Relief to Volkswagen: CESTAT Quashes Excise Duty Demand of Approx. 24 Crores on Amount Recovered as Liquidated Damages on ground of Non-violation of Rule 6 of Central Excise Rules [Read Order]

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) granted relied to Volkswagen India by quashing the excise duty demand of approximately 24 crores on the amount recovered as liquidated damages on the ground of non-violation of Rule 6 of the Central Excise Rules,2002. 

Volkswagen India Pvt. Ltd, the appellant assessee engaged in the manufacturing of cars bearing the brand name Volkswagen Vento and Volkswagen Polo and they also manufactured Skoda Fabia brand cars on a contract manufacturing basis, based on orders placed by Skoda Auto India Pvt. Ltd and sell those cars exclusively to them. 

The assessee appealed against the order passed by the Commissioner of Central Excise for confirming the demand of Central Excise duty amounting to Rs.24,42,14,061/- on the amount recovered as Liquidated damages. 

Rajesh Ostwal, the counsel for the assessee contended that as the contract price was agreed on on cost plus basis, it was obvious that the price arrived at the beginning of the accounting period was based on agreed costs for agreed volume and there were no possibility to apportion the provisional even thug the assessments were never provisional. 

Also submitted that at the end of the year, the parties settled the prices on account of unabsorbed costs under the description of Liquidated Damages was nothing but recovery of part of the price of goods already sold. 

Sunil Kumar Katiyar, the counsel for the department relied on the decisions made by the lower authorities and contended that the assessee was liable to pay the excise duty demand and the demand raised by the revenue was as per the law and liable to be sustained. 

The Bench observed that in the case of Skoda Auto Volkswagen India Pvt. Ltd. cs. CCE, the court held that as per section 4 of the Central Excise Act, 1944 any deviation from any of the elements enumerated therein would require treatment prescribed in Central Excise (Determination of Price of Excisable Goods) Rules, 2000. These several rules commence with the declaration that there was no option for determination of value other than by recourse to in Central Excise Rules. 

Also observed that in the event of rejection of the invoice value as transaction value, it was not open to the adjudicating authority to re-determine value without recourse to Rule 6 of Central Excise Rules. 

While allowing the appeal, the two-member bench comprising Ajay Sharma (Judicial) and C J Mathew (Technical) quashed the excise duty demand against the assessee. 

To Read the full text of the Order CLICK HERE

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