2005 (3) TMI 122 - SC - Central Excise

Supreme Court upholds Rule 6(b)(ii) on assessable value for lack of evidence. Remand for profit calculation review.

The Supreme Court upheld the department's invocation of Rule 6(b)(ii) for determining the assessable value of bottles supplied to JIL due to lack of ... Whether M/s. Universal Glass Ltd. (assessee herein) was right in valuing the bottles manufactured and supplied by them to M/s. Jagatjit Industries Ltd., Kapurthala (for short 'JIL') by relying upon the prices charged by the assessee to companies, like Dabur, Hamdard, Maaza, Kissan etc. (hereinafter referred to as the 'other buyers') under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 (hereinafter referred to as 'the 1975 Rules')? Held that:- In the present case, since there were no comparable prices available for determining the normal price under Rule 6(b(i), the only alternative was to decide the value under Rule 6(b)(ii) by adopting the best judgment principle based on the cost of production and the profits which the assessee would have earned. In the circumstances, when the assessee submitted before the Commissioner its profit and loss account on 22-10-1996, due weightage ought to have been given to such accounts. It was not open to the Commissioner to do the costing on the profits of JIL, particularly, when the figures relating to profits of the assessee were available. Only to this extent, we remit the matter to the Commissioner of Central Excise, Meerut, who is directed to decide this limited issue in accordance with law. However, this exercise of recalculating the profits shall be limited to under-priced bottles and not to the bottles which have been found to be correctly valued in the impugned order of the Commissioner [See : United Glass v. Collector of Central Excise reported [1995 (1) TMI 69 - SUPREME COURT OF INDIA] Thus the appellant succeeds, the impugned judgment of the Tribunal dated 13-8-1999 is set aside, with no order as to costs. Issues Involved:1. Whether the assessee was right in valuing the bottles supplied to JIL by relying on prices charged to other buyers under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975.2. Whether the department was justified in invoking Rule 6(b)(ii) for determining the assessable value.3. Whether the Tribunal erred in setting aside the Commissioner's order.Issue-wise Detailed Analysis:1. Valuation of Bottles Supplied to JIL:The primary issue in this case was whether the assessee correctly valued the bottles supplied to JIL by comparing them with prices charged to other buyers like Dabur, Hamdard, Maaza, Kissan, etc., under Rule 6(b)(i) of the 1975 Rules. The assessee, a division of JIL, manufactured glass bottles, 50% of which were captively consumed by JIL, and the rest were sold to other industrial consumers. The Commissioner found that the prices of bottles supplied to JIL were not comparable to those supplied to other buyers due to differences in shape, size, and cost of production. The Commissioner also found that the assessee had manipulated prices and created artificial buyers to under-invoice the bottles supplied to JIL.2. Invocation of Rule 6(b)(ii) by the Department:The department issued a show cause notice demanding differential duty, alleging that the assessee had filed incorrect price declarations with the intent to evade duty. The Commissioner concluded that the prices of bottles supplied to JIL could not be determined under Rule 6(b)(i) due to the lack of comparable prices and invoked Rule 6(b)(ii) to determine the assessable value using the costing method. The Commissioner found that the prices of bottles sold to JIL were lower than those sold to other buyers and that the costing data indicated under-pricing.3. Tribunal's Error in Setting Aside the Commissioner's Order:The Tribunal set aside the Commissioner's order, holding that comparable goods were available and that the department was not entitled to invoke Rule 6(b)(ii). The Tribunal also noted that there was no intention to evade duty as the goods were modvatable and exempt under Notification No. 217/86. However, the Supreme Court found the Tribunal's judgment to be perfunctory, lacking in detailed reasoning, and failing to address key aspects such as the differences in the variety of bottles, the nature of franchisee agreements, and instances of under-invoicing. The Supreme Court emphasized that comparable goods under Rule 6(b) should be identical or nearly identical and that the Tribunal erred in interfering with the Commissioner's well-reasoned order.Conclusion and Remand:The Supreme Court concluded that the department was justified in invoking Rule 6(b)(ii) due to the lack of comparable prices and the evidence of price manipulation. However, the Court remitted the matter to the Commissioner to reconsider the profit calculations based on the assessee's profit and loss account, rather than JIL's profits, for the under-priced bottles. The Tribunal's judgment was set aside, and the appeal by the department was allowed, with no order as to costs.