Custom, Excise & Service Tax Tribunal
M/S Somaiya Organics (India) Ltd vs Cce, Allahabad on 27 July, 2009
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principle Bench, New Delhi COURT NO. II Excise Appeal No. 467 of 2001 M/s Somaiya Organics (India) Ltd. Appellant Versus CCE, Allahabad Respondent
Appearance S/Shri B.L. Narsimhan and V. Laxmikumaran, Advocates for the appellant.
Shri V.K. Choudhary, Authorized Representative (SDR) for the Respondent.
CORAM:Honble Shri D.N. Panda, Judicial Member Honble Sh. Rakesh Kumar, Technical Member DATE OF HEARING : 19/05/2009.
DATE OF DECISION: 27/07/2009.
Order No. ________________ Dated : ,,,,,,,,,,,_____________ Per. Rakesh Kumar :-
This appeal is being heard for denovo decision in pursuance of Honble Supreme Courts directions vide order dated 12/11/07 in Civil Appeal No. 4975/02 filed by Commissioner of Central Excise, Allahabad against this Tribunals Final order No. 71/2002-A dated 20th February 2002. The facts giving rise to these proceedings are, in brief, as under :-
1.1 The appellants M/s Somaiya Organics (India) Ltd. have two units one manufacturing unit in Captainganj which is a distillery unit for manufacturing of Denatured Ethyl Alcohol called Special Grade Denatured Spirit (SDS). The entire production of SDS is cleared to their other unit in Barabanki, where it is used for the manufacture of certain chemicals. With effect from 1/3/94, Excise Duty was levied on Denatured Ethyl Alcohol used for industrial consumption. During the period prior to 1/7/2000, as per the provisions of Section 4 of the Central Excise Act, 1944 readwith Rule 6 (b) of the Central Excise (Valuation) Rules, 1975 [hereinafter referred to as CEVR], when the excisable goods are not sold by an assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value was to be based on the value of the comparable goods produced or manufactured by the assessee or any other assessee [Rule 6 (b) (i)] and if such value could not be determined, on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods [Rule 6 (b) (ii)]. In this case, the appellant in respect of the clearances of Denatured Ethyl Alcohol to their sister unit at Barabanki were discharging duty liability on the basis of cost of production under Rule 6 (b) (ii). Since the balance sheet for a particular year was being finalized in the month of September for the purpose of determining assessable value based on cost of production in respect of the clearances made, the costing based on the previous years balance sheet was being adopted and on finalization of that years balance sheet, the assessable value was being re-determined based on actual cost and if the value determined on the basis of the previous years balance sheet was less, the appellants were re-determining the duty liability and were paying the differential duty. Such differential duty was being availed as Modvat credit by the Barabanki unit.
1.2 In the year 1997, the Department conducted some inquiries and took the view that the appellant should have paid duty on the value determined under Rule 6 (b) (i) of CEVR, based on the value of comparable goods produced or manufactured by other assessees, as, while the value of the goods produced or manufactured by the appellant was not available for the reason that the entire production of SDS was being stock transferred by them to their Barabanki unit, there were other manufacturers of comparable goods in the same area who were selling the goods to independent buyers and it is that value which should have been adopted by the appellant for payment of duty in respect of the goods cleared to their Barabanki unit. On inquiry by the Department, it was found that there were three other units M/s K.M. Sugar Mills, Distillery Division, Faizabad, M/s Kisan Sahkari Chini Mills, Ghosi and M/s Saraiya Distillery, Sardar Nagar, Gorakhpur located near the area where appellants unit is located and all these units were having sales to independent buyers, the highest of which should have been adopted by the appellant for discharging duty liability in respect of clearances of SDS to their unit at Barabanki. According to the Department on the basis of the price of comparable goods being manufactured by other manufacturers M/s K.M. Sugar Mills, M/s Kisan Sahkari Chini Mills and M/s Saraiya Distillery, the assessable value of SDS manufactured by the appellant and cleared to Barabanki unit should have been as under :-
Year Assessable value (Rs.) 1994-95 20 per liter 1995-96 12.90 per liter 1996-97 14.00 per liter 1997-98 14.75 per liter 1998-99 (upto February 1999) 15.50 per liter March 99 14.25 per liter 1999-2000 (upto July 1999) 14.25 per liter 1999-2000 (Aug. 99 to Dec. 99) 14.25 per liter
It is on this basis that the assessable value of the clearances of Denatured Ethyl Alcohol made by the appellant to their sister unit at Barabanki during the period from 1994-95 to December 1999 was revised and three show cause notices, whose details are given below, were issued to the appellant for payment of allegedly short paid duty alongwith interest and also for imposition of penalty on them under Section 11AC of the Central Excise Act :-
show cause Notice period duty demanded 26/03/99 April 94 Feb. 99 Rs. 14,59,49,158/- 31/08/99 March 99 July 99 Rs. 25,12,528/- 18/01/2000 August 99 Dec. 99 Rs. 4,99,417/-
Out of the above show cause notices, the first show cause notice was issued by invoking extended period under proviso to Section 11 A (1) of the Central Excise Act.
1.3 The above three show cause notices were adjudicated by the Commissioner, Central Excise & Customs, Allahabad vide order-in-original No. MP (demand 34/99-2000) dated 31/10/2000 by which (a) total duty demand of Rs. 14,89,61,104/- was confirmed against the appellant under proviso to Section 11A (1) of Central Excise Act, 1944 alongwith interest on this duty at the applicable rate as per the provisions of Section 11AB and (b) imposed penalty of Rs. 14,89,61,104/- on the appellant under Section 11AC of the Central Excise Act, 1944.
1.4 Against this order of the Commissioner, the appellant filed an appeal No. E/467/01-A before the Tribunal and the same was disposed off by the Tribunal vide final order No. 71/02-A dated 20/2/02. In the appeal before the Tribunal, the main contentions of the appellant were that proposal in the show cause notices to fix the assessable value on the basis of the highest price at which one of the other manufacturers in the vicinity sold SDS on a particular date in the year is totally illegal and that for the period from April 1999 to December 1999, the appellant had paid duty on higher assessable value than what was proposed in the show cause notices and, therefore, there is absolutely no basis for demanding differential duty for this period. With regard to the second contention, the Tribunal observing that the communication dated 31/1/2000 addressed by the appellant to the Superintendent, Central Excise, Barabanki clearly shows that after finalizing of the costing for the year 1999-2000 it was found that the cost had gone up from Rs. 13.50 per litre to Rs. 17.43 per litre and that they had computed the differential amount of Central Excise Duty for the period from April 1999 to December 1999 on this basis as per details given in the communication, but the Commissioner has not even referred to this contention raised by the appellant which shows total non-application by the Commissioner on this issue, set aside the demand for this period. As regards, the demand for the period from April 1994 to March 1999, the Tribunal set aside the demand on the ground that there is no reason given by the revenue as to on what basis the highest price of a particular day in each year was taken into consideration for the purpose of fixing the assessable value in the case of SDS cleared by the appellant, observing that choice of highest price on a particular day does not satisfy the requirement of nearest ascertained equivalent of normal price, that Section 4 (1) (b) provides that where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof is to be determined in such manner as may be prescribed, that therefore even when clause (i) of sub-rule (b) of Rule 6 is applied, endeavour, must be to determine the nearest ascertainable equivalent, that in this case it is clear such an exercise has not been done and that the Departments action of adopting the highest price of the comparable goods of other assesses on a particular day in each year is not sustainable in law.
1.5 The Tribunal did not go into the question of limitation, though that had been raised in the appeal, as the appeal was decided in the Appellants favour on the merit itself.
1.6 The Department filed an appeal under Section 35L (b) of Central Excise Act, 1944 against the above-mentioned order of the Tribunal, before the Honble Supreme Court which was admitted as Civil Appeal No. 4975/02.
1.7 Honble Supreme Court vide judgment dated 12/11/07 while observing that there is no dispute relating to the period from April 1999 to December 1999, has remanded the dispute for the period from April 1994 to March 1999 to the Tribunal for denovo consideration, observing that the Tribunal has merely discarded the price fixed by the Assessing Authority, but has not determined what would be the appropriate price and that what was required to be done was as to whether there was any assessable price and on what basis it can be ascertained. In this regard para 8, 9, 10 & 11 of the Honble Supreme Court judgment are reproduced below :-
8. It is to be noted that while revenue relies on Rule 6 (b) (i) of Valuation Rules, the assessee relies on Rule 6 (b) (ii). Section 4 (1) (a) of the Act is applicable when the buyer is not a related person. Section 4 (1) (b) relates to a case where the price is not ascertainable.
9. Stand of the appellant is that comparable price is available because there were two units at Captainganj and Barabanki. The assessee tried to make a distinction by submitting that the product was captively consumed. CEGAT appears to have taken the stand that one day high price cannot be applied even though Rule 6 (b) may apply. There is no dispute relating to the period from April 1999 to December 1999. For the period from April 1994 to February, 1999, the same was covered by a show cause notice dated 26.3.1999 and for the period March 1999 it is covered by a show cause notice dated 31.8.1999. CEGAT had come to the conclusion that no principle has been formulated and expressly no reason has been given. The stress is on nearly ascertainable equivalent as the expression ascertainable means ascertained. There may be different rates for different periods. There may be cases where even for the periods the highest and the average prices may be taken. The proviso to Rule 6 (b) (i) is relevant :
On the value of the comparable goods produced or manufactured by the assessee or by any other assessee :
Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods
10. It appears that the CEGAT has not determined what would be the appropriate price. By merely discarding the price fixed by the assessing authority, the issue does not get solved. What was required to be seen is as to whether there was any ascertainable price and on what basis it can be ascertained. Even for a period the highest or the average can be taken. That has to be done on the basis of the judicial discretion of the assessing officer which can also be decided by the appellate authority by finding out whether there is any rationale in the fixation done. In that view of the matter, the approach of the CEGAT is not legally tenable. We set aside the order of CEGAT and remit to CESTAT, which has come in place of CEGAT, for fresh consideration.
11. The appeal is allowed to the aforesaid extent. There will be no order as to costs. 1.8 Accordingly the appeal No. E/467/01 filed by the appellant has been taken up for denovo decision.
2. Heard both the sides.
2.1 Shri V. Laxmikumaran, Advocate, the learned Counsel for the appellant made the following submissions :-
(i) As per the provisions of Section 4 as it stood during the period of dispute, the assessable value shall be deemed to be the normal price which is the price at which such goods are ordinarily sold by the assessee to a buyer in course of wholesale trade for delivery at the time and place of removal, where the buyer is not related person and price is the sole consideration of sale. As per clause (b) of Section 4 (1) where such normal price of the goods is not ascertainable for the reason that the such goods are not sold or for any other reason, the nearest ascertainable equivalent of the normal price is to be determined in the manner as may be prescribed. The manner for determining nearest ascertainable equivalent of normal price is prescribed in the Central Excise Valuation Rules, 1975 (CEVR) and Rule 6 (b) of CEVR applies to this situation where excisable goods, instead of being sold are used or consumed by the assessee or on his behalf in production or manufacture of other goods. If the value of comparable goods produced or manufactured by the assessee or any other assessee is available, as per clause (i) of Rule 6 (b), that shall be adopted with a proviso that in determining value under this sub-clause the Proper Officer shall make such adjustments as appeared to him as reasonable, taking into consideration the relevant factors and in particular difference, if any in the material characteristic of the goods to be assessed are comparable goods. If the value cannot be determined under clause (i) of Rule 6 (b), as per clause (ii) of Rule 6 (b), value is to be determined on cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. In this case, clause (i) of Rule 6 (b) is not applicable as the appellant transferred their entire production of SDS to their Barabanki and as such there are no sales by them. The SDS manufactured by other manufacturers in the vicinity, whose price is sought to be adopted by the Department is not comparable to the SDS being manufactured by the appellant, as while the appellant produced SDS out of the molasses purchased at controlled price, other manufactures in the vicinity, whose price is sought to be adopted by the Department, were manufacturing SDS out of free sale molasses being procured at much higher price. Beside this, the prices of the other manufacturers sought to be adopted by the Department are the contract prices applicable for particular classes of buyers which are treated as respective normal price for those classes of buyers under Section 4 (1) (a) (i) and is not the general normal price.
(ii) The price adopted by the Department is the highest price on a particular date during a year. This is at variance with the concept of normal price as defined under Section 4 (1) (a) which is the price at which the goods are normally sold in course of wholesale trade to independent buyers for delivery at the time and place of removal where the price is the sole consideration for sale. Therefore, when determining the nearest ascertainable equivalent of normal price on the basis of other assessees price, their price nearest to the date of removal has to be adopted and not the highest price during the year on some particular date. Therefore, the taking highest price during a year of other assessee and applying it for the clearances of the appellant during the entire year is totally wrong.
(iii) Application of Rules 6 (b) (i) and (ii) of CEVR should not result in values violently different. Honble Supreme Court in the case of CCE, Jaipur vs. Rajasthan Spg. & Wvg. Mills Ltd. reported in 2007 (218) E.L.T. 641 (S.C.) has held that application of Rule 6 (b) (i) and 6 (b) (ii) should not result in widely different assessable values and that the different methods for determining value must converge to common valuation.
(iv) When for determining the assessable value under Rule 6 (b) (i), the other manufacturers price is adopted, in accordance with the proviso to this sub-rule, the adjustments must be allowed. In this regard, reliance is placed on the Tribunals judgment in the case of Asstt. Executive Engineer, P.S.E.B. vs. Collr. of C. Ex., Chandigarh reported in 1999 (112) E.L.T. 270 (Tribunal).
(v) Honble Supreme Court in the case of A.K. Roy and another vs. Voltas Limited reported in 1977 (1) E.L.T. (J 177) (S.C.) has held that the normal price has to be the most conservative price. The same principle would apply for determining the nearest ascertainable equivalent of the normal price under Section 4 (1) (b) readwith the CEVR. Therefore, the Departments decision to adopt the highest price of the other manufacturers in the vicinity and that too highest price during the year is totally at variance with the above-mentioned principles laid down by the Honble Supreme Court in the case of A.K. Roy and another vs. Voltas Limited (supra).
(vi) In this case, since the goods manufactured by other manufacturers in the vicinity, whose price is sought to be adopted, are not comparable with the goods manufactured by the appellant for the reason that the source of molasses was different and since the other manufacturers sales were at contract prices to different classes of buyers and as such general normal price at factory gate was not available, Rule 6 (b) (i) was not applicable and the duty had been correctly paid by the appellant on the basis of value determined on the basis of cost of production under Rule 6 (b) (ii).
(vii) Since whatever duty the appellant were paying in respect of removal of SDS from their Captainganj unit to their Barabanki unit Modvat credit of that duty was available to their unit at Barabanki, as such there is revenue neutrality. Therefore, there could not have been any intention on the part of the appellant to evade any duty and in any case, the duty demand from the appellant is meaningless. Ever since, the duty on SDS is introduced w.e.f. 1/3/94, the appellant had declared its price based on cost of production and that had been approved by the Department from time to time. The appellant cannot be expected to know the price at which other manufacturers in that area manufacturing SDS were selling the same. Moreover since the unit of the appellant and the unit of the other three manufacturers whose highest price during the year is sought to be adopted by the Department were in the same Central Excise Range, the Department was aware of this fact and the appellant cannot be accused of suppressing any information. Therefore, making the allegation of suppression or mis-suppression of facts, against the appellant and invoking longer limitation period on that basis under proviso to Section 11A (1) of the Central Excise Act, 1944 is totally wrong. For the same reason penalty under Section 11AC and interest under Section 11AB are not attracted.
2.2 Shri Virender Choudhry, the learned Departmental Representative made the following submissions :-
(i) The contention of the appellant that the SDS manufactured by them was not comparable with the SDS manufactured by other three units in the vicinity, as while the appellant were manufacturing SDS out of the molasses purchased at controlled price, the others were manufacturing SDS out of molasses procured at much higher price in free sale, is not factually correct. The show cause notice and the order-in-original make it very clear that the SDS of the appellant is comparable with the SDS of the other units in terms of the price of the raw material. M/s Saraiya Distillery and M/s K.M. Sugar Mills whose prices are sought to be adopted were also getting molasses at controlled prices.
(ii) The appellant have not substantiated their claim for adjustment in terms of proviso to Rule 6 (b) (i).
(iii) As regards, the issue of adopting the highest price of the other manufacturers for the whole year, the Tribunal in the case of Crompton Greaves Ltd. vs. CCE, Aurangabad reported in 2004 (177) E.L.T. 1032 (Tri. Mumbai) has upheld this practice while determining the assessable value of the goods stock transferred to sister unit for captive consumption. In the case of M/s Crompton Greaves Ltd. vs. CCE, Aurangabad (supra), the party was manufacturing and clearing various types vacuum interrupters to their own unit at Nasik and duty was being paid in respect of the clearances to their Nasik Unit, on the price shown in the purchase order received from Nasik Unit while the same goods were being cleared to their customers at much higher prices. The Department sought the highest price in respect of sales to other buyers to be adopted in respect of the goods stock transferred to Nasik and the Tribunal upheld this practice. The ratio of this judgment is squarely applicable to the present case.
(iv) The contract price of other manufacturers has been correctly adopted.
(v) For determining the assessable value of the goods cleared for captive consumption, before invoking Rule 6 (b) (ii) and determining the same on the basis of cost of production and profit, first, Rule 6 (b) (i) has to be ruled out. In this case, since the price at which comparable goods were being sold by other manufacturers in the same vicinity is available, it is that price which has to be adopted.
(vi) As regards, the appellants plea of limitation, the same cannot be considered in these remand proceedings as, as per para 10 of this Honble Supreme Courts order remanding this matter to the Tribunal, the points to be determined by the Tribunal are as to whether
(a) Rule 6 (b) (i) is applicable or Rule 6 (b) (ii) and
(b) If Rule 6 (b) (i) is applicable what would be the assessable value. Therefore, the plea of limitation cannot be considered at this stage.
2.3 In rejoinder Shri V. Laxmikumaran, Advocate, the learned Counsel for the appellant made following further points :-
(i) If Section 4 (1) (a) price, that is general normal price at the factory gate, is not available and only the contract price under Section 4 (1) (a) (i) is available, recourse must be taken to Rule 6y (b) (ii).
(ii) If the appeal is decided in the assessees favour, all the points are deemed to have been decided in the assessees favour and in this case, the limitation issue cannot be deemed to have been decided against the appellant. Therefore, limitation issue has to be taken into account even if it was not discussed in the Tribunals order and it does not figure in the Honble Supreme Courts order.
(iii) While the Appellant till November 1997 were producing SDS only out of molasses procured at controlled price, other units were using free sale molasses also. The appellants contention before the Commissioner was that M/s Saraiya Distillery were buying molasses at controlled as well as at free sale prices, but the Commissioner has distorted the appellants contention.
(iv) In any case, the higher price of the other manufacturers of the whole year cannot be adopted.
(v) If in case of Saraiya Distillery their assessable value of Rs. 12 per litre is correct, it does not appeal to any reason as to why this value during the same period is not correct for the appellant.
3. We have carefully considered the submissions from both the sides and perused the records.
3.1 The undisputed facts in this case are as under :-
(i) The entire quantity of SDS manufactured by the appellant in their unit at Captainganj is stock transferred to their unit at Barabanki for use in the manufacture of certain chemicals and as such there are no sales of SDS by the appellant.
(ii) The appellant manufactured SDS out of molasses. Till November 1997, there was price control in respect of molasses by the State Government, and the molasses was being procured by the appellant at control price ranging from Rs. 40.00 per quintal to Rs. 60.00 per quintal for use in the manufacture of SDS. With effect from November 1997, the price control was removed and the State Government instead of price control directed the Sugar Mills to sell 40% of their molasses production to the distillery units engaged in the manufacture of Denatured Ethyl Alcohol for further use in the manufacture of chemicals and this molasses was to be supplied to the distillery units at negotiated price.
(iii) Duty on the SDS was introduced w.e.f. 1/4/94 and since very beginning the appellant had been paying duty on the SDS stock transferred to their Barabanki unit on the value determined on the costing basis under Rule 6 (b) (ii) of the CEVR and the price determined under Rule 6 (b) (ii) was being declared to the Department from time to time. Since the balance sheet of the appellants company was being finalized in the month of September, for payment of duty in respect of clearances of SDS to Barabanki unit, the appellant were adopting cost of the previous financial year and paying duty on the value determined on the basis of the previous years cost. As and when the balance sheet of the current year was finalized, the costing for that year used to be determined and accordingly the assessable used to be re-determined and in case the re-determined assessable value was more than the assessable value on which the duty was paid, the differential duty was being paid to the Department. This is clear from page 211 to 224 and 264 to 266 of the appeal paper book.
(iv) The assessable value on which the duty was paid by the assessee during the different period from 1994-95 to December 1999 is as under :-
Period Assessable value on which duty was paid 1994-95 Rs. 5.85 per ltr 1995-96 Rs. 5.50 per ltr 1996-97 Rs. 5.50 per ltr April 97 to Nov. 97 Rs. 8.30 per ltr December 97 to March 98 Rs. 12.41 per ltr April 98 to March 99 Rs. 13.52 per ltr April 1999 to Dec. 99 Rs. 17.43 per ltr
(v) In the vicinity of the appellants distillery unit at Captainganj, there were three other distillery units M/s K.M. Sugar Mills (distillery division Faizabad), M/s Kisan Sahkari Chini Mills (distillery division Ghosi) and M/s Saraiya Distillery, Sardar Nagar (distillery division Gorakhpur). These units were also manufacturing SDS from molasses and were having sales at the factory gate. All these three units were located within the jurisdiction of the same Central Excise Range under whose jurisdiction the distillery unit of the appellants company fell.
(vi) Till October 1997, the Department did not raise any objection in respect of the assessable value based on cost of production adopted by the appellant and the price declarations filed by them from time to time were approved and RT-12 returns filed by them were finalized. There was no provisional assessment during the period of dispute. It is only during November 1997 that audit unit for the first time raised the objection that since the sale price of comparable goods of the other manufacturers located in the same area is available, that price should be adopted as the assessable value under Rule 6 (b) (i) and not the assessable value determined on costing basis under Rule 6 (b) (ii). After some correspondence with the appellant, finally on 17/4/98, the Jurisdictional Central Excise Superintendent directed the appellant to pay duty on the basis of the value of the comparable goods of the other manufacturers. Subsequently, the Department issued three show cause notices for determining differential duty for the period from 1/4/94 to December 1999. The Department for determining the revised assessable value under Rule 6 (b) (i), first identified the manufacturers of comparable goods, thereafter highest price of each manufacture during a particular year was determined and thereafter highest of the three manufacturers highest prices was adopted as the assessable value in respect of the clearances of the Appellant during that year.
3.2 Thus, the main points of dispute in this case are as to whether the assessable value of the goods manufactured by the appellant is to be determined under Rule 6 (b) (i) or 6 (b) (ii) of the CEVR and if it is to be determined under Rule 6 (b) (i) how it must be determined and whether the above-mentioned method adopted by the Department for determining the value under Rule 6 (b) (i) is correct. If on merits, the decision is in favour of the Department, another important question to be decided is as to whether the extended limitation period under proviso to Section 11A (i) is available to the Department and also whether the provisions of Section 11AC and 11AB are applicable.
4. For deciding the question relating to valuation of the goods, it would be worthwhile first discussing the scheme of valuation under the provisions of Section 4 and the Central Excise Valuation Rules 1975, as the same existed during the period of dispute.
4.1 Under Section 4 (1) (a), where the Central Excise Duty on any goods is chargeable with reference to their value, such value shall be deemed to be the normal price which is the price at which such goods are ordinarily sold by the assessee in course of wholesale trade, for delivery at the time and place of removal, where the assessee and buyer are not related persons and the price is sole consideration for the sale. Thus, normal price should have the five ingredients
(a) it should be the price at which the goods are the ordinarily sold i.e. the representative price,
(b) It should be the price in course of wholesale trade
(c) It should be the price for delivery at the time and place of removal
(d) The transaction should be such that the price is the sole consideration for sale
(e) The transaction should be at arms length.
4.2 As per proviso (i) of Section 4 (1) (a), an assessee can have different prices for different classes of buyers provided they are not related persons and under this proviso, even the contract price for supply of a specified quantity of goods to a buyer over a particular period can be treated as normal price for that buyer. As per proviso (ii) to Section 4 (1) (a) in case of goods with price control, the price fixed by the Government shall be deemed to be the normal price. As per clause (iii) of the Section 4 (1) (a) where all the sales are through related persons, the price at which such related persons sell the goods to independent buyers will be the normal price. As per clause (b) of Section 4 (1) where the normal price of such goods is not ascertainable for the reasons that either such goods are not sold or for any other reason, the nearest ascertainable equivalent of normal price shall be determined in such manner as may be prescribed. Section 37 (2) (a) empowers the Central Government to make rules, among other things, for determining under Section 4, the nearest ascertainable equivalent of the normal price. The Central Government framed Central Excise (Valuation) Rules, 1975 in exercise of the powers under Section 37 of the Central Excise Act. These rules prescribe the method for determining the normal price in various situations covered by Section 4 (1) (b).
4.2.1 Rule 6 (b) is applicable to a situation where the exercisable goods are not sold by the assessee and are used or consumed by him or on behalf of him in production of other articles. As per Rule 6 (b) (i), in such a situation, the assessable value of the goods shall be based on the value of comparable goods produced or manufactured by the assessee or by any other assessee, with the proviso that in determining the assessable value under this sub-clause, the Proper Officer shall make such adjustments as appear to him reasonable, taking into consideration all the relevant factors and in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods. Rule 6 (b) (ii) provides that if the value cannot be determined under sub-clause (i) of Rule 6 (b), the same should be determined on the basis of the cost of production or manufacturing including profits, if any, which the assessee would have normally earned on the sale of such goods. Thus for invoking sub-clause (ii) of Rule 6 (b), first the sub-clause (i) has to be ruled out and sub-clause (ii) can be invoked only if the value cannot be determined under sub-clause (i). From the wordings of sub-clause (i) of Rule 6 (b), it is clear that first it has to be seen as to whether the assessee is manufacturing and selling any goods which are comparable with the goods under assessment, which are being cleared for captive consumption and if such comparable goods are not being manufactured and sold by the assessee, the price of comparable goods manufactured and sold by other assesses can be taken into account. However, in terms of proviso to Rule 6 (b) (i) while adopting the value of the comparable goods manufactured by the assessees, the adjustments as appear to be reasonable taking into consideration all the relevant factors including the difference, if any, in the material characteristics of the goods to be assessed and the comparable goods, have to be made. Tribunal in the case of CCE, Chandigarh vs. AEE Civil Workshop-cum-store, PSEB, Mohali reported in 2000 (37) RLT 716 (CEGAT) has held that while determining the assessable value of goods being cleared for captive consumption under Rule 6 (b) (i) on the basis of the value of the comparable goods of some other assessee, adjustments have to be made for difference in the labour cost. Another point which has to be kept in mind while determining the value under Rule 6 (b) (i) on the basis of the price of the comparable goods is that what is being determined under Rule 6 (b) (i) is the nearest ascertainable equivalent of the normal price and, therefore, the value so determined must satisfy ingredients of the normal price as closely as possible and, therefore, the price of the comparable goods to be adopted should be the price at the time of removal or as close as possible to the time of removal of the goods to be assessed to duty.
4.2.2 The normal price of the goods is the price at which the goods are ordinarily sold in the course of wholesale trade. It is a sort of representative price of the goods during a particular period. Honble Supreme Court in the case of A.K. Roy and another vs. Voltas Limited (supra), in para 19 of the judgment has observed that while determining the price which is to represent the real value of the goods to be taxed, the price must be conservative in every respect. Therefore, while determining the price of the goods being cleared for captive consumption by invoking Rule 6 (b) (i), on the basis of the price of comparable goods of the same assessee or other assesses, the most conservative price must be adopted, not the highest of the prices as it will loose the character of the normal price.
4.2.3 When it is not possible to determine the value under clause 6 (b) (i) and same has to be determined under 6 (b) (ii), this value would be the cost of manufacture or production of the goods plus profits, which the assessee would have normally earned on the sale of such goods. The profit margin has to be added to the cost of manufacture to make the computed assessable value as close as possible to the normal price. As per the judgment of the Larger Bench decision of the Tribunal in the case of Raymonds Ltd. vs. CCE, Aurangabad reported in 2001 (129) E.L.T. 327 (Tribunal - LB) and also the judgment of the Honble Supreme Court in the case of CCE, Aurangabad vs. Raymonds Ltd. reported in 2006 (204) E.L.T. 3 (S.C.) while determining the value of the goods under Rule 6 (b) (ii), the profit to be included is the notional profit which the assessee would have earned in normal course and not the actual profit and the notional profit has to be added even if during the particular year there is loss. In this regard as per the Board Circular No. 258/92/96-CX dated 30/10/96 the profit before tax as percentage of cost of production taken from the previous years audited balance sheet is to be adopted.
5. In this case, the appellant do not have any sale of the SDS being manufactured by them and entire quantity is stock transferred to Barabanki unit for use in the manufacture of chemicals. However, in the vicinity of the appellants unit there are three other units manufacturing SDS and selling the same Saraiya Distillery, Gorakhpur, Kisan Sahkari Chini Mills and M/s K.M. Sugar Mills. Therefore, as discussed in para 4.2.1 above, for determining the nearest ascertainable equivalent of normal price in respect of the goods being stock transferred by the appellant to their Barabanki, first the sub-clause (i) of Rule 6 (b) has to be applied and it should be seen is as to whether the price of comparable goods being sold by the above-mentioned three manufacturers in the vicinity of the appellant can be adopted. However, in this regard the appellant have three fold grievance to the method adopted by the Department (1) While applying Rule 6 (b) (i), the prices of the comparable goods under Section 4 (1) (a) i.e. the general price at the place of removal available to any unconnected buyer, must be adopted and not the contract prices, to special class of buyers. In this case the prices of the other manufacturers sought to be adopted are the contract prices to some special class of buyers, which have been adopted without examining the terms of the contract (2) while adopting the other assessees price, the Department has first ascertained the highest price of each of the manufacturers during a particular year and thereafter highest of the three highest prices has been adopted and applied to the entire clearances of the appellant for that year. The price is so determined by the Department is not the nearest ascertainable equivalent of the normal price as it is neither the price at the time of removal or at the time closest to the time of removal not it is most conservative/ representative price (3) While the appellant till November 1997, were manufacturing SDS exclusively out of the molasses procured at control price varying from Rs. 40/- to Rs. 60/- per quintal, the other manufacturers whose price is sought to be adopted, during the same period were using the molasses acquired at control price at Rs. 40/- to Rs. 60/- per quintal as well as the molasses purchased in free sale @ Rs. 170/- per quintal. But the Department while adopting the other manufacturers price has not made any adjustment for difference in the price of molasses, which has to be made in terms of the proviso to Rule 6 (b) (i). In this regard, reliance has been placed on the Tribunals judgment in the case of CCE, Chandigarh vs. AEE Civil Workshop-cum-store, PSEB, Mohali (supra) as well as the Tribunal judgment in the case of Asstt. Executive Engineer, P.S.E.B. vs. Collr. of C. Ex., Chandigarh (supra). If such adjustment cannot be made, the recourse must be taken to Rule 6 (b) (ii).
6. As regards, the first point raised by the appellant, since the entire production of SDS of the appellants unit at Captainganj is stock transferred to their unit at Barabanki for use in the manufacture of chemicals and there are no sale of this item, in accordance with the provisions of Section 4 (1) (b), the nearest ascertainable equivalent of the normal price has to be determined under CEVR and it is Rule 6 (b) of CEVR 1975 which is applicable to this situation. But for determining assessable value under Rule 6 (b), first clause (i) has to be applied under which the nearest ascertainable equivalent, of normal price is determined on the basis of value of the comparable goods manufactured by the assessee or any other assessee after making the adjustments, as mentioned in the proviso to this sub-rule. The normal price as defined in Clause (a) of Section 4 (1) is the price at which such goods are ordinarily sold by the assessee to buyers in course of wholesale trade for delivery at the time and place of removal, where the assessee or buyer are not related person and price is sole consideration for sale. The term wholesale trade has been defined in Section 4 (4) (e) as sales to dealers, industrial consumers, Government, local authorities and other buyers who purchase their requirement otherwise than in retail. First proviso to Section 4 (1) (a) permits a manufacturer to have different normal price for different classes of buyers dealers, industrial consumers, Government local authorities etc. provided each of these prices has the ingredients of normal price as mentioned in Clause (a) to Section 4 (1). The question now arises as to which of the normal prices is to be adopted while applying Rule 6 (b) (i) when the value of the captively consumed goods is to be determined on the basis of the value of comparable goods manufactured by other manufacturers whether specially negotiated price to a particular class of buyers can be adopted or only the general wholesale price under Section 4 (1) (a) to dealers through whom the goods are sold to general public is to be adopted. We are of the view that while applying Rule 6 (b) (i), it is the general factory gate price under Section 4 (1) (a), the price at which the goods are available to any wholesale dealer, rather than the price to some particular class of buyers/contract price, which must be adopted, as the general wholesale price at the factory gate under Section 4 (1) (a), is much more representative price than the contract price to a buyer under Section 4 (1) (a) (i), which is a negotiated price depending upon quantity contracted to be sold, payment terms, period over which supplies are to be made, relationship with the buyer etc. In this case from the facts narrated in the order-in-original [page 15 of the adjudication order], it appears that all the sales of SDS by M/s Saraiya Distillery, M/s Kisan Sahkari Chini Mills and M/s K.M. Sugar Mills are at contract prices to different classes of buyers and the same are not the general factory gate price under Section 4 (1) (a) at which the goods are available to any wholesale dealer. In view of this, we are of the view that price of the goods stock transferred by the appellant cannot be determined under Rule 6 (b) (i). Beside this, even if the contract price is accepted, there is one more problem in determining the price under Rule 6 (b) (i) based on the prices of the comparable goods being sold by M/s Saraiya Distillery, M/s Kisan Sahkari Chini Mills and M/s K.M. Sugar Mills. While determining the price value under Rule 6 (b) (i) based on price of comparable goods of other manufacturers, as per proviso to this sub-rule, the adjustments have to be made by the Assessing Officer, as appear to him reasonable, taking into consideration all the relevant factors and in particular the difference, if any, in the material characteristic of the goods to be assessed and of the comparable goods. As mentioned above, the Tribunal in the case of CCE, Chandigarh vs. AEE Civil Workshop-cum-store, PSEB, Mohali (supra) and also in the case of Asstt. Executive Engineer, P.S.E.B. vs. Collr. of C. Ex., Chandigarh (supra) has held that while determining the price of the goods cleared for captive consumption under Rule 6 (b) (i) on the basis of the price of comparable goods of other manufacturers, adjustments must be made for difference in the cost of inputs. During the period from 1/4/94 to November 1997 while the appellant were manufacturing SDS exclusively out of molasses procured at control price ranging from Rs. 40/- to Rs. 60/- per quintal, from page 375 to 379 of the appeal paper book, it is seen that M/s Saraiya Distillery during the same period were using, in addition to molasses procured at control price, also the molasses procured at free sale price, which was much higher. Since the data about the extent to which the other manufacturers M/s Saraiya Distillery, M/s Kisan Sahkari Chini Mills and M/s K.M. Sugar Mills have used free sale molasses, is not available, it would be extremely difficult to make adjustment for difference in the cost of the inputs. In view of these circumstances, we are of the view that in this case, it is not feasible to determine assessable value of the goods under Rule 6 (b) (i) and the value has to be determined under Rule 6 (b) (ii) only, based on the cost of production of the goods plus profit, which the assessee would normally earned the sale of such goods. As per the judgment of the Tribunal in the case of Raymonds Ltd. (supra) and Honble Supreme Court judgment in the case of CCE, Aurangabad vs. Raymonds Ltd. (supra), the profit to be included is notional profit which the assessee would earn in the normal course and not the actual prices and that even if the assessee have incurred loss notional profit has to be added. In this case, however, we find that though through out the period of dispute the appellant claim to have paid duty on the value determined under Rule 6 (b) (ii), the value so determined appears to be only the cost of manufacture not the cost of manufacture plus the profit which the Appellant would have normally earned on sale of the goods. As per the Boards Circular No. 258/92/96-CX dated 30/10/96, the profit margin has to be taken from the previous years balance sheet and it should be the profit before tax, as percentage of cost of production. In view of this, therefore, the assessable value of the goods has to be re-determined by adding profit to such cost in accordance with Circular No. 258/92/96-CX dated 30/10/96 of the Board. But for this, the matter has to be remanded to the Original Adjudicating Authority for doing the needful.
7. Next question is the question of limitation and applicability of the provisions of Section 11AB and 11 AC. We do not accept the learned DRs contention that since Honble Supreme Courts order does not give any directions about the issue of limitation, this issue cannot be considered. In the Tribunals order No. 71/02-A dated 20/02/02, the questions of limitation and of applicability of Section 11AB and 11AC were not examined as the Tribunals decision on the main issue involved i.e. the question of valuation was in the Appellants favour and the duty demands were set aside. But since the Tribunals order has been set aside and remanded for de-novo decision with regard to issue of valuation, all the other issues are also open and if some duty demand is upheld on merit, the question of limitation and applicability of Section 11AB and 11AC would also have to be examined.
7.1 In this case from the very beginning, the appellant had been declaring the price by filing the price declaration under Rule 173C from time to time and those prices have been approved by the Jurisdictional Authorities. Beside this, the Appellant were also filing RT-12 returns which have been finally assessed without any objection. The Appellant were also paying the differential duty, wherever initially the duty had been paid on the basis of lower cost of production and subsequently for that period the cost of production had been revised upward and all such payments of differential duty were being intimated to the Department. In view of this, the appellant cannot be accused of any misstatement or suppression of fact and, therefore, the longer limitation period is not available to the Department for recovery of short paid duty, if any. Since Section 11AB and Section 11AC have been introduced w.e.f. 28/9/96 and during the period of dispute, the provisions of Section 11AB and 11AC were attracted only in those cases where the short levy, non levy on erroneous refund of duty had occurred due to fraud, wilful misstatement, suppression of fact etc. on the part of the assessee and since in this case these elements are not present, the provisions of Section 11AB & 11 AC are not applicable. Thus, by the above mentioned exercise of revising the assessable value under Rule 6 (b) (ii), if any differential duty becomes chargeable, its recovery would be confined only to normal limitation period.
8. In view of our above discussion we, while holding that in this case, the assessable value is to be determined under Rule 6 (b) (ii) of CEVR, 1975, readwith the Boards Circular No. 258/92/96-CX dated 30/10/96, set aside the impugned order and remand the matter to the original adjudicating authority for re-quantification of the duty demand in the above manner. The differential duty, if any payable, would be recoverable only for the normal limitation period under Section 11A (1) of the Central Excise Act and the provisions of Section 11AB and 11AC would not be applicable.
(Pronounced in open court on 27/07/2009.) (Rakesh Kumar) Technical Member (D.N. Panda) Judicial Member PK