Full Judgment Text
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CASE NO.:
Appeal (civil) 4472 of 2001
PETITIONER:
Commissioner of Central Excise, Bhubaneshwar-II
RESPONDENT:
M/s IFGL Refractories Limited
DATE OF JUDGMENT: 09/08/2005
BENCH:
S. N. Variava & Dr. AR. Lakshmanan
JUDGMENT:
J U D G M E N T
S. N. VARIAVA, J.
This Appeal is against the Judgment dated 28th July 2000 passed
by the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT).
Briefly stated the facts are as follows:
The Respondents manufacture, amongst other things,
refractories. They sold refractories to one M/s Visakhapatnam Steel
Plant under a contract entered into in 1992 at a particular price. They
thereafter entered into four contracts dated 9th September 1993, 11th
July 1994, 24th February 1995 and 16th June 1995 to supply
refractories to the said M/s Visakhapatnam Steel Plant. For the supply
of refractories under these four contracts the Respondents availed of
the "Duty Exemption Scheme" contained in Chapter VII of the Export
and Import Policy, 1992. It must be mentioned that in order to enable
the Respondents to avail of the Duty Exemption Scheme M/s
Visakhapatnam Steel Plant surrendered the Advance Licences they
held for import of refrectories. Against such surrender the
Respondents were issued Advance Intermediate Licences for import of
inputs. The Respondents could thus import the inputs without
payment of customs duty as well as get them at a lower price than
what they would have paid had they purchased the same in India. The
Department claimed that the benefit derived by the Respondents
under the Advance Intermediate Licence, issued to them as a result of
surrender of licence by M/s Visakhapatnam Steel Plant, was
"additional consideration" towards the value of the goods and that this
"additional consideration" formed part of the price for purposes of
excise duty.
The Tribunal has allowed the Appeal of the Respondents by inter
alia holding as follows:-
"...... In the instant case the appellant have
availed the benefit from the customs duty under
the advanced intermediate licences issued to
them by the statutory authorities in accordance
with the relevant provisions of the import policy.
Such benefits are under the duty exemption
scheme and have to be treated as statutory
benefits allowed by the statutory authorities.
The same can never be placed upon the
platform of ‘additional consideration’ flowing to
the manufacturer from the buyer, directly or
indirectly. It has so happened that because of
the benefit of the customs duty in terms of the
said advanced licences, the appellants have
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been able to import the inputs without
corresponding payment of customs duty which
has resulted in lower cost of their final product.
As the appellants could afford to sell their goods
at a lower price they have offered the same to
VSP, which was accepted by them and the
contracts finalized. In these circumstances it
cannot be said that any additional consideration
has flown from VSP to the appellant, which is a
condition essential for discarding the contract
price between the buyer and the seller."
Before the Tribunal there was also a controversy regarding the
granting of deductions on account of central excise duty and central
sales tax. There also the Tribunal has held in favour of the
Respondents. Before us the Appellants have not made any
submissions on those points.
Thus, the only question for consideration is whether the benefit
gained by the Respondents by reason of M/s Visakhapatnam Steel
Plant surrendering its licences and on such surrender the Respondents
being issued licences, is additional consideration for the contract.
It is an admitted position that, at the relevant time, the Rules
provided that "price" would be actual price paid by the buyer plus the
money value of additional consideration flowing directly or indirectly
from the buyer to the seller in connection with the sale of goods. Such
a provision has now been incorporated in Section 4 itself.
Thus, if any additional consideration is received from the buyer
in connection with the sale of goods, then that additional consideration
forms part of the price for purposes of excise duty. Undoubtedly, the
Government had a "Duty Exemption Scheme". But the Respondents
did not have any Advance Intermediate Licences of their own under
the Scheme. If they had had their own Licences, the reasoning of the
Tribunal may have been correct. It is only because of the Contract of
Sale that M/s Visakhapatnam Steel Plant surrendered their Advance
Licences to enable Respondents to get Advance Intermediate Licences
for purposes of meeting their obligations under the contract. That the
Respondents have received an additional consideration is clear from
the letters written by the Respondents to M/s Visakhapatnam Steel
Plant in pursuance of the tender floated. The Respondents first
offered, by their letter dated 9th September, 1992 to sell at the
following prices:
Monoblock Stopper @ Rs. 5,650/- each
Submerged Nozzle @ Rs. 4,060/- each
Tundish Nozzle @ Rs. 3,080/- each
Jointing and Sealing Compound @ Rs.56,000/- per MT
Thereafter, by a letter dated 2nd March 1993 the Respondents
made a revised proposal wherein it is, inter alia, stated as follows:-
"As per the Export & Import Policy for 1992-
97 under Chapter 10, you can procure the
goods against your Advance Licence from
domestic suppliers. If you utilize your
Advance Licence for this purpose, no Excise
Duty and Sales Tax will be charged to you.
For the domestic company the sales against
your Advance Licence will be treated as
‘Deemed Export’.
Keeping this in mind, we now propose that
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instead of selling Advance Licence to us you
place your order on us against your Advance
Licence for which applicable rates will be as
follows."
Monoblock Stopper @ Rs.3,085/- per pc.
Submerged Entry Nozzle @ Rs.2,048/- per pc.
Tundish Nozzle @ Rs.1,264/- per pc.
Jointing and Sealing Free of cost (for
Compound proportionate quantity
against order for item
Nos.1, 2 and 3 placed
on us)"
Ultimately it was agreed that M/s. Vishakapatnam will surrender
its Advance Licences and in lieu thereof the Respondents get the
Advance Intermediate Licences. Thus, without the Advance Licences
of M/s Visakhapatnam Steel Plant, being made available to the
Respondents, the prices would have been as were quoted earlier. It is
only because of the Advance Licences being surrendered by M/s
Visakhapatnam Steel Plant and in lieu thereof Advance Intermediate
Licences being made available to the Respondents that the
Respondents could offer lower prices. The surrendering of Licences by
M/s Visakhapatnam Steel Plant and as a result thereof the
Respondents getting the Licences had nothing to do with any import
and export policy. It was directly a matter of contract between the
two parties. This resulted in additional consideration by way of
"Advance Intermediate Licence" flowing from M/s Visakhapatnam Steel
Plant to the Respondents. The value received therefrom is includable
in the price. The Tribunal was wrong in stating that such an
arrangement can never be placed upon the platform of additional
consideration. In so stating the Tribunal has ignored and/or lost sight
of the fact that it was in pursuance of the contract of sale between
Respondents and M/s Visakhapatnam Steel Plant that the Licences
were made available to Respondents. The Export and Import Policy
had nothing to do with the arrangement/contract under which the
Licences flowed from the buyer to the seller. At the costs of repetition
it must be mentioned that had the Respondents had Advance
Intermediate Licence on their own i.e. without M/s. Vishakapatname
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 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".
The question then arises as to how the "additional consideration"
is to be computed. In this case the benefit accrued to the
Respondents is clearly ascertainable by virtue of the two letters of the
Respondents. Had this additional benefit not flown to the
Respondents, they would have sold the items as per their offer dated
9th September 1992. As the additional consideration was to flow to
them, they have sold at the rates mentioned in the letter of 2nd March
1993. The "additional consideration" is the difference in prices
between these two. The Commissioner had thus correctly worked out
this difference.
It may also be mentioned that the Respondents had also taken
up a contention of limitation. The Tribunal has not considered this
aspect in view of the fact that it has allowed the Appeal on merits. We
were requested that the matter be sent back to the Tribunal so that
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the Tribunal can consider the question of limitation. We are agreeable
to that. We, therefore, remit the matter back to the Tribunal. The
Tribunal is, therefore, directed to only consider whether or not the
extended period of limitation was available to the Department.
With these directions, the Appeal stands disposed of with no
order as to costs.