TaxTMI 
TaxTMI 
2007 (5) TMI 89
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....nvestment in fixed assets Rs. 6.45 crores (b) Holiday compensation Rs. 9.30 crores (c) Insurance and bank charges Rs. 1.38 crores (d) Cancellation charges for SNP 3 to 6 and NP 9 pumps Rs. 6.23 crores Total Rs. 23.36 crores As per Revenue, it appeared that the cancellation charges received by the assessee from NPCIL was additional consideration and as such was required to be loaded in the assessable value of the 8 pumps. A show cause notice was is sued to the assessee seeking to add above compensation charges in the assessable value and demanding duty amounting to Rs. 3,73,76,000/- along with interest under Section 11AB of the Act. It also proposed to impose penalty under Rule 173Q of Central Excise Rules, 1944 read with Rule 25 of Central Excise Rules, 2000 read with Section 11AC of the Central Excise Act, 1944. The show cause notice was adjudicated by the Commissioner who confirmed the demand and imposed penalty of equivalent amount under Section 11AC of the Act. 2. The learned Advocate for the appellants submits that under a con tract with the Department of Atomic Energy (DAE), Government of India, the appellants manufacture the primary coolant pumps which ....
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.... by treating compensation charges received by them as additional consideration. While arriving at his finding, the Commissioner has held that investments in fixed assets, holiday compensation, insurance, bank charges and cancellation charges are essential ingredients as per established costing principles and ought to be included while valuing their 8 pumps. It was observed by him that there was continuity in the old orders and so-called new order was in fact a continuation of orders placed in 1990 and therefore the entire price received by him including liquidated damages should form part of the assessable value. He observed that the appellants have received technical know-how from M/s. KSB, Germany for the manufacture of impugned pumps and this technical know-how charges have to be treated as part of the assessable value. The contract entered into by the appellants show that engineering charges were nil which means design engineering charges without which it could not be manufactured were not included in the assessable value. 5. It was submitted that the Commissioner in arriving at the above conclusion has gone beyond the ambit of the show cause notice, as show cause notice nowhe....
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....ents, the said amount was required to be recovered from NPCIL. This again a legitimate manner of computing damages. The plant was set up for the only client for nuclear coolant pumps. The said plant remained substantially idle for want of orders. The plant incurred expenses even if the same remained idle. (c) Cancellation charges - Rs. 6.23 crores, - This amount was paid as liquidated damages for loss of profit to the appellants. 6. In view of the above, it was submitted that liquidated and cancellation charges cannot be considered to be relating to the price of 8 pumps supplied by them. The Commissioner has failed to appreciate that the revised price of 8 pumps has gone up huge cost escalation from Rs. 7,23,10,000/- to Rs. 24, 21,00,000/- between 12-1-1990 to 24-10-2000 which itself showed that the appellants had charged NPCIL the full value of the pumps and that the amount of Rs. 23.26 crores represented the genuine damages arising out of cancellation of firm orders earlier placed on the appellants. No case therefore has been made out that the value was depressed to the extent of any part of the said Rs. 23.26 crores. 7. In respect of their plea that the damage charges cannot ....
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....s also on record that the assessee was compensated for the investment as well as for other aspects like holiday compensation, insurance charges, amortization costs etc. Since investment on plant and machinery, amortized costs are essential ingredients for costing the product and since they form part of the compensation packages and not taken into account for the purpose of costing of the pumps they have to be treated as part and parcel of the final products. The fact that no design charges or technical know-hew fees for sale of 8 pumps has been taken into account, is evident from the annexure to purchase order of NPC dated 24-10-2000 where the cost of elements viz, design, preparation of drawings, documents, procedures, analysis, procurement of materials, manufacture, assembly, inspection testing, packing, documentation, supply and delivery of pump motor units of NP-8 project based on technical know-how transferred from M/s. KSB, Germany for the pumps to KSB India and from AEG, Germany for motors to M/s. NGEF Limited is shown as nil. It was accordingly submitted that compensation was nothing but recovery of cost towards investment on plant and machinery, technical know-how, designs....
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....ure and supply of pumps nor any order placed before 1990 is incorrect as appellants have submitted documents to show that the orders were indeed placed and 24 pumps were supplied during the period 1985 to 1990. In view of this, conclusion drawn by the Commissioner that the expenditure incurred on creating infrastructure, technical know-how fees, drawings and designs fees, etc. are part of compensation, is wrong. The compensation has been paid as per terms of the agreement and the nature thereof has been explained. There is no finding from the Commissioner that the compensation arrived at was beyond the terms of agreement and that they were not provided for in the initial agreement entered into in 1976. It is because of the fact that no new technical know-how was acquired nor any fresh investment was made in creating the infrastructure facility that drawings and designs charges, technical know-how fees, etc. have been shown nil as they have already been incurred while manufacturing 24 pumps supplied during the period 1985 to 1990 Compensation charges have been adequately explained towards amortized and fixed cost like service, maintenance, etc. with holiday compensation and cancella....