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CX – ‘Heat guarantee bonus’ received from buyers cannot be treated as additional consideration for inclusion in transaction value u/s 4 of CEA: CESTAT

2019-TIOL-2183-CESTAT-KOL

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EAST ZONAL BENCH, KOLKATA

Appeal No. E/457/2008-(DB)

Arising out of Order-in-Original No. CCE/BBSR-II/No. 17/Commissioner/2008, Dated: 10.07.2008
Passed by the Commissioner of Central Excise, Customs Bhuvneshwar-II

Date of Hearing: 03.07.2018
Date of Decision: 31.12.2018

SARVESH REFRACTORIES PVT LTD

Vs

COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX
BBSR-II

Appellant Rep by: Shri C R Das, Adv.
Respondent Rep by: Shri K Chatopadhay, Suprt. AR

CORAM: P K Choudhary, Member (J)
Bijay Kumar, Member (T)

CX – The issue involved in this case is regarding the inclusion of performance bonus received by assessee from their buyer towards the out performance of refractory bricks and monolithi as heat guarantee bonus during disputed period – It is the contention of Revenue that the ‘heat guarantee’ bonus is nothing but an additional consideration and thus liable to be included in assessable value in terms of Section 4 of Central Excise Act, as the part of transaction value – The Revenue also contends that the decision stated by assessee pertained to pre amendment Section 4 of the Act, and hence not relevant after the amendment of Section 4 of the Act that is after 1/7/2000, the Revenue relied upon the decision of Tribunal in case of Ubique Meta Pvt. Ltd – The very same issue is also decided in case of Vishwakaram Refractories Pvt. Ltd. – 2010-TIOL-287-CESTAT-BANG – The stand taken by Adjudicating Authority in conforming the demand against assessee is not in conformity with the law – In fact, the issue is decided both for pre as well as post amendment of Section 4 of the Act, wherein the transaction value concept was brought in for the purpose of assessment w.e.f. 1/7/2000 – The impugned order is not sustainable and same is set aside: CESTAT

Appeal allowed

Case laws cited:

MPR Refractories Ltd. vs. Commissioner of Central Excise, Hyderabad [2001 (129) ELT 124(Tri-Chenn)]… Para 3

Jalan Refractories Pvt Ltd. VS. Commissioner of Central Excise, Jaipur [2001(138) ELT 327(Tri-Chenn.]… Para 3

Burn Standard and Company vs. Commissioner of Central Excise, Coimbatore – 2007-TIOL-1140-CESTAT-MAD… Para 3

Ubique Meta Pvt. Ltd vs. Commissioner of Central Excise, Bolpur [2007 (217) ELT 241(Tri- Kol) ]… Para 6

MPR Refractory vs. Commissioner of Central Excise, Hyderabad [2010 (262 ELT 274 (Tri-B)]… Para 7

Vishwakaram Refractories Pvt. Ltd. vs. CCR Bangalore – 2010-TIOL-287-CESTAT-BANG… Para 8

Commissioner of Central Excise, Bangalore vs. Vishwakaram Refractories [2015(320) ELT A257 (SC)]… Para 9

FINAL ORDER NO. 77153/2018

Per: Bijay Kumar:

1. The appellant has filed the present appeal being aggrieved with the Order-in-Original No. CCE/BBSR-II/No. 17/Commissioner/2008 dated 10/07/2008, passed by the ld. Commissioner of Central Excise, Customs Bhuvneshwar-2, as the Adjudicating Authority. Vide the impugned order, the ld. Adjudicating Authority has confirmed the demand under the proviso to sub-Section (1) of Section 11 A of the Central Excise Act, 1944 (for short ‘Act’) along with the equal penalty under the provisions of Section 11 AC of the Act read with the Rule 25 of Central Excise Rules, 2002(for short ‘Rules’). The interest was also order to be imposed at appropriate rate on the appellant under the provision of Section 11AB of the Act. The Period involved in the impugned appeal is from 1/4/2002 to 31/4/2007.

2. The brief facts of the case are that the appellant is engaged in manufacture of refractory bricks and Monolithi classifiable under Chapter Heading No. 6901.00 and 3816.00 of Central Excise Tariff Act, 1985( for short CETA). The customers of the appellant are manly integrated steel plant namely, M/s SAIL, RKL Steel Plant, Bhillai Steel plant, Bokaro Steel Plant etc. As per the purchase order of such customers the appellant gave guarantee for their product supplied to them so as to achieve the minimum ‘heat life’ considering their ladle condition. The purchase order have two clauses i.e. one for bonus and other for penalty. When the refractory material supplied to the customer fail to achieve the minimum threshold limit heat life in their ladle i.e. below minimum heat the customer are required to levy penalty on the appellant deduct the amount by the appellant suo moto from the bill/ invoices. Similarly, when the said material achieved the minimum heat life in ladle and passed the performance test, the customer pay the bonus amount to the appellant. It was the view of the Department that the payment of performance bonus, also known was the ‘heat guarantee bonus’ is to be treated as additional consideration over and above the sale price of transaction value as defined under Section 4 (1)(d) of the Act and hence they have proposed to charge the Central Excise Duty on an additional consideration and asked the appellant to pay the same. The appellant did not subscribed the view entertained by the Department, and therefore, a Show Cause Notice was issued to them which culminated into the impugned order

3. Ld. Advocate on behalf of the appellant stated that apart from other thing the issue regarding the inclusion of heat guarantee bonus for the purposes of valuation under Section 4(1)(a) of the Act is no more res integra, in view of various orders passed by the Hon’ble Tribunal which is as under;

(1) MPR Refractories Ltd. vs. Commissioner of Central Excise, Hyderabad [2001 (129) ELT 124(Tri-Chenn)]

(2) Jalan Refractories Pvt Ltd. VS. Commissioner of Central Excise, Jaipur [2001(138) ELT 327(Tri-Chenn.]

(3) Burn Standard and Company vs. Commissioner of Central Excise, Coimbatore [2007(216) ELT 77(Tri-Chenn.)] = 2007-TIOL-1140-CESTAT-MAD

4. Accordingly, he argued for setting aside the impugned order and allowing the appeal.

5. On the other hand ld. AR relied upon the grounds for confirmation of demand in the impugned order.

6. We have heard the parties and perused the appeal record. The issue involved in this case is regarding the inclusion of performance bonus received by the appellant from their buyer towards the out performance of refractory bricks and monolithi as heat guarantee bonus during the disputed period. It is the contention of the Revenue that the ‘heat guarantee’ bonus is nothing but an additional consideration and thus liable to be included in the assessable value in terms of Section 4 of the Central Excise Act, as the part of transaction value [section 4(3) (d)] of the Act. The Revenue also contends that the decision stated by the appellant pertained to pre amendment Section 4 of the Act, and hence not relevant after the amendment of the Section 4 of the Act that is after 1/7/2000, the Revenue relied upon the decision of Hon’ble Tribunal in case of Ubique Meta Pvt. Ltd vs. Commissioner of Central Excise, Bolpur [2007 (217) ELT 241(Tri- Kol) ]

7. On the contrary, ld. Advocate refers and relies to the various decisions referred by the Hon’ble Tribunal on the very same issue pre and post amendment of the Section 4 of the Act. As the period involved in this case is post amendment to Section 4 of the Act we refer to decision of MPR Refractory vs. Commissioner of Central Excise, Hyderabad [2010 (262 ELT 274 (Tri-B)] wherein it is held as under.

” 3. Ld. Counsel appearing on behalf of the appellants would submit, that the dispute in this case is on the inclusion of bonus amount as part of sale consideration of the refractory bricks manufactured and sold to M/s. VSP. It is his submission that the bricks are sold at a firm price and these bricks are used in the management of ladle. This activity of management of ladle is a separate activity unconnected with the sale of refractory bricks. It is his submission that the bonus or penalty comes into picture only when the act of ladle management is undertaken. Incidentally, in this case the ladle management is entrusted to the appellants. It is his submission that the ladle management is a case of human diligence and expertise and has nothing to do with the structural efficiency of the bricks. He would submit that all the following judgments clearly hold that the amount received, as bonus cannot be included in the value of the bricks sold by the appellant. The judgments are :-

1. Jalan Refractories Pvt. Ltd. – 2000 (41) RLT 3 (CESTAT) = 2001 (138) E.L.T. 327 (T).

2. MPR Refractories Ltd – 2001 (129) E.L.T. 124 (Tri.-Chennai)

3. Burn Standard Co. Ltd. – 2007 (216) E.L.T. 77 (Tri-Chennai) = 2007-TIOL-1140-CESTAT-MAD

4. CCE, Chennai-II v. VRW Refractories – 2008 (231) E.L.T. 65 = 2008-TIOL-1571-CESTAT-MAD

5. Indian Telephone Inds. – 2004 (175) E.L.T. 884 (Tribunal-Bang.) = 2004-TIOL-836-CESTAT-BANG .

It was submitted that the impugned order be set aside and. the appeal be allowed.

4. Ld. Jt. CDR appearing for the Revenue would submit that the definition of transaction value needs to be gone into in this case. It is her submission that the transaction value will include the prices which is payable by M/s. VSP to the appellant as the said value is paid for the performance of the bricks. It is her submission that the O-I-O is a detailed order. She would submit that the decision cited by the ld. Counsel which are prior to 1-7-2000 and hence does not applicable and hence the transaction value was brought into Section 4 from 1-7-2000 and that period involved in this case subsequent to 1-7-2000.

5. We have considered the submissions made at length by both sides and perused the records. The issue involved in this case is whether the amount received as bonus by the appellant from M/s. VSP for the performance of the ladle management would get included into the value of the bricks sold Dy the appellant to M/s. VSP. It is undisputed that the refractory bricks were sold by the appellant based, upon a firm contract entered by way of confirmed purchase orders issued by M/s. VSP. The purchase orders specifically stipulated for performance guarantee bonus which indicated the supplier should stand guarantee for the number of heat per set as per the agreement and bonus shall be awarded if the life achieved is above guaranteed heats, it is also undisputed that the ladle management was entrusted to the appellant. We find that an identical issue was heard by the, Co-ordinate Bench of the Tribunal in. the case of Burn Standard Co. Ltd. (supra). The issue involved in that case is also the identical issue or bricks supplied to the purchasers. The ratio of the said decision is as under :-

“3. Insofar as the third category of proforma invoice is concerned, we find, that the appellants used to issue such invoices claiming bonus from their buyers where it was found that the product (bricks) supplied to the later outperformed its guarantee period. The question whether the “bonus” is required to be included in the assessable value of the bricks is already covered in favour of the appellants by the Tribunal’s decision. Jalan Refractories (P) Ltd. v. Commissioner [2001 (138) E.L.T. 327 (Tribunal) = 2000 (41) RLT 3 (CEGAT) which war followed by the Tribunal in the case of MPR Refractions Ltd. v. Commissioners of Central Excise, Hyderabad Vide Final Order No. 1747/2000 in Appeal No. E 2552/97/Md. [2001 (129) E.L.T. 124 (Tribunal)]”

6. It can be seen from the above reproduced ratio that the Co-ordinate Bench was relying upon the decision of the Tribunal in the case of Jalan Refractories (P) Ltd., we find that the issue was post 1-7-2000. For the period of March, 1996 to November, 2000 i.e. a part of demand was after the amendment to the Section 4 of the Central Excise Act an bringing into the concept of transaction value.

7 This Bench in the case of Indian Telephone Industry (supra) had also taken the same view. The ratio is as under :-

“3. We have heard both sides in the matter and on a, careful consideration we find that the issue is no longer res integra and the matter has been decided by the Tribunal in the judgments noted supra. The bonus received was as a result of executing orders ahead of time and received after the goods were cleared on demand of duty. Therefore, in terms of the judgment rendered Art the case of Jalan Refractories Pvt Ltd. and that of Bhartia Cutler Hammer Ltd., the bonus received for better performance and expeditious execution of orders is not liable to be added to the assessable value Respectfully following the ratio of the judgments cited above, the impugned order is set aside and appeal allowed.”

8. In the case before us, it is undisputed that the goods were already cleared on a value which was indicated on the purchase order and duty liability was discharged on it. Subsequent receipt of bonus in any case would not change the value of the goods which was cleared from the factory premises of the appellants. If that be so, the ratio of the decisions which had been reproduced above squarely cover the issue in favour of the appellant.

9. Accordingly, in view of the facts and circumstances of the case, we-find that the impugned order is liable to be set aside and we do so. The impugned order is set aside and appeal is allowed with. consequential relief, if any.”

8. Further, we also find that the very same issue is also decided in case of Vishwakaram Refractories Pvt. Ltd. vs. CCR Bangalore [2015 (320) ELT 622 (Tri-Bang)] 2010-TIOL-287-CESTAT-BANG. The relevant portion of the order is reproduced as under;

“3. The assessees are manufacturers of refractory bricks. In terms of the agreement entered with M/s. SAIL for manufacture and supply of refractory bricks, there was a clause for penalty/bonus in respect of the contract price. When the bricks perform beyond the specified number of heats, a performance bonus would be available to the assessee. The issue involved is whether the performance bonus received is includible in the assessable value or not. Revenue proceeded against the assessee for the period from March, 2001 to July, 2004 by way of issue of Show Cause Notice dated 12-12-2005. Extended period was invoked alleging suppression of facts. The Original Authority demanded differential duty of Rs. 9,50,966/- along with interest under Section 11AB in addition to imposing a penalty of Rs. 23,000/- under Section 11AC of the Central Excise Act, 1944. The assessees approached the Commissioner (Appeals). The Commissioner (Appeals) held that the performance bonus is includible in the assessable value. However, he gave a finding that only for the period prior to July, 2002,(date of audit of the records), longer period could be invoked and not for the period from July, 2002 to July, 2004. Holding such a view, he remanded the matter to the original authority for re-quantification of duty and imposition of penalty and charging interest. The assessee is aggrieved over the impugned order urging that the performance bonus is not includible in the assessable value. The following case-laws were relied on :-

(a) Indian Telephone Industries v. CCE, Cochin – 2004 (175) E.L.T. 884 (Tri.-Bang.) = 2004-TIOL-836-CESTAT-BANG .

(b) Jalan Refractories (P) Ltd. v. CCE, Jaipur – 2001 (138) E.L.T. 327 (Tri.-Chennai)

(c) MPR Refractories Ltd. v. CCE, Hyderabad – 2001 (129) E.L.T. 124 (Tri. – Chennai)

(d) Burn Standard Co. Ltd. v. CCE, Coimbatore – 2007 (216) E.L.T. 77 (Tri.-Chennai) = 2007-TIOL-1140-CESTAT-MAD

(e) Lovely Food Industries v. CCE, Cochin – 2006 (195) E.L.T. 90 (Tri.-Bang.) = 2006-TIOL-423-CESTAT-BANG

3.1 It was also reiterated that ladle management is a post manufacturing activity and the performance bonus is related to the ladle management.

4. On the other hand, Revenue is aggrieved over the impugned order for limiting the longer period to the period prior to July, 2002.

5. We have considered the submissions made both on merits and on limitation. As far as merit is concerned, the assessee relied on the decisions cited supra especially the decision in the case of Jalan Refractories.

5.1 Further, it was pointed out that the Audit was conducted in July, 2002 and the Show Cause Notice was issued only in 2005 long after the department came to know about the facts. Therefore, it was pleaded that the demand is time barred.

5.2 On a very careful consideration of the issue, we find that on merits, the assessee’s case is covered by the decision of the Jalan Refractories. There are several other decisions including the Indian Telephone case (supra) wherein it has been held that bonus received after clearance of goods for better performance is not includible in the assessable value. Since on merits, the issue is covered in favour of the assessee, the duty demand cannot be sustained. Once the duty demand is not sustainable, interest and penalty cannot be levied. Therefore, the impugned order, remanding the matter for re-quantification of duty, imposition of penalty and interest cannot be upheld. Thus, we allow the assessee’s appeal with consequential relief. As the assessee’s appeal has been allowed, Revenue’s appeal becomes infructuous and the same is rejected.”

9. Department civil appeal against this appeal has been dismissed by the Hon’ble Supreme Court in case of Commissioner of Central Excise, Bangalore vs. Vishwakaram Refractories [2015(320) ELT A257 (SC)]

10. In view of above, we find the stand taken by the Adjudicating Authority in conforming the demand against the appellant is not in conformity with the law and decided cases. In fact, the issue is decided both for pre as well as post amendment of Section 4 of the Act, wherein the transaction value concept was brought in for the purpose of assessment with effect from 1/7/2000. In view of above the impugned order is not sustainable and liable to be set aside and we do so.

11. Accordingly, we set aside the impugned order and allow the appeal with consequential relief if any.

(Pronounced in open court on 31.12.2018)

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