent of forfeiture of security deposit - breach of contract - earnest money deposit - HELD THAT:- The definition of ‘transaction value’ has been defined as reproduced by the Commissioner (Appeals) in para 6 of the order. It clearly states that whatever the amounts paid or payable as the condition of the sale of the goods shall be part of the assessable value. Earnest money deposit and deductions made therefrom cannot be termed as an amount charged for the sale of the impugned goods, more-so-ever when it was against an auction sale. In M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [2020 (12) TMI 912 - CESTAT NEW DELHI], the Tribunal has held that the view taken by the Principal Commissioner that penalty amount, forfeiture of earnest money deposit and liquidated damages have been received by the appellant towards “consideration” for “tolerating an act” leviable to service tax under Section 66E(e) of the Finance Act. In M/S. STEEL AUTHORITY OF INDIA LTD., SALEM VERSUS COMMISSIONER OF GST & CENTRAL EXCISE, SALEM [2021 (7) TMI 1092 - CESTAT CHENNAI], the Tribunal has held that The activities, therefore, that are contemplated under section 66E(e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity. There are no merits in the impugned order - appeal allowed. Issues Involved:1. Determination of transaction value for the sale of scrap.2. Inclusion of forfeited earnest money deposit (EMD) in the transaction value.3. Applicability of interest and penalty under the Central Excise Act, 1944.Issue-wise Detailed Analysis:1. Determination of Transaction Value for the Sale of Scrap:The primary issue revolves around whether the forfeited EMD should be included in the transaction value for the sale of scrap. The Commissioner (Appeals) upheld the Assistant Commissioner's decision, asserting that the definition of 'transaction value' includes any amount the buyer is liable to pay in connection with the sale, regardless of the time of payment. The Tribunal, however, clarified that the transaction value should only include amounts directly related to the sale of goods. The Tribunal emphasized that the EMD and deductions made therefrom are not part of the sale price but serve as a security measure against non-performance by the bidder.2. Inclusion of Forfeited Earnest Money Deposit (EMD) in the Transaction Value:The appellant argued that the EMD was taken to protect against breach of contract and was not part of the auction price. The Tribunal supported this view, stating that the forfeited EMD should not be included in the assessable value. It referred to the Supreme Court's decision in TVS Motors Co. Ltd., which highlighted that additional amounts payable by the buyer must be directly linked to the sale of goods to be included in the transaction value. The Tribunal concluded that the forfeited EMD does not fall under this category as it is not a condition for the sale but a penalty for non-performance.3. Applicability of Interest and Penalty under the Central Excise Act, 1944:The Commissioner (Appeals) upheld the imposition of interest and penalty, citing the appellant's failure to disclose the additional consideration to the Department. The Tribunal disagreed, noting that the forfeited EMD is not part of the transaction value and, therefore, does not attract additional duty. Consequently, the interest and penalty provisions under Sections 11AB and 11AC of the Central Excise Act, 1944, are not applicable. The Tribunal referenced previous decisions, such as in the cases of South Eastern Coalfields Ltd. and Steel Authority of India Ltd., to reinforce that penalties and interest are not warranted when the additional amounts are not part of the transaction value.Conclusion:The Tribunal set aside the impugned order, concluding that the forfeited EMD should not be included in the transaction value for the sale of scrap. It ruled that the interest and penalty imposed were not justified, as the additional amounts were not directly related to the sale of goods. The appeal was allowed, providing relief to the appellant.