By TIOL News Service

NEW DELHI, FEB 10, 2017: THE facts go thus -

+ The appellant is engaged in the manufacture of automobiles cabin parts [CH 8708 1090].

+ During the course of audit for the period 2006-07, it was observed on verification of Balance Sheet that an amount of Rs.1.18 crores and Rs.1.14 crores has been shown as "Other income" during 2005-06& 2006-07 respectively which was recovered from the customer as "operational compensation".

+ It is alleged that the recovery of amount from the customers as operational compensation is an additional consideration and will form part of the assessable value of the goods already cleared to such customer.

Differential Duty demands followed.

The appellant stated that whatever they had claimed from their customers was compensation for non-lifting of the goods, produced by them, as per their agreement with their customers, and that they had not paid any duty on such charges as the same are in the nature of liquidated damages which are not chargeable to any Central Excise duty.

The CCE, Indore confirmed the duty demands of Rs.74,89,162/- & Rs.46,43,409/- along with interest and levy of penalties on "operational compensation" received from their customers.

Before the CESTAT, the appellant submitted that the plant was installed for the purpose of manufacture of components for M/s. Eicher ; that since the appellant had made investment in setting up of the plant, minimum rate of return was guaranteed by M/s. Eicher through the agreement entered into and which also mandated that M/s. Eicher is liable to compensate for any short fall in the quantum of goods ordered so as to ensure minimum guaranteed return on investment.

Inasmuch as since the amount received by the appellant is by way of compensation and is not towards the sale or supply of goods , no duty can be demanded in terms of section 4 of the CEA, the appellant contended.

Reliance is also placed on the decisions in Praxair India Ltd. = 2008-TIOL-160-CESTAT-MAD and Jindal Praxair Oxygen Co. Ltd. = 2006-TIOL-647-CESTAT-BANG.

The DR supported the orders passed by the CCE .

The Bench observed -

+ In the present case excise duty has already been paid on the transaction value of the components supplied to M/s. Eicher. The dispute is with reference to the compensation amount received by the appellant.

+ We are of the view that such amounts cannot be considered as additional consideration for the goods actually sold. This view finds support in the decisions of the Tribunal relied upon by the Counsel for the appellant.

Following the decisions of the co-ordinate bench, the impugned orders were set aside and the appeals were allowed.

(See 2017-TIOL-381-CESTAT-DEL)