1997 (12) TMI 274 - AT - Central Excise

Summary

Issues Involved: Interpretation of liquidated damages clause in a contract for payment of Central Excise duty.

In the present case, the Appellant, engaged in manufacturing electrical control and switch gears, filed a price list approved by the authorities and cleared goods on payment of appropriate duty. The contract with the buyer included an escalation clause and a clause for payment of liquidated damages. The Appellant deducted liquidated damages due to delay in supply, which the authorities rejected as not affecting the assessable value for duty calculation. The Appellant sought a refund for the duty paid on the deducted amount.

The Appellant argued that the clause for payment of liquidated damages should be treated similarly to a price variation clause, impacting the assessable value and reducing the agreed price. The authorities contended that damages are separate from the price and do not affect the assessable value.

The Tribunal analyzed the nature of liquidated damages in contracts, citing Section 73 of the Indian Contract Act, which allows for compensation for breach of contract. Liquidated damages are pre-estimated compensation for breach and are enforceable if reasonable, unlike penalties. The Tribunal found that the deduction of liquidated damages did not reduce the agreed price but was a separate payment for breach of contract, not affecting the assessable value for duty calculation.

Therefore, the Tribunal dismissed the appeal, holding that the payment of liquidated damages did not impact the assessable value for Central Excise duty calculation, as it was a separate compensation for breach of contract and not part of the agreed price.