SUPREME COURT OF INDIA
Commissioner of Central Excise, Bhubaneshwar-II
Vs
Messrs Ifgl Refractories Limited
Appeal (Civil) 4472 of 2001
(S.N.Vaariava and Dr. A.R.Lakshmanan)
09/08/2005
S. N. VARIAVA, J.
This Appeal is against the Judgment dated 28th July 2000 passed by the Customs,
Excise and Gold (Control) Appellate Tribunal (CEGAT).
Briefly stated the facts are as follows:
The 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.
The 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. Such benefits are under the duty exemption scheme and have to be
treated as statutory benefits allowed by the statutory authorities.
The 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
final product.
As the 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 those points.
Thus, 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.
It is 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.
Thus, 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:
Monoblock 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. For the domestic company the sales against your
Advance Licence will be treated as 'Deemed Export'.
Keeping 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. Submerged Entry Nozzle@ Rs.2, 048/- per
pc. Tundish Nozzle @ Rs.1, 264/- per pc. Jointing 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 correct.
But 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
consideration". #
The 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.
It may 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.
With these directions, the Appeal stands disposed of with no order as to costs.