Compensation received from Insurance company in lieu of sale of flood-damaged finished goods as scrap

PJ/Case Laws/2011-12/1436

Case: COMMISSIONER OF CENTRAL EXCISE, MUMBAI-IV Vs RATNATRAYA HEAT EXCHANGERS LTD

Citation: 2011-TIOL-1538-CESTAT-MUM

Issue:- Compensation received from Insurance company in lieu of sale of flood-damaged finished goods as scrap – whether can be said to additional consideration and included in price of damaged goods under Section 4 (1) (a) of Central Excise Act, 1944?

Brief Facts:- Respondents were engaged in the manufacture of excisable goods, namely, radiators and parts thereof, classifiable under Chapter Heading 87.08 of the Central Excise Tariff Act, 1985. During audit of their records in July, 1999 it was observed that the respondents factory and office premises were affected by flood and consequently their products, finished as well as semi-finished including the furniture and machinery, were damaged and consequently they received insurance amount of Rs. 30,91,171/-. The respondents had disposed of damaged finished goods as scrap and paid excise duty accordingly thereon.

A show cause notice dated 8th December, 1999 was issued to the respondent. Revenue alleged that since insurance claim received by the respondents was in respect of the goods which were damaged in the flood and which were subsequently sold as scrap, that, therefore, insurance claim received in relation to such damaged goods should form additional consideration received by the respondents in relation to the scrap and it should be considered as vital factor to calculate the normal price in respect of the damaged finished goods in terms of Section 4(1)(a) of the Central Excise Act, 1944.

The Adjudicating Authority confirmed the demand. In appeal, the Commissioner (A) set aside the impugned order by holding that the respondents though had received certain amount of compensation from the insurance company in relation to the damaged goods, they had also incurred expenses for rectification and repairs of part of the damaged goods and taking into consideration the facts and circumstances of the case the contention of the department was not justified.

Hence, Revenue has come in appeal before the Tribunal.

Reasoning of Judgment:- The Tribunal held that Revenue department has not been able to establish that the compensation received from the insurance company was forming part of the sale price of the ultimate product cleared and disposed of by the respondents. Admittedly, it was a compensation in relation to the damage suffered by the respondents. No infirmity in order of the Commissioner (A).

Decision:- Appeal dismissed.

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PJ/Case Laws/2011-12/1436

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