TaxTMI 
TaxTMI 
TaxTMI 
2009 (3) TMI 391
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.... Jaju, Advocates, for the Respondent. [Order per: Rakesh Kumar, Member (T)]. - M/s. Uniworth Textiles Ltd., B-129, MIDC Area, Buti Bori, Distt. Nagpur (hereinafter referred to as UTL) are a 100% EOU who started their operations sometime in the year 1994 on the basis of an LOP No. 23/94/EOU/573/93 dated 17-1-94 issued by the Ministry of Commerce. UTL had been promoted by M/s. Uniworth International Ltd., Uniworth Centre, 70A, Shakespeare Sarani, Kolkata - 700017 (hereinafter referred to as UIL). While Shri Narendra Kumar is the Chairman of UTL, Shri B.K. Dalmia is President of UTL as well as Director of UIL and Shri S.K. Dalmia is the President of UIL as well as CEO of UTL. Shri Samir Ghosh is another Director of UTL. 1.1 UTL manufacture all wool fabrics, wool silk and poly wool fabrics of different varities for export. During the period of dispute, a 100% EOU, as per the then exim policy, was entitled to export 25% of the FOB value of its exports into DTA with the approval of the Development Commissioner and besides this, 5% of the FOB value of the exports could be cleared as "rejects" into DTA. As per the provisions of the proviso to Section 3(1) of Central Excise Act, 1944, as ....
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....,39,796/- from UTL on clearance of 8,05,904.40 linear meters of poly wool, silk wool and all wool fabrics cleared into DTA in the guise of 'rejects' during period from August 1997 to June 2001, alongwith interest on this duty as per the provisions of Section 11AB, seeking confiscation of these goods under Rule 209(1) (a) (b) & (d) of Central Excise Rules, 1944 and also seeking imposition of penalty under Section 11AC of Central Excise Act. The show cause notice also sought imposition of penalty under Rule 209 of Central Excise Rules, 1944 on UIL and penalty under Rule 209A on Shri Narendra Kumar, Shri B.K. Dalmia and Shri Samir Ghosh. In this show cause notice, it was also alleged that all the DTA sales of the so called 'rejects' are to only one customer UIL and that UTL and UIL are "related persons" within the meaning of this term, as defined under Rule 2(2) of Customs Valuation Rules, 1988 and, therefore, the duty on the DTA sales is chargeable on the "deductive value" determined under Rule 7 of the Customs Valuation Rules, 1944 on the basis of the price charged by UIL in respect of sales of the same goods to independent buyers. Subsequently another show cause notice dated 22-7-0....
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....944 read with Rule 209(1) of Central Excise Rules, 2001 - 2002; (d) imposed penalty of Rs. 1,00,00,000/- on UIL under Rule 209A of Central Excise Rules, 1944 read with Rules 26 of Central Excise Rules, 2001-02; and (e) imposed penalties of Rs. 20,00,000/-, Rs. 5,00,000/-, Rs. 5,00,000/- on Shri B.K. Dalmia, Shri Samir Ghosh and Shri Narendra Kumar respectively under Rule 209A of Central Excise Rules, 1944 read with Section 26 of Central Excise Rules, 2001-02. 1.4 It is against above order of Commissioner that these five appeals have been filed by UTL, UIL, Shri Narendra Kumar, Shri B.K. Dalmia and Shri Samir Ghosh. 2. Heard both the sides. 2.1 Shri M. Chander Shekharan, Advocate, the learned Senior Counsel for the Appellant and Shri Rupesh Kumar, Advocate also representing the appellants made the following submissions:- (1) UTL has sold only rejects within the quota of 5% of the FOB value of exports prescribed in the exim policy. The Department's allegation that the goods cleared into DTA were not reject but prime quality goods is without any basis. (2) The Commissioner has gone wrong in ignoring the Board's Circular No. 268/85-CX-6, dated 29-9-94 read with the earlier Circu....
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....n the cases of Collector of Central Excise, Vadodara v. Dhiren Chemical Industries reported in 2002 (139) E.L.T. 3 (S.C.), the Board circulars are binding on the Departmental officers. (3) Tribunal in the case of Tata Coffee Ltd. v. CCE, Hyderabad reported in 2004 (168) E.L.T. 460 (Tri. - Bang.) has held that when there is no dispute that the FOB value of the goods exported is fully commercial value, that value can be taken as the likely price of import also and accordingly can be adopted as the assessable value of the goods sold into DTA. Same view has been taken by the Tribunal in the case of Haryana Sheet Glass Ltd. v. CCE, Surat-I reported in 2005 (191) E.L.T. 682 (Tri. - Bom.). (4) Even if UTL and UIL are treated as 'related persons' within the meaning of Rule 2(2) of the Customs Valuation Rules, 1988, there is no evidence that the relationship has influenced the price. Therefore, the Commissioner has gone totally wrong in rejecting the price at which UTL sold the goods to UIL, even if all the DTA sales of UTL are to UIL during the period of dispute. When there was no basis to reject the sale price of UTL to UIL and it could not be said that the conditions for accepting the ....
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....d in 2003 (158) E.L.T. 403 (S.C.) relied upon by the Commissioner in the impugned order is not applicable to this case, as this judgment of Hon'ble Supreme Court related to retrospective amendment to Section 11A of the Act and its effect on the action taken unamended Rule 10 of the erstwhile Central Excise Rules. Here there is no challenge to the retrospectivity of the amendment to the proviso to Section 3(1) of the Central Excise Act. The Tribunal's decision in the cases of Fabworth (India) Ltd. (supra) and Modern Denim Ltd. (supra) only hold that the amendment carried out to Notification No. 2/95-C.E. would be effective only w.e.f. 16-9-99 and amendment to the Notification No. 2/95-C.E. cannot be given retrospective effect. (7) In this case the duty has been demanded under two show cause notices (SCN) dated 13-8-02 for the period from August 1997 to June 2001 and SCN dated 22-7-03 for the period from July 2001 to March 2002 and both the SCNs have been issued by invoking extended period under proviso to Section 11(1) of Central Excise Act, 1944 and making allegation of deliberate suppression of fact, mis-statement, fraud etc. on the basis of the same set of facts. When show cause....
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....ructions vide Circular No. 307/12/86-FTT dated 11-12-86, while a 100% EOU can sell rejects upto 5% of the FOB value of the exports as per the exim policy, the unit has to certify that the rejects were an un-avoidable feature on account of flaws of technology, techniques or material deployed by the units in the manufacture of its products and the goods cleared as 'rejects' are stamped as 'rejects' at the time of clearance into DTA. This circular also provides that the 'rejects' shall be established as such to the satisfaction of the Assistant Commissioner of Customs/Central Excise having jurisdiction over such units. While UTL had applied to the Jurisdictional Assistant Commissioner from time to time for clearance of the 'rejects' within 5% of the FOB value of exports into DTA, the Assistant Commissioner had granted permission for such rejects sales into DTA subject to UTL following the guideline for removal of rejects into DTA, as prescribed in the Board's letter No. 305/90/85-FTT dated 30-1-86 and the Ministry of Commerce Circular No. 33/85-98 dated 16-1-86 and also subject to fulfillment of the conditions specified under Notification No. 2/95-C.E./N.T. dated 24-5-95. However, non....
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....hich are 62% to 152% higher than the declared transaction value. (4) Since Rule 5 & 6 are not applicable, as there is no question of import price of identical or similar goods within the meaning of 'identical goods' and 'similar goods' as defined in the Customs Valuation Rules being available, recourse has been taken to Rule 7 i.e. deductive value method and since UTL and UIL are related persons, for determining the assessable value, the price charged by UIL from the independent buyers has to be taken into account. The Board's Circular No. 268/85-CX., dated 29-9-94 read with the earlier Circular No. 23/84-CX-8 dated 29-5-84, according to which in respect of DTA sales of a 100% EOU, the FOB value of export of identical or similar goods can be adopted as assessable value, are contrary to the provisions of Rule 8 of the Customs Valuation Rules, as sub-Rule (2) of Rule 8 of the Customs Valuation Rules, clearly states that no value shall be determined under this rule on the basis of price of goods for export to country other than India. In view of this clear prohibition in Rule 8(2) ibid for determining the assessable value of the goods cleared by 100% EOU to DTA, the FOB price of the ....
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....is no dispute about the fact that during this period the DTA clearances had been made under the provisions of the exim policy relating to the clearances of "rejects" of value upto 5% of the FOB value of exports. The main point of dispute in this case is as to whether these clearances were of genuinely rejected goods or were of prime quality goods. 3.1 During the period of dispute, 100% EOUs, in addition to the DTA quota of prime quality goods upto 25% of the FOB value of exports, could also sell rejects upto 5% of the FOB value of exports. As per Import Trade Control Order No. 33/85-88 dated 16-1-86 issued by Chief Controller of Import and Exports, New Delhi in respect of clearances of rejects into DTA by 100% EOUs, circulated by the Central Board of Excise and Customs vide Circular No. 307/12/86-FTT dated 11-12-86, a 100% EOU could clear rejects into DTA as permitted in the letter of approval issued to such units by the Central Government and subject to the conditions that - (a) the goods cleared as 'rejects' must have definite manufacturing defect and as such not exportable, as per the declaration of the 100% EOU concerned and shall include sub-standard products but shall not i....
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....L while clearing the fabrics to UIL were not stamping the same as rejects, though this was the requirement of EXIM policy, as per the statements dated 23-11-01 and 26-11-01 of Shri S.K. Dalmia, on receipt of the fabrics by UIL, the same were being graded as 'Prime' "A-class" & "B-class". We also find that the UIL sold the fabrics purchased from UTL to a number of wholesale dealers and the Department conducted extensive enquiries with the wholesale buyers who were buying the fabrics from UIL and enquiry with the buyers - Shri Prajay Sharma - Partner, Kala Mandir, Raipur, Shri Madan Lal Agarwal, Proprietor, M/s. Fashion House - Raipur, Shri Sarvinder Sahni, Partner M/s. Japji Traders, Chandani Chowk, Delhi, Shri Adesh Gupta of M/s. Adesh Enterprises, Chandni Chowk, Delhi, Shri K.S. Chugh of M/s. Guru Mehar Agencies, Chandni Chowk, Delhi and Shri Rajender Prasad Gupta of M/s. Shiv Lal Devi Sahay and Co., Delhi revealed that it is only the prime quality fabrics which were being sold by UIL, as all of them stated that they were buying only the prime quality goods not rejects. Besides this, as mentioned above, it is also seen that a number of qualities called 'monopoly qualities' were be....
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....(1) of Central Excise Act, 1944 as amended with retrospective effect w.e.f. 11-5-82 by Section 92 of Finance Act, 2000. In other words, the impugned goods through out the period of dispute would be liable to duty equal to aggregate of the duty chargeable under Customs Act, 1962 or under any other law for the time being in force. In view of this, there is no necessity to go into the question as to whether during period prior to 16-9-99 the goods would be liable to 50% of Additional Customs Duty, [AED (GSI) and AED (TTA) in addition to 50% of the basic customs duty. 4. The next question to be determined is as to what should be the assessable value of the goods cleared into DTA and whether the price at which UTL sold the so called 'rejects' into DTA to UIL - Rs. 160 to Rs. 175 per metre can be accepted as true transaction value of the goods. 4.1 As per the provisions of the 1st Proviso to Section 3(1) of Central Excise Act, the goods manufactured by 100% EOU or a unit in free Trade Zone and cleared into DTA would attract Central Excise Duty in an amount equal to the aggregate of the duties of Customs leviable under the Customs Act, 1962 or any other law, for the time being, in force....
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....Rule 4. Rule 5, 6, 7 & 7A provide for determination of the value on the basis of the contemporaneous import of the price of "identical goods", "similar goods", "deductive value" and "computed value" respectively. Rule 8 is the residual method based on the best judgment. Sub-Rule (2) of Rule 8, however, prescribes certain methods of valuation which are prohibited while applying best judgment and one of prohibited method is the valuation on the basis of the price of the goods for export to a country other than India. As per Explanatory notes to Rule 8, subject to the prohibitions of Sub-rule (2), for determining value by best judgment method, other Rules i.e. 5, 6, 7 & 7A can be flexibly applied. Rule 9 provides for addition of certain costs and services to the price actually paid or payable for the imported goods. Rule 10A provides for rejection of the declared transaction value if there are reasons to doubt its truth or accuracy and this Rule in a way supplements sub-rule (2) of Rule 4. 4.2 From the scheme of determining Central Excise Duty on the goods sold by a 100% EOU into DTA, as laid down in the proviso to Section 3(1) of Central Excise Act, 1944, it is clear that the goods ....
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....ce on record indicates that it is prime quality goods which were being sold as rejects and thus the price at which UTL were selling the goods UIL becomes suspect and cannot be accepted as true transaction value. Hon'ble Supreme Court in case of Varsha Plastics Ltd. v. UOI reported in 2009 (235) E.L.T. 193 (S.C.) = 2009 TIOL 16 - S.C., has held that once the nature of the imported goods has been misdeclared, their declared value becomes unacceptable. The question now arises as to whether for determining the transaction value Rule 7 is to be applied or Rule 8. Since as per Rule 3 of the Valuation Rules if the transaction value is not available, the same has to be determined by sequentially applying Rule 5, 6, 7, 7A & 8 and since because of the nature of these goods Rule 5 & 6 are ruled out, it is Rule 7 which has to be tried first instead of jumping straightway to Rule 8 and recourse can be taken to Rule 8 only when the value cannot be determined under Rule 7 or Rule 7A. We are also of the view that the Board's Circular providing for determination of the assessable value in such cases by taking recourse to Rule 8 on the basis of the FOB price of the identical or similar goods is not ....
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.... are not correct. 4.4 Coming to Application of Rule 7 for determining the assessable value, this Rule provides for determination of the value of imported goods on the basis of unit price at which the imported goods or identical or similar goods are sold in greatest aggregate quantity to persons who are not related to the sellers in India, subject to deductions as mentioned in this Rule. Since, as discussed above, the price at which UTL have sold the impugned goods to UIL is suspect, it would be fair and reasonable to determine the deductive value from the unit price at which UIL sold the goods to independent buyers in greatest aggregate quantity. However, we find that the Commissioner while determining assessable value by deductive method under Rule 7 has not adopted the unit price for greatest aggregate quantity and has not allowed deduction of - (a) general expenses in connection with sale including commission, (b) profit element of UIL, (c) cost of transportation and insurance; and (d) the taxes including sales tax. The deductive value under Rule 7 is not simply the sale price of the identical or similar imported goods but is the value determined from the unit sale price ....
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....o following the condition/guidelines prescribed in this regard in the Board's Circular No. 307/12/86-FTT dated 11-12-86, UTL never followed the conditions of this circular, and hoodwinked the Department into believing that they are clearing rejects, while actually they were clearing prime quality fabrics to UIL; they are guilty of fraud, suppression of facts and wilful misstatement with intent to evade the payment of duty and, therefore, for this show cause notice, the extended period under proviso to Section 11A(1) is available and this show cause notice is within time. 5.2 However, in respect of second show cause notice dated 21-7-03, the contention of the appellants is that in view of Hon'ble Supreme Court judgment in the case of Nizam Sugar Factory v. CCE, Andhra Pradesh reported in 2006 (197) E.L.T. 465 (S.C.) = 2008 (9) S.T.R. 314 (S.C.) and also Hon'ble Supreme Court judgments in the cases of P&B Pharmaceuticals (P) Ltd. v. CCE reported in 2003 (153) E.L.T. 14 (S.C.) and ECE Industries Limited v. CCE, New Delhi reported in 2004 (164) E.L.T. 236 (S.C), the same is time barred as the same has been issued subsequent to the issue of first show cause notice dated 13-8-02 on the ....