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2015 (8) TMI 947 - SUPREME COURT

2015 (8) TMI 947 - SUPREME COURT - 2015 (323) E.L.T. 20 (SC) - Valuation of goods - inclusion of additional monetary consideration - 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 - Held that:- As per the definition of 'transaction value' contained in this very section, i.e. Section 4(3)(d), certain charges can be added to the price at whi .....

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value of any additional consideration flowing directly or indirectly from the buyer to the assessee'. The implication of this Rule is that any form of additional consideration which flows from the buyer to the assessee, monitory value thereof is to be included while arriving at the transaction value. It is not necessary that such an additional consideration is to flow directly and even indirect consideration is includible. It is in this context we have to examine as to whether the consideration .....

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assessee. - Commissioner has rightly come to the conclusion with regard to the fact that additional monetary consideration, in addition to the price being paid for the goods, i.e. 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 .....

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re, polyester filament yarn and other goods. It had been clearing the same on payment of central excise duty. The period involved in this appeal is 1999-2002. During this period, the goods that were cleared as 'deemed exports' to advance licence holders were at a price lower than what was being charged to the other buyers who did not hold an advance licence. As per the Commissioner of Central Excise, Nagpur-I (hereinafter referred to as the 'Revenue'), it found that the reason fo .....

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f advance licence with the aforesaid buyers, the assessee could receive drawback from the Government/Director General of Foreign Trade (DGFT) as per the Export-Import (EXIM) Policy and this was stated to be the additional consideration. Suffice it to point out at this juncture that the Revenue issued five separate show cause notices asking the assessee to pay the differential duty as the said additional consideration was to be included while arriving at the 'transaction value' of the sai .....

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ere sold the goods at a lower price, were 'related persons', even the goods were sold at depressed price. Therefore, the Commissioner confirmed the demand of differential duty as mentioned in the show cause notices and also levied penalties and interest. The assessee challenged the order of the Commissioner by filing appeal before the Custom Excise & Service Tax Appellate Tribunal (for short, the 'Tribunal') taking the plea that 'additional consideration' under Sectio .....

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ered as additional consideration flowing to a manufacturer from the buyer. In the opinion of the Tribunal, 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. 3) Pertinently, the decision of the Tribunal in IFGL's case stands overruled by this Court in Commissioner of Central Excis .....

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khapatnam will surrender its advance licences and in lieu thereof the respondents will 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 .....

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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 the respondents and M/s. Visakhapatnam Steel Plant that the licences were made available to the respondents. The Export and Import Policy had nothing to do with the arrangements/contract under which the licences flowed from the buyer to the seller. At the cost of repetition it must be m .....

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e advantage of policies of the Government and the benefits flowing therefrom, then such benefit cannot be said to be an additional consideration . 4) In a matter like this, this Court could simply follow the aforesaid judgment and set aside the order of the Tribunal, allowing this appeal. However, Mr. V. Lakshmikumaran, learned counsel appearing for the assessee, made a fervent and passionate plea that the aforesaid judgment of this Court in IFGL's Note 2 above case needs re-consideration. H .....

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the kitty of the assessee. 5) As mentioned above, the assessee had been selling polyester staple fiber to two classes of domestic buyers, in addition to exporting the same in the international market. One of the category of domestic buyers were those who were having advance licence and the other category without any such licence. The assessee had issued two different price lists. Those buyers who had advance licence but agreed to surrender the said licence, were offered price of ₹ 37.50 pe .....

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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. Para 10.2 of the EXIM Policy laid down the categories of supply which would be recorded as 'deem .....

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o procure the goods duty free from indigenous manufacturers and on the supply of this material to such buyers, treating the same as 'deemed exports', thereby earning the benefits of duty drawback. Para 7.11 of the EXIM Policy facilitated this process and it reads as under: 7.11 Advance Licence for Intermediate Supplies - The Advance Licence for intermediate supply shall be considered by the licensing authority concerned. The Advance Licence for intermediate supply shall be issued after m .....

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ports/deemed exports or to export directly. 8) The aforesaid narratives would demonstrate that the assessee could get the duty drawback and it could happen when advance licence holder category of buyers got their advance licences invalidated thereby surrendering the benefits accrued under such advance licence. Issue for consideration is as to whether it would constitute 'additional consideration' received by the assessee as per the definition of 'transaction value' contained in S .....

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ivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value. xx xx xx (d) transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale o .....

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ods with reference to the value of such goods. Generally, the price of the goods, i.e. the price at which such goods are ordinarily sold by the assessee to a buyer is to be the value of the goods. This value is called the 'transaction value'. The Central Government has also framed the Rules which, inter alia, lay down the provisions for determination of value. Rule 6 thereof, with which we are specifically concerned, reads as under: RULE 6. Where the excisable goods are sold in the circu .....

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ervices, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely: (i) value of materials, co .....

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hese goods are sold by the assessee at different prices to different classes of buyers (not being related persons), each such price is to be deemed to be the normal price of such goods in relation to each class of buyers. However, as per the definition of 'transaction value' contained in this very section, i.e. Section 4(3)(d), certain charges can be added to the price at which the goods are actually sold, under certain circumstances. These include the provision for advertising or public .....

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rectly from the buyer to the assessee'. The implication of this Rule is that any form of additional consideration which flows from the buyer to the assessee, monitory value thereof is to be included while arriving at the transaction value. It is not necessary that such an additional consideration is to flow directly and even indirect consideration is includible. It is in this context we have to examine as to whether the consideration in the form of drawback, which accrued in favour of the as .....

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id judgment was rendered on almost identical fact situation. That is why the endeavour of Mr. Lakshmikumaran is to impress upon us to take a different view. He sought to discredit the opinion of the Court in the said case by arguing that the advance licence for intermediate supply was granted by the DGFT to the assessee under the EXIM Policy and it had nothing to do with the buyer. He conceded that it could happen only after buyers got their advance licences invalidated. But his explanation was .....

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Thus, getting the licence invalidated for direct import of items in favour of the buyer was the trigger point for issuance of the advance licence for intermediate supply in favour of the assessee. Possibility of refusal on the part of DGFT to issue licence in favour of the assessee is only in the realm of conjecture. Fact is that the assessee got the licence and it became possible only on account of sacrifice made by the buyers. Further, what is important is that the buyers got their advance lic .....

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er argument which was advanced by the learned counsel for the assessee was that discounted price is charged from the advance licence holder category of buyers by the assessee because of saving in customs duty on inputs due to statutory notification with consequent reduction in cost of production and, therefore, it is not a consideration flowing from a buyer. In this behalf, the submission was that the customs duty, otherwise leviable on the inputs going into the manufacture of polyester staple f .....

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e assessee may appear to be impressive, when taken in isolation i.e. without having regard to all the attending facts. However, when the argument is tested keeping in view the entirety of the circumstances, as already taken note of above, the hollowness of this argument stands exposed, inasmuch as, this argument glosses over the fundamental fact that the assessee had been able to get the benefit of Notification No. 31/1997-CUS based on licence issued by DGFT in its favour and the raison d'et .....

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who are/were the holders of advance licence, to be eligible for purchase at a discounted price was only a 'condition for sale of goods' put forth by the assessee. He submitted that 'it was not a consideration for sale of goods'. He, thus, drew distinction between condition for sale and consideration for sale of goods and in support of this submission referred to the celebrated and classic judgment of the English Court in Thomas v. Thomas (1842) 2 QB 851. This judgment has been a .....

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ess and it is hereby further agreed' that she should pay £1 per annum towards the ground rent, and keep the house in repair. In an action by the widow for breach of this promise, the consideration for it was stated to be the widow's promise to pay and repair. An objection that the declaration omitted to state part of the consideration, viz. the testator's desire, was rejected. Patteson, J. said: 'Motive is not the same thing with consideration. Consideration means something .....

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motive for promising did not amount to consideration unless two further requirements were satisfied, viz: (i) that the thing secured in exchange for the promise was of some value in the eye of the law ; and (ii) that it moved from the plaintiff. Consideration and motive are not opposites; the former concept is a subdivision of the latter. The consideration for a promise is (unless the consideration is nominal or invented) always a motive for promising; but a motive for making a promise is not n .....

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he consideration but a condition of her entitlement to enforce the executor's promise. This case is contrasted with another judgment in Re Soames (1897) 13 TLR 439. The discussion in this behalf reads as under: On the other hand, in Re Soames A promised £3,000 to B if B would set up a school in the running of which A was to have an active part. It was held that, by establishing the school, B had provided consideration for A's promise. It seems that the distinction between considera .....

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ke Ball Co. where the claimant provided consideration for the defendants' promise by using the smoke-ball; but her catching influenza was a condition of her entitlement to enforce that promise. 17) We are afraid, such a distinction between consideration and condition, as sought to be drawn by the learned counsel for the assessee, would not apply to the instant case. It was possible if the transaction between the buyers and the assessee was seen in isolation. However, in the present case, it .....

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to additional consideration. Our conclusion is that it would come within the ambit of additional consideration indirectly flowing from the buyers to the assessee. Therefore, the instant case is more akin to the decision in Re Soames Note 6 above. 18) At this stage, we would like to recall the following findings arrived at by the Commissioner, which are not upset by the Tribunal in the impugned decision or even disputed by the assessee: (a) The assessee had supplied goods to a particular type of .....

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ases in accordance with the provisions of Section 4(1)(a) of the Act. (b) Therefore, they were related persons in terms of provisions of the erstwhile Section 4(4)(c), presently Section 4(3)(b)(iv) of the Act. (c) It is observed that para 7.7 of the EXIM Policy on Advance Release Order speaks of mutuality of interest as the assessee had procured duty free imported raw materials against invalidation of advance licence of the consignees and in turn it sold the finished goods to the said consignees .....

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i.e. (i) enhanced sale and paid less duty on lower value; and (ii) imported duty free raw materials. (e) In this case, the right to procure duty free imported raw material is being transferred to supplier by the buyer. This indicates the flow back of additional considerations from the buyer of the said goods to the seller, which is the assessee. 19) On the facts of this case, we are of the opinion that the Commissioner has rightly come to the conclusion with regard to the fact that additional m .....

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IFGL's Note 2 above case. 21) Before we part with, one more aspect to which our attention was drawn by Mr. Lakshmikumaran needs to be addressed. Referring to another judgment of this Court in Commissioner of Central Excise, Bangalore v. Mazagon Dock Ltd. 2005 (187) ELT 3 (SC) :: 2005 (127) ECR 268 (SC), a vain attempt was made to show that this judgment was contrary to the decision rendered by this Court in IFGL's Note 2 above case. We do not find it to be so. Interestingly, the Hon' .....

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