Custom, Excise & Service Tax Tribunal
M/S Vimlachal Print & Pack Pvt Ltd vs C.C.E.-Ahmedabad-Ii on 31 March, 2017
In The Customs, Excise & Service Tax Appellate Tribunal West Zonal Bench At Ahmedabad ~~~~~ Appeal No : E/1438-1439/2008 (Arising out of OIA-80-81/2008/AHD-II/CE/SBS/COMMR-A-/AHD dated 13/08/2008 passed by Commissioner (Appeals) of Central Excise-AHMEDABAD-II) 1. M/s Vimlachal Print & Pack Pvt Ltd 2. Shri Rashminbhai Shah : Appellant (s) Versus C.C.E.-Ahmedabad-ii : Respondent (s)
Represented by:
For Appellant (s) : Shri Hardik Modh, Advocate For Respondent (s): Shri L. Patra, Authorised Representative CORAM:
Dr. D. M. Misra, Honble Member (Judicial) Mr. Raju, Honble Member (Technical) Date of Hearing: 27.03.2017 Date of Decision:31.03.2017 Order No. A/10729-10730/2017 Per: Mr. Raju This appeal has been filed by M/s Vimlachal Print & Pack Pvt. Ltd. The demand was confirmed against the M/s V. P & P. P. Ltd., and penalty was also imposed on the Director. Aggrieved by the said order of lower authorites, the appellants are before tribunal.
1.1. The appellants were engaged in the manufacture of Polycoated Printed Paper and Printed Polyster Laminated Rolls. The appellants were purchasing the cylinders and raw materials for manufacture of goods. The appellant, received Rs. 17,83,447/- from M/s. Hindustan Lever Ltd. The appellant had not included the said amount recovered by way of debit notes in the assessable value of the goods manufactured by using by them. Revenue sought to include the same in the assessable value as additional consideration.
2. The Ld. Counsel for the appellant argued that they were manufacturing finished goods by using the cylinders and the raw materials. He argued that they were required under law to add only that proportion of the cylinder cost, as was attributable to the actual production, and not the total cost of the cylinders. Ld. Counsel has referred Rule 6 of the Central Excise Valuation Rules. Rule 6 of the Central Excise Valuation Rules reads as follows:-
RULE 6.Where the excisable goods are sold in the circumstances specified in? clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.
[Provided that where price is not the sole consideration for sale of such excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value.] [Explanation 1] - For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely : -
(i) value of materials, components, parts and similar items relatable to such goods;
(ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods;
(iii) value of material consumed, including packaging materials, in the production of such goods;
(iv) value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of 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 advance has resulted in lowering of the prices. Thus, no notional interest on the advance received shall be added to the transaction value.] He argued that if the cylinders has capacity to manufacture 1000 pieces of finished goods and if it is used only to manufacture 200 pieces of finished goods then the cost of cylinder to be apportioned to each piece of the finished goods is to be calculated by spreading the total cost of cylinder to the maximum number of goods that it is capable of producing. Ld. Counsel referred in the decision of Tribunal in the case of Mutual Industries Ltd. Vs. Collector of Central Excise, Mumbai 2000 (117) 578 (Tribunal). He particular relied upon the Para 8 of this decision which reads as follows:-
8. Learned Counsel representing the appellant? advanced a further argument in the following terms. According to him, the maximum number of times during which the mould could be used has been found to be 2,50,000. When the same mould is used for the manufacture of components above 2,50,000 no value on account of the user of the mould can be added to the value of the finished product. In other words, according to learned Counsel, once the mould is utilised in the manufacture of maximum number of units, the mould becomes valueless and cannot thereafter go in to increase the value of the produce for the assessment of excise duty. We are not in a position to agree with this contention of the learned Counsel. Even after manufacture of the maximum number of units estimated, the mould continues to be of value as far as manufacturer is concerned for the manufacture of his finished product. But for the use of the mould he cannot manufacture his product . So the value of the mould which has outlived its maximum capacity must certainly go in the production of finished product as far as the manufacturer is concerned. This means that so long as the mould is in use in the manufacture of the finished product, it contributes certain value to be added to the value of the finished product. That additional value must necessarily go in assessing the duty payable on the finished product under the excise law. He argued that in the said case when the mould were used to produce more than the declared capacity, the amortized cost of the cylinders calculated on the basis of declared capacity was added to entire production. He also referred to the decision in the case of CCE vs. Bhagwati Oxygen Ltd. 2009 (117) 647 (Tribunal), Jindal Praxair Oxygen Co, Ltd. Vs. CCE 2007 (208) ELT 181 (Tri.-Bang.), KSB Pumps Limited vs. CCE 2007 (216) ELT 51 (Tri.- Mumbai). In view of above, he argued that only the portion of cost of cylinder attributable to the actual production of goods, as against the maximum quantity that can be produced by the cylinder, needs to be included in the assessable value and on the balance, no demand can be raised.
2.1. The second issue on which the demand raised was regarding unused inputs, the cost of which was recovered from the buyers. The said demand was dropped by the first appellate authority, however, he directed the appellant to reverse the credit. He argued that the said goods were not cleared from the factory and the same were used in the manufacture of other goods in the factory. In these circumstances, no reversal of credit is necessary. He also argued that a SCN also does not seek any reversal of credit.
2.2. The next issue raised was regarding duty on amounts recovered on account of extra wastage arising in manufacture of wrapper. The demand confirmed on the said issue is not being contested by the appellant.
2.3 He further argued that penalty of Rs. 10,000/- has wrongly been imposed on the director. He argued that there is no specific violation of Rules has been pointed out and issue involved is that interpretation.
2.4 He further argued that there was no suppression of the part of the appellant and there was no intention to evade payment of duty. Therefore, extended period of limitation has been wrongly invoked.
3. The Ld. AR for the Revenue relied upon the impugned order, he particular relied on the following observations made in Para 6.9 of the impugned order.
I also find that the appellants in the appeal memo and at the time of filing reply to show cause notice have tried to creep in the contention that these payments are in respect of some of the cylinders which were not used. However as it appears from the letter dated 07.10.2005, produced by the director of the company during the recording of his statement dated 13.02.2006, it is crystal clear that the cylinders were in fact used for the manufacture of certain quantity of wrappers against which they had received certain amount s and the difference in the actual cost of the cylinders and the amount so recovered by the supply of wrappers was recovered by way of issue of debit notes.
4. We have gone through the submission made by both sides. We find that the appellants are using cylinders for manufacture of the final products. The appellants are naturally including the cost of cylinders in the cost of final products. In some cases, the quantity produced by certain set of cylinders was reduced by the buyer, and therefore, only small part of the cost of cylinders could be recovered by appellant. The appellant were reimbursed the unapportioned cost of the cylinder by the buyer, due to low quantity purchased by buyer for no fault of appellant. Revenue has sought to include the said amount of the cost of cylinders in the assessable value of the finished goods. The demand show cause notice is based on a total amount of Rs. 17,83,447/- received by them as Misc. Income from the buyer. The show cause notice seeks to include the same as additional consideration to form part of the transaction value out of this total amount an amount of Rs. 12,68,422/- was received on account of production of such trail lots for M/s. HLL.
5. A perusal of the order-in-original shows that the assessee had contended as follows:-
(i) Rs. 2,09,932=00: Debit Note No. VDC/165/99-00 dated 29.03.00. They had received purchase order from their customer M/s. Hindustan Lever Ltd. [H.L.Ltd. in short] for the manufacture and supply to them LB 150 Gms. Wrappers. For this purpose, they purchased cylinders in the new design for carrying out various trials. The cost incurred by them for the purchase of cylinders works out to Rs. 5,49,922-00. The trail lots were supplied to Khangaon, Bombay factory and Calcutta, for which actual reimbursement from various units came to Rs. 3, 39,291=00. Therefore, the difference of Rs. 2,09,931-00 was recovered from the customer H.L. Ltd. These being the charges incurred by them towards the purchase of cylinders which were recovered from the customer M/s H. L. Ltd. In view of this, they do not form part of assessable value attracting central excise duty. Since the income has accrued on account of the purchase of cylinders they do not form the part of assessable value.
(ii) Rs. 55,944=00: Debit Note No. VD/041/2003-2004 dated 21.08.2003. This amount represents the cost of the cylinders incurred by them due to change in production plan of VIM wrappers. The cylinders were got manufactured/re-engraved for the buyer and therefore the cost was recovered from them. This being material cost has no relation with the sale of goods.
(iii) Rs. 21,383-00: Debit Note No. DN/35/04-05 dated 17.08.2004. This amount represents the cost of the cylinders incurred by them due to change in production plan of VIM 400 gms. Raincoat wrappers. The cylinders was got manufactured for the buyer and production on this cylinder was stopped half way. Therefore, the differential amount on the cost of cylinder was recovered from them. This being material cost has not relation with the sale of goods.
6. From these facts, it is apparent that the buyer of the printed material is not supplying the cylinders to the appellant free of cost. It is the appellant whos purchasing the cylinders. In case the total quantity purchased by the buyer is later reduced by buyer for certain reasons, the balance cost of cylinder is being recovered by the appellant from the buyer as damages. Thus, it is not the case of the buyer supplying cylinders free of cost to the appellant but it is the case of appellant buying the cylinders themselves and recovering part of the cost of cylinders from the buyer as damages. In these circumstances, Rule 6 of the Central Excise Valuation Rules has no application. It is seen that SCN does not invoke Rule 6 of the Central Excise Valuation Rules, but, merely states that this amount is an additional consideration received from the buyer and therefore is includable transaction value. There is no denying of this fact that this extra amount has been recovered from the buyer and the same is in respect of the goods manufactured and supplied by the appellant. The appellant have relied upon the decision in the case of Faridkod Cooperative Sugar Mills (supra) wherein it has been held that liquidation damages received by the appellant for non-lifting of quantity of finished goods are not includable in the assessable value. The said decision reliance has been placed on the decision of this Tribunal in the case of Inox Air Products Ltd vs. Commissioner of Central Excise, Nagpur & Mumbai-I 2001 (134) ELT 224 (Tri.-Mumbai). Para 2 of the said order following has been observed:-
2. The agreement between the appellant and Raymond Steel Limited, the sole buyer of the gas manufactured at its Nasik plant provided that if the buyer fail to take delivery of the agreed quantity of gases from the appellant, it would be liable to pay compensation to the appellant of 60% of the basic price of the deficiency in the purchase of the nitrogen. The other agreement between the appellant and M/s. Lloyd Steels Limited which we are concerned in appeal E/2065/2000 is similarly worded. Each of the Commissioners holds that this amount referred to as short lifting compensation is in consideration of the supply of the goods and should form part of the assessable value. In Bhartia Cutler Hammer Ltd. v. CCE - 1998 (99) E.L.T. 436 the Tribunal considered the question as to whether liquidated damages for breach of the contract of purchase between the appellant before it and its buyer should form part of the assessable value. The Tribunal has not accepted the view of the Department that such damages should form part of the assessable value. They noted that the provision for the deduction of the quantum of damages from the invoice price is only for the purpose of recovery of the damages. Payment of damages cannot be regarded as reducing the agreed price. The prices remained constant, namely at the agreed level. The same view has been taken earlier by the Tribunal in Spring Fresh Drinks v. CCE - 1991 (54) E.L.T. 333. The departmental representatives contention that these decisions were concerned with the liquidated damages whereas we are concerned with something other than this damages is clearly unacceptable. We quote below paragraph 4 of the decision in Bhartia Cutler Hammer Ltd. v. CCE in which the concept of liquidated damages is set out.
4. Section 73 of the Indian Contract Act provides for compensation for loss and damage caused by breach of contract. The party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arises in the usual course from such breach or which party knew, when making the contract, to be likely to result on breach. The parties may determine in advance, the amount of compensation to be paid on account of loss or damage caused by a breach of contract where the parties agree on a reasonable sum as compensation, it is regarded as liquidated damages which is a pre-estimate of the loss or damage on account of the breach of contract. Such a clause may be enforceable in law. Where the quantification is not reasonable but is intended to penalise the party committing the breach, it is regarded as penalty and not enforceable in Court of Law. It will be clear that in fact we are concerned with nothing other than liquidated damages and these damages are not includible in the assessable value.
7. We find that the amount recovered from the buyer by the appellant is in the nature of liquidated damages. Thus, we hold that the decisions of the Tribunal in the case of Inox Air Products Ltd., and Faridkod Cooperative Sugar Mills Ltd (supra) are squarely applicable to the instant case. The demand on the ground is therefore set-aside.
8. As regards, demands on unused inputs as concerned it is seen that the same was dropped by the Ld. Commissioner (Appeals) who had inturn directed for reversal of credit of such goods. It has been argued by Ld. Counsel the said goods were not written off and were not disposed of. He argued that other goods were manufactured by using them. In these circumstances reversal of credit cannot be justified. The demand on this ground is also not sustainable.
9. As regards, demand on the ground of the appellants recovering consideration on wastages the same is not being contested and therefore the same is upheld.
10. In view of the above facts and circumstances, we find that there is no reason to impose any penalty on the Director as no specific role has been pointed out of the proceedings.
11. Consequently, appeal of M/s. Vimlachal Print & Pack Pvt. Ltd is allowed of above terms. The appeal of Rashminbhai Shah is allowed.
(Order pronounced on 31.03.2017)
(D. M. Misra) (Raju)
Member (Judicial) Member (Technical)
G.Y.
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Appeal No. E/1438-1439/2008