Central Excise Valuation - Liquidated damages not to form part of transaction value : CESTAT (LB)
IN a landmark judgement, the Larger Bench of the CESTAT recently held, "the eventual value payable after factoring in any liquidated damages contractually stipulated for delayed supply would be the transaction value and this value would be the value relevant for levy of duty."
A manufacturer-assessee clears goods to his customer paying duty on the price as per the contract. The contract has a provision that in case of delay in supply of the goods, the assessee is liable to pay liquidated damages to his buyer. Now the question is whether this liquidated damage can be deducted from the price to arrive at the ‘transaction value'.
The Supreme Court had in MRF Ltd. Vs CCE Madras - , ruled that once the assessee had cleared the goods on the classification and price indicated by him at the time of removal of goods from the factory gate, the assessee becomes liable to payment of duty on that date and time and subsequent reduction in prices for whatever reason cannot alter the transaction value and liability to duty thereon".
The court ruled that subsequent fluctuation in prices of the commodity has no relevance whatsoever so far as the liability to excise duty is concerned .
But this was prior to the introduction of the concept of ‘transaction value' with effect from 1.7.2000 in Central Excise Valuation.
"Transaction value" is defined as "the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods."
The Larger Bench held, "wherever the assessee, as per the terms of the contract and on account of delay in delivery of manufactured goods is liable to pay a lesser amount than the generically agreed price as a result of a clause (in the agreement), stipulating variation in the price, on account a the liability to "liquidated damages", irrespective of whether the clause is titled "penalty" or "liquidated damages", the resultant price would be the "transaction value"; and such value shall be liable to levy of excise duty, at the applicable rate."
Unfortunately an error has crept into the judgement. Please see the highlighted words - the assessee does not pay, he gets paid and this judgement, if strictly interpreted, cannot be implemented.
We will bring you the judgement on Monday.