2017 (4) TMI 221 - AT - Central Excise

Valuation - raw material charges - cylinder charges - amount recovered by way of debit notes - inclusion of raw material charges and cylinder charges in the assessable value - appellant s case is that they were required under law to add only that proportion of the cylinder cost, as was attributable to the actual production, and not the total cost of the cylinders - Held that - the buyer of the printed material is not supplying the cylinders to the appellant free of cost. It is the appellant who s purchasing the cylinders. In case the total quantity purchased by the buyer is later reduced by buyer for certain reasons, the balance cost of cylinder is being recovered by the appellant from the buyer as damages. Thus, it is not the case of the buyer supplying cylinders free of cost to the appellant but it is the case of appellant buying the cylinders themselves and recovering part of the cost of cylinders from the buyer as damages. In these circumstances, Rule 6 of the Central Excise Valuation Rules has no application - There is no denying of this fact that this extra amount has been recovered from the buyer and the same is in respect of the goods manufactured and supplied by the appellant - the amount recovered from the buyer by the appellant is in the nature of liquidated damages. Thus, the decisions of the Tribunal in the case of Inox Air Products Ltd. 2000 (12) TMI 184 - CEGAT, MUMBAI is squarely applicable to the instant case - demand is set-aside. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Inclusion of additional consideration in the assessable value.
2. Reversal of credit on unused inputs.
3. Duty on amounts recovered due to extra wastage.
4. Imposition of penalty on the director.
5. Invocation of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Inclusion of Additional Consideration in the Assessable Value:
The primary issue revolves around whether the amount of ?17,83,447/- received by the appellant from M/s. Hindustan Lever Ltd. should be included in the assessable value of the goods. The appellant argued that only the proportion of the cylinder cost attributable to the actual production should be included, referencing Rule 6 of the Central Excise Valuation Rules and several tribunal decisions. The tribunal noted that the appellant purchased the cylinders and recovered part of the cost from the buyer as damages due to reduced quantity orders. It was held that Rule 6 was not applicable since the cylinders were not supplied free of cost by the buyer. The tribunal concluded that the amount recovered was in the nature of liquidated damages, not additional consideration, and thus not includable in the assessable value, citing precedents like Inox Air Products Ltd. and Faridkod Cooperative Sugar Mills Ltd.

2. Reversal of Credit on Unused Inputs:
The second issue concerned the reversal of credit on unused inputs. The first appellate authority had dropped the demand but directed the reversal of credit. The appellant contended that these inputs were not cleared from the factory and were used in manufacturing other goods, arguing that no reversal was necessary. The tribunal agreed with the appellant, stating that the reversal of credit was unjustified as the inputs were used in further production.

3. Duty on Amounts Recovered Due to Extra Wastage:
The appellant did not contest the demand related to amounts recovered due to extra wastage in manufacturing wrappers. Therefore, the tribunal upheld this demand.

4. Imposition of Penalty on the Director:
The appellant argued against the penalty of ?10,000/- imposed on the director, stating no specific rule violation was pointed out and the issue involved interpretation. The tribunal found no reason to impose the penalty, as no specific role of the director was identified in the proceedings.

5. Invocation of the Extended Period of Limitation:
The appellant argued that there was no suppression of facts or intent to evade duty, challenging the invocation of the extended period of limitation. The tribunal did not explicitly address this argument in the final decision but focused on the nature of the amounts recovered and their non-inclusion in the assessable value.

Conclusion:
The tribunal set aside the demand related to the inclusion of liquidated damages in the assessable value and the reversal of credit on unused inputs. The demand related to extra wastage was upheld as it was not contested. The penalty on the director was also set aside. Consequently, the appeals of M/s. Vimlachal Print & Pack Pvt. Ltd. and Rashminbhai Shah were allowed.

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