2016 (8) TMI 1024 - AT - Central Excise

Valuation - Whether the payment of damages can be regarded as reducing the agreed price - liquidated damages payable by appellant for breach of contract condition - claimed as deduction for arriving assessable value - Held that - by following the dictum of Larger Bench of Tribunal in the case of Commission of Customs & Central Excise, Hyderabad Vs Victory Electricals Ltd. 2013 (12) TMI 81 - CESTAT CHENNAI whereby it was held that 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 that the generically agreed price as a result of a clause (in the agreement), stipulating variation in the price, on account the liablility to liquidated damages , irrespective of whether the clause is titled penalty or liquidated damages , the resultant price would be the transaction value ; and such value shall be liable to levy of excise duty, at the applicable rate. Therefore, demand is unsustainable. - Decided in favour of appellant with consequential relief

Summary

Issues:
1. Whether liquidated damages deducted from the assessable value can be claimed as a deduction for arriving at the assessable value for central excise duty calculation.

Analysis:
The appellants, engaged in manufacturing various products, had contracts with specific customers, including clauses for liquidated damages in case of delayed delivery. The appellants deducted the value of liquidated damages from the assessable value for central excise duty calculation. However, the central excise department contended that liquidated damages cannot be considered as reducing the agreed price and, therefore, cannot be claimed as a deduction for arriving at the assessable value. The department's stance was that liquidated damages are not an item of expenditure to be subtracted from the assessable value. The first appellate authority upheld this view, leading the appellant to approach the Tribunal for resolution.

The appellant's counsel cited a decision by the Larger Bench of the Tribunal in a similar case, emphasizing that when an assessee is liable to pay a lesser amount than the agreed price due to a clause for liquidated damages in the contract, the resultant price should be considered the "transaction value" for excise duty calculation purposes. The Larger Bench's ruling clarified that whether termed as a "penalty" or "liquidated damages," any reduction in price due to such clauses should be included in the transaction value for excise duty levy.

In line with the precedent set by the Larger Bench's decision, the Tribunal found the demand raised by the department unsustainable. Consequently, the Tribunal set aside the demand and allowed the appeal, providing for any consequential reliefs as necessary. The operative part of the order was pronounced at the conclusion of the hearing, granting relief to the appellants based on the interpretation of the transaction value in the context of liquidated damages in contracts.