of Central Excise, Bhubaneshwar-II Vs. M/S IFGL Refractories Limited  Insc
403 (9 August 2005)
N. Variava & Dr. Ar. Lakshmanan S. N. Variava, J.
Appeal is against the Judgment dated 28th July 2000 passed by the Customs, Excise and
Gold (Control) Appellate Tribunal (CEGAT).
stated the facts are as follows:
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.
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.
benefits are under the duty exemption scheme and have to be treated as
statutory benefits allowed by the statutory authorities.
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 been able to import the inputs without
corresponding payment of customs duty which has resulted in lower cost of their
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
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.
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.
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:
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.
domestic company the sales against your Advance Licence will be treated as
this in mind, we now propose that 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.
Entry Nozzle @ Rs.2,048/- per pc.
Nozzle @ Rs.1,264/- per pc.
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
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
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.
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 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.
these directions, the Appeal stands disposed of with no order as to costs.