TaxTMI 
TaxTMI 
2009 (12) TMI 749
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.... 26-12-2005 29-9-2006 29-9-2006 29-9-2006 Duty (Rs.) 3,38,07,311 77,87,676 1,72,46,505 23,99,145 Penalty (Rs.) U/S 11AC 3,38,07,311 77,87,676 1,72,46,505 23,99,145 Reliance Communication Infrastructure Ltd. Appeal No. E/1002/2006 E/141/2007 E/142/2007 E/143/2007 Penalty (Rs.) U/R 209A/26 50,00,000 10,00,000 25,00,000 3,00,000 M/s. Reliance Industries Ltd., Hazira, Surat (RIL) are, inter alia, engaged in the manufacture of HDPE resin. 1.2 Being a new industrial undertaking, RIL has got exemption from sales tax for sale of HDPE resin from the Gujarat Government. 1.3 RIL sold HDPE resin to M/s. Reliance Communication Infrastructure Ltd. (RCIL) who in turn re-issued the HDPE resin to RIL for manufacture of ducts on job work basis. RIL manufactured ducts on job work basis and supplied the same to RCIL. 1.4 RCIL in turn used the ducts for use in laying telecommunication cables throughout the country to enable them in their business of rendering telecommunication services. 1.5 RIL availed credit of the duty paid on HDPE resin and utilized such credit for payment of duty on ducts manu....
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....tion also. (c) RIL agreed with RCIL to lease finance the ducts manufacturing machines. Accordingly, lease agreement dated 20-6-2000 was entered into between the RIL and RCIL. (d) As per the understanding prevailing at that time, RIL would be the owner-cum-Lessor of the duct manufacturing machines. RIL would provide lease finance to RCIL who in turn would pay to the foreign supplier for the price of the machines. (e) RCIL imported the ducts manufacturing machines from foreign supplier and paid the consideration as well. The Bills of Entry for the import of ducts manufacturing machines would show that RCIL was the lessee-importer and RIL were Lessor of the machines. RCIL imported the machines under EPCG licence and undertook to fulfil the export obligation under EPCG licence. 2. 22-7-2000 (a) After the machines arrived in June/July, 2000, there was a drastic change in the understanding. Since RCIL did not have manufacturing experience and due to various other reasons, it was agreed that RIL would manufacture ducts on job work basis for RCIL and RCIL w....
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....669/- on ducts manufactured by RIL on job work basis and cleared to RCIL during the period August, 2000 to September, 2003. As per show cause notice, RIL and RCIL were related persons. The element-wise details and the effect of the findings of the Order-in-Original dated 26-12-2005 are as follows : Annex to SCN Allegation in brief Show Cause Notice dated 14-5-2004 Order-in-Original dated 26-12-2005 Appeal No. E/1001/2006 Duty demanded in SCN Duty dropped by O-in-O Duty confirmed by O-in-O (Rs.) (Rs.) (Rs.) A Deduction on account of credit notes issued by RIL. 7,71,056 0 7,71,056 B Price difference between invoices and cost certificates. 23,03,964 0 23,03,964 C Price difference between invoices and pricing policies. 7,63,728 0 7,63,728 D Quantity discount difference between invoices and cost certificates. 44,29,494 0 44,29,494 E Bulk packing discount difference between invoices and cost certificates. 6,64,923 39,19,445 67,11,366 F Deduction on account of higher and favourable Bulk packing discount. 99,65,888 ....
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....aluation prescribed in Ujagar Prints' case, which forms the very basis of the Commissioner's order, is no longer sustainable. 4.5 The Commissioner did not deal with the submission made by RIL that, assuming that RIL and RCIL are related, assessable value has to be determined under Rule 11 read with proviso to Rule 9 read with Rule 8 i.e., cost of production (calculated under CAS-4) plus 15% thereon (10% w.e.f. August, 2003 onwards) and if so done, RIL have already paid duty on higher side. 5.1 The appellants submit that if their submission that assessable value has to be determined under Rule 11 read with proviso to Rule 9 read with Rule 8 is accepted, then no part of the demands confirmed by the impugned orders would survive. This portion of the submission is contained in para 17.1 to 30.3 infra of this synopsis. 5.2 Alternatively, the appellants submit that if the above contention is not accepted, still no part of the demand would survive since, it is submitted, that even individually, such elements are not addable. This portion of the submission is contained in para 6.1 to 16.3 infra of this synopsis. Basis for raising demand of Rs. 1,22,55,804 : Cost ....
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....or the period 2001-2002. The job charges were Rs. 6,000/- PMT. Thus, on a conversion cost of only Rs. 3,054/- and Rs. 2,039/-, RIL had a huge markup. 6.3 RCIL, after initial two months, realized that the job charges charged by RIL was already on very high side and therefore insisted that RIL itself arrange SMB at his cost. This commercial aspect has been completely overlooked into the impugned order. 6.4 The learned Commissioner suggests that SMB cost was Rs. 3,300/- PMT. This is absolutely incorrect. The Commissioner itself accepted the calculation submitted by RIL as Annexure-3 to the reply while confirming the demand of Rs. 1,22,55,804/-. As per this Annexure, the SMB cost is equal to Rs. 7,65,98,775/75,792,454 = Rs. 1010. Therefore SMB constitutes a small portion on the job charges. 6.5 In any case, there is no basis in law for notional addition of SMB. 6.6 In ascertaining whether any action of businessmen is prudent or not, the department's view cannot be availed. Prudence has to be judged from point of view of businessmen. 6.7 The submissions made in paras 6.1 to 6.6 supra would apply to demands of Rs. 8,31,516/- Rs. 70,38,277/- and Rs.....
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....settled that the duty of the assessee is limited to disclose primary facts and is not extended to disclose inference that may be drawn from those primary facts. RIL has undisputedly disclosed primary facts necessary for demanding duty at the initial stage itself. 7.8 Hence, the entire demand is time-barred. The finding of ld. Commissioner to the contrary is liable to be set aside. Basis for demand of Rs. 1,10,01,393/- (Rs. 44,29,494/- + Rs. 65,71,899/-) : Quantity discount passed on is more than that eligible as per pricing policy. Submission : (i) Discount found reasonable by Commissioner (ii) Basis of demand altered in order-in-Original (iii) Factually incorrect (iv) Supply spilled in subsequent period (v) Discount actually passed on - not disputed - to be allowed : 8.1 In the impugned order, vide para C-12(ii), the ld. Commissioner has confirmed demand of Rs. 1,10,01,393/- (Rs. 44,29,494/- + Rs. 65,71,899/-) out of Rs. 3,66,62,462/- proposed by the show cause notice. 8.2 The show cause notice suggested that Quantity discount at the rate of Rs. 4310/- PMT given by RIL to RCIL at the time of sale of resin, was not deductible a....
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.... purchasers purchasing quantity above 396 MT per month. Also, the commercial reality was that there were no purchasers beyond say 700 MT a month. Hence there was no column for quantity say above 700 MT. Therefore quantity discount in the pricing policy of PE resin took into account only purchasers buying around 400-500 MT a month. When RCIL came into picture purchasing huge quantity of 5,000 MT per month, naturally pricing policy had to be made more precise and provide for such an eventuality. 8.10 The other factor which is significant is that there was an assured sale for a period of one year in both the contracts. There was no such commitment or assurance by any other buyer. Thus a buyer purchasing 400 MT per month at a particular price has no commitment in the subsequent months. PE resin is a fluctuating market. RIL price circular are on a monthly basis. No customer commits to purchase PE resin at a fixed price beyond a month, as customer is always apprehensive of decline in prices in subsequent months. On the other hand, RCIL committed regular purchase of resin over a period of a year in both the contracts. Hence quantity discount offered to RCIL is justified. 8.11&e....
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....ven by RIL on PE resin purchased by RCIL from RIL. Thus Excise department was aware that quantity discount of Rs. 4,310/- PMT was offered to and availed by RCIL. 9.5 The above disclosure was sufficient for the department to come to the conclusion that peak quantity discount of Rs. 1,207/- PMT was being offered prior to August, 2000 and also that such peak quantity discount was increased to Rs. 4,310 PMT after August 2000. If the department was of the opinion that Rs. 4,310/- is undue and favourable, then the material on record was sufficient to raise periodical show cause notice. Failure of the department to show such show cause notice cannot be a ground to invoke proviso to Section 11A and allege suppression of facts with intention to evade payment of duty. 9.6 In the impugned order, the ld. Commissioner has changed the basis from what is suggested in the Show Cause Notice. The department need to know the actual supply of ducts to RCIL. This is duly reflected in the monthly RT-12 returns. The monthly pricing policy, indicating the various discount slabs, was being regularly filed with the department. 9.7 In view of the above, the demand of Rs. 1,10,01,393/-....
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....icated in the pricing policy itself. The department was aware that the bulk packing discount of Rs. 1,000/- PMT was offered on PE resin only and not on PTA/PET. Further, RCIL was claiming quantity discount of Rs. 1,000/- PMT in their cost certificate which have been filed by RIL along with price declarations. 11.3 In view of the above, there is no suppression by RIL much less with an intention to evade payment of duty. In view of the above information available with the department, it was possible for the department to raise show cause notice stating that bulk packing discount is liable to excise duty. The present demand raised could have been at the time of submission of price declarations itself, since the facts necessary were in the knowledge of the department. 11.4 In view of the above, demand of Rs. 67,11,366/- is barred by limitation. Basis for raising demands of Rs. 7,71,056/- and Rs. 23,03,964/- and Rs. 7,63,728/- : 12.1 Demand of Rs. 23,03,964/- has been raised on the ground that in some cases during the period August, 2000 to July, 2002, RCIL have shown basic price of PE resin in their cost certificate to calculate the cost of said HDPE Resin wh....
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....f RCIL while issuing certificates to RIL towards PE resin cost. 13.5 It is pertinent to note that the fact that credit note being issued after removal of PE resin is irrelevant to the issue since the notice is not seeking to reassess the value of PE resin. The Department is seeking to reassess value of ducts manufactured from PE resin. 13.6 No part of the amount credited to RCIL has flowed back to RIL. It is not the case of notice that RCIL has shown the cost of PE resin which is less than the actual transaction value. 13.7 Once it is proved that actual cost of PE resin has been taken into consideration while calculating the assessable value of ducts under Ujagar Prints formula, the demand raised is without any basis. 14. The submissions made in paras 13.1 to 13.7 supra would apply for demands of Rs. 24,368/-, Rs. 1,08,562/- and Rs. 2,18,444/- raised in other appeals. Demands of Rs. 63,13,837/- and Rs. 63,98,022/- raised on account of lease rent in Orders passed for the period 21-9-2003 to 31-3-2004 and 1-4-2004 to 31-12-2004 are not maintainable : 15.1 The Order-in-Original dated 26-12-2005 dropped demand on lease rent. No appeal was file....
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....r of the duct manufacturing machines. RIL would provide lease finance to RCIL who in turn would pay to the foreign supplier for the price of the machines. 15.7 RCIL imported the ducts manufacturing machines from foreign supplier and paid the consideration as well. The Bills of Entry for the import of ducts manufacturing machines would show that RCIL was the lessee-importer and RIL were lessor of the machines. RCIL imported the machines under EPCG licence and undertook to fulfil the export obligation under EPCG licence. 15.8 After the machines arrived in June/July, 2000, there was a drastic change in the understanding. Since RCIL did not have manufacturing experience and due to various other reasons, it was thought that RIL would manufacture ducts on job work basis for RCIL and RCIL would not manufacture ducts at all. Therefore, the plan to get excise registration by RCIL was dropped. 15.9 This change in the understanding necessitated an amendment in the lease agreement dated 20-6-2000. Since the machines were owned by RIL and used by RIL only, RCIL no longer required the machines on lease and was therefore not obliged to pay any lease rentals. Accordingly, a....
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....xcise duty on notional lease rentals. The appropriate authority (i.e., DGFT) has transferred the EPCG licence and the corresponding export obligation. The Central Excise department has no jurisdiction to deem RCIL as owner. 16.2 In any case, there was no charge in the show cause notice that RCIL would be owner till export obligation is fulfilled. The appellants were not put to notice of this allegation. 16.3 In view of the above, the objection raised by the impugned orders that RCIL would be owner till export obligation is fulfilled due to EPCG licence, is incorrect and liable to be set aside. Commissioner has erred in applying the method of valuation prescribed by the Supreme Court in the case of Ujagar Prints : 17.1 The appellants submit that respondent having come to a specific conclusion that RIL and RCIL were related in terms of sub-clause (i) and sub clause (iv) of sub-section (3) of Section 4 of the Central Excise Act, 1944, he ought to have held that the assessable value for such a transaction was determinable in terms of the law laid down by the Supreme Court in the case of CCE v. S. Kumars reported in 2005 (190) E.L.T. 145 (S.C.) [i.e., in terms....
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....missioner was duty bound to conclude that the transaction between the two companies was one simplicitor of manufacture and supply of ducts. 18.6 Since the finding of the Commissioner is that RIL and RCIL are related, the only issue which he was required to determine was what would be the assessable value of ducts manufactured by RIL and supplied to a related person (RCIL) for RCIL's own use? 18.7 The only method of valuation applicable in the above situation is the cost construction method, where the cost of manufacturing the ducts would have to be ascertained by applying the method prescribed in CAS-4 standards, which is the method prescribed by the CBEC itself and approved in a catena of decisions. Appellant had worked out the assessable value on this basis vide Annexure-I to its reply dated 31-12-2004, which establishes that the appellant had paid more duty than what was payable under the law. This method of valuation is the one prescribed in the Board's own instructions, as explained in para 18.8 below : 18.8 The approach of the Commissioner in holding that the transaction of sale of resin between RIL and RCIL was tainted and yet, taking the cost of HDPE....
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....ioner v. Ratan Melting & Wire Industries - 2008 (231) E.L.T. 22 (S.C.) = 2008 (12) S.T.R. 416 (S.C.) is inapplicable to the above circular. Therefore this Circular is binding on Revenue. 19.3 Therefore, in terms of the above circular, if a portion of goods produced are sold they would be valued under Section 4(1)(a). If balance production is captively consumed, the clearances so captively consumed will be valued under Rule 8. 20.1 Again, Circular dated 1-7-2002 clarifies as under : S. No. Point of Doubt Clarification 12. How will valuation be done when goods are sold partly to related persons and partly to independent buyers? There is no specific rule covering such a contingency. Transaction value in respect of sales to unrelated buyers cannot be adopted for sales to related buyers since as per Section 4(1) transaction value is to be determined for each removal. For sales to unrelated buyers valuation will be done as per Section 4(1)(a) and for sale of the same goods to related buyers recourse will have to be taken to the residuary Rule 11 read with Rule 9 (or 10). Rule 9 cannot be applied in such cases directly since it covers only those cases whe....
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.... RIL to RCIL, in the above example/assumption, would be made under proviso to Rule 9 read with Rule 8 of the Valuation Rules. 23. Now, instead of assumption made in para 22.1(d) above, assume that the entire resin is sold to RCIL. Let us assume that some quantity of resin is sold by RIL to other customers and only some balance quantity is sold to RCIL. Let the other assumptions made in para 22.1 remain (namely RIL and RCIL are related person and resin sold to RCIL is further used in the manufacture of other articles by RCIL). Even then, value of resin sold to RCIL would be based on cost of production of resin plus 15% thereon (10% from August, 2003) in terms of Rule 1 read with proviso to Rule 9 read with Rule 8. This follows from para 20.1 to 20.3 supra. 24.1 Now, let us assume that (a) RIL to RCIL are related person and (b) there is a sale of resin by RIL to RCIL. Let us not assume that entire sale of resin is to RCIL. Let us also not assume that RCIL is using resin in further manufacture, but is using for providing some service. In this situation also, resin sold to RCIL would be valued based on cost of production plus 15% thereon (10% from August, 2003), in term....
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.... the assessee cleared spares to EFL who in turn used them in their repair and maintenance contract, the assessee paid duty by adopting value under Rule 8 of the Central Excise Valuation Rules, 2000. The department contended that the assessee should pay duty even in such cases on the basis of sale price of EFL in terms of Rule 10(a) read with Rule 9 of the Central Excise Valuation Rules, 2000. The Tribunal rejected the contention of the Revenue and held that when there is no sale, there is no specific rule to cover the same and hence in such a situation, valuation under Rule 8 would be the most appropriate. 26. The CESTAT in CCE v. P.C. Pole Factory - 2006 (199) E.L.T. 865 (T.) upheld that contention of Revenue of that valuation of P.C. poles manufactured and captively used in the transmission of electricity should be done under Rule 8. The CESTAT held that since the poles have not been used in the manufacture of other articles, Rule 8 is not applicable. However, the CESTAT held, no other Rule being applicable to the case, recourse has to be taken to Rule 11 read with Rule 8. In other words, the Tribunal held that poles have to be valued on the basis of 115% of cost of produ....
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....e importer itself or it has been produced by a person related to the importer, the interpretative note mandates that the value of the tool would be the cost of producing it. The interpretative note do not suggest that purchase price of tool from related party cum-producer can be taken. 30.5 In the present case, we are not concerned with Custom Valuation Rules. We are also not concerned with addition towards value of tools and dies. However, still the above interpretative note has a material significance. It lays down a principle that whenever the items to be added are produced by a related person, the addition to be made would not be the purchase price but only the cost of producing it. Therefore, even if Ujagar Prints formula to be applied for valuing the ducts, the starting point would not be the price at which RCIL has purchased the resin from RIL, since RCIL and RIL are related person. The starting point of the computation of value of duct even as per Ujagar Prints formula would be the cost of producing the resin by RIL. 31. The appellants rely upon the judgment of CESTAT in K.V. Rao v. CCE - 2008 (222) E.L.T. 267 (T). The assessee namely Hy-Grade Pellets Ltd. (....
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....ith this synopsis. This factual position has not been disputed in the impugned order. Hence, no part of the demand is maintainable. 32.3 In view of the above, the impugned portion of the Order-in-Original dated 26-12-2005 is liable to be set aside. 33.1 Rule 4 of the Valuation Rules, 2000 is not relevant in the present case either for valuing the HDPE resin or for the ducts. Firstly, neither the show cause notice nor the impugned Order-in-Original have sought to apply the principles of Rule 4. On the other hand, the impugned Order-in-Original has adopted method of valuation which shows that the department is not at all applying Rule 4 or the principles enshrined therein. 33.2 The impugned Order-in-Original determines the assessable value by adding certain elements over and above discounted sale price of resin charged by RIL to RCIL. The appellants submit that they are contending elsewhere in their grounds that these elements are not addable. The very fact that the discounted sale price of resin charged from RCIL with certain additions/adjustments is being adopted by the impugned Order-in-Original shows that the value of the resin adopted by the department is....
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....concealing, selling or purchasing, or in any other manner deals with, any goods which he knows or has reasons to believe are liable for confiscation under section 111." 39.2 Clause (b) to Section 112 of Customs Act was introduced because it was felt that clause (a) to Section 112 of Customs Act covers only the person who is actually concerned in the contravention. This is evident from the Notes and clauses of Section 112(a) of the Customs Act reads as under : "(ii) Under the existing provisions even where a personal penalty is provided in respect of a contravention, it is leviable only on the person acutely concerned in the contravention. Under the proposed clause any person who abets such contravention will also become liable to a personal penalty. Thus a financier who finances smuggling or a dealer who helps in the disposal of smuggled goods will also be liable to a personal penalty. 39.3 Thus, penalty under Section 112(b) can be imposed on persons like transporter, warehouse keeper, seller or purchaser who deal with the goods which he knows or has reason to believe are liable to confiscation. The act or omission of these persons or their abetment does not....
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.... penalty on RCIL under Rule 26 is incorrect and unsustainable in law. 41. Apart from this synopsis, the learned Advocate argued the matter on the following points : (a) When both the principal and the job workers are related persons, the assessable value is to be determined as per Rule 8 of Valuation Rules, 2000, (b) on limitation, (c) on merit. 42. Learned Advocate submits that the Commissioner has come to the specific conclusion that RIL and RCIL were related persons in terms of sub-clause (1) and sub-clause (4) of sub-section (sic) of Section 4 of Central Excise Act, 1944. He held that in such a case, the assessable value shall be determined as per law laid down by Hon'ble Supreme Court in the case of CCE, Indore v. M/s. S. Kumars Ltd. - 2005 (190) E.L.T. 145 (S.C.) and not on the basis of formula laid down in the case of M/s. Ujagar Prints. He further submitted that the entire basis for valuation adopted by the Commissioner is contrary to the law laid down by Hon'ble Supreme Court in the case of M/s. S. Kumars Ltd. He submitted that the Commissioner has held that the two agreements ....