2014 (12) TMI 829 - AT - Central Excise

Valuation of goods - Cancellation of contract - Receipt of compensation/damages from M/s WBPDCL, which the Department proposed to include in the assessable value of the goods lying in the factory, considering the same as additional consideration, under Rule 6 of the Central Excise Valuation Rules, 2000 - Held that - Contract for supply of goods, viz, boiler and boiler parts had been cancelled by M/s WBPDCL. As a result, the Applicant had cleared the finished goods, work in progress goods and raw material from the factory after determining its cost/value in accordance with the provision of Central Excise Valuation Rules,2000. - The arguments advanced from both sides, needs to be analysized in detail on the basis of evidences brought on record including the plea whether the demand is barred by limitation. At this stage, it would be difficult to ascertain, whether the amount received by the Applicant is purely on account of liquidated damages or compensation for various losses incurred in relating to the goods on cancellation of contract ; consequently, its includibility as additional consideration in the value of goods cleared. Prima-facie, keeping in view that the matter has been remanded by the Hon ble High Court for re-consideration, the offer made by the ld.Advocate for the Applicant at this stage, seems to be reasonable. Accordingly, we direct the Applicant to deposit 10% of the duty confirmed within a period of eight weeks - Partial stay granted.

Summary

Issues: Application for waiver of predeposit of duty and penalty; Inclusion of compensation/damages in assessable value of goods; Barred by limitation; Interpretation of liquidated damages vs. compensation cost.

Analysis:
1. Waiver of Predeposit: The Applicant sought waiver of predeposit of duty and penalty amounting to Rs. 2.76 Crores imposed under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. The Applicant had cleared goods after the cancellation of the original contract by M/s WBPDCL and received compensation/damages. The Department proposed to include this amount in the assessable value of the goods, considering it as additional consideration under Rule 6 of the Central Excise Valuation Rules, 2000. The Advocate for the Applicant referred to a Tribunal decision to support the argument that the received amount was in the nature of liquidated damages and should not be included in the value of goods. The Department, however, argued that the amount was compensation cost and not liquidated damages.

2. Limitation Issue: The Applicant contended that all relevant facts, including the cancellation of the contract, were communicated to the Department in 2003, and the demand issued in 2007 was barred by limitation. The Department raised doubts about whether all facts were disclosed in the communication from the Applicant in 2003. The Tribunal noted that the matter was remanded by the High Court for re-consideration, indicating the need for a detailed analysis of the evidence to determine the nature of the received amount and its includibility in the value of goods.

3. Interpretation of Liquidated Damages: The Tribunal acknowledged the complexity in determining whether the amount received was purely liquidated damages or compensation for losses related to the canceled contract. The Tribunal found it difficult at that stage to ascertain the exact nature of the received amount. Given the remand by the High Court for re-consideration, the Tribunal considered the offer made by the Applicant to deposit 10% of the duty confirmed as reasonable. The Tribunal directed the Applicant to comply with the deposit within eight weeks, with the balance dues waived and recovery stayed during the appeal's pendency. Failure to deposit would lead to the dismissal of the appeal without further notice.

In conclusion, the Tribunal's decision focused on the need for a detailed analysis of the evidence to determine the nature of the received amount, whether it constituted liquidated damages or compensation, and its includibility in the value of goods. The Tribunal considered the remand by the High Court as a basis for directing the Applicant to deposit a partial amount of the duty confirmed, emphasizing the reasonableness of the offer made by the Applicant in light of the ongoing legal proceedings.