TaxTMI 
TaxTMI 
2019 (6) TMI 180
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....by the Appellant for refund of an amount of Rs. 1,37,89,160/- that was deposited by it before the issuance of show cause notice under protest towards payment of Central Excise duty after an audit objection was raised by the Department. 3. M/s Chambal Fertilizers & Chemicals Limited (hereinafter referred to as 'Chambal Fertilizers'), is engaged in the manufacture of 'Urea', which is a fertilizer falling under Chapter 31 of the First Schedule to the Central Excise Tariff Act, 1985. It paid Central Excise duty @ 1% ad valorem in terms of the Notification No. 01/2011, as amended from time to time. The fertilizer policy of the Government of India is aimed at providing fertilizer to farmers at affordable prices for sustained agricultural growth and to promote balanced nutrient application. The manufacturers are mandated to sell the goods at prices notified by the Government. Since the Central Government regulates the prices at which the fertilizers are allowed to be sold to farmers and it is a crucial input for improving agricultural productivity, the fertilizers are invariably sold to farmers at less than the cost of production resulting in a loss which is compensated by the Governme....
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....rea' appears recoverable from the assessee under proviso to Section 11(A)/Section 11A(4) of the Central Excise Act, 1944 along with interest under Section 11AB/11AA of the Central Excise Act, 1944 (as applicable during the relevant period). Since, the assessee has already paid the amount of Rs. 1,35,72,638/- (for the period 01.03.2011 to 31.07.2014) and Rs. 2,16,522/- (for the period 01.8.2014 to 19.8.2014) under protest, the same appears to be appropriated into Govt. account. The assessee also appears liable for penal action under Section 11AC of Central Excise Act, 1944 and Rule 25 of Central Excise Rules, 2002. 9. Now, therefore, M/s Chambal Fertilizers & Chemicals Ltd., Village - Gadepan, District - Kota, are hereby called upon to show cause to the Commissioner, Central Excise Commissionerate, 142 B, Sector 11, Hiran Magri, Udaipur within 30 days of the date of receipt of this notice as to why : i) An amount of Rs. 1,37,89,160/- [Rs. 1,35,72,638/- (for the period 01.3.2011 to 31.7.2014 and Rs. 2,16,522/- (for the period 01.8.2014 to 19.8.2014)] should not be recovered from them (as applicable during the relevant period0. Since the amount of Rs. 13789160/- has ....
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....is connection, the Commissioner observed as follows : "I observe that the basic purpose of the Circular was to clarify that Central excise duty will not be charged on subsidy given by the government and the actual transaction value at which these goods are being cleared after subsidy should be the basis of charging central excise duty. The board has used the word MRP loosely and it no where meant that Central Excise duty will be chargeable on MRP basis for clearance of fertilizer, which can only be done by specifying the commodity under a notification issued in this regards." [emphasis supplied] 10. The Commissioner further observed that urea was being sold to the dealers who were independent entities and, therefore, the 'transaction value' should be determined in the manner provided for in section 4 of the Act. The Commissioner, therefore, held that there was no short payment of duty and the relevant paragraph 7.1 of the order is reproduced below : "7.1 I am therefore inclined to agree with the contention of the appellant that declared MRP is for the purpose of sale to ultimate customer i.e. farmer. Urea is finally sold to farmers through a network of deale....
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....section 4A of the Act; (iii) The Board's Circular dated 10 July, 2014 has been correctly appreciated by the Commissioner (Appeals) since the Circular is in connection with the subsidy granted by the Government and not in connection with the commission of the dealers to whom fertilizers were sold by Chambal Fertilizers; and (iv) Chambal Fertilizers has been charging only that price arrived at after deduction of the dealer's commission from the dealers who are independent entities and no consideration other than the price charged has been received from the dealers and, therefore, the price for determination of the Excise Duty would be the 'transaction value'. 13. We have considered the submissions advanced by the learned Authorised Representative of the Department and the learned Counsel for the Respondent/Appellant. 14. The issue, therefore, that arises for consideration in this appeal is, as to whether Chambal Fertilizers have to discharge duty liability on the 'MRP' fixed by the Government for Urea for the period March, 2011 to October, 2012 and November, 2012 to April, 2013 or it should discharge duty liability on the 'transaction value' which is the diffe....
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....udes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods." 17. Section 4A of the Act deals with 'valuation of excisable goods with reference to retail sale price' and the relevant portion is reproduced below : "Section 4A. Valuation of excisable goods with reference to retail sale price - (1) The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Legal Metrology Act, 2009 (1 of 2010) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods....
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....larification - Regarding. In the Budget 2011-12, excise duty of 1% was imposed on chemical fertilizers falling under Chapter 31 of the Central Excise Tariff such as Urea, Di-ammonium Phosphate (DAP), Ammonium Sulphate, Single Super Phosphate (SSP), etc. and various grades of complex fertilizers. 2. Consequent upon the levy of excise duty @ 1% (without CENVAT facility) on chemical fertilizers in the Budget 2011-12, the Department of Revenue had clarified to the Department of Fertilizers that in the case of price-controlled fertilizers which are sold to distributors/wholesale dealers at MRP fixed by the Government at the time of their clearance from the factory the excise duty of 1% would be chargeable on the MRP and not on the total cost of production. In the case of fertilizers not subject to price-control, the excise duty would be chargeable on their wholesale price representing the transaction value at the factory gate. 3. Trade and Industry Associations have represented that inspite of the clarification issued by the Department of Revenue to the Department of Fertilizers, the field formations have issued show cause notices to the fertilizer companies s....
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....subsidy would reduce the MRP paid by farmers. 4.2 The fertilizer policy of the Government of India is aimed at providing fertilizers to farmers at affordable prices for sustained agricultural growth and to promote balanced nutrient application. The subsidy is not linked to the buyer and it cannot be said that the subsidy given by the Government to the manufacturer is part of the consideration flowing from the buyer to the manufacturer. Likewise, it cannot be said that fertilizer manufacturers have under-declared the value with a view to penetrating the market or competing with the other manufacturers of similar fertilizers. 4.3 In the Fiat India case, it was a conscious decision on the part of the manufacturer to sell the goods below the cost of production to penetrate the market and to compete with the other manufacturers of similar cars. While dealing with the word 'consideration', the Supreme Court has observed that 'consideration' means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee and it is for the Excise authorities to show that the price charged to the buyer is a concession....
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....clear that clarification was required to be issued as to whether subsidy component was required to be included in the valuation of fertilizers for the purpose of levy of excise duty. This was for the reason that field formations were issuing notices to the fertilizer companies seeking to levy excise duty also on the subsidy component of price controlled fertilizers in view of the decision of the Supreme Court in Commissioner of Central Excise, Mumbai vs M/s Fiat India Private Limited, reported in 2012 (283) ELT 161 (SC). The Government noticed that M/s Fiat India Private Limited was selling cars at a price substantially lower than the cost of manufacture so as to penetrate the market and to compete with other manufacturers of similar cars. It is in this context that the Supreme Court held that such sales should not be regarded as sales in the ordinary course of sale or trade as the main reason for selling cars at a lower price than the manufacturing cost and profit was to penetrate the market. Thus, the price was not the sole consideration for sale of cars. The Government further noticed that in the case of fertilizers, the manufacturers were mandated to sell the goods at prices no....
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.... on MRP. The impugned Order dated 05 March, 2018 passed by the Commissioner (Appeals), therefore, does not suffer from any illegality. 24. Excise Appeal No. 52966 of 2018 filed by M/s Chambal Fertilizers & Chemicals Limited now requires to be examined. 25. It needs to be noted that M/s Chambal Fertilizers deposited an amount of Rs. 1,35,72,628/- on 21 August, 2014 and Rs. 2,16,522/- on 5 September, 2014 under protest and before the issuance of the show cause notice in view of the audit objection raised by the Department that Excise Duty should be paid on MRP. Soon thereafter, M/s Chambal Fertilizers filed an application for refund of this amount. A show cause notice dated 03 February, 2015 was issued by the Assistant Commissioner requiring it to show cause as to why the claim should not be rejected for the reason mentioned in the notice, namely, that the audit had correctly required M/s Chambal Fertilizers to pay Central Excise Duty on the quantity of Urea cleared during March, 2011 to July 2014. A reply dated 24 February, 2015 was filed by M/s Chambal Fertilizers contending therein that it had correctly paid Central Excise Duty on the 'transaction value' and was not required....