TaxTMI 
TaxTMI 
1999 (6) TMI 300
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....f duty on account of under-valuation of goods and substitution of grade by selling plywood of alleged inferior quality ('X' grade) at the price of prime or superior quality, although duty was paid at the time of clearance of the goods from its factories at the price applicable to the former inferior grade. 1.2 Under-valuation and evasion of Central Excise duty as given below was alleged under the following heads :- (a) It was alleged that the appellant cleared about 10% goods for sales at factory-gate which were deliberately put at a far lower level, even below the cost price to establish price under Section 4 (1)(a) of the Central Excise Act, 1944. Loss incurred in these were more than made up by selling remaining about 90% from its various depots all over India by upmarking the price to the extent of 100% to 250% sales at the factory gate were not open to all but only to some or certain selected dealers. It was alleged that evasion of duty during the period February 1990 to June 1994 was to the tune of Rs. 18,47,91,347.00. (b) It was also alleged that about 50% of the total sales of the appellant were made from the Dep....
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....urt's judgment in the case of Indian Oxygen Ltd. [1988 (36) E.L.T. 723] to the effect that once the factory gate price is ascertainable, all assessments would be made at that price. We consider it appropriate to reproduce the Commissioner's findings on this aspect, since these have been challenged by the ld. Advocate for the Respondent that there is no estoppel against the Revenue in arguing against the said finding in support of his case while resisting the Appeal on other points. In fine, I find that the stand of the Deptt. for raising a differential amount of Rs. 18,47,91,347/- is unsustainable for the following reasons :- (a) Private costing recovered during the search can not form a basis for ariving at the correct "value" for all goods manufactured by M/s. Kitply. (b) Multiplying the entire clearance as reflected in the RG-I/RT-12 of the company by the highest price in couple of bills recovered is neither ethically acceptable nor arithmetically correct as huge stocks are still lying unsold in the depots on the day of the raid. It can not be taken for granted that they will all be sold at this highest price. At best, thi....
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....ng agencies brought on record confirm that planning, monitoring, billing etc. of all advertisement activities of Landle were controlled and supervised by the appellant. Commissioner has also observed that had not the advertisement expenses been incurred by Landle, the same would have been incurred by the appellant thereby enhancing the cost of the appellant's products and it would have resulted in higher assessable value at the factory gate. There is thus a direct nexus between the higher discount given to Landle by the appellant and the minimum quantity of products to be supplied to Landle by agreement with the latter on the one hand and the additional consideration of advertisement cost incurred by Landle which in the normal course would have otherwise been incurred by the appellant on the other hand. Hence the amount of duty, as alleged to be evaded on this count was confirmed by the Commissioner. 1.6 Similarly, in respect of additional consideration of notional interest on the interest-free security deposit made by Landle, the Commissioner has found that appellant's plea that deposit was taken as a security or as credit facility inasmuch as huge stocks of goods were sol....
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....rged to dealers and recovered Rs. 148 crores from Landle. However the appellants have charged and recovered only Rs. 120 crores from Landle. Thus the appellants have charged and recovered less by a sum of Rs. 28 crores (the difference between the sale price to dealers vis-a-vis the sale price to Landle because of the higher discounts offered to Landle. The notice alleges and the impugned order confirms that the total additional consideration (advertisement plus interest) during the above period was to the tune of Rs. 25 crores. In other words if the entire transaction is looked into in the proper perspective it would show that the appellants have charged and recovered a sum of Rs. 120 crores plus 25 crores i.e. 145 crores from Landley, whereas they could have charged and recovered on the sale invoice itself a sum of Rs. 148 crores from Landle (i.e. list price less 20% as charged to the dealers ex-depots). Hence assuming without admitting that the advertisement expenses and the alleged national interest are to be considered as additional consideration, the same would not in any way affect the ex-factory price charged by the appellants. The impugned order is therefore liable to be se....
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....opularisation and sale of the products of the company in the said States particularly and any other parts of India on trial basis. ............................................................................................. ............................................................................................. (6) The second part shall work conscientiously, energetically and in a business like manner for the promotion, popularisation and sale of the product of the company and shall not during the subsistence of its distributorship work directly or indirectly for any manufacturers of the products and substitute products in any other part of India. ............................................................................................. ............................................................................................. (8) The second part shall sell the production of the Company Retail or wholesale, at any price negotiated by him which however shall in no case be less than the minimum price fixed by the first part for each of the products of the company. Such pricing shall be worked out to the second part by the company after deducti....
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....her States other than Maharastra Gujarat, West Bengal, and Assam. 10 Trucks (Optional) ............................................................................................. ............................................................................................. (12)  The second part for the promotion and popularisation of the product of the company shall make sufficient expenditure on all India TV net work and substantial amount will be spent by the second part for the promotion and popularisation of the first part products. The first part will have a role to play in advertising (sic) at the cost of the second part. (13) The second part will continue to keep permanent deposit of a Crores (Rupees Two Crores only) with the first part as security to this agreement for the due performance of the terms of this agreement and the said security will be with the first part as security and for the period this agreement remain valid. Such security will carry no Interest for the total period of security. In case there should arise any dispute with respect of any matter regarding which any deduction is sought to be made by the first part. The said dispute ....
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....sole consideration for sale". When the goods are removed from its factory by a manufacturer to its depot (s) there is no sale of such goods and sale would be effected later from the depot (s). In truth, therefore, no sale-price at the time and place of removal of goods is available for those goods (being removed to depot). But for the purpose of convenience, price available for such (similar) goods had they been sold at the factory gate is taken, because duty is required to be charged in terms of Rule 49 of the Central Excise Rules, 1944 when the goods are removed from the factory. If the goods are subsequently sold at depots, without any additional consideration, that is the end of the matter, because price at the factory gate cannot be said to have been influenced by any additional consideration and price at the factory was the sole consideration for sale. It is in the absence of any allegations, in Indian Oxygen (supra) regarding sales at depots, on additional consideration, that the Apex Court decided that if the price at the factory gate under Section 4(1)(a) is available, one need not go to the price at Depot. But the factual situation in the present case is totally different....
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....preciated that if Ponds (I) Limited had not given these amounts, the appellant would have been required to borrow these amounts for purchasing raw materials and other accessories from outside like banks etc. and would have been required to pay large amounts of interest which naturally would have got reflected in the purchase price to be charged from the buyers as it would be a part of cost of production which was to be passed on to the customers of the appellant's goods. It has been laid down by Section 4(1)(a) that normal price would be, price which must be the sole consideration for the sale of goods and there could not be other consideration except the price for the sale of the goods and only under such a situation sub-section (1)(a) would come into play. If the price in a particular transaction is not the sole consideration flowing directly or indirectly from the buyer to assessee-manufacturer, either in cash or any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods. In these circumstances the Tribunal was perfectly justified in upsetting the decision of t....
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....e will be the price at which duty was originally paid plus the additional consideration flowing the appellant from Landle. 3.5 One constant refrain in the Appeal memo and also during the course of arguments at the time of hearing of the Appeal has been that assessable value on which duty has been paid is not based on price paid by Landle and, therefore, any additional consideration, if any, received from Landle cannot be added to that assessable value for the purpose of charging Central Excise duty. Such an acretion (sic) of additional consideration could be made if and only if the assessable value had been based on price paid by Landle. We are afraid that there is a fallacy in the argument. Object of Section 4 is to determine assessable value for the purpose of charging Central Excise duty on goods which are liable to duty on ad-valorem basis. Sale price of the goods in the course of whole-sale trade where price is the sole consideration is the basis of determining such value under Section 4(1)(a). This Section also provides that different prices can be charged from different classes of buyer. Landle, is undisputedly a bulk buyer of the goods manufactured by the appellant.....
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.... of Rs. 9,81,77,589/- has not been accepted by the Commissioner in the impugned order. Existence of two grades has been admitted. Mixing up of "X" grade and normal grade has taken place only in 7out of 22 depots and therefore, demand has been reduced to Rs. 58,96,580/-. It has been urged against confirmation of this demand that existence of two grades having been accepted and sale price and clearance of "X" grade having been accepted by the Commissioner under Section 4(1)(a), the department is estoppel from following sale prices of those at depot and, therefore, the demand is not sustainable. We do not agree with this contention. Appellant has not denied that socalled "X" grade goods cleared from the factories for the seven depots in question were mixed up along with non- "X" grade goods and all goods from those seven depots were sold as non- "X" grade. It is therefore, doubtful whether the so-called "X" grade cleared to the seven depots and sold therefrom were really "X" grade goods. Appellants's argument to confine the question of sale of "X" grade to valuation alone is not correct. The question is of misdescription in the quality of goods cleared from the factory for sale from t....
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....he factory gate price under Section 4(1)(a) having been accepted by the Commissioner, it was not open to her to go beyond that and made the ex-depot sales to M/s. Landle as the basis for arriving at the assessable value. It is seen that one of the charges in the Show Cause Notice was that the appellant had been indulging into under-valuation and with a view to evade Central Excise Duty had deliberately established a price at their factory gate by selling 10% of their total production from the factory gate. Notice proposed to recover duty allegedly short paid on this count to the extent of Rs. 18,47,91,347.00 for the period February, 1990 to June,1994. However, the Commissioner, in her impugned order, has dropped the said charge against the appellant and consequently the proposed demand by observing that the department has not been able to prove that the ex-factory price was unnaturally low. She has concluded that since the Department has not been able to prove with documentary evidence that the ex-factory price declared is artificially low, the claims of the party for applying the ratio of the decision in Indian Oxygen v. Commissioner of Central Excise as reported in 1988 (36) E.L.....
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....rged from Landle is made the basis for charging excise duty, the assessable value, after allowing the admissible deductions would come either equivalent or less than the ex-factory price. The Commissioner has simply picked up the advertisement expenses incurred by M/s. Landle and demanded duty on the same, which is not the correct method. I agree with the observations of my ld. Brother that in-built provision in Section 4(1)(a) makes the acceptance of factory gate sale price as the assessable value for sales through depots also subject to the condition that price is the sole consideration for sale and there is no additional flow back to the manufacturer. The question which arises is : whether the advertisement undertaken by M/s. Landle can be said to be an extra consideration for the goods purchased by him. It is not as if the entire advertisement of the product is done by the said dealer. The appellant are also doing a lot of advertisement on their own account through TV Network and other media and incurred an expenditure of substantial amount which the appellant had reflected in their cost sheets. This stand of the appellant taken by the appellant before the adjudicating authorit....
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....ining this in their reply to show cause notice, the appellants have stated that as per general practice of the trade, 90 days credit is also given to M/s. Landle. However, in order to ensure to some extent that payments are made for goods lifted on credit by M/s. Landle, an amount of Rs. 2 crores has been taken in one time but in fact, the goods lifted in a month on credit by M/s. Landle are more than Rs. 2 crores. Therefore, this is only a method of pre-payment of part of the value of goods lifted by them". In view of the above unrebutted explanation and the fact that M/s. Landle is marketing almost 50% of the appellants' product and the sales to him are in crores, (as explained in Para C. 7., sales during the period 1-2-1990 to 31-3-1994 to M/s. Landle were to the tune of Rs. 120 crores), a pre-deposit of Rs. 2 crores can't be made the basis for establishing any link or nexus between the two. Every manufacturer would safeguard his interest in any business deals. Amount of Rs. 2 crores may seem huge when considered in absolute terms but relative to the total sales to Landle, it makes only small percentage. The revenue has also raised another point that no such deposit was taken fr....
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....have to keep in mind that it is not a case where appellants are asking for deduction of advertisement expenses incurred by them from the price charged by them for the purpose of arriving at the assessable value. Here, the department is seeking to enhance the approved assessable value by demanding duty on the advertisement expenses incurred by appellants' one of the dealers. The provisions of Rule 6(b)(i) can be resorted to only when the assessable value cannot be arrived at in terms of the main Section 4 or the preceding rules of valuation Rules. 13.  In the background of the above discussions, I would like to discuss the relevant precedent decisions on the issue involved. In the case of M/s. Havmore Ice-cream Company v. Collector of Customs, Ahmedabad reported in 1997(89) E.L.T. 65 (Tribunal) = 1996 (16) RLT 524 (CEGAT A), (I was one of the Members) it was laid down that the advertisement expenses incurred by the distributor after the purchase of the goods is not to be added in the assessable value. In the said case also, the distributor had kept interest free deposit of Rs. 5 lakhs with the manufacturer and the assessee was to compulsorily sell 90% of their goods to the d....
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....ence of its distributorship worth directly or indirectly for any manufacturers of the products and substitute products in any other part of India. The above clause cannot be construed as cash flow to the appellant in the shape of advertisement expenses incurred by them. As observed by the Hon'ble High Court of Calcutta in the case of Union of India v. Mahindra and Mahindra Ltd. - 1989 (43) E.L.T. 611 (Cal.), the manufacturers and its distributor had a mutual interest in maximising the sales of the product the advertisement is in the nature of furtherance of the interest of both the manufacturer and the dealer and such a provision in the agreement cannot effect the nature of the sales on principal to principal basis. 15.  To the same effect is the decision of the Hon'ble Supreme Court in the case of Philips India Ltd. v. Collector of Central Excise, Pune reported in 1997 (91) E.L.T. 540 (S.C.) = 1997 (19) RLT 471 (S.C.) It has been observed in Para 5 of the said judgment that the advertisement which the dealer was required to make at its own cost benefitted in equal degree the appellant and the dealer and that for this reason the cost of such advertisement was borne....
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....confirming demand of duty of Rs. 7,05,95,368.00 . 17.  As regards the confirmation of demand of duty of Rs. 48,48,500/- on the interest on deposit made by M/s. Landle, ld. Brother Shri P.C. Jain, in his order, has held the same to be legal by relying upon the Apex Court judgment in the case of Metal Box . The ratio of the said judgment can be applied to the facts of the instant case only when it is shown and proved that there is nexus between the sale price and the advance given by the dealer. If the prices have been depressed because of the advance free interest, then certainly the same is an additional consideration flowing back to the manufacturer being towards the price of the sold goods. Reference in this connection is made to the Tribunal's decisions reported in 1996 (88) E.L.T. 238 (T) = 1996 (15) RLT 697(A) in the case of Triveny Engineering Works Ltd. v. Commissioner of Central Excise, Allahabad and in the case of M/s. MIL Controls Ltd. v. Commissioner of Central Excise, Cochin reported in 1997 (19) RLT 681 (CEGAT-SZB). Now the two factors required to be looked into in the instant case are (a) as to whether the ratio laid down by the Hon'ble Supreme Court in the Me....
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....the department to look into the aspect of depression of price. It is not to be forgotten that duty has been paid on the value assessed under the main clause of Section 4(1)(a) as normal factory gate price and the goods have been transferred to Depots by adopting the same assessable value. From the depots, the goods have been sold to various dealers including M/s. Landle by offering various discounts. The varying quantum of discounts to different dealers from the depots does not, in my views, lend any support to the department's stand that the prices charged from Landle are depressed as higher discounts have been given. The assessable value at which duty has been paid has not been arrived at by the appellants after claiming deduction of higher discount given to Landle. The same assessable value at the factory gate has been accepted by the department in respect of other dealers. As such, whether the goods are subsequently sold to various dealers by higher discounts or by lower discounts cannot be made the basis for re-determining the assessable value. The effect of demanding duty on the interest on the advance deposit is re-opening and re-determination of the otherwise approved asses....
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....e appellant is entitled to charge a lower price from him by offering higher discount but such a price must be free from any additional consideration flowing back to the appellant or benefitting him in the shape of adv. expenses or interest charges. These benefits, if at all arising, would be added to the assessable value, only when assessable value is being arrived at by taking the sale price to Landle as the starting point. The same cannot be added directly to the ex- factory price and duty demanded thereon. The appellants had submitted several bills before the adjudicating authority, as mentioned on page 31 of the order, to show that after allowing admissible deductions from the depot price, the assessable value work out to more or less the same price as ex-factory sales price. There is no comment of the Collector on this submission of the appellants. Either the ex-factory price has to be adopted for sales to depots or the sale price from depots to the dealer has to be picked up and worked backwards to arrive at the assessable value after allowing the admissible deduction. Expenses incurred on advertisement and interest on advances cannot be straight away added to the admitted ex....
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....ed Kitply marine grade in the guise of defective marine grade. The noticees removed Kitply prime quality in the guise of Kitply-X (II grade). While quashing the said show cause notices, on a petition by the appellants the High Court of Assam held, vide their order dated 15-2-1995, as under :- "Accordingly I hold as follows - (i) Once the price list is approved and it is subjected to adjudication by a judicial authority, the same cannot be revised and/or modified without following the due process of law. In issuing the show cause notice in the instant case, the due process of law was not followed by the authority. (ii) In order to entitle the Department to issue show cause notice in the absence of any amendment in law, the department can issue notice only when it finds that the person concerned is guilty of suppression of material facts or misstatement or misrepresentation. (iii) When the factory gate sale is admitted, the Department is d....
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....as doubted by the department in both the proceedings and it was alleged in the earlier show cause notice that a token ex-factory sale has been made by the appellants to establish their normal ex-factory price in terms of provision of Section 4. The allegation of charging or realising extra amounts over and above the declared ex-factory price for sale on the depots was also alleged in the earlier show cause notices. The earlier show cause notices were quashed by the Hon'ble High Court by observing that when there was a factory gate sale price as provided under Section 4(1)(a) of the Act, the department was duty bound to assess the tax on the basis of the same. Based upon the above judgment of the Hon'ble High Court of Assam if the appellant has been clearing their goods on payment of duty on the assessable value under Section 4(1)(a) of the Act, it cannot be said that there was any mala fide intention on the part of the appellants to evade payment of duty. I also find that though this point of limitation was argued by the appellants before the Collector, the same has not been dealt with by the adjudicating authority. However, taking note of the fact that the similar show cause notic....
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.... points of difference emerge for reference to the Third Member. (1)  Whether the demand of Rs. 7,05,95,368/- confirmed by including in assessable value the advertisement expenses incurred by M/s. Landle and Company is required to be sustained or not. (2) Whether the demand of duty of Rs. 48,48,500/- confirmed by including the interest on deposits made by M/s. Landle and Company in the assessable value of the goods is to be set aside in total as held by Member (Judicial) or the same is required to be lowered to Rs. 43,43,500/- as held by Member (Technical). (3) Whether the penalty of Rs. 1 crore imposed on M/s. Kitply and penalty of Rs. 1 lakh imposed on Shri P.K. Goenka is liable to be confirmed as held by Member (Technical), or the same is required to be reduced to Rs. 10 lakhs and set aside respectively as held by Member (Judicial). Sd/- Archana Wadhwa Member (Judicial) Dated : 8-6-1998 Sd/- P.C. Jain Member (Technical) DIFFERENCE OF OPINION 24.  [Order per : Lajja Ram, Member (T)]. - The difference of opnion referred to me in these two appeals filed by (1) M/s. Kitply Industries Lt....
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....ept making payments, M/s. Landle had no role in advertising the products of the assessee. A relatively higher discount was given to M/s. Landle. M/s. Landle had also made an interest free deposit of Rs. 2 crores to the assessee. The depressed sale value was fixed for sale to M/s. Landle as compared to the sale price to others from the assessee's depots/branches. It was alleged in the show cause notice, dated 28-2-1995 that notional interest on such interest free deposits of Rs. 2 crores was liable to form part of the assessable value of the plywood manufactured and sold by the assessee. Extended period of limitation was invoked. The role of Shri P.K. Goenka, Managing Director in the evasion of Central Excise duty was discussed in Para 10.2 of the show cause notice. Penal provisions were invoked with regard to both the assessee and Shri P.K. Goenka. There were a number of other allegations also in the show cause notice. 26. The matter was adjudicated by the Commissioner of Central Excise, Shillong, who under Order-in-Original, dated 5-12-1996 observed with regard to the charge of under-valuation that the stand of the Department for raising a differential amount of Rs. 18,....
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.... not a genuine price and had been depressed due to other conditions. The demand of duty confirmed on account of notional interest was however, reduced from Rs. 48,48,500 to Rs. 43,43,500 the amount shown in the show cause notice. The demand of Rs. 58,96,580 on account of selling 'X' grade plywood on the price of the prime normal quality was also confirmed. The plea of time bar was rejected. The order with regard to the penalties was also confirmed. In a separate order recorded, the Member (J) observed that having accepted the genuineness of the ex-factory price declared and approved by the appellants, the adjudicating authority was not justified in going one step further and increase the assessable value in respect of the sales made to M/s. Landle by including therein the advertisement expenses incurred by M/s. Landle. The genuiness of the factory gate sales had not been doubted. These factory gate sales amounting to about 10% of the total sales had been made the basis for the assessable value in respect of about 40% sales made to other dealers (other than M/s. Landle) from the depots/branches, which were in addition to the 50% sales made to M/s. Landle which were the subject ma....
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....regard to limitation, the ld. Member (J) had held that the extended period of limitation was not available to the Deptt. in respect of the allegations of advertisement expenses and interest on deposits. It was however held that the benefit of limitation would not be available to the appellants in respect of the allegations made with reference to substitution of Kitply 'X' in place of defective marine grade. The plea of limitation was held to be not available to the appellants in respect of the demand of Rs. 58,96,580 confirmed on the ground of mis-declaration of the quality of the plywood cleared from the factory of the appellants. The amount of penalty imposed on M/s. Kitply was reduced from Rs. One crore to Rs. 10 lakhs. The penalty of Rs. One lakh imposed on Shri P.K. Goenka, Managing Director was set aside. 28. The matter was heard on 12.-5-1999 when Shri V. Lakshmikumaran, Advocate submitted that about 10% of the sales of the appellants were at the factory gate and the rest of their 90% sales were through their depots, out of which about 50% of the sales were to M/s. Landle and the rest were to other independent dealers. M/s. Landle was their bulk buyer and under an....
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....p; Govt. of India v. Madras Rubber Factory Ltd. - 1995 (77) E.L.T. 433 (S.C.). He mentioned that against the impugned order-in-original, the Department had also filed an appeal which had been listed as appeal Nos. 165-166/98. The appeal was filed in Feb., 1998 after the referring Bench had heard the matter. The appellants had not disclosed the facts to the Department as referred to in Para 51 of the show cause notice. The copy of the agreement was recovered as a result of search and had not been known to the Department earlier. He submitted that the decisions relied upon by the Member (J) did not take into account the Supreme Court's decision in the case of Union of India v. Bombay Tyre International Ltd. - 1983 (14) E.L.T. 1896 (S.C.). He submitted that the issue in the case of Philips India Ltd. v. C.C.E, Pune - 1997 (91) E.L.T. 540 (S.C.) = 1997 (19) RLT 471 (S.C.) was different. He pleaded for the acceptance of the order proposed by the Member (T) as he then was. 30.  I have carefully considered the matter. In this difference of opinion matter, I am mainly concerned with the allegations relating to the additions in the assessable value of the plywood....
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.... that the provisions of the Central Excise (Valuation) Rules, 1975 had not been invoked with regard to about 50% of the sales (10% from ex-factory + 40% from depot to buyers other than M/s. Landle). 32. On the question of advertisement, it had been noted that the appellants were also incurring expenditure on their own account. M/s. Landle were lifting about 50% of the total production of the assessee and thus M/s. Landle were concerned with the sale of the plywood manufactured by M/s. Kitply. The ld. Member (J) had referred to the Supreme Court's decision in the case of Philips India Ltd. v. Collector of Central Excise, Pune - 1997 (91) E.L.T. 540 (S.C.) = 1997 (19) RLT 471 (SC), wherein the Hon'ble Supreme Court had held that the advertisement cost incurred by the dealers was not to be added, in the assessable value as such advertisement benefits equally the manufacturer and the dealer (Head Note). The ld. Member (T), as he then was, had mentioned that the advertisement by the buyer was an additional consideration which was going to influence the price at which the goods were sold from the assessee's depots to M/s. Landle. As a higher discount had been given, as a consi....