2013 (12) TMI 81 - AT - Central Excise

Compensation for delay to be included in the assessable value u/s 4 of central excise act or not after 01-07-2000 Held that - The provision in the contract for variation in the price by application of the clause was related to liquidated damages and the same is in the nature of a compensation payable for delayed delivery in the supply of goods and not in the nature of penalty - The Tribunal concluded that in terms of the definition of transaction value duty is payable only on the price arrived at by taking into account the liquidated damages - Section 4 read with the definition of transaction value in Section 4 (3) (d) enables levy of duty on the transaction value paid or payable for the goods - The value payable in a case where liquidated damages is applied would therefore be the consequent value and this would constitute the transaction value . Following United Telecom Ltd. Vs CCE Bangalore 2006 (9) TMI 321 - CESTAT BANGALORE - Post the amendment of Section 4 and the statutory definition of transaction value in sub-section (3) (d) of the Act - the eventual value payable after factoring in any liquidated damages contractually stipulated for delayed supply would be the transaction value and this value would be the value relevant for levy of duty - wherever the assessee as per the terms of the contract and on account of delay in delivery of manufactured goods is liable to pay a lesser amount than the generically agreed price as a result of a clause stipulating variation in the price on account a the liability to liquidated damages irrespective of whether the clause is titled penalty or liquidated damages the resultant price would be the transaction value - such value shall be liable to levy of excise duty at the applicable rate.

Issues Involved:
1. Whether any deduction claimed by the buyer of excisable goods as compensation for the delay in the supply of the goods by its manufacturer (assessee) under the contract between them, during any period after 01.07.2000, is liable to be included in the assessable value of the goods under Section 4 of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Relevant Legal Provisions and Amendments:
The judgment begins by highlighting the changes in Section 4 of the Central Excise Act, 1944, effective from 1.7.2000, due to the Finance Act, 2000. The pre-amendment Section 4 defined the value of excisable goods based on the "normal price," while the post-amendment Section 4 (1) (a) introduced the concept of "transaction value," which is the price actually paid or payable for the goods, inclusive of any amount the buyer is liable to pay to or on behalf of the assessee.

2. Definition of "Transaction Value":
Clause (d) of Section 4 (3) defines "transaction value" as the price paid or payable for the goods, including any amount the buyer is liable to pay in connection with the sale, excluding excise duty, sales tax, and other taxes. This definition is crucial in determining whether deductions for delays in delivery should be included in the assessable value.

3. Case Background and Purchase Order Clauses:
The assessee, a manufacturer of electrical transformers, supplied goods to various Distribution Companies (discoms) of the Andhra Pradesh State Electricity Board (APSEB). The purchase order included clauses for price variation based on raw material costs and penalties for delayed delivery, which could be up to 5% of the total contract value.

4. Conflict of Opinion and Referral to Larger Bench:
The referral order identified a conflict between Tribunal decisions, particularly between United Telecom Ltd. Vs CCE Bangalore and CCE Noida Vs Electron Energy Equipments Ltd., necessitating a reference to the Larger Bench.

5. Supreme Court and High Court Precedents:
The judgment references the Supreme Court decision in MRF Ltd. Vs CCE Madras, which held that subsequent price reductions do not alter the transaction value for duty purposes. This principle was followed by the Punjab and Haryana High Court in Mauria Udyog Ltd. Vs CCE.

6. Tribunal Decisions on Liquidated Damages:
Several Tribunal decisions were discussed, including Bhartia Cutler Hammer Ltd. Vs CCE New Delhi, which ruled that compensation for breach of contract (liquidated damages) is not part of the price and does not affect the assessable value. Similar views were reiterated in CCE Calicut Vs BPL Telecom Ltd., Faridkod Cooperative Sugar Mills Ltd. Vs CCE Ludhiana, and HPL Socomac Pvt. Ltd. Vs CCE Delhi-III (Gurgaon).

7. United Telecom Ltd. Decision:
The Tribunal in United Telecom Ltd. specifically addressed the definition of "transaction value" post-amendment and concluded that liquidated damages for delayed delivery should be considered in determining the transaction value. This decision was followed in CCE Chandigarh Vs HFCL, where the transaction value was reduced due to liquidated damages.

8. Analysis and Conclusion:
The judgment concludes that post-amendment, the value payable after factoring in liquidated damages for delayed delivery constitutes the transaction value for excise duty purposes. This view aligns with the decisions in United Telecom Ltd. and HFCL, which considered the amended Section 4 and the definition of "transaction value."

9. Reference Answered:
The Tribunal answered the reference by holding that the resultant price, after accounting for liquidated damages due to delayed delivery, is the transaction value liable for excise duty, regardless of whether the clause is titled "penalty" or "liquidated damages."

10. Remittance for Disposal on Merits:
The substantive appeals are remitted to the regular Bench for disposal on merits, in line with the reference answered.

Conclusion:
The judgment provides a detailed analysis of the legal provisions, conflicting decisions, and relevant precedents, ultimately concluding that deductions for delayed delivery, termed as liquidated damages, should be included in the transaction value for excise duty purposes.

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