By TIOL News Service

MUMBAI, AUG 12, 2016: THE appellant were selling motor vehicles through their dealers appointed for various geographical jurisdictions. In terms of agreement, the dealers were required to sell goods in their own geographical jurisdictions and in case they sold the goods in some other dealers' geographical jurisdiction, they were required to pay a penalty to the appellants. Such penalty was recovered through debit notes.

Revenue sought to include the amount of penalty recovered from the dealers in the assessable value and to recover duty on the same by issue of a notice.

The original authority confirmed the demand along with interest and equivalent penalty.

The Commissioner (A) reduced the mandatory penalty while upholding the rest of the order.

Both, assessee & Revenue are before the CESTAT.

The assessee submitted that the penalty paid by the dealer is not in connection with the sale made but is solely related to post sale breach of contract and, therefore, is not includible in the assessable value. The following decisions were relied upon - Brimco Plasti Machinery Pvt. Ltd. - 2015-TIOL-273-SC-CX, Vishwakarma Refractories Pvt. Ltd., Vs. CCE, Bangalore - 2010-TIOL-287-CESTAT-BANG & Diffusion Engineering Ltd. - 2015-TIOL-2183-CESTAT-MUM.

The AR pleaded for imposition of equivalent penalty by garnering support of the decision in Sony India Ltd . - 2004-TIOL-43-SC-CX.

The Bench observed -

"4. …The proceedings in this case have been initiated for inclusion of penalty paid by the dealers of M/s. Skoda Auto India Pvt. Ltd. in the assessable value. Dealers are allotted territories. The penalty is paid by the dealers if they sell the cars to the customers in a territory different from their own. As per contract between M/s. Skoda Auto India Pvt. Ltd. and the dealers, the dealers are required to sell the product within the geographical territory assigned to him. The nature of transaction is such that the penalty paid is in connection with the sale of goods by M/s. Skoda Auto India Pvt. Ltd. to its dealers. The Tribunal in the case of Vishwakarma Refractories Pvt. Ltd., Vs. CCE, Bangalore - 2010-TIOL-287-CESTAT-BANG that bonus received after clearance of goods for better performance is not includable in the assessable value. The said decision of the Tribunal has been upheld by the Hon'ble Apex Court as reported in 2015 (320) ELT A257 (SC). The Tribunal in the case of Diffusion Engineering Ltd. - 2015-TIOL-2183-CESTAT-MUM has held that every amount received by the manufacturer from buyers is not includable in the assessable value…."

Noting that there was no evidence to show that the penalty amount received by the appellant is in connection with the sale of goods by them to dealers, the Bench held that the said “penalty” could not be included in the assessable value.

The appeal filed by the assessee was allowed and resultantly the Revenue's appeal was dismissed.

(See 2016-TIOL-2050-CESTAT-MUM )