TaxTMI 
TaxTMI 
2026 (7) TMI 1616
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....iles strictly according to customer specifications. Since every customized profile requires development of a separate die, the appellant collects from its customer a refundable security deposit towards die-development. The purchase orders placed by the customers specifically provide that the amount collected is refundable if the customer lifts the agreed minimum quantity of Aluminium Profiles viz., 3 MT, within stipulated period of two years. If the customer fails either: (i) to place the agreed orders or (ii) to lift the agreed minimum quantity, the deposit becomes liable to forfeiture. 3. Thus, according to the appellant, the amount collected is merely a security deposit intended to safeguard the expenditure incurred in manufacturing a customer-specific die, which otherwise becomes commercially useless. 4. The Department formed a view that the deposits forfeited by the appellant were in reality nothing but additional consideration received in connection with the sale of Aluminium Profiles. Accordingly, a Show Cause Notice dt.08.05.2013 was issued proposing to include the forfeited amount of Rs.36,95,130/- in the assessable value under section 4(3)(d) of....
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....India Ltd [2007 (11) TMI 106 - CESTAT Chennai] d) SDL Auto Pvt Ltd Vs CCE, Delhi-IV [2013 (294) ELT 577 (Tri-Del)] e) Continental Foundation Jt Venture Vs CCE [2007 (216) ELT 117 (SC)] f) Collector Vs Chemphar Drugs & Liniments [1989 (40) ELT 276 (SC)] g) Padmini Products Vs CCE [1989 (43) ELT 195 (SC)] h) Larsen & Toubro Ltd Vs CCE, Pune-II [2007 (211) ELT 513 (SC)] i) Jaypee Bela Plant Vs CCE [2010 (259) ELT 114 (Tri-Del)] j) Hindusthan Seals Ltd Vs CCE [2006 (199) ELT 878 (Tri-Kolkata)] k) Ispat Industries Ltd Vs CCE [2006 (199) ELT 509 (Tri-Mumbai)] 11. Appellant has also placed reliance on the CBIC Circular No. 178/10/2022-GST dt.03.08.2022, wherein the Board itself has clarified that forfeiture of security deposits and liquidated damages do not constitute consideration. 12. Learned AR for the Department has reiterated the findings of the lower authorities and has also submitted that the deposits were collected only because of manufacture and sale of Aluminium Profiles. The customer would not have deposited the amount but for purchase of the goods. Hence, the forfeited amount has direct nexus with th....
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....ale' undoubtedly has wide amplitude. However, the width of the expression cannot be divorced from the statutory context. The additional amount sought to be included must nevertheless possess a direct and proximate nexus with the sale transaction. Every payment flowing from a buyer to a manufacturer does not automatically become part of the transaction value. The amount must represent consideration for the sale of the excisable goods or something intrinsically connected with such sale. The Valuation provisions do not authorize inclusion of every receipt merely because it originates from a customer. A distinction has to be maintained between consideration for sale and compensation arising from breach of contract. 20. The purchase orders placed before us indicate that the amount collected towards die-development was expressly described as a refundable deposit. The contractual arrangement stipulated that the amount would be refunded if the customer lifted the agreed minimum quantity of Aluminium Profiles within the specified period. Thus, the liability to refund arose automatically upon due performance of the contract. Conversely, forfeiture occurred only where the customer failed t....
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....on cannot be equated with consideration received for Aluminium Profiles cleared from the factory. 23. The department has also invoked Rule 6 of Central Excise Valuation Rules, 2000. Rule 6 merely provides the mechanism for determining the value where additional consideration flows directly or indirectly from the buyer to the assessee. The rule does not enlarge the definition of 'transaction value'. Unless the payment first satisfies section 4 itself, Rule 6 cannot independently justify the inclusion. In other words, Rule 6 is procedural. It cannot convert compensation into consideration. Therefore, before invoking Rule 6, Revenue must first establish that the amount retained by the appellant was consideration for the sale of goods. In the present case, such foundational requirement has not been established. 24. The contractual terms placed on record clearly indicate that the deposits serve two purposes. ⮚ Firstly, it secured the appellant against substantial expenditure incurred in manufacture of specialized dies. ⮚ Secondly, it ensured the customers honoured their minimum lifting commitments. 25. The forfeiture clause operates purely as con....
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.... sold. Such compensation merely indemnifies the manufacturer against the financial consequences arising out of non-performance by the customer and cannot be regarded as a component of assessable value unless the statute expressly provides so. The ratio laid down in the above decision, in our considered opinion, squarely supports the appellant. In the present case also, the amount retained by the appellant came into existence only because the customer failed to honour the contractual commitments regarding minimum lifting of Aluminium Profiles. The forfeiture, therefore, represents compensation for breach and not an element of sale price. Accordingly, we respectfully follow the ratio of the above decision. 29. In the case of Jindal Praxair Oxygen Co Ltd Vs CCE, Belgaum (supra), the Bangalore Tribunal held that damages recovered because of breach of contract do not constitute consideration for the goods supplied. Such receipts arose independently of the sale transaction and merely compensate the manufacturer for the consequences flowing from non-performance of contractual obligations. The Tribunal further observed that unless the payment has a direct nexus with the price of goods s....
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....decision rendered in Prayag Castings Ltd Vs CCE, Ahmedabad [2006 (199) ELT 191 (Tri-Mumbai)]. We have carefully examined the said judgment. In our considered opinion, the reliance placed by the department is misplaced. In the above case, the pattern-development charges themselves formed part of the commercial arrangement for manufacture and supply of castings. The Tribunal found that such charges represented consideration directly relatable to manufacture of excisable goods and had not been included while arriving at assessable value. The fact before us stands on entirely different footing. The appellant is not collecting die-development charges as additional price. Rather, the amount is collected as refundable security deposit. The deposit stands refunded whenever contractual obligations are fulfilled. Only where the customer commits breach, does the amount become liable to forfeiture. Thus, unlike in the case of Prayag Castings Ltd Vs CCE, Ahmedabad (supra), the present dispute does not concern recovery of die-development charges forming part of manufacturing cast. Instead, it concerns retention of security deposit consequent upon breach of contract. The distinction is fundamenta....
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....rned Counsel for the appellant has submitted that entire demand is founded on interpretation of section 4 of the Act. The refundable deposits, subsequent forfeiture, accounting treatment and contractual terms were duly reflected in the books of accounts, balance-sheets and statutory records, which were periodically subjected to audit by the department. It has been argued that there was neither any concealment nor any willful misstatement. Mere difference of opinion on valuation cannot justify invocation of extended period. We find considerable force in the above submission. It is well settled that the extended period is an exception to the normal rule of limitation. The burden lies squarely upon the Revenue to establish not only suppression of facts but also an intention to evade payment of duty. Mere non-payment or short-payment of duty, arising out of interpretation of statutory provisions, cannot by itself justify invocation of extended period. 41. The Hon'ble Supreme Court in the case of Continental Foundation Jt Venture Vs CCE (supra), held that the expressions 'suppression', 'misstatement' or 'willful misstatement' must be construed strictly. Suppression means deliberate w....