TaxTMI 
TaxTMI 
2008 (2) TMI 303
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.... The appellants are engaged in the manufacture of elevator parts and components in their factory located at Jigani. They undertake indivisible, lump sum, works contracts for the erection and installation of lifts and elevators. Various parts and components are necessary for the erection of a lift or an elevator by the appellant. Some parts and components are manufactured in the appellant's Jigani unit and cleared from Jigani unit on payment of Central Excise duty for the purpose of using erection of lifts and elevators at site. Some parts and components are manufactured at their Kandivli unit, Mumbai and cleared directly from the Kandivli unit on payment of Central Excise duty for the purpose of use in the erection of lifts and elevators at site. Bought out parts and components and parts and components manufactured in the Kandivli unit were brought to the Jigani unit and cleared from there as such. Parts and components bought from the Kandivli unit were directly sent to site; and parts and components brought from the field and were sent directly to site. The issue in two appeals is mainly concerned with the valuation of the parts and components manufactured by the appellant and....
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....oods when sold and the transaction value would include, in addition to the amount charged as the price, any other amount that the buyer was liable to pay in connection with the sale. All these 12 show cause notices were adjudicated by the Adjudicating authority who issued the Order-in-Original No. 05/2003 dated 30-11-2002, by means of which the proceedings pursuant to all 12 show cause notices were dropped by the Joint Commissioner. 5. In spite of the above position, Revenue proceeded against the appellants by issue of show cause notice dated 16-11-2004. It was also pointed out that the order issued by the Joint Commissioner dropping the proceedings had not been appealed against. In the show cause notice issued on 16-11-2004, the duty amount of Rs. 77,26,06,979/- and another amount of Rs. 1,67,06,017/- were demanded along with interest and penalty for the period from 1-7-2000 to 31-3-2004. The allegation in the show cause notice was that the appellant was manufacturing around 70% of the parts/components of the lifts and elevators in their factory and the balance item were procured from the supporting vendors. On the receipt of the bought out items, the appellant segregated them ....
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....le value of the excisable goods cannot be determined in terms of Rule 8 read with Rule 11 as the ingredients of Rule 8 of the Rules are not satisfied in the present case. However, the Commissioner failed to give any finding on the issue as to why the same principle of valuation as stated in Rule 8 could not be applied under Rule 11. The Commissioner held that the transaction value can be derived from the composite value keeping in view the principles in Section 4(1)(a) of the Act. According to the Commissioner, the assessable value can be worked backwards, taking the composite contract price as selling price and deducting permissible deductions namely, installation and commissioning charges; combined cost of components manufactured at other units and bought out components both together. It was stated that the Commissioner's findings on the issue are completely beyond the allegations in the show cause notice. In the show notice, the duty was demanded on the basis that complete lifts/elevators were being cleared and the transaction value under Section 4 was available. However the Commissioner has held that the assessable value has to be calculated by working back from the contrac....
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....led elevator is not the appropriate basis of view of valuation for the clearances made from Jigani. In view of the clear allegations in the show cause notice and the basis sought to be adopted therein [the transaction value under Section 4(1) (A)], the show cause notice should have been dropped in its entirety in view of findings in the impugned order. The Respondent, the Commissioner, has adopted an entirely fresh basis for valuation mainly, a deductive value working back from the contract price by excluding certain elements from the contract price. Thus the method of,valuation adopted in the Order-in-Original was not the subject matter of the show cause notice. This constitutes the violation of Principles of 'Natural Justice'. Moreover, the method adopted for valuation is not within the ambit of the Valuation Rules. It was urged that it is impermissible to adopt a basis of valuation, which is not specifically provided for under the Act or the Rules. (ii) On a perusal of the relevant portion of the show cause notice and on examination of the basis of valuation used for computation of the demand, it is clear that the basis in the show cause notice is not to work ba....
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....e finding in the impugned order that the clearances made from the factory are not consumed in the production of manufacture of other articles is also not sustainable. The term "article" is not defined under the Act. The term "article" as per normal language dictionaries refers to "any item or commodity". The claim in the impugned order that Rule 8 cannot apply is unsustainable and bad in law under Rule 11 read with Rule 8. Rule 8 squarely sets out analogous principle which can be applied to the present case. (vii) The Commissioner has also exceeded his jurisdiction in recalculating the demand. The show cause notice did not propose to compute the differential duty by assuming any specific percentage of clearances for Jigani factory whereas the Commissioner has incorrectly proceeded on the presumption that 45% of the parts were cleared from Jigani factory. It is submitted that in the present case, the quantity of clearances, which were the subject matter of valuation was known and was verifiable from the records. In such circumstances, there was no occasion for the Commissioner to have presumed the quantity of clearances from Jigani factory and demanded differential duty on ....
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....Commissioner has failed to appreciate that the principle of valuation enunciated by Rule 8 could be adopted under Rule 11. The failure to consider this argument of the appellant has completely vitiated the impugned order which is liable to be set aside. - (xii) It is an admitted position that no separate transaction value is available for parts or components of the elevators cleared from the Jigani unit, whether for the erection of new lifts or for repairs/modernization. The Commissioner has erred in suggesting that goods can be valued using "transaction value". In view of the fact that the "transaction value" for parts and components is not determinable under Section 4(1)(A), resort to Section 4(1)(B) of the Act and the Valuation Rules needs to taken for determining the most appropriate method of valuation. It is submitted that Rule 8 read with Rule 11 is the most appropriate method of valuation in this case. (xiii) It was urged by the learned Advocate that while going through the Valuation Rules, it can easily be seen that in respect of the present case, the Rules 4, 5, 6, 7, 9, & 10, etc. cannot be made applicable. Therefore one has to go to Rule ii in terms of....
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....or sale' from a 'works contract'. The question is largely one of fact depending on the terms of the contract. Therefore, the decision in 'Kone Elevators' case is essentially on the factual situation of the case and cannot prima facie apply to any other factual situation. The decision clearly states that there is no standard formula for determination of the issue whether a contract is a works contract or a contract for sale of goods. Removal of parts or components of elevator was held to be a sale in the 'Kane Elevators' because it was specifically mentioned in the brochure of Kone Elevators that they had "been exhibiting various models of lifts for sale...". This fact played a very important role in the reasoning given by the judges for holding against Kone Elevators. No such brochure or similar circumstance exists in this case. The present case was completely covered by the previous decision of the Government of India in the appellants own case reported in 1981 (8) E.L.T. 720 (G.O.I) wherein it was clearly held that the installation of lifts is a works contract. (xvii) The decision in Koyana Pre-stressed Products (P) Ltd. v. CCE [1997 (91) E.L.....
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....liance was placed on the decisions of the Apex Court in the case of CCE v. HMM Ltd. [1995 (76) E.L.T. 497]; Kaur & Singh v. CCE [1995 (94) E.LT. 289 (S.C.)]and Raj Bahadur Narain Sing Sugar Mills Ltd.v. Union of India [1996 (88) E.L.T. 24 (S.C.)] wherein it was held that to sustain the invocation of the extended period of limitation, the show cause notice should articulate a specific al legation stating the nature of suppression, willful misstatement, etc. assessee had indulged in. (xxii) All along the basis for valuation for the clearances made for ejection of new lifts and repair/modernization remained the same and there was no occasion either for the Department or for the appellant to address this issue separately only for clearances made for repairs/modernization. The order of the Commissioner in confirming the demand for the extended period of clearances made for repairs/modernization is therefore, erroneous, illegal, inconsistent and contradictory in terms and is liable to be set aside. (xxiii) The intention to evade duty is a necessary ingredient which needs to be established before proviso to Section 11(A)(1) can be invoked. Reliance was placed on the judg....
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....ppellants. (iii) Argument: Clearances to Modernization sites and NSC are for consumption; no transaction value is applicable thereon. This point has been coveted in Para 22 of the written submissions. These clearances were for sale and the consideration relevant for contracts for erection and commissioning of elevators is not applicable in respect of such clearances. (iv) Argument: Decision in Koyana case is not applicable This issue has been dealt with in Para 21 of the written submissions. The arguments advanced are devoid of merit. (v) Argument: Quantification of demand is not correct (a) This issue has been dealt with in Para 19 and 20 of the written submissions and Para 23 of the Order-in-Original. (b) Annex. 1 provides the manner of arriving at the assessable value and determination of the differential duty. The determination of differential duty has followed the method, which was adopted in the Order-in-Original for the earlier period except that further abatements claimed by the appellants have been allowed. It is worth noting that some of the important abatements claimed now and allowed in the Order-in-Original....
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....ared to the method adopted by the Commissioner, we are of the considered view that the valuation method adopted by the appellant is more acceptable as it is within the ambit of Valuation Rules. It is very clear that the valuation cannot be dealt in terms of Rules 4, 5, 6, 7, 8, 9 & 10 and then finally, one has to come to Rule 11. While coming to Rule 11, the nearest thing which is consistent with Section 4 is only the cost construction method. We are also in agreement with the learned Advocate that the Commissioner has erred in holding that the cost construction method can be applied only if the goods are used for consumption for manufacture of other excisable goods. The word "article" is not limited to excisable goods. In the present case, the components were cleared to the sites and in the sites, they were actually used in the manufacture of the lifts or elevators which should be considered as article. Even in respect of the components cleared for modernization and also for Annual Maintenance Contract, the nearest rule which is consistent with Section 4(1)(a) will be Rule 8 and not the deductive method adopted by the Commissioner. Secondly, there is gross violation of the Princip....