2016 (8) TMI 931 - AT - Central Excise

Enhancement of penalty - includability - penalty paid by the dealers of M/s.Skoda Auto India Pvt. Ltd. in the assessable value - Held that - it is found that there is no evidence to show that the penalty amount received by the M/s.Skoda Auto India Pvt. Ltd. is in connection with the sale of goods by them to dealers. Therefore, the same cannot be included in the assessable value. The appeal filed by M/s.Skoda Auto India Pvt. Ltd. is therefore allowed and the demand is set aside. Since the demand itself is set aside there is no question of imposing penalty. - Decided against the Revenue

Summary

Issues:
1. Inclusion of penalty recovered from dealers in the assessable value for duty calculation.
2. Appeal to enhance penalty amount by Revenue and cross objection by M/s. Skoda Auto India Pvt. Ltd.
3. Interpretation of penalty payment in connection with sale of goods.

Analysis:

Issue 1: Inclusion of penalty in assessable value
The case involved M/s. Skoda Auto India Pvt. Ltd. (SAIPL) selling motor vehicles through appointed dealers who were penalized for selling goods outside their assigned territories. The Revenue sought to include the penalty amount in the assessable value for duty calculation. The Deputy Commissioner confirmed the demand, which was partially upheld by the Commissioner (Appeals). The Tribunal analyzed the nature of the penalty, emphasizing that it was related to post-sale breach of contract and not the sale itself. Relying on precedents, the Tribunal held that such penalties were not includable in the assessable value, as they were not directly connected to the sale of goods by M/s. Skoda Auto India Pvt. Ltd. to dealers.

Issue 2: Appeal and cross objection
The Revenue appealed to enhance the penalty amount, while SAIPL filed a cross objection seeking to dismiss the Revenue's appeal and restore the Commissioner (Appeals) order. The Tribunal noted that the penalty was not linked to the sale of goods by SAIPL, leading to the allowance of SAIPL's appeal and setting aside the demand. Consequently, as the demand was annulled, the question of imposing a penalty did not arise, resulting in the dismissal of the Revenue's appeal and disposal of cross objections accordingly.

Issue 3: Interpretation of penalty payment
The Tribunal considered various decisions cited by both parties regarding the includability of charges in the assessable value. It was established that unless the penalty amount was directly connected to the sale of excisable goods, it could not be added to the assessable value. The Tribunal emphasized that every amount collected by the manufacturer from the buyer was not automatically includible, especially if it was not related to the sale transaction. The decision highlighted the importance of written agreements with enforcement clauses to enforce legal rights, indicating that penalties for post-sale breaches were not part of the assessable value for duty calculation.

In conclusion, the Tribunal allowed SAIPL's appeal, dismissed the Revenue's appeal for penalty enhancement, and disposed of cross objections, emphasizing the non-includability of penalties unrelated to the sale of goods in the assessable value. The judgment provided a detailed analysis based on legal precedents and contractual interpretations, ultimately clarifying the treatment of penalties in duty calculations.