TaxTMI 
TaxTMI 
2009 (12) TMI 846
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....HLL accordingly filed authorization under Notification No. 36/2001 (N.T.), dated 29-6-2001 on 1-2-2002 for getting the goods manufactured from M/s. Vashishti Detergents Ltd.(VDL), indicating therein the name of the product, its chapter heading and the option for valuation i.e. whether the goods will be assessed under Section 4 or Section 4A of the Act. But instead of furnishing the pricing data directly in the declaration, HLL authorized VDL to furnish the prices at which HLL would be selling the goods to enable the department to determine the correct valuation of the said goods. 2. A processing agreement had been entered into between HLL and VDL which inter alia highlights the following facts : 2.1 HLL shall pay processing charges on tonnage basis with reference to all processing costs and profit of VDL, as would be mutually agreed. 2.2 VDL would avail Cenvat Credit benefits on the inputs supplied by HLL, which shall be adjusted against the Central Excise Duty payable on finished goods returned to HLL after processing. 2.3 HLL would be entitled to sell by-products, residues etc. which may arise or get generated on account of processing of the raw materials, including the packi....
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....er raw oils, in their RG-1/Daily Production Register. Technically since all the raw oils are blended together in a continuous process, the accountal is done based on input ratio on the blend in terms of its free acid contents, which are ascertained before blending. The DFA obtained from imported CPS is sold to HLL and the DFA obtained from other oils are either used captively under Notification No. 67/95-C.E., dated 16-3-1995 or transferred to HLL other factories on payment of duty. 4. According to the Revenue, based on intelligence received that VDL was undervaluing some of their products, viz. DFA and its by products. Investigation was initiated and after investigation show cause notice dated 22-9-2005 was issued wherein it was stated - 4.1 that HLL supplied various crude oils to VDL, free of cost, except CPS, which was purchased by VDL on high sea sales basis from HLL, and VDL processed the same to manufacture DFA, which was either used captively or transferred to HLL's other units on payment of duty on the, value arrived at based on cost of manufacturing principle; 4.2 that the by-products were sold to the customers of HLL on the price furnished by HLL and the sales proceeds....
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....ated 28-3-2006 April, 05 1745477 500000 1745477 3. V(15)15- 28/ADJ/P-11/06 dated 28-3-2006 March, 05 1394918 400000 1394918 6. After considering the submissions, impugned order has been passed against VDL confirming demands with interest and imposing penalties as under : Sr. No. Show cause notice No.&Date Period Duty (Rs.) Penalty (Rs.) 1. V(15)15-140/ADJ/P.II/05 dated 22-6-2006 June, 05 19494059 19494059 + 5000000 2. V(15)15-87/ADJ/P.II/05 dated 22-6-2006 June, 05 702223 702233 + 200000 3. V(15)15-40/ADJ/P.11/06 dated 27-3-2006 April, 05 1745477 1745477 + 500000 4. V(15)15-28/ADJ/P.11/06 dated 28-3-2006 March, 05 1394918 1394918 + 40000 Total 23336677 29486677 7. The confirmation of demand of duty by the Ld. Commissioner, in the Impugned Order dated 27-9-2006 issue-wise can be detailed as under. I. Demand on CPS-DFA sold to HLL-Rs. 1,73,89,261/- II. Demand on DFA transferred to HLL-Rs. 34,82,867/- III. Demand on by-products of the oil, other than CPS-Rs. 24,50,516/- 8. Demand on CPS-DFA sold to HLL - Rs. 1,73,89,261/- 8.1 According to Revenue, there is no difference between DFA and CPS-DFA; CPS-DFA is the DFA produced out of bl....
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....wned by VDL), i.e. CPS contained in DFA, although sold to HLL, is issued within the factory of the Appellants (VDL) for manufacture of Soaps which are cleared on payment of duty. Therefore, CPS-DFA, since used in the manufacturer of dutiable final products, was/is fully exempt from payment of duty under Notification No. 67/95-C.E. and claim to that effect also has been made in the CL-Declarations. However, Ld. Commissioner has not considered this submission and also has not offered any findings as to why the said proposition is not sustainable. 8.5 Since the CPS-DFA is exclusively used manufacture of Soaps for HLL, to keep the transaction and records straight and transparent, the Appellants (VDL) chose to pay duty and recover the value mutually agreed for deemed sale of the quantity of CPS-DFA captively consumed by the Appellants (VDL) in their factory for manufacture of Soaps for HLL. For this purpose HLL has placed order on the Appellants (VDL) for sale and supply of CPS-DFA. Therefore questioning the transaction value considered for payment of duty is incorrect. 8.6 That since entire quantity of CPS-DFA, is captively consumed and duty paid thereon has been taken as credit, it ....
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....n order is that since the Appellant (VDL) were earning on an average 17% profit, profit @ 15% has to be added to the transaction value. This contention has no legal support, as in "Transaction Value" there is no requirement that such sale price should comprise of the profit. This is because of the fact that sales price, i.e. transaction value, is determined based on market forces and not based on the costing alone. That, in any case, it is a settled position of law that the sale price can be less than the cost price and there is no requirement of adding profit, based on the following judgments : (i) 2003 (55) R.L.T. 506 (S.C.) = 2003 (153) E.L.T. 249 (S.C.) - Guru Nanak Refrigeration (ii) 1998 (98) E.L.T. 422 (T) - Beltron Electronics (iii) 1998 (24) RL.T. 534 (T) - North East Gases (iv) 2005 (185) E.L.T. A-61 (S.C.) - Upheld by Supreme Court (v) 1998 (27) R.L.T. 219 (T) = 1998 (102) E.L.T. 221 (Tribunal) - Techno Electronics 9. Demand on DFA transferred to HLL - Rs. 3482867 9.1 That the demand of Rs. 34,82,867/- is as result of loading of sale value of by-products stock-transferred to HLL or to their customers, to the sale price of other-DFA cleared under the processing Ag....
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....nit-value of other-by-products (non-CPS) has to be included into the value of other-DFA stock transferred to HLL, since it is claimed to be an additional consideration and to such so called additional consideration, profit of 15% has also been added. It is submitted that "other-DFA" or "non-CPS-D PA" is true DFA with a blend of various materials, including CPS and PFAD. 9.9 That while arriving at the cost of production of other-DFA (non-CPS-DFA), the landed cost of total materials, which includes the quantity forming part of by-products, has been considered and hence, question of further loading the value of by-products to the cost of other-DFA does not arise. 9.10 That it is a settled position of law that the value of scrap, by-products, etc. arisen during the course of manufacture of the main product is not to be taken into account for valuation of such main product, in support of which reliance is placed on the ratio of the following judgment : (i) 2003 (157) E.L.T. 435 (Tri.) - Mahindra Ugine Steel (ii) 2004 (163) E.L.T. 128 (Tri.) - Lloyds Steel Ld. Commissioner holds that the ratio of the said judgments does not apply to the present case, without assigning any legally ac....
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.... 9.16 That, in any case, the quantum of this demand is included in the demand on CPS-DFA sold to HLL and hence, the demand on this count alone does not survive, (since it is leading to duplication of demand). In view of the above submissions, the demand on this count is not sustainable. 10. Demand on by-products of the oil, other than CPS - Rs. 24,50,516/- 10.1 In the show cause notices dated 22-9-2005, 23-3-2006, 27-3-2006 & 22-6-2006, it was claimed and alleged that non-CPS-by-products, viz. Crude glycerin, Low Volatile and Pitch Oil were delivered to HLL's nominated customers and duty was paid on the HLL's sales price. Revenue claimed that since the sale price of the CPS-by-products by the Appellants (VDL) to HLL was higher than the transfer price (cost price) of Non-CPS-by-products, difference in value has to be loaded to the cost price of other-by-products stock transferred by the Appellants (VDL) to HLL. 10.2 CPS-by-products means CPS contained in each of the by-products. Non-CPS-by-products or other-by-products means the by-products truly arisen and physically available, containing residues of various input-materials taken manufacture of DFA. 10.3 Impugned show cause n....
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.... boiler without payment of duty by availing exemption under Notification No. 67/95-C.E., dated 16-3-1995 and no duty has been demanded on that much quantity. The balance 75% to 80% of Pitch Oil sold to HLL, who, in turn, sell the same to their customers. The Appellants (VDL) pay duty on HLL's sales price. 10.10 Revenue has aggregated the sales value of Low Volatile Pitch Oil by HLL to its customers and the has been averaged out and invoked to entire quantity of Crude Glycerine, Low Volatile & Pitch Oil (non-CPS-by-products) cleared outside the VDL's factory, although each of the products are having different character and use. In a nutshell, the higher sales price of a particular by-product has been taken to arrive at the aggregate sales value and average price. 10.11 From the above, it is clear that Crude Glycerin has not at all beer sold by HLL, in view of stock transfer thereof its Taloja factory M/s. Acquagel Chemicals and hence, demand of duty thereon, by invoking the average sales price of Low Volatile & Pitch Oil, is not correct. This submission has not been considered by the Ld. Commissioner and no finding has been offered. 10.12 For the purpose of arriving at the sale....
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....ion : 11.1 Without prejudice to the submissions, in any case, major portion of the demand is barred by limitation, as extended period is not invokable in the absence of any suppression, mis-statement, etc., in support of which the following submissions are made : 11.2 That HLL had authorized the Appellants (VDL) to manufacture, on their behalf, inter-alia DFA and other products. In the said declaration, the mode of valuation of intermediate as well as sale of by-products was declared, the relevant portion of which is reproduced below, for ease of reference : "5 The Valuation of intermediate goods processed for and on behalf of Hindustan Lever Ltd. for use in the manufacture of finished products would be valued in terms of Section 4(1) (a) of Central Excise Act, 1994." 11.3 That Appellants had also, through their letter dated 1-2-2002 filed declaration of their manufacturing the disputed products under job work arrangement for HLL. 11.4 That the Appellants had filed declarations under Rule 173B as well as Rule 173C of CER, 1994, and such declarations were supported by C.A. Certificate, dated 1-8-2003 of M/s. Mitul B. Shah & Associates. 11.5 Once the Classification/Price Decla....
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....sustainable. The claim of the Ld. JCDR on the higher yield in CPS-DFA and less yield in DFA would not have relevance, as it is not a case clandestine removal, but it is a case of alleged undervaluation, in any case, it was not substantiated. In ant case, the said yield indicated are theoretical ones based on the probable yield of different Oils/CPS, etc. and there is possible variation in the yield. Further, it is not a case of determination of the quantum of production based on input-out ratio, but it is a case of alleged undervaluation of the produces, and, hence, the Ld. JCDR's submissions and/or the Ld. Commissioner's observation on higher/lower yield does not have any bearing on the present case. Ld. JCDR on -reliance on Bill of Entry No. 100 dated 4-8-2003 to pursue considering per ton cost of CPS is also incorrect, as it has to be compared with the aggregate of sales value of CPS contained in DFA (called as CPS-DFA) and the sales value of CPS contained in by-products namely Crude Glycerine, Pitch Oil and Low Volatile (called as CPS-by-products). Once done, the sales price is much higher than the purchase price. Ld. JCDR's claim that sale can take place on physical removal....
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....e appellants were calling the same product by the name CPS-DFA and selling it at lower price to HLL shows that the transaction was not on a principal to principal basis. Further, the Jt. CDR also submitted that the sale can take place only on physical removal whereas the. Appellants have affected sales without moving the CPS-DFA to HLL at all. It was also submitted by the ld. JCDR that it is the case of VDL selling to HLL the product owned by it. Even though both the parties had made a request that they would like to make written submissions and both were allowed to file the same within two days, the written submissions were received only from the appellants and there has been no receipt of written submissions from the JCDR. We have considered the submissions mace by both sides. The first issue is, the demand of differential duty of more than Rs. 1.73 crores on CPS-DFA sold to HLL. The first defence was that what was charged by VDL to HLL was only for CPS contents in the DFA sold to HLL but shown to have been sold the CPS-DFA. As rightly pointed out by the ld. JCDR this claim cannot be accepted in view of the fact that the appellants in their own memorandum of appeal have not mad....
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.... value of by-products stock transferred to HLL or to their customers, to the sale price of other DFA cleared under the processing agreement. The appellants contested the demand on the ground that the price is determined on the basis of pure commercial terms. This cannot be accepted in view of the fact that the appellant is a job worker of HLL and raw materials were supplied by HLL. The ground for demand is that the appellants were allowed to sell the by-products to HLL and other nominated customers of HLL and this has resulted in under-valuation of CPS-DFA. The appellants have also contended that if the CPS-by-products value is included in the sale price of CPS-DFA, the transaction value would be more than the cost price of other DFA. On the other hand, the ld. Jt. CDR has submitted that the appellants had deliberately shown excess production of by products in the case of CPS-DFA and he has submitted that this has been brought out by showing that the raw material consumption in respect of non-CPS-DFA and CPS-DFA is entirety different and by showing generation of excess by-products in this category, both the parties viz. HLL and the appellants have increased the quantity of by-produ....
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....ived the amount over and above of the processing charges and thereby the processing charges on CPS-DFA actually comes down. The appellants' contention is that the price of DFA transferred to HLL are sold to their customers is determined on the basis of pure commercial terms. But admittedly, there are no independent sales and all sales are made to HLL and to their nominees. There is no proper explanation from the appellants regarding the discrepancy in generation of by-products when the process is same. But for this discrepancy the appellants' claim regarding by-products on the basis of the Tribunal's decision cited above could have been accepted. The department has shown that there is an excess generation of by-products and consequently there is reduction in the price of DFA. Therefore, the demand of Rs. 34,82,867/- can be sustained. However, we find considerable force on the appellant's submission that such addition would result in increase of such transaction value which is higher than the cost of other DFA. This apparently has happened because the cost of all the by-products sold has been added with 15% profit margin on the DFA. In this case, unlike the demand of more than Rs. 1....