TaxTMI 
TaxTMI 
2007 (10) TMI 6
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....here the Yarn is sold to dealers. The assessee used to pay duty during the relevant period, at the time of removal of yarn, on the basis of the depot sale price, after claiming permissible deductions under section 4 of the Central Excise Act, 1944 ("1944 Act"). One such deduction was TOT in respect of yarn cleared and despatched to Surat depot from the factory of the assessee in U.P.. In respect of such despatch, the assessee claimed deduction at 2% on account of TOT. This was on the footing that the Government of Gujarat vide Notification dated 19.10.1993 had exempted sale of Yarn of all kinds by a registered dealer to a special manufacturer of processed Yarn or to an eligible unit to the extent to which the rate of TOT exceeded 0.5% of the total turnover. This was provided the specified manufacturer furnished to the selling dealer a certificate in Form 26 and if the processed Yarn stood sold within the State of Gujarat. 4. On 19.3.1999, a show cause notice was issued by the Department to the assessee in which it was alleged that the assessee had filed its price declaration under Rule 173-C in regard to the goods transferred....
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.... deduction at 2% on account of TOT in respect of the entire clearance and thus, according to the Department, the assessee had claimed wrongfully a larger deduction than what he was entitled to. Therefore, according to the show cause notice, the difference between the amount of TOT actually paid should have formed part of the assessable value and accordingly, the Department called upon the assessee to pay excise duty on the differential value. According to the Department, the assessee had wrongfully claimed deduction on account of TOT; that the assessee had claimed wrongfully deduction on the entire clearances at 2%; that the assessee had claimed in the price declaration deduction on account of TOT at 2% when it had actually paid TOT @ 0.5% in respect of backward area sales and, to that extent, the assessee had evaded excise duty by wrongfully claiming excess amount of deduction on the amount of deduction on account of TOT as compared to what was actually paid by it. The demand has been confirmed by all the authorities. Hence, these civil appeals. 5. Mr. S.K. Bagaria, learned senior counsel, appearing on behalf of the assessee, s....
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....Notification, particularly at the time when the yarn was cleared at the factory gate of the assessee in U.P. and, therefore, according to the assessee, eligibility of the dealers in Surat, who were liable to pay TOT constituted post-clearance event. According to the learned counsel, such post-clearance events are assumptions; that chargeability of excise duty cannot depend on such assumptions; that liability did not depend on assessment as it is fixed ex-hypothesis and, consequently, according to the learned counsel, the assessee was right in claiming deduction on account of TOT at 2% as that was the only rate which existed on the date when the goods were cleared at the factory gate. According to the learned counsel, at the time of filing the price declaration under Rule 173-C, the assessee had no means of knowing whether ultimately the TOT would be payable at 2% or at 0.5% and, therefore, the assessee was justified in claiming deduction of TOT at 2% being the prescribed tariff rate. According to the learned counsel, 0.5% was the concessional rate which depended upon fulfilment of conditions and eligibility criteria and, therefore, it was not possible for the assessee to visualize ....
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....sessee had never informed the Department that there were two separate rates prevalent under the above Notification dated 19.10.1993; that if the amount of TOT paid by the assessee was less than the amount claimed as TOT deduction at the time of ex-factory clearances, the assessee should have paid the differential excise duty but the assessee never disclosed to the Department that there were two types of sales, namely, backward area sales and normal area sales and nor did the assessee inform the Department about the TOT actually paid by it and, therefore, Department was right in confirming the show cause notice dated 19.3.1999 for the period March, 1994 to March, 1997. 7. The question to be answered is the meaning of the word "payable" in section 4(4)(d)(ii). The said word is descriptive. One has to see the context in which the said word finds place in the aforestated section 4(4)(d)(ii). We quote hereinbelow section 4(4)(d)(ii), which reads as under: "4. Valuation of excisable goods for purposes of charging of duty of excise.- (1) to (3) xxx &n....
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....excise computed with reference to the rate specified in such Act in respect of such goods." (emphasis supplied) As can be seen from the above quoted section, excise duty can be deducted if it had not been included in the invoice price. According to the Explanation, what is deductible is the effective rate of duty. Where any exemption has been granted, that exemption has to be deducted from the ad valorem duty. In other words, it is only the net duty liability of the assessee that can be deducted in computing the assessable value. The said principle stands incorporated in the Explanation. For example, if the assessee recovers duty at the tariff rate but pays duty at confessional rate, then excise duty has to be a part of the assessable value. Similarly, refund of excise duty cannot be treated as net profit and added on to the value of clearances. There is no provision in section 4 of the 1944 Act to treat refund as part of assessable value. If exc....
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.... the excise duty. In short, as in the present case, TOMCO claimed higher deduction of 5% whereas Department contended that the assessee was entitled to deduction of 5% minus 6 paise (rebate). On behalf of TOMCO, as in the present case, it was argued that exemption was given under the Notification by way of an encouragement to a manufacturer to make use of cotton seeds in the manufacture of Pakav. The rebate in duty was not a general rebate. It was a rebate admissible only to the manufacturer satisfying certain conditions. Therefore, the position, in the present case, and the position prevalent in TOMCO's case were identical. In the present case also the TOT deduction was available only on fulfilment of certain conditions. Rejecting the arguments of TOMCO, the Bombay High Court held that the rebate of 6 paise had to be deducted from 5% ad valorem duty as the exemption under the Notification was not by way of a windfall for the manufacturer but it was admissible only on account of the use of cotton seed oil in the manufacture of Pakav. 9. At this stage, we may note that there was a conflict of views at the relevant time when TOMCO....
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....OMCO's case (supra), the exemption was not by way of a windfall for the manufacturer-assessee but on account of cotton seed oil used by TOMCO in the manufacture of Pakav. Similarly, in the case of B. K. Paper Mills (supra), the Bombay High Court has correctly analysed section 4(4)(d)(ii) with the Explanation to say that only the reduced rate of duty can be excluded from the value of the goods and that Explanation explains what was implicit in that Section. That, the said section 4(4)(d)(ii) did not refer to duty leviable under the relevant tariff entry without reference to exemption Notification that may be in existence at the time of clearance/removal. That, section 47 of the Finance Act, 1982 which inserted the Explanation expressly sets out what is meant by the expression "the amount of duty of excise payable on any excisable goods." By the amount of duty of excise what is meant is the effective duty of excise payable on such goods under the Act and, therefore, effective duty of excise is the duty calculated on the basis of the prescribed rate as reduced by the exemption notification. This alone is excluded from the normal price under section 4(4)(d)(ii). 12.  ....
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....rs was recoverable under Section 11A of the Central Excises and Salt Act, 1944." 14. Applying the above tests to the facts of the present case, it is clear that on the date when the assessee filed its price declaration under Rule 173-C the assessee was aware that there was an exemption Notification dated 19.10.1993 in the State of Gujarat; that there were depot sales in Surat; that there were two types of sales, namely, backward area sales and normal area sales and that the rate of TOT in respect of backward area sales was 0.5% whereas the rate of TOT for normal area sales was at 2% and yet the assessee after suppressing the aforestated data claimed the TOT deductions at the rate of 2% across the board for all clearances and, therefore, the Department was justified in calling upon the assessee to pay differential excise duty. We accordingly confirm the demand. 15. Before concluding, we may add that every efficient manufacturer has to plan his operations sufficiently carefully to know what raw materials he will use and in what proportion he will use the raw materials in the manufacture of his final product....