2007 (5) TMI 89 - AT - Central Excise

Valuation(Central Excise) - Revenue contended 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 8-pumps - Held that revenue contention was not correct and set aside

Summary

Issues Involved:
1. Whether the cancellation charges received by the assessee from NPCIL should be included in the assessable value of the 8 pumps supplied.
2. Whether the technical know-how, design, and engineering charges should be included in the assessable value.
3. Whether the extended period of limitation for issuing the show cause notice is applicable.
4. Whether the penalty imposed under Section 11AC of the Central Excise Act, 1944 is justified.

Detailed Analysis:

1. Inclusion of Cancellation Charges in Assessable Value:
The Revenue argued that the cancellation charges of Rs. 23.36 crores received by the assessee from NPCIL were additional consideration and should be included in the assessable value of the 8 pumps. The Commissioner confirmed this demand, treating the compensation charges as part of the assessable value. However, the appellants contended that these charges were liquidated damages for the cancellation of the order and did not relate to the price of the 8 pumps supplied. They cited previous Tribunal decisions, such as Faridkod Co-operative Sugar Mills Ltd. v. CCE, Ludhiana, which held that liquidated damages are not includible in the assessable value.

2. Inclusion of Technical Know-how, Design, and Engineering Charges:
The Commissioner held that technical know-how, design, and engineering charges should be included in the assessable value, despite these not being mentioned in the show cause notice. The appellants argued that the technical know-how was acquired in 1976-78, and the duty was already paid during that period. They provided evidence of agreements and payments made for the technical know-how and argued that the compensation received was for fixed costs and holiday compensation, not for technical know-how.

3. Extended Period of Limitation:
The Commissioner invoked the extended period of limitation, claiming suppression of facts by the appellants. The appellants countered that there was no suppression as the department had full knowledge of the matter a year prior to the issuance of the show cause notice. They argued that the extended period could not be invoked.

4. Justification of Penalty:
The Commissioner imposed a penalty equivalent to the duty amount under Section 11AC of the Central Excise Act, 1944. Since the primary demand itself was contested by the appellants, they argued that the penalty was not justified. The Tribunal, agreeing with the appellants, noted that since the demand was not sustainable on merits, the penalty could not be imposed.

Conclusion:
The Tribunal found that the Commissioner had made factual inaccuracies, particularly in stating that no pumps were supplied before 1990. The Tribunal noted that 24 pumps were supplied between 1985 and 1990, and the compensation was for fixed costs, holiday compensation, and cancellation charges, not technical know-how. The Tribunal held that the compensation charges could not be included in the assessable value, citing previous decisions. Consequently, the demand was not sustainable on merits, and the penalty was not justified. The Tribunal set aside the Commissioner's order and allowed the appeal.