Brief of the Case
Supreme Court has held in the case of CCE v M/s Indorama Synthetics (I) Ltd. of India held that the surrendering of advance licence in order to receive the products at lower rate will be considered as “additional consideration” under section 4 of Central Excise Act, 1944.
Facts of the Case
The Assessee is engaged in the manufacture of polyester chips, polyester staple fibre, polyester filament yarn and other goods. The goods were cleared as ‘deemed exports’ to advance licence holders which were at a price lower than what was being charged to the other buyers who did not hold an advance licence. According, to the Revenue the reason for selling the goods to the aforesaid particular class of buyers at a lesser price was that the assessee had received ‘additional consideration’ and, therefore, its inclusion was necessitated having regard to the formula provided for arriving at the ‘transaction value’ contained in the statutory scheme.
On surrender of advance licence with the aforesaid buyers, the assessee could receive drawback from the Director General of Foreign Trade as per the Export-Import Policy and this was stated to be the additional consideration.
Order of the Commissioner
The ld. Commissioner was of the view that price was not the sole consideration flowing from the buyer to the assessee.
Judgment of the Hon’ble Tribunal
The Hon’ble Tribunal, relied on the case of IFGL Refractories Ltd. v. Commissioner of Central Excise, Bhubaneswar-II 2001 (134) ELT 230, wherein it was held that statutory benefits allowed by statutory authorities cannot be considered as additional consideration flowing to a manufacturer from the buyer. The drawback was received from the Government and not from the buyers and, therefore, such drawback could not be treated as additional consideration for the purpose of arriving at ‘transaction value’ as per the definition thereof under Section 4 of the Act.
Held by the Hon’ble Supreme Court
- The Hon’ble Supreme Court observed that the decision on which the Hon’ble Tribunal relied on was overruled by this court in CCE v IFGL Refractories Ltd. 2005 (6) SCC 713, in which it was held that the consideration which is “duty drawback” was a result of surrendering advance licence by the buyers.
- The Hon’ble Supreme Court while mentioning the EXIM Policy observed that Advance Licence is issued under this Policy by which holder could import raw materials in order to manufacture the finished goods. However, per para 7.7 of the EXIM Policy 1997-2002, the advance licence holder intending to source the materials from indigenous source in lieu of direct import had the option to source them against advance release orders denominated in foreign exchange/Indian rupees. In such a case, the licence was to be invalidated for direct import and permission in the form of ARO was to be issued entitling the supplier of the goods the benefits of deemed export.
- The assessee could get the duty drawback only when advance licence holder category of buyers got their advance licences invalidated.
- Further, the Hon’ble Supreme Court considered that the fact that the issuance of advance licence for intermediate supply to the assessee was facilitated as a result of surrender of advance licence. The buyers got their advance licences for direct import in their favour invalidated with the sole purpose of purchasing the polyester staple fiber from the assessee at lesser price, i.e. Rs.37.50 per kg.
- Further, the Hon’ble Supreme Court affirmed the orders passed by Ld. Commissioner and held that the transfer of advance import licence in favour of the seller by the buyer enabling the seller of the goods to effect duty free import of the raw materials and bringing down the cost of production/procurement, is a consideration, the monetary value of which has to be considered under the provisions of the Rules, i.e. Rule 6 thereof.
Accordingly, the appeals of the Revenue were allowed.