2015 (8) TMI 947 - SC - Central Excise

Valuation of goods - inclusion of additional monetary consideration - transfer of advance import licence in favour of the seller by the buyer enabling the seller of the goods to effect duty free import of the raw materials and bringing down the cost of production/procurement - Held that - As per the definition of transaction value contained in this very section, i.e. Section 4(3)(d), certain charges can be added to the price at which the goods are actually sold, under certain circumstances. These include the provision for advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty commission etc. However, Rule 6 of the Rules specifies that if the goods are sold in the circumstances specified in clause (a) of sub-section (1) of Section 4, then the value of such goods shall be deemed to be the aggregate of such transaction value plus the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee . The implication of this Rule is that any form of additional consideration which flows from the buyer to the assessee, monitory value thereof is to be included while arriving at the transaction value. It is not necessary that such an additional consideration is to flow directly and even indirect consideration is includible. It is in this context we have to examine as to whether the consideration in the form of drawback, which accrued in favour of the assessee, could be connected with the buyer. It was possible if the transaction between the buyers and the assessee was seen in isolation. However, in the present case, it needs to be emphasized at the cost of repetition that the resultant effect of invalidating the advance licence by the buyer was issuance of licence for intermediate supply in favour of the assessee and the said licence enured certain benefits in favour of the assessee. - Commissioner has rightly come to the conclusion with regard to the fact that additional monetary consideration, in addition to the price being paid for the goods, i.e. transfer of advance import licence in favour of the seller by the buyer enabling the seller of the goods to effect duty free import of the raw materials and bringing down the cost of production/procurement, is a consideration, the monetary value of which has to be considered under the provisions of the Rules, i.e. Rule 6 thereof. Case is squarely covered by the judgment of this Court in IFGL s case 2005 (8) TMI 112 - SUPREME COURT - Decided in favour of Revenue.

Issues Involved:
1. Whether the additional consideration received by the assessee in the form of duty drawback constitutes 'transaction value' under Section 4 of the Central Excise Act, 1944.
2. Whether the decision in IFGL Refractories Ltd. case requires reconsideration.
3. Whether the relationship between the assessee and the buyers affects the determination of transaction value.
4. Whether the benefits received under the EXIM Policy can be considered as additional consideration.
5. Whether the distinction between consideration and condition for sale applies to the present case.

Issue-wise Detailed Analysis:

1. Additional Consideration as 'Transaction Value':
The primary issue was whether the duty drawback received by the assessee due to the surrender of advance licences by buyers constitutes 'additional consideration' under Section 4 of the Central Excise Act, 1944. The Court held that the benefit of duty drawback accruing to the assessee was a result of the buyers surrendering their advance licences, which facilitated the issuance of advance intermediate licences to the assessee. This benefit was deemed to be additional consideration flowing indirectly from the buyers to the assessee and was thus includible in the transaction value.

2. Reconsideration of IFGL Refractories Ltd. Case:
The assessee's counsel argued for the reconsideration of the IFGL Refractories Ltd. case, asserting that the duty drawback received by the assessee was not additional consideration flowing from the buyers. However, the Court was not persuaded to refer the matter to a larger Bench, noting that the mechanism of receiving duty drawback was directly linked to the buyers' surrender of advance licences. The Court reaffirmed the decision in IFGL Refractories Ltd., emphasizing that the benefit of duty-free import was a direct result of the buyers' actions.

3. Relationship Between Assessee and Buyers:
The Commissioner had determined that the assessee and the buyers had mutuality of interest, as the buyers' surrender of advance licences allowed the assessee to import raw materials duty-free. This mutual interest and the resultant lower prices charged to these buyers indicated that the price was not the sole consideration for the sale. The Court upheld this view, noting that the buyers' actions directly benefited the assessee by reducing its production costs.

4. Benefits Under EXIM Policy as Additional Consideration:
The Court examined the EXIM Policy provisions, which allowed advance licence holders to source materials from indigenous suppliers, leading to deemed exports and duty drawback benefits. The Court concluded that the duty drawback received by the assessee was a direct result of the buyers' surrender of their advance licences, and thus, it constituted additional consideration under Section 4 of the Act. The Court rejected the argument that the benefit was solely due to the statutory notification, noting that the buyers' actions were the trigger for the assessee receiving the benefit.

5. Distinction Between Consideration and Condition for Sale:
The assessee argued that the discounted price offered to advance licence holders was a condition for sale, not additional consideration. The Court, however, found this distinction inapplicable, emphasizing that the buyers' surrender of advance licences directly facilitated the issuance of licences to the assessee, resulting in duty-free imports. This benefit was intrinsically linked to the buyers' actions and could not be seen merely as a condition for sale.

Conclusion:
The Court upheld the Commissioner's order, confirming that the additional consideration in the form of duty drawback was includible in the transaction value. The appeal was allowed, the Tribunal's decision was set aside, and the Commissioner's order was restored. The Court found no reason to deviate from the decision in IFGL Refractories Ltd. and clarified that the Mazagon Dock Ltd. case did not contradict this ruling. The Court emphasized that the mutuality of interest between the assessee and the buyers and the resultant benefits received by the assessee were crucial factors in determining the transaction value.

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