2017 (7) TMI 162 - AT - Central Excise

Price variation clause - refund of excess paid duty - rejection on the ground that whatever price was charged at the time of clearance the same cannot be varied for any reason - Held that - in case of price variation clause on the basis of raw material cost the final price as per the raw material cost has to be taken as transaction value, therefore, the provisional price on which the goods are cleared from the factory and duty paid thereon is not the final price. Accordingly, if there is any excess payment between the value charged at the time of clearance and value finalised on the basis of price variation clause the excess paid duty, if any arise, is refundable. Since the excess paid duty is on the excess value, which is not the price paid or payable by the customer, the unjust enrichment is not applicable - refund allowed. Liquidated damages - scope of SCN - Held that - if there is a deduction in the price due to liquidated damages, that is not permitted to be deducted from the transaction value for the reason that the liquidated damages is part of the cost to respondent that has to be considered as their expenditure which will not affect the transaction value. However, since this issue has not been considered by the Commissioner (Appeals), the matter needs to be remanded to the Commissioner (Appeals) only for a limited purpose to decide the issue - matter on remand. Appeal disposed off - part matter decided in favor of assessee and part matter on remand.

Summary

Issues involved:
Appeals arising from Commissioner (Appeals) orders allowing respondent's appeals; Excess duty payment refund; Price variation clause interpretation; Liquidated damages impact on transaction value.

Analysis:
The appeals stemmed from orders passed by the Commissioner (Appeals) favoring the respondent, where the appellants supplied electrical transformers under contract to various entities. The contracts included a price variation clause based on the price of PVC issued by IEEMA, with adjustments made after the actual PVC price was determined post-supply. The dispute arose due to excess duty payment by the appellants in some cases and short payment in others, leading to refund claims. The original authority rejected the claims, stating that the price at clearance couldn't be altered. However, the Commissioner (Appeals) allowed the respondent's appeals, emphasizing that the final transaction value should be determined after adjusting the price based on PVC rates, not at the time of clearance.

The Revenue, represented by the Assistant Commissioner, contended that the duty paid at clearance, as per Section 4 of the Central Excise Act, couldn't be varied later. Additionally, they argued that liquidated damages shouldn't be deducted from the clearance price. On the other hand, the respondent's counsel highlighted the contractual price variation clause, asserting that the clearance price was provisional, and the final transaction value should be based on adjusted PVC rates. They argued that unjust enrichment didn't apply if excess duty was paid on a value not recovered from the customer.

Regarding liquidated damages, the counsel argued that the issue wasn't part of the show-cause notice and cited relevant judgments to support their stance. They further contended that even if customer price deductions were due to liquidated damages, the order was correct, referencing specific judgments. The Member (Judicial) agreed with the Commissioner (Appeals) that the final transaction value should consider raw material costs, not just clearance prices. Excess duty paid on the adjusted value was deemed refundable, as it wasn't customer-paid. However, the issue of liquidated damages impacting transaction value wasn't conclusively addressed by the Commissioner (Appeals). Consequently, the matter was remanded for a fresh decision solely on the liquidated damages issue based on documentary evidence.

In conclusion, the judgment clarified the importance of adjusting prices based on contractual clauses and raw material costs to determine the final transaction value for duty payment and refund purposes. The issue of liquidated damages' impact on transaction value was highlighted, necessitating further examination by the Commissioner (Appeals) for a comprehensive resolution.