Excise Duty cannot be levied on Payments based on post-sales performance

M/s. Sail Refractory Co. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)

Bonus and penalty are post-sales provisions, therefore excise duty cannot be levied on such payments which are based on performance post-sales / clearance of the goods.

Above issue is covered by the judgment in the case of Vishwakarma Refractories Pvt. Ltd. Vs. Commissioner of Central Excise, Bangalore – 2015 (320) ELT 622 which was affirmed by the Hon’ble Apex Court as reported in 2015 (320) ELT A257 (SC).

FULL TEXT OF THE CESTAT JUDGMENT

Brief facts are that the appellants are engaged in the manufacture of refractory bricks. They raised bonus claim against the buyers to whom the refractory bricks were supplied and which had outperformed the guarantee period as per commercial terms and conditions of the purchase order and realized amounts during various periods from the buyers. Thus, as per the common practice, appellant entered into an agreement with buyers incorporating a penalty clause and a bonus clause. In terms of the penalty clause, if the products do not last the guarantee period or do not withstand the number of heats guaranteed, the buyers would be entitled to charge a penalty as stipulated in the agreement. Conversely, if the refractory bricks outperform the guarantee period or function beyond the stipulated heats, the appellant would be entitled to bonus charges based on the number of heats the refractory bricks survive beyond the guaranteed heats. The department was of the view that these bonus payments received by the appellant has to be included in the assessable value. Four show cause notices were issued raising the above allegations for the periods as mentioned below. The original authority confirmed the demand, interest and imposed equal penalty. In appeal, the Commissioner (Appeals) upheld the demand and interest but set aside the penalty imposed under Rule 25 of Central Excise Rules. Hence these appeals.

2. On behalf of the appellant, learned counsel Ms. S.Gayatri explained the details of the adjudication order, period involved and the amount as given in the Table below:-

3. She submitted that the bonus and penalty are post-sales provisions, therefore excise duty cannot be levied on such payments which are based on performance post-sales / clearance of the goods. It is also submitted that the said issue is covered by the judgment in the case of Vishwakarma Refractories Pvt. Ltd. Vs. Commissioner of Central Excise, Bangalore – 2015 (320) ELT 622 which was affirmed by the Hon’ble Apex Court as reported in 2015 (320) ELT A257 (SC).

4. The learned AR Shri A. Cletus reiterated the findings in the impugned order.

5. Heard both sides.

6. In the above judgments, which has been relied upon by the appellant, the issue whether the bonus/penalty is to be included in the assessable value has been held to be a post-sale payment and therefore not includible in the assessable value. Following the same, we hold that the demand is unsustainable. The impugned order is set aside and the appeal is allowed with consequential relief if any.

(Operative portion of the order was pronounced in open court)