2006 (9) TMI 321 - AT - Central Excise

Refund claim u/s 11B - deduction from the transaction value as per Section 4(3) - difference in price quoted in the purchase order and invoices under the cover of which goods were cleared - Liquidated Damages - penalty imposed by the customer for delayed delivery of goods - HELD THAT - From the above definition of Section 4(3)(d) we find that the transaction value represents price actually paid or payable for the goods. Even though a price is fixed for the goods as per the contract the goods should be delivered on a particular date and when there is delay in delivery the price is reduced depending on the delay. As a result of above adjustments the appellant has received lesser payment of transaction value. When the price at which the goods are transacted has to be taken there is no question of any deduction. Due to the provision of liquidated damages the price actually payable is reduced and it is the reduced price which is to be taken for Central Excise duty purposes in the light of the definition of transaction value. Thus we find that the liquidated damage is 0.5% of the invoice value per week of delay. Considering the quantum of the liquidated damages and taking into account the submissions of the learned Advocate on the nature of the liquidated damages we are of the view that it is in the nature of compensation payable for delay caused in the supply of goods not in the nature of penalty. Therefore in terms of the definition of transaction value duty is payable only on the price arrived at by taking into account the liquidated damages. Hence we allow the appeal with consequential relief.

Summary

Issues:
Refund claim rejection based on liquidated damages as penalty under Central Excise Act, 1944.

Detailed Analysis:
The appeal was filed against the Order-in-Appeal rejecting a refund claim for a sum of Rs. 29,27,350/- due to the difference in price quoted in the purchase order and invoices being considered as Liquidated Damages, not an abatable discount under Section 4(3)(d) of the Central Excise Act, 1944. The Commissioner (Appeals) upheld the rejection, leading the appellants to approach the Tribunal for relief.

The appellant's representatives argued that the sum deducted by the customer was in the nature of liquidated damages, not a penalty, citing legal principles on contracts and damages. They highlighted the difference between the old and new Section 4 of the Act, emphasizing the transaction value concept under the new Section, which considers the price actually paid or payable for the goods. They contended that the price actually received by the appellant should be the transaction value, not the contracted price, as per legal precedents.

The Tribunal analyzed the case in light of the new Section 4, focusing on the definition of "transaction value" as the price actually paid or payable for the goods. Considering the reduction in payment due to liquidated damages for delayed delivery, the Tribunal concluded that the reduced price should be considered for Central Excise duty purposes. They determined that the liquidated damages in this case, being a percentage of the invoice value per week of delay, were in the nature of compensation for delay, not a penalty. Therefore, duty was payable only on the reduced price after factoring in the liquidated damages, leading to the appeal being allowed with consequential relief.

In conclusion, the Tribunal's decision clarified the treatment of liquidated damages under the Central Excise Act, 1944, emphasizing the importance of transaction value and distinguishing between penalties and genuine pre-estimated damages. The judgment provided a detailed analysis of the legal principles involved and applied them to the specific circumstances of the case to grant relief to the appellant.