TaxTMI 
TaxTMI 
2018 (3) TMI 257
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....ms of Section 4(1)(a) of the Central Excise Act, 1944. Consequent to the decision of the Hon'ble Supreme Court in Fiat India Pvt. Ltd. - 2012 (283) ELT 161 (SC), the Department sought certain details regarding manufacturing cost of different models of cars and the transaction value, on which duty has been paid at the time of clearance of such cars. After collecting the required details, the Department proceeded against the appellant/assessee to demand differential duty of central excise, wherever cars were cleared with a transaction value, which was below the manufacturing cost, as ascertained from the data. The first demand was made on 8.2.2013 in respect of Noida Unit covering the period of 5 years involving a differential duty of Rs. 125,16,53,063/-. On similar lines, further notices dated 3.1.2014, 30.04.2014 and 26.12.2014 were issued covering the period December, 2012 to July, 2014 for Noida Unit. For Alwar Unit, a similar demand dated 26.12.2014 covering the period Jan. 2014 to July, 2014 was issued. These subsequent demands were for Rs. 71,83,02,463/- and Rs. 5,93,51,543/- in respect of these two units. All these notices were decided by the Original Authority though in diff....
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....ost by the appellant/assessee. The reasons for sporadic sales of cars below the cost during the some of the years have been explained with supporting evidences. There were fluctuations in currency exchange rate, tsunami in 2012 affecting Japan and major floods in Thailand. These are natural causes which seriously affected the availability of the critical components disrupting the production of cars in India. This has resulted in increase in the manufacturing cost in view of continuing fixed cost and certain variable costs like wages to staff. Jazz model car had to be phased out as per the business strategy of the appellant/assessee. The Hon'ble Supreme Court in Fiat case mentioned this as one of the possible reasons for selling excisable goods below the cost (para 50 of the decision). (b) The appellant/assessee has been manufacturing various models of cars, which are marketed in India and has got significant clients base. The cost of production and sale price cannot go in tandem, all the time in a on going running business. (c) The appellant's case is squarely covered by the ratio of the Supreme Court in Guru Nanak Refrigeration Corporation - 2003 (153) ELT 249 (S....
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....always be above the cost of manufacture is not legally sustainable. (i) Regarding appeal by Revenue, it is submitted that the impugned order correctly examined the facts of the case and held that the whole issue is one of the interpretation and as such, the allegation of suppression of fact, etc. cannot be upheld. The assessment practice prevailing for many decades is to be considered as of long standing practice and followed by the appellant/assessee. Even the Board vide their circular dated 15.01.2014 clarified that the decision of the Fiat case is applicable from the date of the said order - 29.08.2012. Accordingly, it was correctly held by the Original Authority that extended period of limitation is not invokable and no penalty is imposable on the appellant. Hence, the appeal by Revenue is without merit. (j) In the appeal No. 53836/2014, the Commissioner vide his order dated 03/04/2014 dropped the duty demand beyond the normal period of one year although the show cause notice was for 5 year period. No appeal has been filed by Revenue against this order. 4. Learned AR supported the findings of the lower authorities on merit. He submitted that the impugned or....
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....f the appellant is that the appellant had sold some of the cars for some of the period below the manufacturing cost and manufacturing profit. The relevant finding of the Original Authority will throw light on the case of the Revenue. The findings are as below :- "5.6 A plain reading of Section 4 (1) (a) of the Act ibid reveals that the valuation of excisable goods chargeable to duty of excise on ad-valorem basis would be upon the concept of transaction value provided (i) where the goods are sold for delivery at the time and place of delivery; (ii) the buyer is not a related person, and (iii) the price is the sole consideration. Now I have to consider the actual meaning of sole consideration as used in Section 4 (1) (a) of the Act. It is a fact on record that the Noticee has been selling their cars at a lower price than the manufacturing cost in order to compete in the market. The Noticee has contended that the reason for selling their cars at a lower price than the manufacturing cost is to compete in the market; that the intention of the Noticee to compete in the market cannot be treated as extra commercial consideration as it is does not flow from the buyer to the seller ....
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....rcumstances which the Noticee themselves have admitted; that the price of the cars was not based on the manufacturing cost and manufacturing profit, but have fixed at a lower price to penetrate/compete the market; though the cost of production for their cars is higher, they are selling the cars at a lower price to compete with the other manufacturers of similar cars. This is certainly a factor in depressing the sale price to an artificial level, and lastly, the full commercial cost of manufacturing and selling the cars was not reflected in the lower price. Therefore, merely because the Noticee has not sold the cars to the related person and the element of flow back directly from the buyer to the seller is not the allegation in the show cause notices issued, the price at which the Noticee had sold its goods to the whole sale trader cannot be accepted as 'normal price' for the sale of cars. It is a deeming provision and the said three conditions are necessarily required to be satisfied for a case to qualify under clause (a) of Section 4 (1) of the Act failing which the transaction value shall not be the assessable value and value in such case has to be arrived as per provisions of Se....
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....eduction of capital due to continuous loss. I find that the company is making loss year after year. As per the annual report, the company posted a loss of Rs. 213 crore in the FY 2010-11 and Rs. 604 crore in the FY 2011-12 and Rs. 1110 crore in the FY 2012-13. Further due to loss, their reserve which was in positive in the FY 2012-11, it turned negative at the subsequent years i.e. Rs.-259 crore at the end of the FY 2011-12 and Rs.-1369 crore at the end of the FY 2012-13. Further I find that total capital + reserve at the beginning of the FY 2010-11 is Rs. 918 crore and the Noticee has made total losses of Rs. 1927 crore during FY 2010-11, 2011-12 and 2012-13, so there capital actually eroded by Rs. 1927 crore. In order to save the company and further to increase capital/net worth of the company, I find that the Noticee introduced fresh capital. During the FY 2011- 12, the company issued and allotted 209,973,753 equity shares of face value of Rs. 10/- each at a price of Rs. 57.15 per share (including premium of Rs. 47.15 per share) for an aggregate amount of Rs. 1200 crore on right basis, consequently upon which, the share capital increased from Rs. 360 crore to Rs. 570 crore and f....
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....d also non- consideration of certain important submissions made by the appellant. First of all, the impugned order did not examine the total manufacture and sale of different models of cars for the period from 2008-2009 to July, 2014. The appellants submitted a detailed chart containing modelwise number of cars sold at loss, number of sold at profit, percentage of loss and percentage of profit. We note that the adjudication proceedings being done separately for Noida unit and Alwar unit had resulted in the Original Authority not having the holistic appraisal of the basic facts resulting in certain distorted analysis of the facts and figures. 10. The impugned orders confirmed the differential duty by re- fixing the value at 110% of cost of production in respect of those cars sold at loss by the appellant. The sole basis is the reliance on the decision of Hon'ble Supreme Court in Fiat case. We have examined the said decision of the Hon'ble Supreme Court. In our considered view, the Original Authority fell in error in not appreciating the factual details and the ratio of the said decision. The most crucial aspect is that in the said case Fiat was selling all their cars for more tha....
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....he manufacturing cost and profit. At paragraph 66 in the FIAT judgment, the Hon'ble Court has declined to hold its earlier judgment in case of Collector of Central Excise, New Delhi v. Guru Nanak Refrigeration Corpn [2003 (153) E.L.T. 249 (S.C.)] per-in curiam, distinguishing it on the basis of the facts of the case, though the transaction value in case of M/s. Guru Nanak Refrigeration Corpn was less than the manufacturing cost and profit. The Hon'ble Supreme Court has cautioned against drawing general conclusions and inferences quoting the truism stated by Lord Halsbury that "a case is only an authority for what it actually decides and not for what may seem to follow logically from it." 2.1 Further, in paragraph 50, the Hon'ble Supreme Court has cited two instances where a manufacturer may sell goods at a price lower than the cost of manufacture and profit and yet the declared value can be considered as normal price. These instances are when the company wants to switch over its business or where a manufacturer has goods which could not be sold within a reasonable time. The Hon'ble Court has further held that these examples are not exhaustive. Therefore, mere sale of goods....
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....ly from the buyer to the seller. For the period prior to the date of the judgment, in cases where a show cause notice has been issued on the grounds of the FIAT judgment alone, there may not be a case for invoking the extended period of limitation. In such cases, only the normal period of limitation will apply. 4.1 For the period after the date of the judgment, i.e. from 29-8-2012 onwards, if there is a sale in the circumstances similar to the case of M/s. FIAT and yet transaction value of goods is declared as the correct assessable value, then such declaration would amount to wilful mis-statement of the assessable value. 5. The contents of this Circular may be brought to the notice of the trade/exporters by issuing suitable Trade/Public Notices. Suitable Standing Orders/Instructions may be issued for the guidance of the assessing officers. Difficulties faced, if any, in implementation of the Circular may please be brought to the notice of the Board at an early date". 11. The point which is clarified by the Board is clear to the effect that he Hon'ble Supreme Court has not ruled that transaction value can be rejected in all cases where such value is lower than ....
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....In fact while examining the Board's circular on the applicability of ratio of Fiat case to the present case, he recorded that Fiat sold 29,000 cars below cost and whereas appellant sold 52,016 cars below cost during the period January 2012 to November 2012. Surprisingly, he did not mention that Fiat sold 100% of their cars below cost and that too by a huge margin, the appellant sold only about 30% of their cars produced during that time below cost. Omission of such factual detail apparently lead to a completely wrong inference. Further, we also noticed that the Original Authority also referred to the sales data selectively. He observed that the quantum of cars sold below cost of production has increased considerably from financial year 2011-2012 to 2012-2013. We note that apart from not mentioning that same model cars were sold both with profit and at loss in the same financial year, the Original Authority failed to note that there has been a huge increase in the sale of cars with profit in the financial year 2013-2014. In fact from the table submitted by the appellant we note that as compared to 19,969 cars sold in profit during 2012-2013, the appellant sold 87,359 cars in profit ....
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....the appellant were not even discussed. These are with reference to escalation in the cost due to various factors beyond the control of the appellant and also sale of same model of cars both in profit as well as in loss in the same financial year. Similarly, we also note that the appellant's plea regarding various decisions of the Apex court on valuation and provisions of Section 4 (1) (a) were also not examined with required analysis. The appellant strongly contested the finding with specific reference to amendment to Section 4 (1) w.e.f. 14/05/2003 readwith provisions of Rule 6 and the valuation rules. This also requires clear finding. 18. Regarding erosion of capital the Original Authority held that wherever there is a loss, the reserve of the company depletes resulting in erosion of capital to the extent of loss incurred by the company. We note that net worth of the company is different from the capital of the company. There was no reduction in the share capital of the appellant during the material period. We note that the finding by the lower authority on erosion of capital appears to be not based on Standard accounting and commercial principles. 19. On careful considerat....