Customs, Excise and Gold Tribunal - Mumbai
Bajaj Tempo Ltd. vs Commissioner Of Central Excise on 3 November, 2000
Equivalent citations: 2001(73)ECC161, 2001(135)ELT272(TRI-MUMBAI)
ORDER G.N. Srinivasan, Member (J)
1. These four appeals have been filed against a decision dated 30.11.98 made in Order-in-Original No. 42/CEX/1998 by the Commissioner of Central Excise, Pune-1 confirming a demand of duty of Rs. 7,96.88, 502.77 and an equivalent amount of penalty namely Rs. 7,96,88,502.77 and imposing a fine of Rs. 1,00,00,000.
2. The present appeals involve the determination of the question whether the sale price at which the goods are ordinarily sold in the course of wholesale trade for immediate delivery and immediate payment could be disregarded as the basis of assessment when a part of the production is sold in the market and the remaining part is cleared on payment of duty to another factory of the same manufacturer for ultimate use in the manufacture of Motor Vehicles to be cleared on payment of duty. The appeals also involved determination of the question whether a manufacturer can be charged that the allegation of attempting to evade payment of duty when the entire exercise is admittedly revenue neutral.
3. The appellant is inter alia engaged in the manufacture of Motor Vehicles, I.C. Engines and Motor Vehicle parts. For the said purposes, the appellant has two factories, one located at Pune and the other located at Pithampur in M.P. At its factory at Pune, the appellant received various raw materials and manufactured motor vehicle parts. The portion of the production of the motor vehicles parts, I.C. Engines were sold in the market and the remaining portion was cleared on payment of duty to another factory of the appellant at Pithampur. After receipt of the goods at Pithampur, the appellant takes Modvat credit in respect of duty paid and utilised such credits while paying duty on motor vehicles.
4. During the period 1.3.1989 to 16.3.1995 clearances of goods from one factory to another factory of the same manufacturer which were intended to be used in the manufacture of final products were exempted from payment of duty in terms of Notification 217/86-CE dated 13.1986, as amended by Notification 97/89-CE dated 1.3.1989 subject to observance of procedure prescribed by Chapter X of the Rules. During the aforesaid period, the appellant removed I.C. Engines from its factory at Pune transferred it to its factory at Pithampur under Chapter X Procedure. During the same period the appellant sold some of the I.C. Engines in the market. These I.C. Engines which are sold in the market, it is stated by the appellant that appropriate duty of Central Excise was paid. From 16.3.95, when the law underwent a change in terms of the revised procedure, appellant paid duty in respect of I.C. Engines and cleared it from its Pune Factory to its Pithampur Factory by taking corresponding credit at there in respect of I.C. Engines sold (OM 616 type) at the wholesale price which was fixed at Rs. 45,000 per engine and duty was paid with reference to the said sale price. Even in respect of IC Engines cleared from Pune Factory to be used at Pithampur factory, duty was paid with reference to the said sale price of Rs. 45,000. Thus in respect of clearance of I.C. Engines, the duty was paid at Rs. 45,000 per engine and a corresponding credit was taken at that time. The entire exercise was therefore revenue neutral.
5. There was yet another type of Engine manufactured by the appellant called "E-2 Engine". These Engines apart from using for motor vehicles manufactured by the appellant like Tempotrax Challenger and Matador (F-305) were also used in the market for substitution of Petrol driven engine fitted in Ambassador cars and as a result thereof due to commercial reasons it fetched a better price in the market. This engine was sold at price of Rs. 51,000 per engine during6.3.95 to 12.12.95 and at Rs. 61,500 thereafter. On and from 23.3.95, the system of inter-factory removal under Chapter X procedure was done away with and declaration was filed by the appellant in Form II. The said Trade Notice No. 36/94 was issued by Pune Collectorate in terms of Ministry's Circular No. 29/94CX dated 21.3.94. The appellant states that the said price of Rs. 45,000 was adopted on the basis of sale price of such Engine, to independent dealers in different parts of the country and such dealers at Madras, Indore and Trivandrum, etc. Copies of the invoices were also filed along with R.T. 12 Returns by the appellant in the month of March, 1995. Various declarations have been filed by the appellant showing that in respect of inter-factory transfer showing the price of engine transferred at a price of Rs. 45,000. The declarations were filed on 26.5.95. Stock account as per Rule 57G was filed for the period 23.8.1995 to June, 1997. The Assistant Commissioner by his Memorandum dated 4.10.95 disposed of various declarations.
6. A Show-cause notice was issued on 29.12.1997 on the ground that the appellant should have adopted the sale price of E-2 Type engine and the appellant ought to have paid more duty at Pune. In another words, the Department was of the view that even when there is price available under Section 4(1)(a), recourse should be made to Section 4(1)(b). The show-cause referred to above was for the period 13.6.95 to 31.8.97. On 6.5.98, a corrigendum was issued demanding duty at Rs. 6,69,17,55 (sic) in stead of Rs. 6,41,67,050. Three more show-cause notices were issued. They are as under:
______________________________________________________________________ Sr. No. Show Cause Period Amount notice date ______________________________________________________________________ 1 24.03.98 1.9.97 to 31.12.97 Rs. 64,14,116.12 2 22.05.98 1.1.98 to 31.3.98 Rs. 41,05,654.00 3 15.09.98 1.4.98 to 31.7.98 Rs. 22,51,126.88 _______________________________________________________________________
7. Vide letters dated 14.10.98 the appellant submitted a detailed reply to the first show-cause notice dated 29.12.98. In fact, it was stated inter alia by the appellant that there can be no suppression or misstatement because right from 1989, the Department was fully aware of the mode of clearance of I.C. Engine. The fact that the IC Engine were cleared from 1989 to 15.3.1995 under Chapter X procedure and thereafter, on payment of duty with reference to sale price under Section 4(1)(a) of the Act was well known to the Department. Appellant made reference to RT12 declarations submitted by the appellant to the Department which were accepted without any demand. The appellant however submitted that when the price under Section 4(1)(a) of the Act is available, recourse to Section 4(1)(b) of the Act was impermissible. It was also explained that OM 616 type of Engine was different from E2 Engine and also explained the reasons as to why the E2 Type Engine fetched higher price. With regard to export price indicated in the internal documents, when such engines were removed from one section of the factory to another section of the same factory, it was pointed out that the said price was not relevant because it has no revenue implication as the goods were moved from one section of the same factory to another section of the same factory and no duty is required to be paid as there is no removal from the factory. This has been erroneously assumed in the Notice. In any event the appellant stated that there is an excess demand of Rs. 45,39,115.71. The Adjudicating Authority rejected the contentions raised by the appellant. He stated inter alia that the assessee has violated the law and paid lesser excise duty after taking a lower assessable value. It could be only due to indirect financial accommodation which they have derived if they had paid duty at lesser value for the engine transferred to Pithampur because of involvement of time gap between clearance of engine on payment of duty at Pune and its utilisation at Pithampur. The Adjudicating Authority also rejected the contentions regarding misstatements in Para 17 of the order. He therefore, confirmed the duty amounting to the said sum and imposed a penalty and also fine as mentioned in the earlier portion of the order. Hence the present appeals.
8. Shri C.S. Lodha, Advocate, appeared for the appellants. Shri K.L. Ramteke, D.R. appeared for the Department.
9. Shri Lodha described graphically the nature of the production made at Pune and Pithampur factories. He described what is described in the paragraphs stating that the raw materials were used at Pithampur factory for manufacturing I.C. Engines and parts. They were exempted from duty because of existence of Notification No. 217/86 which was sent to Assembly Section and thereafter cleared the goods namely vehicles were cleared on payment of duty. Some of the goods namely I.C. Engines and parts were sold in the market. Some of the I.C. Engines and parts were transferred to Pithampur factory and they were exempted from duty for the period from 1989 to 1995 and the appellants were followed Chapter X procedure. Shri Lodha explained that from 16.3.95 whatever duty was paid at Pune, the credit was claimed at Pithampur on the basis of payment. The entire exercise is revenue neutral. He drew the attention to the following propositions of Law:
(i) In respect of the value of the goods, the number of transactions made at the factory gate is immaterial as long as the genuineness of sale transations are not disputed even the minimum sale at factory gate would suffice for deeming fiction of Section 4(1)(a) of the Central Excise Act. He relies upon the following judgments.
(a) A.K. Roy v. Voltas Ltd. 1997 ELT J 177 (SC)
(b) D.C. W. Ltd. 1991 (52) ELT 142
(c) Indian Aluminium Cables 1989 (40) ELT 86
(d) Sarda Plywood 74 ELT 528, Guwahati.
9. Shri Lodha said that when Section 4(1)(a) of the Act is available, recourse to Section 4(1)(b) of the Act is not permissible. Valuation for captive consumption should be on the same basis as the sale price at factory gate. The following were the cases cited by him.
(a) Union of India v. Bombay Tyre International Ltd. 1983 ELT 1896.
(b) Indian Oxygen .
(c) Madras Rubber Factory
(d) HMT
(e) Ashok Leyland
(f) Ashok Leylnad
(g) Ashok Leyland 1996 (83) ELT A 43 and 44
(h) Ashok Leyland .
(i) Anand Stampings
(j) Gwalior Rayon
(k) Dharamsi Morajee 1980 ELT 454
(l) Gujarat Insecticides
(m) Gujarat Insecticides 1999 (84) ECR 612.
Shri Lodha further stated that extended period in this case cannot be invoked unless contumacious conduct is proved.
, Chemphar Drugs.
(somethings positive other than mere inaction) , Padmini Products (when there is scope for doubt) , Lubrichem (deliberate withholding of information necessary) , Tamil Nadu House (deliberate avoidance necessary, intent necessary) , Pushpam Pharma (expression in the company of strong words intention necessary) , Cosmic Dye (Supervision or misstatement must be wilful) , Poison Transformers (The excise revenue neutral. No intent could be inferred)
10. Shri Ramteke in replying to the above arguments adopted the reasoning of the Adjudicating Authority.
11. We have considered the rival submissions. From the narration of the facts and argument, it will be clear that the appellant manufactures not only Motor Vehicles but also I.C. Engines and Motor Vehicle parts at Pune factory as well as at Pithampur factory. The I.C. Engines manufactured at Pune factory were consumed in the factory itself and such goods are exempted from duty in terms of Notification 217/86 being a captive consumption. The finished products namely Vehicles are cleared on payment of duty. Such of those IC Engines which were removed to Pithampur factory were exempted from taxation in view of the provisions of Chapter X. This is the position prevailing from 1989 to 1995 i.e. upto 15.3.95. On and from 16.3.95, for the IC Engines cleared from Pune factory to Pithmapur factory, the appellant paid duty and claimed credit at Pithampur factory. For the purposes of valuation, Department stated in para 2 of Show-cause Notice dated 29.12.97 are as follows:
Whereas it appears that I.C. Engines manufactured by them are either used in the manufacture of Motor Vehicles at their Akurdi unit or are being transferred to their Pithampur Unit for further use in the manufacture of Motor Vehicles. It further appears that one of the mode of IC Engine i.e. D-301, E-2 Diesel Engine is sold in the course of wholesale trade and is also used within the factory of production for the manufacture of Motor Vehicles at the same price. In Para 3:
Whearas it appears that they have contravened the following provisions of the Central Excise Rules (hereinafter referred to as "the Rules"):
(i) Rule 173C(1) read with Pune Commissionerate Trade Notice No. 36/94 dated 21.3.94 and Rule 52A inasmuch as
(a) they have not filed price declaration in respect of those types of I.C. Engines as detailed in Annexure 'A' to the Notice manufactured and cleared by them to their Pithampur Unit during the period 16.3.95 to 31.8.97. In the proforma, Annexure 2(a) prescribed in the Trade Notice read with Clause 4 of the second proviso to Rule 173G for declaring the normal prices of the goods for determining/arriving at the assessable value of the goods under Section IV of the Central Excise Act for the purpose of payment of Excise Duty.
(b) and they have paid duty on these goods on the same assessable value of Rs. 45,000 when actually comparable prices of these goods in terms of Rule 6(b)(1) of Central Excise Valuation Rules were available and which were on the higher side and they have been declaring the same as the 'normal prices/assessable valuations' in their invoices when cleared within their factory of production (for captive consumption) in the manufacture of the Motor Vehicles and also to the Automobile Research Association of India, Pune".
In the Annexure to show cause Notice, at page 226 of the paper book, para 10 thereof, it is specifically stated that the IC Engines D-301, E-2 Diesel Engine was declared at Rs. 39,000 and value claim proof was also for the same price. I.C. Engine OM 616 Diesel-65 BHP was declared at Rs. 64,000 and value claim proof was also at Rs. 64,000. IC Engine OM 616 Diesel- 72BHR the price was declared at Rs. 65,500 and value claim proof was also the same.
It is stated in para 13 of the Annexure to show-cause Notice that the above engines are similar to Engine 616-65 BHP Diesel and Engine 616-72 BHP Diesel.
The Adjudicating Authority at Para 12 of the order has held as follows:
In the automobile industries, power of Engines in BHP is a standard recognized engine capacity. As per the assessee, dealers' price excluding Excise Duty and other prices" of D-302 E2 Engine of 46 BP is listed as Rs. 61,000. Engines of higher capacity such as 65 BHP and 72 BHR no one will sell for Rs. 45,000. In short, it is not true reflection of normal price of the engine. That is why the price of Rs. 71,000 and Rs. 75,000 respectively of 65 BHP and 72 BHP can only be the normal price.
12. The above observations and findings of the Adjudicating Authority cannot be accepted. The way in which the show-cause Notice is proceeded does not state that the price declared is not the normal price of the engine or prices declared is not true reflection of the normal price of the engine. It does not state specifically in the show-cause Notice that engines of higher capacity would be sold only at higher price nor does the show-cause notice state that for the engines have higher capacity. There are other commercial consideration which has been received by the assessee in some other transactions. The allegation is not made in the show cause Notice. Moreover, it should be stated here that no-way in the show-cause Notice, there is an allegation that engines are indentical in nature. It is specifically stated in the Memorandum of grounds at para 3E "E2 Engine apart from being used in the motor vehicles manufacturing by the appellant (such as Tempo Trax Challenger, Matador F-305), is also used in the market for substitution of Petrol Driven Engine fitted in Ambassador Car". One engine can never be substituted for another engine. The way in which the Adjudicating Authority is proceeded goes to show that one can be substituted for other. As long as there is no proper allegation that the prices of engines are not reflecting the true price, the value in our view cannot be changed arbitrarily. Moreover, as has been held by the decisions cited in the earlier portion of the order where the factory gate price is available, that alone can be taken for fixing the value under Section 4(1)(a) of the Act. Please see the following cases:
(a) A.K. Roy v. Voltas Ltd. 1977 ELT J-177 (SC)
(b) D.C.W. Ltd.
(c) Indian Aluminium Cables
(d) Sarada Plywood (74) ELT 528, Guwahati.
13. That takes us to another point. In para 15 of the order it has been held by the Adjudicating Authority as follows:
M/s. Bajaj Temp Ltd. has been a Central Excise Assessee since 1972. They are well aware of the provisions of the Central Excise Act and Rules particularly those relating to valuations under Section 4.
14. It is obvious from the above facts that the party had valid excuse for adopting two different assessable values in respect of identical engines which they use for their plant at Pune and Pithampur. They are also well aware of the facility available for taking Modvat credit in respect of diesel engines at which they have paid duty at Pune when they are transferring their engines for use at Pithampur. So, as claimed by the assessee, the entire exercise would have been total revenue neutral if only they followed the valuation provision scrupulously and discharged duty liability fully. The gravity of charge assumes special importance particularly when they were well aware that they can take full Modvat credit at Pune. In spite of the facts that they have violated the law and paid lesser excise duty after taking lower assessable value, it could be only due to the indirect financial accommodation which they would have derived if they pay duty at a lesser value for the Engines transferred to their Pithampur factory because there would be an inevitable time-gap between the clearance of the engines on payment of duty at Pune and its utilisation at Pithampur, it could only be this bait of a small financial accommodation which prompted the asseessee to take a devious short-cut which involved serious violation of Section 4 of the Central Excise Act and Rules particularly Rule 6(b)(1) or 6(b)(2) of the Central Excise Valuation Rules as the case may be". In our opinion, this finding is not correct. The grounds of appeal, in the ground-N it has been stated that the duty paid is Rs. 234 crores. The interest saved would come to Rs. 46,000. This is on the basis the price taken by the Department is Rs. 72,000 and the appellants valuation is Rs. 45,000. The calculation has been made on the basis of average time gap taken at maximum one month. The interest comes to 0.8%. We feel that the assessee, in our view, in the normal course of trade and human conduct would not have made dubious dealing for such a minuscule amount. One has to be practical in viewing things in a commercial point of view. A person who pays Rs. 234 crores as duty may not take risk in evading a sum of Rs. 46,000 so that he is exposed to risk of being levied a fine or imposition of penalty.
15. As far as the valuation is concerned, it has been dealt with the Adjudicating Authority at paras 16 and 17. In our view on the basis of decision cited by Shri Lodha namely Ashok Leyland , we are of the view that the case of the appellants have been fully made out. The Tribunal at page 368 of the reports has held as follows:
therefore so long as the normal price of the identical goods produced by the same manufacturer available, the same should apply to the removal for captive consumption. In view of the position as ascertained by the Asst. Commissioner regarding absence of original equipments as well as of the composition provides by the appellant which fact would make existence of dual pricing in the Industry as a whole not material for dertermination of value in the present case.
16. In the said decision, the Tribunal followed their earlier decision in respect of same assessment 1987 (29) ELT 530. In our view those facts would be equally applicable here. The Department is trying to compare the price of two different goods, one is 65 BHP and the other is 46 BHR Both are clearly different. For the sake of repetition, we are of the view in this case on merits the Department did not approach to the problem in a proper way as when the value of sales of identical comodities are available, they ought to have taken such a value only. Moreover, when Section 4(1)(a) price is involved, law does not permit the Department to take recourse to Section 4(1)(b) of the Act. Section 4(1)(b) of the Central Excise Act starts with these words:
Where the normal price of such goods is not ascertainable for the reason, such goods is not sold When admittedly these circumstances are absent in this case, resort to Section 4(1)(b) Valuation Rules as indicated under Section 4(1)(b) need not have been undertaken. The approach of the Department in this case is clearly wrong in our view.
17. Then comes the last question on point of limitation. Various cases cited by the learned Counsel go to indicate that the extended period can be invoked only when there is contumacious conduct of the assessee is present which is delineated in the proviso to Section 11A of the Central Excise Act. Here all the declaration and RT12 Returns were filed. These were reflected in Memorandum of the grounds of appeal at Annexure C, D, E, F, G, H, I, M, N andOrder Various annexures do show that periodically the appellant had been in touch with the Departmental Authorities and the Authorities did not think fit to rebut the stand taken by the assessee. In para 18 of the Adjudicating Order, the Commissioner has observed that the assessee has evaded duty by means of wilful misstatement and suppression of fact in a very calculated manner to fail to declare the correct assessable value to the Department and therefore he was invoking the larger period of limitation.
18. We are of the view that in view of what is stated in the previous paragraph in the instant case larger period of limitation cannot be invoked, especially when there is absence of findings relating to intention to defraud especially when there is a case of revenue neutrality. Even if it is valued at higher rate at Pune factory, the same credit duty would be available to the assessee when it is removed from Pune to Pithampur factory. The whole case has been wrongly assessed to tax. We are of the view that the order suffers from infirmity, hence it is set aside. Appeals are allowed with consequential reliefs, if any.