2023 (2) TMI 6 - AT - Central Excise

Supreme Court Upholds Compensation Inclusion for Excise Duty

M/s. Rajasthan Prime Steel Processing Center Pvt Ltd Versus Commissioner of Central Excise And Central Goods & Service Tax, Commissionerate, Alwar

The Supreme Court upheld the decision to include compensation in the transaction value for excise duty purposes, invoke the extended period of limitation ... Valuation of excisable goods - consideration received by the appellant from Honda India under the guise of compensation was liable to be included in the transaction value of goods or not - extended period of limitation - HELD THAT:- It is clear from the order passed by the Commissioner (Appeals) that even though the agreement between the applicant and the Honda India did not have a condition for payment of compensation if the goods manufactured by the applicant were not received by the Honda India, yet the applicant paid compensation for non-lifting of such goods. The Commissioner (Appeals) also noted that the goods were specifically manufactured for Honda India for its 2CV Model, yet they were sold as scrap and that perusal of the sample invoices showed that the buyers of the goods were not scrap dealers - it was a business arrangement between the applicant, Honda India and the buyers to evade payment of excise duty. In other words, the arrangement between the appellant and Honda India was such that the goods would be sold at a lesser price by declaring them as scrap and the balance amount would be paid by Honda India by terming the amount as “compensation‟. Thus, the amount received towards so called “compensation‟ was to be included in the transaction value. The Tribunal also recorded such a finding and the Supreme Court has confirmed this finding. The amount received by the applicant from Honda India was not even shown in the ER-I Returns filed by the applicant. Much emphasis has been placed by the learned counsel for the applicant on the balance sheet of the applicant for the financial year 2011-12. All that is recorded in the said balance sheet is “compensation from customers- Rs.49,156,375/-“. It cannot be gathered from this statement in the balance sheet that this amount was received by the applicant from Honda India towards compensation for the cancellation of the agreement to supply the spare parts which were ultimately sold as scrap. The finding of the Tribunal that it transpires from the business arrangement between the appellant, Honda India and the buyers of scrap that the appellant had received some amount from the buyers of scrap and some amount from Honda India for the value of the auto parts sold by the appellant has been confirmed by the Supreme Court in the judgment and order dated February 14, 2022. The extended period of limitation contemplated under section 11A (4) of the Excise Act was, therefore, correctly invoked in the facts and circumstances of the case. Application dismissed. Issues Involved:1. Inclusion of compensation in the transaction value for excise duty.2. Invocation of the extended period of limitation under section 11A(4) of the Central Excise Act, 1944.3. Imposition of penalty under section 11AC(1)(c) of the Central Excise Act, 1944.Detailed Analysis:1. Inclusion of Compensation in the Transaction Value for Excise Duty:The appellant, engaged in manufacturing auto parts, entered into a contract with Honda Siel Car India Ltd (Honda India) which was later cancelled, leading to the sale of the manufactured parts as scrap. The appellant raised debit notes for compensation due to the cancellation. The department issued a show cause notice alleging that the compensation should be included in the transaction value of the goods for excise duty purposes. Both the adjudicating authority and the Commissioner (Appeals) found that the compensation received was for the auto parts initially intended for Honda India but sold as scrap, thus liable to be included in the transaction value. The Tribunal and the Supreme Court upheld this view, confirming that the compensation received should be included for valuation purposes.2. Invocation of the Extended Period of Limitation under Section 11A(4) of the Central Excise Act, 1944:The extended period of limitation was invoked on grounds of suppression of facts. The appellant argued that there was no suppression as the compensation was recorded in the balance sheet under 'other income-compensation from customers' and was available to the revenue authorities. The department contended that the extended period was rightly invoked due to the appellant's failure to disclose the compensation in the transaction value. The show cause notice and subsequent orders noted that the compensation was detected only after scrutiny by anti-evasion officers, indicating deliberate suppression. The Tribunal and the Supreme Court confirmed that the extended period was correctly invoked given the intent to evade duty.3. Imposition of Penalty under Section 11AC(1)(c) of the Central Excise Act, 1944:The appellant contested the imposition of penalty, arguing that the conditions for invoking the extended period and imposing a penalty were not met. The department maintained that the penalty was justified as the same conditions applied for both the extended period and penalty imposition. The orders noted that the appellant's actions showed a deliberate intent to evade duty by not including the compensation in the transaction value. The Tribunal and the Supreme Court upheld the imposition of penalty, confirming that the parameters for invoking the extended period and penalty were met.Conclusion:The application filed by the appellant was rejected, affirming the inclusion of compensation in the transaction value, the invocation of the extended period of limitation, and the imposition of penalty. The judgment emphasized the deliberate suppression of facts and intent to evade excise duty, justifying the actions taken by the department.