1988 (10) TMI 154 - AT - Customs

Court sets aside order, remands for fresh adjudication. Appellants to provide cost statement. Collector to re-determine values.

The court set aside the impugned order and remanded the matter to the Collector for fresh adjudication. The appellants were instructed to provide a cost ... Assessable value - excludible elements of price (special packing, laffa, transport, transit/breakage insurance, loading and miscellaneous charges) - essentiality criterion for packaging (wholesale delivery at factory gate) - direct costing versus indirect costing - Best Judgment Assessment under Rule 7 - provisional assessment under Rule 9B and limitation under Section 11A - principles of natural justice (right to full opportunity of personal hearing) - remand for fresh quantification and re-determination of assessable valuesProvisional assessment under Rule 9B and limitation under Section 11A - whether the duty demands issued by the department were time-barred under Section 11A - HELD THAT: - The Court held that assessments were made provisionally under Rule 9B at the appellants' request and remained provisional until finalisation; under Section 11A the limitation period begins only from the date of adjustment of duty after finalisation of provisional assessments. Consequently the show cause notices dated 6.11.1984, 10.12.1984 and 4.3.1985 were not time-barred even if the normal six-month period were to be applied. [Paras 4]The demands were not time-barred.Principles of natural justice (right to full opportunity of personal hearing) - whether the appellants were denied proper opportunity of hearing - HELD THAT: - The Court found that the show cause notices and annexures lacked detailed break-ups of calculations; although the appellants were granted a personal hearing and made submissions, they requested a further hearing after seeking clarifications which was not granted by the Collector. This denial of a full opportunity of personal hearing was a breach of natural justice and, ordinarily, would justify remand for fresh adjudication. [Paras 5]There was denial of full opportunity of personal hearing; remand is appropriate.Assessable value - excludible elements of price (special packing, laffa, transport, transit/breakage insurance, loading and miscellaneous charges) - essentiality criterion for packaging (wholesale delivery at factory gate) - Best Judgment Assessment under Rule 7 - which items billed as extras are, in principle, excludible from the assessable value and the correct legal test to be applied - HELD THAT: - Applying Supreme Court authority and the essentiality principle, the Court held that special packing is excludible in principle if it is not essential for wholesale delivery at the factory gate but is necessitated only for long-distance safety; the relative percentages of special versus ordinary packing do not determine the issue. Laffa (jam-packing) charges, being incurred only for long-distance deliveries, are excludible in principle. Loading charges within the factory gate are includible; further loading/unloading for deliveries beyond the factory gate are excludible in principle. Transport costs, including transit insurance, are excludible. Breakage insurance for transit is on par with transit insurance and excludible in principle, provided evidence of actual incurrence exists. Miscellaneous charges are excludible only to the extent they relate to services performed after removal from the factory gate; charges essential for delivery at the factory gate are includible. [Paras 9, 10, 11, 12, 13]The Court laid down which extras are excludible in principle and the applicable essentiality test for packaging and other charges.Direct costing versus indirect costing - remand for fresh quantification and re-determination of assessable values - whether the Collector's method of quantifying excludible elements was appropriate and what procedure should be followed for determination of the correct amounts - HELD THAT: - The Court found prima facie suspect practices in the appellants' declaration of extras but held that the Collector erred in relying on an indirect method of costing via audited balance-sheets and Rule 7 best judgment assessment without first attempting the direct, straightforward method of quantification readily verifiable from receipts, account books, transport and insurance documents and simple costing of wooden crates, wages, etc. The Court directed that the appellants be given four months to furnish a statement of quantification of costs certified by a Cost Accountant for deductible elements; the Collector should scrutinise and, after due hearing, re-determine assessable values and differential duty within six months of receipt of such quantification. The Collector may enlist departmental officers or appoint a Chartered/Cost Accountant to assist but should not delegate the adjudicatory function to the Assistant Collector. [Paras 15, 16, 17, 18, 20]The matter is remanded for direct quantification of excludible costs and fresh re-determination of assessable values and duty; Collector to proceed as directed.Penalty, confiscation and fine (dependence on re-determined facts) - whether penalties, confiscation and fine should be upheld - HELD THAT: - The Court held that whether the facts warrant imposition of any fine, penalty or confiscation, and if so in what amount, must depend on the outcome of the re-determination of values after proper quantification of deductible elements; thus the earlier penalties and confiscation orders cannot be sustained without fresh adjudication. [Paras 17, 20]Penalty, confiscation and fine deferred to the result of fresh adjudication; Collector may adjudge them if warranted after re-determination.Final Conclusion: The impugned order of the Collector is set aside and the matters remitted to the Collector for fresh adjudication: the appellants shall furnish certified quantification of deductible elements within four months; after scrutiny and hearing the Collector shall re-determine assessable values and differential duty within six months and may impose fine, penalty or confiscation if warranted by the re-determined facts. Issues Involved:1. Determination of assessable values of goods for Central Excise duty.2. Limitation under Section 11A of the Central Excises and Salt Act, 1944.3. Violation of principles of natural justice.4. Exclusion of extra charges in determining assessable values.5. Quantification of costs for excludible elements.Detailed Analysis:1. Determination of Assessable Values of Goods for Central Excise Duty:The appellants manufactured figured and wired glass and used two invoices for each sale: an original invoice for the goods' price and a supplementary invoice for extra charges. The main dispute was whether these extra charges should be included in the assessable values for Central Excise duty. The High Court had previously ruled that these extra charges could be excluded if they were only realized from outstation buyers. This principle was to be applied to the later period under consideration (1.4.1979 to 31.3.1983), but no verification had occurred. The authorities suspected undervaluation and issued show cause notices alleging false declarations and suppression of facts.2. Limitation under Section 11A of the Central Excises and Salt Act, 1944:The appellants argued that the normal six-month limitation period should apply, making the duty demands time-barred. However, the court held that since the assessments were provisional under Rule 9B, the limitation period started only from the date of adjustment after finalization. Thus, the demands were not time-barred.3. Violation of Principles of Natural Justice:The appellants contended that they were not given a full opportunity to be heard as the Collector did not provide a further hearing after they requested clarifications. The court found merit in this objection, indicating a denial of a full opportunity for personal hearing, which typically would warrant a remand for fresh decision. However, to avoid prolonged litigation, the court decided to lay down guidelines for the Collector.4. Exclusion of Extra Charges in Determining Assessable Values:The court addressed two broad issues: which extra items should be excluded and the correct amount of these excludible items.- Special Packing Costs: The Collector's decision to include special packing costs in the assessable value was incorrect. The court held that special packing costs are excludible if they are not essential for delivery at the factory gate.- Laffa Charges: These charges for jam-packing during transport are excludible as they are not required for deliveries at the factory gate.- Loading Charges: Charges incurred within the factory are includible, but those incurred beyond the factory gate are excludible.- Transport Costs: The cost of transport and transit insurance is not to be included in the assessable value.- Breakage Insurance: This is on par with transit insurance and hence excludible.- Miscellaneous Charges: These are excludible if incurred after the goods leave the factory gate; otherwise, they are includible.The court emphasized that the principle of essentiality should guide the exclusion of these costs, irrespective of the percentage of local versus outstation sales.5. Quantification of Costs for Excludible Elements:The court noted that the appellants might have inflated the costs of excludible items. The Collector should have ordered a realistic costing of these elements using cost accountancy principles. The court suggested a direct method of costing, verified by receipts and account books, to determine the true cost of excludible items. If the direct method was not feasible, an indirect method via balance sheets and audited accounts could be used, though it was not preferred.The court directed the Collector to re-determine the assessable values by adding the original and supplementary invoice amounts and deducting the approved costs of excludible elements. The differential duty payable should be recalculated accordingly.Conclusion:The court set aside the impugned order and remanded the matter to the Collector for fresh adjudication. The appellants were instructed to provide a cost quantification statement certified by a Cost Accountant within four months. The Collector was to scrutinize this statement, hold a hearing, and re-determine the assessable values and differential duty within six months. The Collector could also adjudge confiscation, fine, and penalty based on his findings. The appeals were disposed of by remand under these terms.