Customs, Excise and Gold Tribunal - Mumbai
Advani Oerlikon Ltd. vs Commissioner Of Central Excise on 7 March, 1996
Equivalent citations: 1996(87)ELT272(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. The appellants are engaged in the manufacture of various types of electrodes. Welding electrodes were classifiable under T.I. 50 and some special type of electrodes were classifiable under T.I. 68 of the erstwhile Tariff. In respect of welding electrodes classifiable under T.I. 50, they were extending discount of 12% to the dealers whereas in the case of special types of electrodes classifiable under T.I. 68, they opted for invoice value assessment as per Notifiction No. 120/75. In the invoices, they were claiming discount of 12% as was available to other buyers of welding electrodes classifiable under T.I. 50, over and above that they also claimed discount of 23% in respect of clearance effected to Cosmics, in terms of two agreements both entered into on 11.1.1979. As per the first agreement 12% as is available to other buyers is extended. However, as per the second agreement 23% discount is extended on the following considerations :
(i) Cosmics shall market the Fan products of the company and promote the sales of the said products.
(ii) Cosmics shall canvas and procure orders from the sale of Fan products in India.
(iii) Cosmics shall maintain adequate sales staff for marketing and promotion of the said Fan products.
(iv) For the purposes aforesaid, Cosmics shall pay necessary marketing expenses like godown rent and promotional expenses and selling and administrative expenses.
(v) In consideration of the above, the company shall pay to Cosmics a sum equivalent to 23% of the list price of the goods as charges for the marketing services rendered by Cosmics.
While submitting the RT 12 Returns the Supdt. pointed out the abnormal discount claimed and held that these discounts are not admissible as per the invoices submitted alongwith the RT 12 Returns and pointed out short levy for making payment, which however was not paid by the appellants. Hence 3 show cause notices were issued as per details given below:
(a) First show cause notice is dated 30-7-1981 covering the period December, 1979 to March, 1981.
(b) Second notice is dated 31-5-1982 covering the period March, 1981 to February, 1982.
(iii) Third notice is dated 15-4-1983 covering the period March, 1982 to September, 1982.
The Assistant Collector while confirming the demands holding the issue on merits against the appellants, gave the benefit on the ground of time bar. Ultimately, he confirmed the demand for Rs. 11,436.06 in respect of the three show cause notices as against the total demand of Rs. 1,11,831 /- covered by the three show cause notices. The department feeling aggrieved from the order passed by the Assistant Collector holding the issue in favour of the appellants on the ground of time bar filed an appeal before the Collector (Appeals). The appellants were not satisfied with the order of the Assistant Collector holding the issue against them on merits and hence they challenged the same before the Collector (Appeals). The Collector (Appeals) in the impugned order held that in the RT 12 Returns short levy has been pointed out which were not challenged in appeal before the Collector (Appeals) and hence they acquired finality and there was therefore no need for review. The appeals in question both by the appellants as well as the department therefore stood disposed of accordingly. The present appeal is against the aforesaid order.
2. Actually there is no requirement for filing two appeals in this case because of the fact that the appeal is against the order of the Collector (Appeals) disposing of two appeals, one from the department and other from the appellants, against one single order-in-original." However, the Registry seems to have been under the impression that since the Collector (Appeals) had disposed of two appeals one filed by the assessee and another filed by the department and hence two appeals were found necessary and accordingly another appeal has been filed by the appellants. We however consider the second appeal filed as superfluous and therefore is treated as disposed of accordingly.
3. We heard elaborate arguments of Shri K.S. Setalwad, the ld. Advocate for the appellants. On the question initially he pleaded for remand of the matter back to the Collector (Appeals) on the ground that the Collector (Appeals) has not considered the issue at all on merits. He only held that the endorsement made on the RT 12 Returns) has not been challenged by way of appeal being assessment order and hence they have acquired finality. Since this is a matter of 1984 and the submissions can even otherwise be considered by the Tribunal without a remand, we directed him to advance the arguments on merits both with regard to the time bar aspect as well as with regard to the admissibility of assessment on the invoice price in terms of Notn. No. 120/75.
4. On the ground of sustainability of the show cause notice, where it traverses beyond a period of six months we are in agreement with the argument of the ld. Advocate that endorsement made on the RT 12 (Returns) cannot be construed to be valid show cause notices for the purpose of recovery of duty. This position has been made clear by the Supreme Court in the case of Kosan Metal Products - 1988 (38) E.L.T. 573 (SC). However, Ms. Bharati Chavan, the ld. JDR pleads that the assessment order made in the RT 12 Returns should have been appealed against. Hence it has acquired finality.
5. Be that as it may. The assessment order should have been followed by a proper show cause notice before confirming any demand under Section 11A. This is what is contemplated in the judgment of the Supreme Court in Kosan Metal Products. We therefore hold that the Collector (Appeals) is not justified in upholding the short endorsement made on the RT 12 Returns by the Supdt. without issue of a show cause notice and without a proper adjudication order. The Assistant Collector's order on this count is required to be confirmed.
6.1 On merits, regarding the admissibility of assessment on invoice value, we perused their judgment and heard the arguments of the ld. Advocate. We are not persuaded to accept any of the arguments for the following reasons.
6.2 Notification No. 120/75 contemplates inter alia that the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated with the manufacturer and the buyer other than the relationship created by sale of the aforesaid goods. Another condition is that no part of the subsequent sale, use or disposal of such goods accrues either directly or indirectly to or for the benefit of the manufacturer or any person associated in business with him. In this case clearances have been effected claiming discount of 23% in respect of sales to cosmics. The contracted terms of the agreement by the appellants with the Cosmics clearly indicate that this 23% discount is not a turnover discount as claimed by the Advocate nor a bonus discount, but is for the specific purpose of doing certain services like advertisements, maintenance of godown, paying the staff for the godown. It has been held by the Supreme Court in the case of Union of India v. MRF reported in 1995 (77) E.L.T. 433 (SC) that such expenses are not excludible from the assessable value. In this case instead of the assessee performing these functions which would enrich the value of the product when these expenses are includable in the value, they have chosen to appoint a person for performing this function and passing on the expenses, which would have been otherwise borrowed by them in the form of discount. This is clearly evident on a reading of the agreement and also from the plea made by the ld. Advocate. He pleaded before us that there was no difficulty for them in marketing the other electrodes classifiable under T.I. 50, for which discount of 12% is being given to all the buyers, whereas in the case of special type of electrodes, they were to take the assistance of Cosmics for promotion of sales and advertisement of their product and to provide the requisite infrastructure for promoting sale of special types of electrodes and consequent on this agreement sales have also incresed considerably. This pleading itself goes to show that the discount is given in consideration of the sale promotion like building up an infra structure for sale of their product, which have been held by the Supreme Court to be not admissible in the case of U.O.I. v. MRF (Supra). When the price is influenced by such consideration other than purely sale price and such a discount is given in the invoice for these services, that price cannot be applied and hence they cannot claim the benefit under Notfn. No. 120/75. In the circumstances, we uphold the order of the Assistant Collector on merits.
7. As regards handling charges, the ld. Advocate pointed out that even in the show cause notices, it is admitted that is equating freight to price. If it is so, as per the decision of the Supreme Court, this element could be allowed deduction.
Appeal is disposed of in the above terms.