Customs, Excise and Gold Tribunal - Mumbai
M/S. Essel Packaging Limited vs Commissioner Of Central Excise, Mumbai on 15 May, 2001
Equivalent citations: 2001(77)ECC128, 2001(133)ELT166(TRI-MUMBAI)
ORDER J.H. Joglekar, Member (T)
1. M/s. Essel Packaging Limited, the Appellants, manufactured Multilayer Plastic Laminated Tubes. The input namely Multilayer Plastic Laminated Web was also manufactured by them which was cleared for captive consumption on cost construction basis as per Rule 6(b)(2) of the Central Excise (Valuation) Rules 1975. The declared prices range between Rs.77/- Rs.112/-. However, during June 1997 some clearances were made to a buyer for Rs.233/- per Kg. A show Cause Notice was issued seeking application of this price to the clearances made for captive consumption. Differential duty was demanded on all clearances made immediately after the sales made to the outside buyer on 30.6.97.
2. In the Reply to the Show Cause Notice a claim was made that the two occasions on which the goods were sold to the outside buyers should be taken to be exceptions and the price should not be taken to be the price at which the goods are "ordinarily sold". It was claimed that the price charged by the Appellants to the outside buyer was at a deliberately high price so as to increase the cost of production of the buyers who were their competitors in the market. This high price could not be called as normal price. It was further claimed that not all webs manufactured by them were the same and that there were different qualities. The quality namely EPL 1725 which was sold to the outside buyer accounted for only 3% of the total products. That price therefore could not be applied to webs of another quality used for captive consumption. It is therefore claimed that on the subsequent clearances the price sought to be adopted was not legal.
3. The Assistant Commissioner did not discuss the various submissions made in the reply, but relying upon the following judgements he confirmed the demand:-
(a) C.C.E., Madras V/s. Ashok Leyland Ltd. (1987 (29) ELT 530).
(b) Orient Paper Mills Ltd. V/s. CCE, Nagpur. 1987 (27) ELT 272).
4. The Assessees then filed an appeal. The argument made before the Commissioner of Central Excise (Appeals) was that Section 4 of the Central Excise Act, 1944 viewed the price as a dynamic phenomenon frequently fluctuating due to the forces of demand and supply and therefore the price determined on 30.6.97 (on which day some sale was made to an outside buyer) could not be applied to clearances made after 30.6.97 for captive consumption. Since the value of comparable price was not available the cost construction method was the only alternative. The Commissioner referred to the Tribunal Judgement in the case of M/s. Modi Cement Ltd. V/s. C.C.E., Raipur (1998(98) ELT 230). In this judgement the Tribunal had held that in the absence of any fixed period, Modvat Credit taken by assessee within six months was within reasonable period. Applying the ratio of reasonability, the Commissioner held that the price charged to outside buyers was correctly extended for captive consumption made within 3 months. He therefore upheld the confirmation of the demand for the month of September 1997 but held as void the second part of the Assistant Commissioner's Order that the same price would apply to the future clearances irrespective of any outside sale taken place during the time. For determination of the price for this particular period he remanded the proceedings to the Assistant Commissioner directing that he should resort to Rule 6 (1) for the aforesaid period. The present appeal is against this Order.
5. We have heard Dr. D.M. Mishra, Advocate for the Appellants and Smt. Arya for the Revenue.
6. Dr. Mishra emphasised the aspect of the time frame incorporated in to the law of Valuation as also the qualifications of the goods. He emphasised that for the sake of comparison also the goods must be the same and the application of price of goods sold to the outside buyer for captive consumption can only be for a short period and the said sale price cannot continue unconditionally for application into captive consumption. He submitted that Rule 6(b)(1) will not apply even with due correction. He urged that the solitary instance where the goods are sold to outside party should be disregarded entirely for determination of the valuation for captive consumption and that such captive consumption should be therefore always on the basis of cost construction.
7. We have carefully considered the submissions made.
8. Section 4 of the Central Excise Act, 1973 defines value for the purpose of determination of duty in the following words:-
"S.4 Valuation of excisable goods for purposes of charging of duty of excise. - (1)Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be-
(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of a wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and that the price is the sole consideration for the sale."
9. There are certain qualifications, which are set out in the proviso (ii) and (iii) which are not relevant for purpose of this case. Where the normal price is not so ascertainable, the alternative provision reads as follows:
"Section 4(1)(b) 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 determined in such manner as may be prescribed."
10. The prescription is in the form of The Central Excise (Valuation Rules 1975.)
11. Section 4(1)(a)contemplates the existence of a free and competitive market where the forces of demand and supply have full application and where there are no outside influences affecting the determination of such price. Provisos (2) & (3) are exceptions acknowledging that the market forces would not be determinative of the price. The knowledge of proviso (1) amplifies the play of market forces. This proviso accepts the fact that in dealing with individual buyers there would exist at the same point of time. varying prices depending on multiple factors.
12. The plain reading of the definition provides for and visualises a completely dynamic pattern of prices where the price would constantly change depending upon the forces of supply and demand. The operation of this Section however was severely curtailed by the Rule 173C. This Rule as it existed with effect from 1978, required an assessee to file a list indicating the price at which the goods were proposed to be sold by him. Where a price list filed indicated prices more than the earlier prices, clearance under the new price could be made only after the approval of the fresh price list. The proper officer was entitled not to accept the prices and to modify the prices given after giving a hearing to the assessee. The prices once approved would be taken as the standard for comparison of the prices indicated on the clearance documents (Gate Passes or Invoices) vide which the goods were removed from the factory in terms of Rule 52A. As per specific directions the price list once filed would continue to rule and fresh filing was required only where there was a change in classification of the goods or change in the rate of duty leviable thereupon.
13. Thus where the Section acknowledged the dynamic nature of the market and the fact of very frequent changes in the normal prices, fetters were put by the rules. At the time of the assessment of the monthly return [R.T.12] any deviation from the price fixed by the price list resulted in the recovery of differential duty, whether the price actually charged was lower than that was declared by the assessee.
14. Sub-rule (11) of the said rule permitted the Collector to allow waiver of the filing of price lists and to permit individual gate pass to be an assessment document, having regard to the class of manufacture or the frequent fluctuation of the market prices of such goods. The caution was however given in the proviso to the said rule that such price must conform with the provisions of Section 4. It is peculiar that the exception to the said rule was in harmony with Section 4 where the parent rule was not in harmony at all.
15. This rule underwent a major change in 1995. The exception to the earlier Rule became the rule made vide this amendment. Now every clearance document became a price list. In isolated cases where the clearances did not reflect the free market price given under Section 4, the necessity of filing the price list and prior approval thereof continued.
16. Section 4 was substituted with effect from 1.7.2000. The concept of "Transaction Value" was introduced and it was made the basis of the assessment and the free market condition as envisaged in earlier Section continued. The definition of "Transaction Value" also made for the inclusion there in of several aspects of expenditure incurred by the assessee during the course of manufacture, storage and sale of the goods. No case law has developed after the introduction of the "Transaction Value" and of course the period concerning the present appeal is earlier.
17. What the analysis above would show is that the dictates of Section 4 were circumscribed by the Rule 173C. The Excise authorities as well as the assessees in the face of the provisions of the Section accepted this where by inspite of the frequent changes due to the market condition the artificial price continued to govern the levy of advalerom rates of duty.
18. Whereas clause (a) of Section 4(1) spoke of determination of value in open market condition, sub-clause (b) spoke of situations where such price was not determinable. This part covered the valuation of goods not sold but consumed captively. Where the same goods were consumed captively and als were sold, the law as to valuation was given by the CEGAT in a number of Judgements. The earlier Judgement is that reported in 1987 (29) ELT 530 (CCE V/s. Ashok Leyland). The same law was given in HMT Ltd., V/S. CCE (1989 (41) ELT 602). This law continued to be followed later also (Escorts Ltd. V/s.CCE 1999 (113) ELT 1002). It was held that the price at which the goods were sold would be adopted for valuation of the goods captively consumed.
19. Prima facie therefore there would be no objection to the department for adopting the price at which the goods were sold to the outside buyer. Dr. Mishra has two objections. The first is that a solitary sale cannot become a guideline; and the second is that the variety of goods was different in the case of captive consumption and in the case of outside sale.
20. Rule 6(b) of the Central Excise (Valuation) Rules 1975 provides two methods of such valuation. The first is where comparable goods are sold. Then that value can be adopted after making proper adjustments. The second is the cost construction method. The Rules do not speak of the situation where some goods are sold as well as are used for captive consumption. This lacuna was overcome by in the Judgements referred to above. Therefore, once such price is determined for the outside sale is available, then that price becomes the price for calculation of duty for captive consumption. It is not necessary that such sales to outside parties should be made on a number of occasions. Even a solitary sale is sufficient to establish the valuation. We have in the earlier part of our analysis observed that the principle of dynamism available in Section 4 was in conflict with provisions of Rule 173C. If in spite of continuous change in the price, the same price as declared was determined to rule throughout the period of price list so filed, then it is in consequence to hold that as long as the price for the same is available, that value will continue to rule for the clearances made for captive consumption. Therefore until there is another sale and if that sale is at a different price then that later price will become the price for calculation of duty on captive consumption of the goods thereafter.
21. It could be argued that this could prove to be an incentive for the assessees to artificially manipulate their price. But this fear would be unfounded. Where such price is shown to be in confirmity with all the provisions of Section 4 that is where the sale is at arms length and the relationship is on the principal to principal basis, then the department may not challenge the basis of calculation of duty for captive consumption made on that basis.
22. Where such conditions existed the assessee could not at a later date claim that a particular sale price was not reflective of the market sentiment. Dr. Misra had claimed that in the solitary instance where goods were sold the value was artifically high. If at that price the goods were brought without demur then that was the market price. This defence is without merit.
23. On this analysis we hold that the revenue was correct in adopting the solitary price available for captive consumption.
24. We now come to the second objection of Dr. Mishra. We have seen the price declaration filed in July 1997. The declaration shows 4 varieties of webs in 3 categories viz., Jumbo rolls, Slitted and Printed. In each variety, according to the model number, the prices vary. In the reply to the show cause notice the plea made is that the invoices referred to quality number 1725. In the absence of the citation of the invoice we are unable to make whether the webs sold were in Jumbo rolls, slitted or printed. This is required because in each case the cost would vary from Rs.91/-, Rs.100/- and Rs.103/- per Kg.
25. For determination of this point, the proceedings will have to be remanded to the Jurisdictional Officer. He will adopt the price of captive consumption first verifying as to which variety is used for captive consumption and then if the particular variety is sold in the outside market he will adopt that price. As regards the other variety, he shall first determine where the value thereof for the captive consumption could be determined on the basis provided in clause 1(b) of Rule 6 for which he will have to determine whether various prices enumerated in the price list are "comparable" to each other. He may have some difficulty in making this analysis. The Central Excise Law does not define the comparable goods. Section 4 as it existed on 1.10.75 spoke of "articles of the like kind and quality". The Customs Valuation Rules 1988 speak of "identical goods" and "similar goods". The Rules also define these terms. These definitions are not of use in defining the Central Excise phrase "comparable goods".
26. Thus while we find that the action of the jurisdictional officers in adopting the value of sales made to outside person for calculation of the duty for captive consumption, in spite of the few instances of such outside clearances, was legal. We remand the proceedings to the jurisdictional officers for determination of such value in terms of our discussion in para 25 above. The Assessees are directed to co-operate with the jurisdictional officers.
27. The appeal is allowed by remand.