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TMI Blog2015 (8) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excisable Goods) Rules, 2000 (hereinafter referred to as the 'Rules'). The assessee challenged the stand of the Revenue by filing replies. After examining the matter, the Commissioner took the view that price was not the sole consideration flowing from the buyer to the assessee. Not only such buyers, who were sold the goods at a lower price, were 'related persons', even the goods were sold at depressed price. Therefore, the Commissioner confirmed the demand of differential duty as mentioned in the show cause notices and also levied penalties and interest. The assessee challenged the order of the Commissioner by filing appeal before the Custom Excise Service Tax Appellate Tribunal (for short, the 'Tribunal') taking the plea that 'additional consideration' under Section 4 of the Act refers only to the additional consideration flowing from the buyer to the assessee and in the present case no such additional consideration flew from the advance licence buyers of the 'deemed exports'. The Tribunal, in arriving at this conclusion, relied upon its own decision in the case of IFGL Refractories Ltd. v. Commissioner of Central Excise, Bhubaneswar-II 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were made available to the respondents. The Export and Import Policy had nothing to do with the arrangements/contract under which the licences flowed from the buyer to the seller. At the cost of repetition it must be mentioned that had the respondents had advance intermediate licence on their own i.e. without M/s. Visakhapatnam Steel Plant having to surrender its licences for the purposes of the contract, then the reasoning of the Tribunal may have been correct. But here, in pursuance of the contract of sale, there is directly a flow of additional consideration from the buyer to the seller. The value thereof has to be added to the price. We are thus unable to accept the broad submission that where parties take advantage of policies of the Government and the benefits flowing therefrom, then such benefit cannot be said to be an additional consideration . 4) In a matter like this, this Court could simply follow the aforesaid judgment and set aside the order of the Tribunal, allowing this appeal. However, Mr. V. Lakshmikumaran, learned counsel appearing for the assessee, made a fervent and passionate plea that the aforesaid judgment of this Court in IFGL's Note 2 above case n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y buyers got their licences invalidated/surrendered. Thereafter, DGFT issued licence in favour of the assessee herein permitting it to procure the goods duty free from indigenous manufacturers and on the supply of this material to such buyers, treating the same as 'deemed exports', thereby earning the benefits of duty drawback. Para 7.11 of the EXIM Policy facilitated this process and it reads as under: 7.11 Advance Licence for Intermediate Supplies The Advance Licence for intermediate supply shall be considered by the licensing authority concerned. The Advance Licence for intermediate supply shall be issued after making the licence invalid for direct import of items to be supplied by the intermediate manufacture. In such cases, a copy of the invalidation letter will be given to the licence holder and copy thereof will be sent to the intermediate supplier as well as the licensing authority of the intermediate supplier as well as the licensing authority of the intermediate supplier. The licencee in such case has an option either to supply the intermediate product to holder of Advance Licence for physical exports/deemed exports or to export directly. 8) The aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: RULE 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Explanation. - For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely: (i) value of materials, components, parts and similar items relatable to such goods; (ii) value of tools, dies, moulds, drawings, blue prints, technical ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered on almost identical fact situation. That is why the endeavour of Mr. Lakshmikumaran is to impress upon us to take a different view. He sought to discredit the opinion of the Court in the said case by arguing that the advance licence for intermediate supply was granted by the DGFT to the assessee under the EXIM Policy and it had nothing to do with the buyer. He conceded that it could happen only after buyers got their advance licences invalidated. But his explanation was that it was not necessary that such a licence could be issued to the assessee merely because the advance licence in favour of the buyer was invalidated. He emphasized that DGFT could still refuse to issue the advance licence for intermediate supply to the assessee. 12) This argument does not convince us at all. Fact remains that the issuance of advance licence for intermediate supply to the assessee was facilitated as a result of surrender of advance licence in favour or the buyer by the buyer. Thus, getting the licence invalidated for direct import of items in favour of the buyer was the trigger point for issuance of the advance licence for intermediate supply in favour of the assessee. Possibility of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers. Therefore, the source or gangotri from where the benefit has ultimately reached the assessee is the advance licences which were held by the buyers and their act of invalidation made it possible to flow down the benefit so as to reach the stream of the assessee. 15) Yet another argument which was raised by Mr. Lakshmikumaran was that carving out this category of buyers, namely, those who are/were the holders of advance licence, to be eligible for purchase at a discounted price was only a 'condition for sale of goods' put forth by the assessee. He submitted that 'it was not a consideration for sale of goods'. He, thus, drew distinction between condition for sale and consideration for sale of goods and in support of this submission referred to the celebrated and classic judgment of the English Court in Thomas v. Thomas (1842) 2 QB 851. This judgment has been analysed by Chitty on Contracts (31st Edition Volume I) and Mr. Lakshmikumaran made the said analysis as part of his submission. That was a case where a testator, shortly before his death, expressed a desire that his widow should, during her life, have the house in which he lived, or 100. After his de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: On the other hand, in Re Soames A promised 3,000 to B if B would set up a school in the running of which A was to have an active part. It was held that, by establishing the school, B had provided consideration for A's promise. It seems that the distinction between consideration and condition depends, in such cases, on whether a reasonable man would or would not understand that the performance of the condition was requested as the price or exchange for the promise. In Thomas v. Thomas the executors had not requested the plaintiff to remain a widow; while in Re Soames a request by A that B should establish the school could be inferred from A's expressed intention to participate in its management. This distinction is further illustrated by Carlill v. Carbolic Smoke Ball Co. where the claimant provided consideration for the defendants' promise by using the smoke-ball; but her catching influenza was a condition of her entitlement to enforce that promise. 17) We are afraid, such a distinction between consideration and condition, as sought to be drawn by the learned counsel for the assessee, would not apply to the instant case. It was possible if the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cleared the said goods to such buyers on payment of excise duty, but at lower value than the clearance made to the normal buyers. Thus, the assessee appeared to have derived double benefits in these transactions, i.e. (i) enhanced sale and paid less duty on lower value; and (ii) imported duty free raw materials. (e) In this case, the right to procure duty free imported raw material is being transferred to supplier by the buyer. This indicates the flow back of additional considerations from the buyer of the said goods to the seller, which is the assessee. 19) On the facts of this case, we are of the opinion that the 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. 20) Thus, we do not see any reason to deviate from the decision re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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