Excise Duty can’t be levied on Post-Sale Payments like Bonus: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the amount paid as bonus or penalty being, post- sale payments cannot be includable in the assessable value and therefore, the same is not subject to excise duty.

The appellants 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.

As per the agreement between the appellants and the buyers, 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 held that these bonus payments received by the appellant has to be included in the assessable value. On appeal, the Commissioner (Appeals) upheld the demand and interest but set aside the penalty imposed under Rule 25 of Central Excise Rules.

Before the CESTAT, the assessee 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. In support of the contentions, they relied on decision in Vishwakarma Refractories Pvt. Ltd. Vs. Commissioner of Central Excise.

Allowing the contention, the bench held that “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.”