TaxTMI 
TaxTMI 
2002 (11) TMI 709
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....ut 95% of its production of Oxygen/Nitrogen/Argon in gaseous form to M/s. JVSL. The remaining 5% of the incidental production of liquid products are either cleared to M/s. Praxair Pacific Ltd., Mauritius or used as back up stock for supply to JVSL. M/s. JPOCL is alleged to be a dedicated plant for JVSL. Chronological events regarding operation of JPOCL are given below :- (i) 27-1-1995 Praxair Inc., USA & JVSL entered into MOU for setting up of joint venture company for the manufacture of oxygen and nitrogen. (ii) 27-9-1995 Date of incorporation of JPOCL. (iii) April, 1998 Installation of project was completed (iv) May, 1998 Trail production was started (v) August, 1998 Plant was ready for production of gases required for use in corex furnace of M/s. JVSL. (vi) October, 1998 Corex plant of JVSL commissioned for a month. (vii) November, 1998 Corex plant of JVSL was stopped due to technical snag. (viii) December, 1998 JPOCL plant was also shutdown. (ix) May, 1999 to June, 1999 Second startup of JPOCL (x) June, 1999 to August, 1999 Trail production was started and clearances were also effected ....
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....aximum instaneous production rate (as defined in Article 2.1) - Rs. 1.22/NM3 (2) For all liquid Oxygen and liquid Nitrogen - Rs. 2.30/NM3 (iii) Article 8.3 of PISA provided for revision of prices of gaseous Oxygen and liquid nitrogen (gaseous products only and not for liquid products) on account of project cost variation. Further Article 8.6 of PISA envisages revision of prices of liquid and gaseous products (oxygen and nitrogen) for the variation on account of the following factors : (1) Cost of power (2) Wholesale price index; and (3) Exchange rate (currency factor). (iv) From the Gas price calculations submitted by the assessee during the Course of investigation, it is apparent that the base price of gases and liquid Oxygen and Nitrogen is worked out by taking into consideration the following values - 1. Project cost 144.94 Cr 2. Wholesale price Index 296.10 296.10 3. Currency Rs/USD 31.50 31.50 4. Power cost Rs/kwh 2.40 2.40 (v) While in vie....
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....ction from 1-9-99, same cost as on 1-7-99 has been considered. (2) Assessee reduced 8.5 crores on account of capital goods credit utilised during 1999. From the above table it appears that even though actual cost of project was Rs. 283.12 crores for the period with effect from 1-7-99, they have considered only Rs. 227.32 crores as project costs, resulting in lowering of gas price calculations. (vi) It also appeared that besides the project cost escalations not considered additional consideration in the form of free/undervalued power received from TPCL during the period May, 99 to February, 2000 and additional consideration in the form of minimum take or pay charges. (MTOPC) paid by JVCL from October, 99 to February, 2000 were also required to be considered for payment of duty and demand were issued on that basis. After hearing the charges, the Commissioner confirmed the demands and imposed penalties. 4. We have heard the learned Advocates and the DR and considered the material and find - (a) The allegations are that the assessable values declared are wrong and consequently short payments of duties have b....
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....acility charges paid by JVSL Rs. 22.42 crores Equity capital provided by Praxair Rs. 2.21 crores Debt by Praxair Rs. 3.32 crores In this context it is noteworthy that the price was a contract price, derived from an agreement. It has been held in the case of Bombay Latex and Dispersions P. Ltd. v. Collector reported in 1985 (19) E.L.T. 527, that for the purposes of Central excise, an agreement that is enforceable in law is a contract. Any change in this price, to be acceptable as assessable value, should flow from the contract itself, in terms of the decision of the Tribunal in the case of CCE, Rayaguda v. IMFA Ltd., reported in 2000 (123) E.L.T. 988. (ii) It was argued on behalf of the appellant that JVSL would surely not invest in the appellant-company and thereby make so much outflow of funds merely to save on excise. However JVSL is a major shareholder in the appellant-company, and investment therein yields returns to itself, unlike payment of taxes. It is also well known that groups of interconnected companies make global planning of taxation, to minimize taxation and maximize returns in the group as a whole. (iii) &nbs....
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....n a truck filling facility which was not part of the original project at all and was built to facilitate the filling of liquid products directly into its trucks. The Rs. 37.37 crores of additional interest burden was recognised by the parties as on account of JVSL, was funded by JVSL, by way of "Facility Fees" of Rs. 22.42 crores and Rs. 14.95 crores of preferential share capital and the Rs. 5.53 cost attributable to Praxair was funded by it through loans and preference share capital. None of these amounted to payment of additional consideration by the buyer JVSL for or in connection with the product purchase. (ii) The project cost to be taken into account as per PSA was the project cost of the plant until completion of its construction, which was in 1998, this was about Rs. 227.32 crores, as established by the work sheets available with the department and the certification of an independent Chartered Accountant on record in these proceedings. The Commissioner erred in ignoring the said and other evidence in this respect. (iii) The Commissioner ought to have accepted, that it was never intended, that such items as interest costs, on borrowed fund....
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....his adjustment is presented in Appendix I. This however, was due to expanding (Phase 2) of Buyers Plant requiring additional products necessitated an AMENDMENT TO PIPELINE SUPPLY AGREEMENT, this deleted Article 83 as executed above and replaced Article 8.3 by the following...." "Article 8.3 of the PSA is hereby deleted and replace with the following : "8.3 The base price for Gaseous Oxygen and Gaseous Nitrogen as specified in Article 8.1 for Quantity - Block 1 shall be adjusted as of First Delivery to reflect variations in the total project cost of the production facility from a base of Rs. 144.994 crores, either upwards or downwards. [The cost (excluding taxes and duties) for imported content supplied by Praxair, Inc, is fixed at US $ 20.19 million and for indigenous content supplied by Praxair Pacific Ltd., is fixed at Rupees 30.72 crores]. For each Rs. 2.4 crores of variation, the base Gaseous Oxygen and the base Gaseous Nitrogen price will be correspondingly adjusted by Rs. 0.01/Nm3. This adjustment will be prorated for the actual amount of variation. The exchange rate applicable for adjustments under Quantity Block 1 is Rs. 31.5/1 USD". "The base price for Gaseous Oxy....
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....s with respect to the Production Facility is Rs. 227.32 crores and that for the gas price calculations with respect to Production Facility Expansion is Rs. 210.55 crores. These amounts will be suitably reduced to take account of Modvat credit obtained with respect to the project, reductions of project cost by receipt of any claims and/or actual savings in implementations." Deletion of Articles 8.10 and 8.11 of PISA were made with other amendments. This was signed on 1-7-99. Therefore, the effect of these amendments on Article 8.3 and consequent working of duty demands, based on Project Costs has to be considered. Provisions of the Indian Contract Act stipulate that a contract can be discharged by a new Agreement, provided the same is valid and operative. A new contract, in consistent with the original, impliedly discharges the latter without any express provision to that effect. The new terms agreed upon by implication waive the original, which are inconsistent with them and a new contract results consisting of new terms and the unchanged or consistent terms of the original contract. That would be the mandate of the Indian Contract Act, which cannot be wished away, on the case l....
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....ce the Commissioner adopted the KEB prices of power, in the absence of data as to actuals." (ii) Since the details were called for but not provided by the appellants and we are remanding the matter back to the Commissioner to redetermine the project cost and hence the assessable value as per the amended/substituted PISA agreement, we would direct that the appellants should produce all the material in this regards before the learned Commissioner and the Commissioner should come to a positive finding after hearing the appellants and considering the material. (c)(i) As regards duty demand of Rs. 86,04,68,553 on ground of adopting of notional KEB rate and addition of the cost of the power in view of our findings hereinabove we would direct the Commissioner to hear the appellants again on this aspect and consider the material submitted by them as regards duty demands of Rs. 76,34,887/- computed on the MTOP charges paid by JVSL, the learned DR has submitted as follows : "The records show that the initial offer price of gases was Rs. 1.31 per cubic NM. This was lowered to Rs. 1.20 after negotiations. (It was later raised to Rs. 1.22 due to incrementa....
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....p; Thus it can be seen that MTOP is an additional consideration paid when the appellant's factory is functional and products are being lifted. Accordingly the amount of MTOP is includible in assessable value." (ii) The appellants have submitted that the demand is without jurisdictions as payment of MTOP is extraneous in determining the assessable value of the product cost actually supplied. The issue of any consideration flowing from the buyer to the seller and the addition of monitory value thereof is now well settled and therefore we do not accept this plea raised before us including the plea of MTOP in computing charges or the liquidated damages for the product not levied. (iii) Therefore, these matters also are required to be redetermined and we leave the issues open for both sides to urge before the lower authority. 6. Since the material case is being remanded back for redetermination of duty the question of limitation and penalty if any will have to be reconsidered in those proceedings. Appeals allowed as remand. Sd/- (S.S. Sekhon) Member (T) 7. [Order per : G.A. Brahma Deva, Member (J)]. - While concurring with the....
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....was empathetically argued by the ld. Senior Advocates appearing for the appellants that it is not open to the Department to ignore the contractual bargain between contracting buyer and seller and arbitrarily fix the assessable valued based on what it considers ought to be the price, especially when, admittedly, the price as fixed pursuant to the second amendment had been given effect to by the parties. In support of their contention that buyer and seller are free to fix the price they relied upon the decision of the Madras High Court in the case of Standard Electric Appliances v. Superintendent of Central Excise & Another [1979 (4) E.L.T. (J53)] and Camphor & Allied Products Ltd v. CCE, Allahabad [2000 (118) E.L.T. 65]. 11. It was argued on behalf of the Revenue that Article 8.3 of PISA provides that the cost price will increase by Rs. 0.01/Cubic NM for each increase of Rs. 2.4 crores in the project cost (and pro rata accordingly for actual amount of variation). The project cost thus increased to Rs. 283.12 crores w.e.f. July, 1999. However, the appellant and their buyer JVSL came to an understanding that the project cost would be treated as 227.32 crores. The difference be....
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.... The consideration mutually being the discharge of the old contract. Section 62 of the Indian Contract Act, 1872, provides that "if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed". When the parties to a contract agree to substitute the existing contract with a new contract i.e. called NOVATION. Novation is of two kinds, namely: (a) a novation involving change of parties, and (b) a novation involving substitution of a new contract in place of the old. The second one with which we are concerned here in this case. 13. When the parties to a contract agree to substitute a new contract for it, the original contract is discharged and need not be performed. It is necessary for the application of this principle that the original contract must be subsisting and unbroken. When once they enter into a new contract with varied terms and conditions, which is called novation, automatically old contracts disappears and new contract emerges in its place. In the instant case, Clause was amended with reference to the determination of price and both the parties mutually agreed that project cost of Rs. 2....
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....tract. It is true that some of the buyers got concession in the price of the goods without lifting entire quantities in terms of the contract. It is not even the case of the department that the assessee had filed a suit against such buyers for non-performance and got damages which would form part of additional consideration in determining the price. If the part performance was accepted by the promisee or contract was complete with varied terms and conditions it is the end of the matter in between them and it is not open to a stranger to question the validity of the contract." 16. It is clear from the provisions of the Indian Contract Act that only parties to the contract can enforce the performance of the contract. If the contract was complete with varied terms and conditions, it is end of the matter in between them and it is not open to a stranger let alone tax collector to question the validity of the contract. It was also argued on behalf of the Revenue that price is a contract price deriving from an agreement. Any change in the price to be acceptable as assessable value flow from the contract itself. Accordingly, whether any price has been escalated from the terms of th....
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....ked into by the adjudicating authority in the re-adjudication proceedings and to examine the relevant data which will be furnished by the appellants. 19. As regards MTOP (Minimum Take or Pay charges), it was argued on behalf of the appellants that additional consideration must flow from the buyer under Rule 5 in determining the assessable value inclusive of that additional consideration relying upon the following issues: - (a) CCE v. Coolade Beverages Ltd. [2000 (116) E.L.T. 622 (T-LB)] (b) Brindavan Beverages Ltd. v. CCE, Bangalore [2001 (135) E.L.T. 766 (T)] (c) IFGL Refractories Ltd. v. CCE, Bhubaneshwar [2001 (134) E.L.T. 230 (T)] (d) Haryana Drinks Pvt. Ltd. v. CCE, New Delhi [2000 (121) E.L.T. 718 (T)] 20. On this aspect, we find that what is relevant for the valuation of goods under Section 4 of the Central Excise Act and Rule 5 of the Central Excise (Valuation) Rules. "Amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee" and that the consideration which can be....