CESTAT Chennai Orders Refund Of Excise Duty On Revised Price Not Accepted By Buyer

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has held that excise duty paid on a higher price claimed through supplementary invoices cannot be sustained where the buyer never accepted that price.

“The contemporaneous letter dated 13.07.2015 issued by the buyer clearly establishes that the supplementary invoice was not accepted, the amount was not accounted in the books and no CENVAT credit was availed. Thus, the revised value never crystallized into a transaction value within the meaning of Section 4. Consequently, the duty paid on such notional and unrealized value cannot be sustained,” the court observed.

The ruling was delivered by Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao, while allowing the appeal filed by Woory Automotive India Pvt. Ltd.

The company, which manufactures actuators and control heads, had cleared goods at Rs. 260 per unit as per purchase orders. It later sought to increase the price to Rs. 390 per unit due to rising raw material costs and issued supplementary invoices, paying differential duty.

However, the buyer refused to accept the revised price and did not pay the additional amount. Woory Automotive subsequently filed a refund claim of Rs. 47,15,913.

The department rejected the claim, stating that valuation had been correctly done under Section 4 of the Central Excise Act, 1944, and that the claim was time-barred.

As per the law, the tribunal noted that duty must be based on the transaction value, that is, the price actually paid or legally payable at the time of removal, under Section 4 of the Central Excise Act, 1944.

It found that the original price of Rs. 260 per unit was the agreed value at the time of clearance and satisfied all legal requirements. The later price increase was a unilateral move and did not create any binding obligation on the buyer.

The bench rejected the department's attempt to justify the higher value on the basis of cost escalation.

“The attempt of the Department to justify the revised value on the basis of cost escalation is untenable, as Section 4 does not permit substitution of transaction value by cost-based valuation except in circumstances covered under Section 4(1)(b), which are absent in the present case. Accordingly, the valuation adopted at the time of clearance under Section 4(1)(a) is final and cannot be altered by unilateral, unaccepted supplementary invoices, and the differential duty paid by the appellant does not correspond to any legally valid assessable value,” it held.

On unjust enrichment, the tribunal noted that the buyer had neither paid the differential amount nor availed any credit, and therefore the burden of duty had not been passed on.

It also found that the refund claim was filed within the limitation period.

“The differential duty paid on the basis of supplementary invoices, arising out of unilateral price revision not accepted by the buyer, does not form part of the assessable value under Section 4 of the Central Excise Act, 1944 and is therefore legally to be paid to the applicant,” the bench held.

Accordingly, the tribunal set aside the impugned order and allowed the appeal with consequential relief.

For Appellant: S. Jayanth, Consultant

For Respondent: N. Satyanarayana, Authorized Representative