COMMISSIONER OF CENTRAL EXCISE, BHUBANESHWAR-11versusM/S IFGT REFRACTORIES LTD.

A      COMMISSIONER OF CENTRAL EXCISE, BHUBAN.SSHWAR-11
                               v.
                  MIS IFGT REFRACTORIES LTD.

                                 AUGUST 9, 2005

B
              [S.N. V ARIA VA AND DR. AR. LAKSHMANAN, JJ.)

        Central Excise Act, 1944/Export and Import Policy, 1992; Duty
    Exemption Scheme :

c         Valuation-Refractories-Contract of sale between assessee-vendor
    and vendee-Vendee surrendering Advance Licence for import in terms of
    the contract-In lieu thereof the assessee availing benefit under
    Duty Exemption Scheme---Revenue holding it is additional consideration
    forming part of the purpose of levy of excise duty-Reversed by
    the Tribunal-On appeal, Held : Price includes money value of
D
    additional consideration flowing either directly or indirectly from buyer to
    seller in a contract of sale of goods-Assessee did not have any advance
    licence oftheir own for availing benefit under the Scheme-Assessee received
    the benefit under the Scheme only due to surrender of the Import Licence
    by the vendee-The benefit so received by the assessee could be termed as
E   additional consideration-Since there was a direct flow of additional
    consideration from buyer to seller-the assessee, tribunal was wrong in
    reversing the order of the Revenue-Since Tribunal did not consider the
    aspect of limitation, the matter is remitted to Tribunal to decide only on the
    issue of extended period of limitation-Sale of Goods Act.
F
         Respondent-man!-'facturer of refractories entered into contract with
    Mis. Vishakapatnam Steel Plan!-vendee for selling its product at certain
                                               1
    price. Jn lieu of the contract, vendee surrendered the Advance Licence
    to enable the assessee to avail of benefit under the Duty Exemption
    Scheme in terms of the Export and Import Policy, 1992. Revenue claimed
G   that the benefit accrued to the assessee was an additional consideration
    towards the value of the goods and formed part of the price for the
    purpose of excise duty. The Tribunal allowed the appeal of the assessees.
    Hence the present appeal.

H        Disposing of the appeal, the Court

                                         480
           COMMR. OF C.E. v. lFGT REFRACTORIES LTD.                    481

     HELD : I. I. The Rules provided that "price" would be actual price        A
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 of the Central Excise Act itself. Thus, if any additional
consideration is received from the buyer in connection with the sale of
goods, then the additional consideration forms part of the price for
                                                                               B
purposes of excise duty. [483-G-H; 484-A-B]

      1.2. It is only because of the Contract of Sale that the Vendee
surrendered their Advance Licences to enable assessee to get Advance
Intermediate Licences for purposes of meeting their obligations under the      C
contract. That the assessee have received an additional consideration/
benefit is clear from the letters written by the Respondents to the vendee
in pursuance of the tender floated. Had this additional benefit not flown
to the Respondents, they would have sold the items as per their earlier
offer. As the additional consideration was to flow to them, they have sold
                                                                               D
at the rates offered subsequently. The "additional consideration" is the
difference in prices between these two. The Commissioner had thus
correctly worked out this difference. [484-B-C; 485-G-HJ

     1.3. It is only because of the Advance Licences being surrendered
by the vendee and in lueu thereof Advance Intermediate Licences having         E
been made available to the assessee that the assessee could offer lower
prices to vendee. This resulted in additional consideration by way of
"Advance Intermediate Licence" flowing from the vendee to the assessee.
The value received therefrom is includable in the price. [485-A-C]
                                                                               F
      1.4. 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 had ignored and/or lost sight of the fact that it was
in pursuance of the contract of sale that the Licences were made available
to the assessee. The Export and Import Policy had nothing to do with the
arrangement/contract under which the Licences flowed from the buyer            G
to the seller. [485-A-C]

     2. Since the Tribunal has not considered the limitation aspect in view
of the fact that it has allowed the appeal on merits, the matter is remitted
back to the Tribunal. The Tribunal is directed to only consider whether        H
    482                  SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A   or not the extended period of limitation was available to the Revenue.
                                                                        1486-A-B)

          CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4472 of200 I.

         From the Judgment and Order dated 29.7.2000 of the Central Excise,
B   Customs and Gold (Control) Appellate Tribunal E.Z.B., Calcutta in F.O. No.
    A-1138/CAL/2000 in A. No. EN/74/1998.

        Harish Chander, A. Subba Rao, A. T. Rao and P. Parameshwaran for the
    Appellant.
c        S.K. Bagaria, Pratik Jalan, A.T. Patra and Nipun Malhotra for M/s. O.P.
    Khaitan & Co. for the Respondent.

          The Judgment of the Court was delivered by

D        S.N. VARIAVA, J. : This Appeal is against the Judgment dated 28th
    July 2000 passed by the Customs, Excise and Gold (Control) Appellate
    Tribunal (CEGA T).

          Briefly stated the facts are as follows:

E           The Respondents manufacture, amongst other things, refractories.
    They sold refractories to one Mis 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 ti<e said M/s Visakhapatnam Steel
F   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 Mis Visakhapatnam
    Steel Plant surrendered the Advance Licences they held for import of
    refractories. Against such surrender the Respondents were issued Advance
G   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
H   surrender of licence by M/s Visakhapatnam Steel Plant, was "additional
       COMMR. OF C.E. v. IFGT REFRACTORIES LTD. [VARIA VA, J.] 483


-   consideration" towards the value of the goods and that this "additional
    consideration" fonned part of the price for purposes of excise duty.
                                                                                       A

         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   B
            the customs duty under the advanced intennediate 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 platfonn of 'additional consideration' flowing to the
                                                                                       c
            manufacturer from the buyer, directly or indirectly. It has so
            happened that because of the benefit of the customs duty in tenns
            of the said advanced licences, the appellants have been able to
            import the inputs without corresponding payment of customs duty
            which has resulted in lower cost of their final product. Ao the            D
            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    E
             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.                          F
           Thus, the only question for consideration is whether the benefit gained
    by the Respondents by reason of Mis Visakhapatnam Steel Plant surrendering
    its licences and on such surrender the Respondents being issued licences, is
    additional consideration for the contract.
                                                                                       G
          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.                                                  H
    484                  SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A          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 excisl! duty. Undoubtedly, the Government
    had a "Duty Exemption Scheme". But the Respondents did not have any
    Advance Intermediate Lict>nces of their own under the Scheme. If they had
    had their own Licences, the reasoning of the Tribunal may have been correct.
B   It is only becaus~ of the Contract ofSale that M/s Visakhapatnam Steel Plant
    surrendered their Advance Licences to enable Respondents to get Advance
    Intermediate Licerices 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 Mis Visakhapatnam Steel   .>

C   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
D
             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:-

E            "As per the Export & Import P0licy 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 Ta;.: will be charged to you. For
             the domestic company the sales against your Advance Licence will
             be treated as 'Deemed Export'.
F
             Keeping this in mind, we now propose that 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."

G              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 cos: (for proportionate
               Compound                        quantity against order for item
                                               Nos.I, 2 and 3 placed on us)"
H
     COMMR. OF C.E. v. IFGT REFRACTORIES LTD. lVARIAVA, J.]485

         Ultimately it was agreed that Mis. Vishakapatnam will surrender its         A
  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 Mis Visakhapatnam Steel Plant and
  in lieu thereof Advance Intermediate Licences being made available to the
                                                                                     B
  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          c
  Licence" flowing from Mis 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 Mis Visakhapatnam Steel Plant that the Licences            D
  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. Vishakapatnama Steel Plant having to surrender its Licences     E
   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        F
   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
                                                                                     G
 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.                                                                H
    486                  SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A         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 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
B   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.
c S.K.S.                                                    Appeal disposed of.