TaxTMI 
TaxTMI 
2023 (1) TMI 590
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....asis under Section 4A of the Central Excise Act, 1944. 1.3 A show cause notice was issued by revenue alleging that ITC and LHL have interest directly or indirectly in the business of each other and therefore, the two are related in terms of Section 4(3)(b) of the Central Excise Act, 1944 and therefore, the assessable value should be governed by Rule 9 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000. Consequently, demand of central excise duty was raised against LHL and notice for imposing penalty was issued to both the LHL and ITC. The said demand was confirmed by Order-In-Original dated 10.08.2010 holding that LHL and ITC were related in terms of Section 4(3)(b)(iv) of the Central Excise Act, 1944. The penalty was also imposed on both LHL and ITC. The matter was challenged by both the parties before tribunal and tribunal vide order no. A/100002-100003/2014 dated 01.01.2014 set aside the order and remanded the matter back to the original adjudicating authority with following observations :- 11. In view of the above facts though mutuality of interest is not established but it has been correctly held by the adjudicating authority that t....
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....etermine the value of the goods as per the provisions of Rule 11 of the Valuation Rule 2000. Needless to say that appellants should be given an opportunity to present their case in de-novo proceedings, before taking a final view on the issue. The Commissioner in the remand proceeding again confirmed the demand of central excise duty amounting to Rs.2,48,06,064/- along with interest under Section 11AB of the Central Excise Act, 1944, penalty under Section 11AC of the Central Excise Act read with Rule 25(1) of Central Excise Rules, 2002 was also imposed on LHL and a penalty of Rs.60 lacs was imposed on ITC under Rule 26(1) of Central Excise Rules, 2002. Aggrieved by the said order, the LHL and ITC are in appeal before this tribunal. Revenue is also in appeal against the said order. 02. Learned Counsel for LHL and ITC argued that the matter was remanded by tribunal with specific directions to do valuation under Rule 11 of CV Rules. Rule 11 of CV Rules reads as under:- Rule11. If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of the....
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.... ITC. • The price of the finished products will be indicated in Annexure 2 inclusive of sales tax, other taxes, duties, etc. The Central Excise duty paid by Leamak will be reimbursed at actual after receipt of a debit note by ITC. • The raw materials / packing materials required for use will be in accordance with specifications given by ITC who would give list of approved suppliers. • If there is a delay in supply, ITC is entitled for the discount of 0.50 Paise / kg. on the agreed price. • Leamak will arrange for the moulds for the manufacture of confectionary. • Leamak shall deliver the confectionary to ITC ex-factory and deliver the same to the transporter nominated by ITC. • ITC shall have the right at all times to inspect the premises of Leamak including during the preparation, production, packaging of the confectionary without any notice. • The relationship between Leamak and ITC under the agreement is on a principal to principal basis. Except for certain minor changes relating to the price of the product per kg. the basic features of the agreements were the same. 2.3 He pointed ou....
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....buyer is not the normal price. He relied on the following judgments:- • JJ Confectionery P. Ltd. v CCE-2007(210) ELT 196(T-Bang); • OCP India P.Ltd.-2003(156)ELT 378 (T-Kol); • CIMMCO Ltd. v CCE 1994(74)ELT 687 (T) 2.7 He argued that payment of Rs.25,88,257/- by ITC towards 50% of the cost of moulds, this amount was paid by ITC during the year 2002-2003 and the said moulds were exclusively used in the manufacture of confectionary. This transaction took place much before the impugned period, viz., 2005-2007 and as such has no bearing to the present case. In a five member bench decision in the case of Mutual Industries Ltd., vs. CCE 2000 (117) ELT 578 (T-LB) it was held that if advance was received against moulds and dies, notional interest on such advance is not includable in A.V. However, the cost of moulds and dies should be amortized and included in the A.V. During 2003-04, the agreement was Buy-Sell model and the transaction value has been arrived at as mentioned in Annexure 2 to the agreement. However, duty was being discharged on the value of Rs.13.50 per Kg. 2.8 He further argued that interest free advance of Rs.49,00,000/- was giv....
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....Fats & Oils v CCE - 2003(156) ELT 112 (T-Del)] • Pace marketing Specialties Ltd v. CCE Meerut - 2003(153) ELT 621 (T-Del) 2.11 He argued that Cost certificates were issued by M/s. Shome and Banerjee, Cost Accountants, Kolkata. The cost certificates indicate the conversion cost of the impugned goods manufactured by Leamak during the period 1.9.2005 to 31.3.2006 is Rs.13.50 per kg. The Cost Accountant appointed by the Department in his Special Audit Report vide Paras 6.1.2. and 6.1.2.1 observed as follows: "Details of product-wise consumption of items of inputs provided by Leamak by M/s. Shome & Banerjee, Cost Accountants have tallied, except for free goods provided by Leamak (sic) for packing the same in the product packs during the course of manufacture, with the certificates". 2.12 He further argued that the following cost elements are not includible in the assessable value : • Cost of production which was not included by Leamak • Outward freight from Leamak to ITC • Marketing spends by ITC • Fixed cost of ITC He argued that as far as outward freight from Leamak to ITC is concerned the confectionary....
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...." The above decision was upheld and maintained by the Hon'ble Supreme Court as reported 2006 (197) ELT A192 (SC). This position was also clarified in CBEC vide Circular F.No.354/81/2000-TRI dated 30.6.2002 [2000 (119) ELT T22] 2.14 He further pointed out that the Institute of Cost And Works Accountants of India in CAS 22 "Cost Accounting Standard" on manufacturing cost published by the Institute in Para 4.2. clarified that "Administrative Overheads in relation to Marketing, Projects Management, Corporate Office or any other expense not related to manufacturing activities shall be excluded from the manufacturing cost". Further, the IC&WA, New Delhi in their clarificatory letter No. Tech/05/2007 dated 11.5.2007 addressed to CC, Ahmedabad in response to a letter No.MP/PI-V/Ing-20/0506 Pt-1/2451 dated 9.4.2007 stated that "Marketing spends and fixed cost of ITC is not includable in the assessable value of the impugned goods cleared by Leamak to ITC". 2.15 He argued that the differential duty demanded in this case covers the period Sept 2005 to March 2007. In this case a Show Cause Notice was issued on 8.7.2009. In respect of four SCNS issued to Leamak on 2.6.2004, 7.12.200....
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.... submit that the Final Order No. A / 1000210003/ 2014 dated 1.1.2014 of the Tribunal was passed with specific directions to the Learned Commissioner to determine the Assessable Value in terms of Rule 11 of CVR, 2000. Further, the Tribunal have given a clear finding that ITC and Leamak are not related persons and there was no mutuality of interest. The Tribunal have not made any adverse observations against the Appellants (ITC), in the determination or the declaration of the assessable value by Leamak. The Tribunal have given only specific directions regarding the re-determination of the assessable value under Rule 11 of the CVR, 2000 and it was not an open remand to the effect that "All issues are kept open." 2.19 He pointed out that the order of the adjudicating authority is not proper in terms of directions of the tribunal. He pointed out that the tribunal has specifically directed that the assessment needs to be done in terms of Rule 11 of CV Rules. He argued that for arriving at the assessable value in the instant case in normal course the recourse has to be taken to Rules 4 to 10 of the CV Rules whenever it is not possible to determine the value under Section 4(1)(a). He ar....
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.... goods cannot be determined under the preceding Rules i.e rules 4 to 11 which are the substantive rules laying down the manner or formula for determination of value, that is, if none of the substantive rule is per se applicable, the value is to be determined as per the principles and general provisions of the Rules as well as Section 4(1) of the Act. In other words, when no particular rule or rules can be strictly applied per se, the value shall be determined using reasonable parameters consistent with the express provisions of the Rules and sub-section (1) of Section 4 of the Act. However, the rule itself does not contain any formula and therefore, cannot be applied independently de hors the provisions of Rules 4 to 10 and Section 4(1) of the Act." 3.2 He argued that while tribunal has directed invocation of Rule 11 of the CV Rules, the said rule should have been applied read with Rule 7 of the CV Rules as the said rule is the closest approximation to the nature of the transaction. He also relied on the decision of the tribunal in the case of ALUPEX INDIA PVT. LTD.- 2009 (247) ELT 253 (T) wherein, the tribunal observed as follows:- "The words "using reasonable means co....
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....e said rules can be applied with minor modifications. 3.3 He further submits that the impugned order holds that ITC is equivalent to a trader however since, the entire manufacturing and production was at the behest of ITC and under total control of ITC. The ITC should be treated as principal manufacturer and not as a mere trader. He argued that the goods being manufactured and sold in the market by ITC and not given for any job work, ITC would have quoted higher price over and above the cost of production and operating cost to include their profit. 3.4 He argued that in view of the peculiar circumstances, the adjudicating authority should have determined the assessable value of the goods manufactured by the assessee on the basis of the value of such goods sold by the principal manufacturer at the same time from the "place of removal‟ i.e. depot. 04. Countering the above assertions of the learned AR, the learned counsel for LHL and ITC argued that the LHL has its own land, building, plant and machinery and full fledged factory. He argued that apart from manufacturing sugar confectionary for ITC, LHL is also manufacturing Lozenges and supplying the same to pharmaceutic....
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....st." 4.2 He further argued that when revenue seeks assessment under Rule 7 of the CV Rules then revenue is questioning the correctness of remand of the tribunal. He further argued that the tribunal had specifically held that none of the rules except Rule 11 is applicable to the current transaction. Learned counsel further argued that the show cause notice issued by revenue on 08.07.2009 invoked Rule 9 of the CV Rules however, the appeal filed by the revenue now seeks to invoke Rule 7 of the CV Rules. He argued that the appeal of the revenue should be dismissed on this count itself. 05. We have considered the rival submissions. We find that the issue involved in the instant case is the valuation of the goods manufactured by LHL on behalf of ITC wherein, the ITC has provided certain inputs, machineries and funds to LHL. The matter was remanded by tribunal with the following observations :- 11. In view of the above facts though mutuality of interest is not established but it has been correctly held by the adjudicating authority that the judgment of Hon'ble Supreme Court in the case of M/s Ujagar Prints (Supra) cannot be made applicable to the present proceedings bec....
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....en an opportunity to present their case in de-novo proceedings, before taking a final view on the issue. The original proceedings started on the line that M/s. LHL and ITC are related persons however, the said assertion was not supported by the earlier decision of the tribunal and the tribunal directed the assessment invoking Rule 11 of the CV Rules which reads as follows:- Rule11. If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act. 5.1 No one has challenged the earlier order of the tribunal and therefore, the directions given in the earlier order of the tribunal become final and binding on both the parties. In this background the following issues are settled:- (i) The LHL and ITC are not related parties. (ii) Rule 1 to 10 of the CV Rules did not fit directly in the facts of the situation. (iii) The assessment has to be done in terms of Rule 11. (iv) The said decision of the apex court in the case of M/s Ujagar Prints cannot be applied ....
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....ds, such value shall - (a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; Rule 4 to 10 of the CV Rules reads as follows:- RULE 4.The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. [RULE 5.Where any excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods. Explanation 1. - "Co....
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....f production and necessary for the production of such goods. [Explanation 2. - Where an assessee receives any advance payment from the buyer against delivery of any excisable goods, no notional interest on such advance shall be added to the value unless the Central Excise Officer has evidence to the effect that the advance received has influenced the fixation of the price of the goods by way of charging a lesser price from or by offering a special discount to the buyer who has made the advance deposit. Illustration 1. - X, an assessee, sells his goods to Y against full advance payment at Rs. 100 per piece. However, X also sells such goods to Z without any advance payment at the same price of Rs. 100 per piece. No notional interest on the advance received by X is includible in the transaction value. Illustration 2. - A, an assessee, manufactures and supplies certain goods as per design and specification furnished by B at a price of Rs. 10 lakhs A takes 50% of the price as advance against these goods and there is no sale of such goods to any other buyer. There is no evidence available with the Central Excise Officer that the notional interest on such advanc....
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....essee, then the value shall be determined in the manner prescribed in rule 9. Explanation. - In this clause "holding company" and "subsidiary company" shall have the same meanings as in the Companies Act, 1956 (1 of 1956). (b) in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of section 4. 5.3 From the impugned order, it is seen that the impugned order rules out direct applicability of Rule 4 to 10 on various grounds as they did not specifically cover the current transaction. The impugned order also rules out the applicability of the new Rule 10(A) of Valuation Rules which was introduced with effect from 01.04.2007 on the ground that at the material time the said rule was not part of the central excise valuation rules. The impugned order takes a view that all those elements of expenditure which would have been incurred by ITC had they manufactured the product at their own are required to be included in the assessable value of the goods. The impugned order further argues that since the goods are not sold by LHL but are sold only by ITC at their godown, all the cost till the goods reach the godo....
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.... 9900742 597576140 4780609 988667 1381532 30113 17269155 665051699 67.17 Outward Freight from Leamak to ITC Godowns Marketing spends Fixed costs Profit Margin ITC Net Selling Price 49503710 168721542 68286233 99537162 5.00 17.04 6.90 10.05 1051100346 106.16 Note 1. Outward Freight/Kg represents the average cost of transportation incurred by us to transport finished goods from our various contract manufacturing locations to our warehouses situated across India. 2. Marketing Spends represents the amounts incurred by us towards advertisements in print media/cable/television/cinema/internet, market research expenses, point of sale materials such as posters/danglers/display boards etc., consumer contact expenses, sampling expenses, outdoor visuals, etc. These expenses are generally incurred for the 'Candyman' and 'Mint-O' brands. Total marketing spends have been apportioned on the total sales volume to arrive at the per/Kg cost. 3. Fixed Costs represents salaries, administration expenses, etc. Total....
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....he factory gate. In these circumstances any expenses incurred after clearance from the factory cannot form part of the assessable value in terms of Section 4(1)(a). 5.7 It is seen that the impugned order adopts deductive method to arrive at the assessable value at the factory gate. From the net selling price of ITC, it allows deduction of profit margin of ITC Ltd. and includes all other costs incurred in the assessable value (including the duty and taxes paid by the appellant). The following inclusions have been challenged by LHL and ITC. (a) Outward freight from LHL to ITC godown. (b) Market spent. (c) Fixed cost. The LHL and ITC relied on the decision of Kenwell Pvt., Ltd., vs CCE 2005 (189) ELT 457 (Tri.). In the said decision following has been observed :- 5.We have gone through the records of the case carefully. The adjudicating authority has stated that prior to 1-7-2000 the appellants were discharging duty on the sales price of M/s. GIL and M/s. MCL. She has also stated that the appellants are only hired labourers of their principals and duty should be paid on the intrinsic value of the goods. The Commissioner's finding that the appe....
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....In this circumstances, when such costs are incurred by the buyer after clearance from factory the same cannot be included in the assessable value. 5.8 The impugned order includes in the assessable value fixed cost by ITC. We find that no breakdown of the fixed cost has been given by ITC. It is not in dispute that ITC has supplied certain machineries to LHL and ITC has also extended certain amount as advances to the LHL. The fixed cost of ITC in general cannot be added to the assessable value for the reason that these costs are incurred beyond the place of removal namely the factory gate. In the instant case the goods are sold at factory gate (possession handed over in terms of Section 2(h) of Central Excise Act). 5.9 The cost which are not incurred by ITC within the factory premises only in respect of free supply of machinery and interest free loan that could have influenced the assessable value. The LHL and ITC have also argued that the interest free advances of Rs. 49 lacs given by ITC to Leamak are in the ordinary course of trade and have not influenced the assessable value in any manner. The said advances made by ITC were to be paid by Leamak. It has been argued that the ....
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....pointed out that manufacture of soaps and supply of bindis were under entirely different contracts and one did not have any dependence on the other. Bindis were also merely packed in the cartons along with soaps as directed by M/s. Hindustan Lever Ltd. The learned Counsel also pointed out that the decision of the Apex Court in the case of Bombay Tyre International and the Tribunal in the case of Hindustan Cocoa Products Ltd. have no application to the present case inasmuch as no deduction is claimed from the price of soap towards the cost of freely supplied bindis. Instead, assessments of soap are made at the full value of the soap in terms of the contract. The learned Counsel for the appellant pointed out that the decision of this Tribunal in the case of Schenck Jenson & Nicholson Ltd. v. CCE, Jamshedpur, [2002 (149) E.L.T. 401] = 2002 (48) RLT 449 (CEGAT - Kol.) is applicable in the present case in favour of the appellant. The learned Counsel explained that in that case the Tribunal has held that the value of boughtout items brought into the factory and supplied as spares along with machinery cannot be added to the value of the machinery manufactured and sold by the appellants, f....
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....annot be held to be pre-manufacture inspection charges. There is no justification for addition of notional testing charges in the assessable value of the goods when there is no dispute that what the appellant was receiving from the railways was only the contract price entered into between the two on which duty was being paid by them. The Tribunal, as noted above has in a number of cases held that even the inspection charges paid by the railways to RITES are not includible in the assessable value of the goods supplied to the railways. In the instant case we find that even the above situation is not available inasmuch as no charges are being paid to the appellants. As such we are of the view that addition of notional inspection charges in the assessable value of the sleepers is not to be upheld. We order accordingly. In view of the above, we find that the staff deputed not for the purpose of manufacturing the goods but only for the purpose of inspection and supervision and quality control cannot be part of the assessable value of the goods. 5.13 M/s. LHL and ITC have contended that the amount of Rs.1,72,69,155/- which as been sought to be included in the assessable value is the....