Custom, Excise & Service Tax Tribunal
M/S. Itc Ltd vs Commr. Of Central Excise, Patna on 12 May, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EAST REGIONAL BENCH : KOLKATA
Excise Appeal No. : E/190-191/2005
(Arising out of the Order-in-Appeal No. 354/PAT/CEX/APPEAL/2004 dated-December 22, 2004 passed by the Commissioner (Appeals), Customs & Central Excise, Patna)
For approval and signature of:
SHRI H.K. THAKUR, HONBLE TECHNICAL MEMBER
SHRI P.K. CHOUDHARY , HONBLE JUDICIAL MEMBER
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* Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
* Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not ?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
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M/s. ITC LTD.
APPELLANT(S)
VERSUS
Commr. of Central Excise, Patna
RESPONDENT(S)
APPEARANCE
Dr. Samir Chakraborty, Advocate
FOR APPELLANT(S)
Sri K. Chaudhuri, Supdt. (A.R.)
FOR THE RESPONDENT(S)
CORAM:
SHRI H.K. THAKUR, HONBLE TECHNICAL MEMBER
SHRI P.K. CHOUDHARY , HONBLE JUDICIAL MEMBER
DATE OF HEARING/DECISION : 12/05/2016
ORDER NO. : FO/A/75444-75445/16
PER SHRI H.K. THAKUR
Appeal No. E/190/2005 has been filed by the appellant against Order-in-Appeal No. 354/PAT/CEX/APPEAL/2004 dated-December 22, 2004 and appeal No. E/191/2005 has been filed against Order-in-Appeal No. 355/PAT/CEX/APPEAL/2004 also dated 22/12/2004. Appeal No. C/190/2005 pertains to valuation dispute regarding cigarettes manufactured by the appellant and Appeal No. E/191/2005 pertain to identical valuation dispute of smoking mixture.The period of dispute in both the appeals is 1/31973 to 28/2/1985.
2. Dr. Samir Chakraborty (Advocate) appearing on behalf of the appellant argued that during the period 1/3/1973 to 28/2/1983 appellant manufactured cigarettes and smoking mixtures where assessments were kept provisional due to pending post manufacturing expenses (PME) dispute which was decided by Supreme Court by its order dated 10/11/1995 for the period prior to 1/10/1975. That dispute of PME for the period after 1/10/75 was decided by Apex Court by its order dated 19/7/1995 in SLP 2901/81 filed by the department under which the matter was remanded for finalization of claims of the appellants in the light of MRF Ltd.s case [ 1995 (77) ELT 433 (S.C.) . That both the disputes were resolved by the Apex Court before which Show Cause notices were issued to the appellants, with respect to Munger factory manufacturing cigarettes and smoking mixture for disallowing various expenses/extra consideration recovered by whole sale dealers (WD). Secondary whole sale dealers under Section 4 (1) (b) of the Central Excise Act, 1944 read with Rules 5 & 7 of the Central Excise Valuation Rules, 1975.
2.1 That similar proceedings were also initiated against the other factories of the appellant situated at Bangalore, Parel, Saharanpur and Kidderpore factory. That the issue of valuation with respect to deductions/additions was finally decided by D.G. Anti Evasion vide Order-in-Original No. 1/1986 dated 10/4/1986 holding as follows:
18.1 To sum up the discussions and findings in the preceeding Paragraphs-
(a) the company and its WDs are not related persons within the meaning of Section 4 (4) (c) of the Central Excise & Salt Act, 1944; [para 11.6]
(b) the price(s) at which the Company sold the cigarettes to its WDs was not the sole consideration for the sale; [para 12,13]
(c) the assessable value (s) of the cigarettes has to be determined in accordance with the provisions of Rule 5 of the Central Excise (Valuation) Rules, 1975;[para 13.1]
(d) for the purpose of determining the assessable value under the said Rule 5
(i) freight element (whether actual or equalized) cannot be added ; [para 14.3.1]
(ii) similarly, cost of CFCs cannot be added; [para 14.3.2]
(iii) advertisements and sales promotion expenses incurred by the WDs shall be added; and [para 14.3.3]
(iv) similarly, interest including that on the security deposits made by the WDs shall be added ; and [paras 14.3.6, 14.3.8 and 14.3.11]
(e) no deduction whatsoever on account of the supposed duty shall be made from the advertisement and sales promotion expenses and interest, while adding these to the price; [para 15.2] 2.2 That various jurisdictional officers in-charge of the factories were directed to finalise the pending provisional assessments in view of the Order-in-Original dated 10/4/1986 passed by the Director General. That for this purpose of finalization of provisional assessment and quantification of duty CBEC directed Principal Collector, Calcutta in terms of D.G.s order to get the matter expedited in consultation with respective commissionerates in charge of all the factories of the appellant. That a workshop was conducted by Principal Collector, Calcutta by inviting officers from the Commissionerates where manufacturing factories of the appellant was working at the relevant time. That a demand of Rs.1.12 Crores was quantified by Supdt., Central Excise, Munger and intimated to the appellant vide letter dated 17/7/1986. That it was also stated in the demand notice that demand is provisional & would be finalized only after the decision of PME case pending in Supreme Court (SLP No. 2901/1981). That this dispute was settled by Apex Court by an order dated 29/3/1996 confirming the decision of Tribunal, given under order No. 61-65/94-A dated 18/3/1994, with respect to Freight Administration Charges.
2.3 That after the issue was decided by D.G. under Order-in-Original No. 1/1986 dated 10/4/1981, two show cause notices dated 2.7/1987 and 3/7/1981 were issued to the appellants Munger factory by Collector of Central Excise, Patna in respect to Cigarettes and smoking mixtures. That both these show cause notices contained identical allegations regarding excess recovery of amounts by wholesale Dealers a part of which was also reaching the appellant and following was alleged in these show cause notices:
(a)ITC has deliberately and intentionally designed and adopted a pricing strategy with the connivance of the Wholesale Dealers and kept the prices lower to facilitate evasion of duty and the suppressed potion of the price which was kept in the hands of the WB by creating an artificially high gross profit margin termed as Generation was retained in the hands of the WDs, directly and indirectly monitored and controlled by ITC, and utilized for ITCs own purpose and part of such additional margins was received back by ITC and a part of such margin spent by WDs as per ITCs instruction.
(b) ITC fixed the trade prices and margins beyond the of WDs, i.e. for the SWDs and the retailers and clandestinely communicated the price and the margins with the official price list showing the price to WD and the printed unit price. The WDs margin which was increased by reducing the selling price to the WD termed as generation, consisted of the following components-
(i) Fixed margin;
(ii) Variable margin, consisting of bank charges, interest (I), interest(SD), added value margin;
(iii) Promotional/miscellaneous;
(iv) BTL margin.
( c) In order to give a legal cover for flow back of interest margin generated (part of variable margins) ITC devised a scheme and implemented from July 1, 1980; known as Cash Security Deposit Scheme, which was compulsory and made a provision for the WDs for payment of interest under the CSD Scheme by providing additional margin called interest margin. This scheme enabled to give a cover for the flow back of large amounts out of the WDs margin generated by ITC at their hands as interest on debit balances/overruns.
That on the basis of the above allegations, it was alleged that ITC had evaded duty by giving certain margins under various heads termed as Generation to its WDs which were a flow back to ITC as it received back the same under the cloak of interest on debit balance and also controlled monitored expenses of WDs on margins such as advertisement and sales promotion, etc. The show cause notice accordingly sought to demand differential duty of Rs.39.82 crores for the period June 1980 to February, 1983 by including the Wholesale Dealers margin apportioned towards bank charges, ITC collected interest on CSD, advertisement and sales promotion, administrative charges and BTL margins claimed for assessment from time to time in the value of cigarettes for the purpose of assessment of duty.
2.4 That similar show cause notices were also issued to other four factories of ITC by the respective jurisdictional Collectors of Central Excise. All the show cause notices were , however, assigned by CBEC to the Commissioner of Central Excise (Adjn.), Delhi for adjudication that order Nos. 7/96 dated September 30, 1996, were thereafter passed by CCE (Adjn.) Delhi with respect to SCNs dated July 2, 1987 and July 3, 1987 holding as under:-
(i) Show Cause Notices were not invalid on the ground that it has been issued during the pendency of the provisional assessment;
(ii) Assistant Commissioner, who is competent to make final assessment will finalise the pending provisional assessments and will be at liberty to utilize any material collected by the Department and such material can be used as independent material to support final assessment.
(iii) The Assistant Commissioner is further directed to intimate the Collector of Central Excise, Delhi, as soon as he completes finalization of the said provisional assessment and subject to the fulfilment of the other directions given in his Order. After that, Show Cause Notice dated July 2, 1987 and July 3, 1987 will be taken up for adjudication by the Collector of Central Excise, Delhi. 2.5 That appellant filed appeal before CESTAT, Kolkata against the orders passed by CCE (Adj.), Delhi and this bench vide a common order dated 22/5/2006, following LB decision in ITCs own cases [2004 (170) ELT 33 (J) and 2002 (146) ELT 336 (J)] held that no show cause notice under Section 11A of the Central Excise Act, 1944 can be issued before finalization of provisional assessments. That liberty was given to the Central Excise authorities to take action for finalisation of assessments.
2.6 That a show cause notice dated 18/3/1997 was issued to the appellant by ACCE, Bhagalpur for the period March 1973 to February, 1987 and finalization of provisional assessments was done by an ex- parte order dated 13/10/1997. This order of the ACCE, Bhagalpur was set aside by CCE (A) by Order-in-Appeal dated 11/11/1998 and matter remanded to ACCE, Bhagalpur, interalia, to decide the issue by following the ratio laid by Supreme Court in MRF case. That after issue of a Corrigendum, DCCE, Bhagalpur vide Order-in-Original No. 2/2002 dated 29/8/2002, followed by a corrigendum dated 4/10/2002, confirmed the demands against which appeal was filed by CCE (Appeals). That the said appeal was decided by CCCE (Appeal) vide orders in Appeals 354 & 355/PAT/CCX/APPEAL/2004 both dated 22/12/2004 against which the present appeals have been filed.
2.7 Learned Advocate appearing on behalf of the appellant submitted that deductions/additions disputed in these proceedings were the following:-
(i) PME Charges
(ii)Freight Administration Charges (FAC)
(iii)Bank Charges
(iv)Interest on Cash Security Deposit (CSD)
(v) Interest on excess of CSD
(vi)Advertisement & Sales Promotion
(vii)Below the line expenses
(viii)Interest on Investments (WD) (IX)Interest on Trading 2.8 That provisional assessments of all other units have been finalized by jurisdictional AC/DCs at Parel, Bangalore & Kidderpore also and the issues of PME charges, FAC, CSD & Interest on Investments (WD) are not being agitated by the appellant. That AC C. Ex., Saharanpur has also now decided these issues by Order-in-Original No. 04/AC/CE/SRE/2013 dated 19/3/2013 by quantifying the duty liability where Rs.1,85,43,717/- have been found to be paid in excess by Saharanpur factory That no appeals have been filed by the department against the finalisation orders passed by the other ACs/DCs having jurisdiction over Bangalore, Parel, Saharanpur & Kidderpore factories.That the matter may be remanded to the Adjudicating authority to decide the issues; of Bank Charges, Interest in excess of CSD. Advertisement of Sales Promotion, Below the line Expenses (BTL) and interest on trading; on the basis of orders passed by other jurisdictional ACs /DCs and the ratio of cases decided by Supreme Court. It was also the case of the appellant that method of calculation of duty should also be the same what other jurisdictional ACs/DCs have followed and not the methodology adopted by Adjudicating authority, Munger factory.
3. Shri K. Choudhari, Supdt. (A.R.) appearing on behalf of the Revenue also argued that due to multiplication of Adjudicating authorities deciding the issues and voluminous facts involved, these appeals may be remanded to the Adjudicating authorities. That factual details prevailing as per the Adjudicating authorities, In-charge of Bangalore, Parel, Saharanpur and Kidderpore can only be gone into and compared by the Adjudicating authority.
4. Heard both sides and perused the case records. Both sides agree that due to multiplicities of adjudications and voluminous facts these appeals should be remanded back to the Adjudicating authority in-charge of Munger factory to decide the issues of Additions/deductions to arrive at the correct assessable value and quantification of duty. It is observed from the case records that issues of valuation dispute relating to Bank charges, Interest in Excess of CSD, Advertisement & Sales Promotion, Below the line expenses (BTL) & interest on Trading have been decided by Jurisdictional Adjudicating authorities at Bangalore, Parel, Saharanpur & Kidderpore factories in the light of ratio laid down by Apex Court . It is submitted by the Advocate of the appellant that orders passed by the above adjudicating authorities have been accepted by the department on these deductions/additions and also the method of quantification. This fact can be verified by Adjudicating authority of Munger factory and if what is stated by the Learned Advocate of the appellant is found to be true then true then the same ratio laid by other jurisdictional adjudicating authorities has to be followed by AC/DC in charge of Munger factory, including the method of quantification of differential duty.
5. In view of the above observations these appeals filed by the appellant are allowed by way of remand to the adjudicating authority. Needless to say that an opportunity of personal hearing should be extended to the appellant to explain their case before deciding the issues in remand proceedings . We may also make it clear that this bench has not made any observations on the merits of the case. The same has to be decided by the Adjudicating authority on the basis of orders passed by adjudicating authorities at Bangalore, Parel, Saharanpur and Kidderpore factory and also the ratio laid by Apex Court on these deductions.
(Operative part of the order already pronounced in the Court) Sd/- 18/05/16 Sd/- 17/05/16 (P.K.CHOUDHARY) (H.K. THAKUR) Judicial Member Technical Member k.b/-
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