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CASE NO.: Appeal (civil)  4472 of 2001

PETITIONER: Commissioner of Central Excise, Bhubaneshwar-II                

RESPONDENT: M/s IFGL Refractories Limited                               

DATE OF JUDGMENT: 09/08/2005

BENCH: S. N. Variava & Dr. AR. Lakshmanan

JUDGMENT: J U D G M E N T

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

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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

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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

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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.