Refund of excess Excise duty permissible on reduction in contract price after clearance of goods from factory

We are sharing with you an important judgment of the Hon’ble Supreme Court, in the case of HPL Socomac Ltd. Vs. Commissioner of Central Excise, Gurgaon [2015-TIOL-117-SC-CX] on the following issue:

Issue:

Whether the Assessee is eligible for the refund of excess Excise duty paid on the basis of original price in the purchase order which was reduced after clearance of the goods from the factory?

Facts:

HPL Socomac Private Limited (“the Appellant”) was engaged in the manufacture of electronic meters falling under Chapter Heading 9028.00 of the First Schedule to the Central Excise Tariff Act, 1985. The Appellant had received a purchase order dated October 31, 2001 from Dakshin Haryana Bijli Vitran Nigam Limited, Hissar (“DHBVNL”) for supply of 65,000 single phase (5-20 Amp.) electronic meters @ Rs.1,120/- per meter on FOR basis. The price was inclusive of taxes, freight and insurance charges subject to the condition that all the supplies to be made upto March 31, 2002.

However upto March 31, 2002, the Appellant had supplied only 30,000 electronic meters, the remaining quantity of 35,000 meters were supplied to DHBVNL between May 8, 2002 and May 28, 2002.

Prior to the supply of the remaining quantity of meters vide letter dated April 11, 2002 DHBVNL informed to the Appellant that the price of the remaining quantity would be lower of the following two:

1. The new rate of contract as per the tender Enquiry No. QD 121 or
2. Penalty would be leviable at the rate of 5% of the contract price on account of delay in delivery of the material.

The Appellant vide letter dated April 15, 2002 accepted the modified contract of new price and gave necessary undertaking.

Later on October 17, 2002,DHBVNL informed the Appellant that the new contract price of remaining quantity would be Rs. 600/- per meter on FOR basis.

Since the Appellant had discharged the Excise duty liability as per the original price in terms of the original purchase order, however actual reduced price is Rs. 600 /- per meter, refund claim under Section 11B of the Central Excise Act, 1944 (“the Excise Act”) was filed in respect of the difference between these two prices calculated for 35000 meters.

However, the Deputy Commissioner vide his order dated December 9, 2003 rejected the refund claim of the Appellant which was later on upheld by the Ld. Commissioner (Appeals) holding that as per Section 4 of the Excise Act, where the duty of Excise is chargeable on any excisable goods with reference to their value on the date of removal of such goods from the factory premises, then, such value will be considered as the final transaction value. Accordingly, reduction in price after the removal of goods cannot be taken into account for the determination of transaction value of goods.

On appeal being filed to the Hon’ble CESTAT, the Order of the Ld. Commissioner (Appeals) was also upheld. Being aggrieved, the Appellant filed an appeal before the Hon’ble Apex Court.

Held:

The Hon’ble Apex Court held that it is clear that by letter dated April 15, 2002, the original purchase order dated October 31, 2001 was novated insofar as price was concerned, which is before the date of removal of goods from the factory premises in May, 2002. Since duty has been paid on the basis of the original price in the purchase order, the difference between the said rate and the reduced rate has to be refunded.

It was further held that since the amount claimed by the Appellant on November 20, 2002 had been turned down, it will now be repaid to the Appellant together with interest at 9% per annum from November, 2002 till the date of payment.