The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench has held that the manufacturer of auto parts shall be liable to pay excise duty on the amount received from the buyers of scraps and the value of auto-parts after the cancellation of supply agreement with Honda India.
Before the Tribunal, the Company challenged the order of the Commissioner (Appeals) wherein he confirmed that central excise duty was payable on the amount received by the appellant from M/s. Honda Siel Car India Ltd.2 , for the loss suffered by the appellant on account of the cancellation of the contract for supply of auto parts used in the manufacture of vehicles.
The department held that the amount received by the appellant from Honda India should be included in the transaction value since the amount received was for those very auto parts which were to be sold to Honda India but were ultimately sold by the appellant to buyers since the contract was cancelled.
The appellant Company engaged in the manufacture of auto parts, availed and utilized CENVAT credit on inputs, capital goods and input services for discharging its output duty liability, in terms of the provisions of the CENVAT Credit Rules, 2004. It was argued thatsuch auto parts manufactured by the appellant were sold to several buyers spread throughout the country. One such buyer of the appellant was Honda India, withwhom the appellant entered into a contract dated 14.01.2009 for supply of auto parts and other products used in the manufacture of motor vehicles. According to them, in view of urgent requirement of Honda India, inasmuch as its foreign counterpart located in Thailand was seriously affected in the year 2011-12 due to heavy floods, the appellant air lifted the raw material in full container load for manufacture of auto parts for Honda, Thailand, which resulted in extra cost of transportation to the appellant. However, Honda India cancelled the order and did not take delivery of the parts in consequent to which, accumulation of the finished goods which were sold as scrap, resulting in loss to the appellant but part quantity of the unutilized raw material, which could not be used in manufacture of auto parts, was cleared at a lesser value on reversal of credit.
On first appeal, the Commissioner (Appeals) also observed that this was actually a business arrangement between the appellant, Honda India and the buyers of scrap to evade payment of excise duty on the amount called as ‘compensation’ and infact Honda India actually paid some amount to the appellant for the goods sold to buyers.
Diving deeply into the facts of the case, CESTAT President Justice Dilip Gupta and Technical Member P V Subba Rao noted that “To us also it transpires from the business arrangement between the appellant, Honda India and the buyers that the appellant received some amount from the buyers of scrap and some amount from Honda India for the value of the auto parts and there is no good reason as to why this amount received by the appellant from Honda India should not be included in the transaction value of the goods.”
Referring to rule 5 of the Central Excise (Valuation) Rules, 1975, the Tribunal held that “this rule also talks of additional consideration flowing directly or indirectly from the buyer to the assessee. In view of the peculiar nature of the business arrangement between the appellant, Honda India and the buyers of auto parts, it is clear that the amount received by the appellant from Honda India has flown indirectly from the buyers.”
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