Custom, Excise & Service Tax Tribunal
Kangaro Industries Limited vs Cce, Jammu on 31 October, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
SCO 147-148, SECTOR 17-C, CHANDIGARH-160017
Division BENCH
Court-I
Appeal No.E/157592/2013
(Arising out of OIO No.07/CE/SRC/COM/JK/13 dt.21.3.2013 passed by the CCE(Appeals), Jammu)
Date of Hearing:14.02.2017
Date of Decision:31.10.2017
Kangaro Industries Limited Appellant
Vs.
CCE, Jammu Respondent
Present for the Appellant: Shri Manish Gaur, Advocate Present for the Respondent: Shri G.M.Sharma, AR Coram: Honble Mr.Ashok Jindal, Member (Judicial) Honble Mr.Devender Singh, Member (Technical) FINAL ORDER NO.62030/2017 PER: DEVENDER SINGH The brief facts of the case are that M/s.Kangaroo Industries Limited, IGC, Phase-II, SIDC), Samba, J&K applied for fixing of special rate under Notification No.1/2010-CE dared 6.2.2010. The appellant is engaged in the manufacture of staple strips falling under Chapter 83 of the Central Excise Tariff. As per Sl.No.19 of the Table in para 2 of the said notification, the value addition has been fixed at 36% for the above mentioned goods. Notification provides for fixation of special rate of value addition under certain situations. During the examination of the claim of the appellant for fixing the special rate, the dispute arose on two issues viz. (i) whether net excise duty paid and not the total amount of duty paid is required to be deducted from the sale value of goods and (ii) whether freight outward is not to be deducted from the sale Value since as per explanation given in Para 6 (5) of Notification, only excise duty, value Added Tax and other indirect taxes are required to be excluded.
2. On the issue No.1, the Revenue felt that for the purpose of calculation of gross value of sale, total duty actually paid by the manufacturer should be deducted and not the duty paid minus the refund which accrued to them. On the issue No.2, the Revenue felt that outward freight will not form part of the sale value.
3. The matter was adjudicated after following due process and the Commissioner held against the appellant on both the issues. Aggrieved from the said order of the Commissioner, the appellant has filed this appeal.
4. Learned Advocate for the appellant submits that the appellant applied for fixing special rate since the value addition in their case was more than 115% of the rate specified in Notification No.1/10. He took us through the provisions of above notification and contended that only actual excise duty paid is required to be deducted and not the payable excise duty. Since the Notification No.1/10 provides for partial exemption, there is only part levy on the goods and only part payment of duty is made to the Department. He placed reliance on the CBEC Circular No.682/73/02/CX dated 19.12.2002 issued in relation to the identical Notification No.56/02-CE. He argued that refund under these notifications is not on account of any excess payment of excise duty by the manufacturer but is designed to give effect to the exemption. Portion of excise duty which is refunded to the appellant is the duty which is considered as exempt. He referred to the judgement of the Honble Supreme Court in the case of CCE, Jaipur-II vs. Super Synotex (India) Ltd.-2014 (301) ELT 273 (SC). He contended that the Honble Supreme Court has held that unless the sales tax is actually paid to the Sales Tax Department of the State Government, no benefit towards excise duty can be given under the concept of transaction value under Section 4(4 (d) and therefore, it is not excludible from the transaction value. Accordingly, it was held that only the amount paid to the State Government is excludible from the transaction value. He, therefore, argued that for the purpose of fixing the value addition, net amount of duty paid should only be taken into account. He also relied on the following case laws:-
(i) CCE vs. Meera & Co.2007 (217) ELT 460 (Tri.-Del.)
(ii) Dharampual Styapal Limited vs. CCE-2016 (34) ELT 376 (Tri.Kolkata)
5. On the issue No.2, he contended that all the sales made by the appellant are FOR destination sales and in the invoice, freight is shown as paid. Further, in the balance sheet for the year 2011-12, outward freight is shown under the selling and distribution expenses. Besides, transit insurance policy has been taken by the appellant. Hence, all these expenses, are part of the sale price of the appellant and therefore the same cannot be deducted. He relied on the following judgements in this regard:-
(i) Hindustan Sugar Mills Ltd. vs. State of Rajasthan-1979 (43) STC 13 (SC)
(ii) Indian Meters Ltd. vs. State of Tamil Nadu-[2010] 34 VST 273 (SC)
(iii) Indian Oil Corporation Ltd. vs. ACCT-[2015] 82 VST 264 (Raj.)
6. Learned AR reiterated the findings in the order of the adjudicating authority. He relied on the following case laws:-
1. Osaka Alloys & Steels P. Ltd. Vs. CCE & ST., J&K 2015 (328) ELT 625 (Tri. Del.).
2. CCE Shillong Vs. India Carbon Ltd. 2011 (269) ELT 6 (SC)
7. Heard the rival submissions and perused the records.
8. There are two issues arising in this appeal, which are enumerated in the opening paragraph. We find that on the first issue of whether the excise duty for the purpose of calculation of sale value which Notification No.1/2010-CE dated 6.2.2010 should include the excise duty paid through PLA, which is refunded to the assessee, the Commissioner has taken the view that the notification uses the word actual value addition and that refund which is granted by the Government is an incentive and not value addition, which a manufacturer achieves. Hence, the refunded amount of excise duty cannot be deducted to arrive at the actual value addition. The manufacturer is only acting as an agent of the Central Government when he collects the duty of excise from the buyers and remits to the Government. Hence, he has argued that the refund under the notification cannot be considered a part of value addition. He has also referred to an income tax case in which it was held that the excise duty should be treated as capital receipt. He has also argued that if the term payment of duty is taken as duty paid minus refund then para 7(1) would lead to illogical conclusion. We are unable to agree with the above views of the Commissioner for more than one reason. From the wording of the notification, it is evident that the objective is to arrive at actual value addition. For the sake of convenience, the relevant clause of the Notification no.1/2010-CE is extracted as under:
Explanation. - For the purpose of this paragraph the actual value addition in respect of said goods shall be calculated on the basis of the financial records of the preceding financial year, taking into account the following, namely :-
(i) sale value of the said goods excluding excise duty, Value Added Tax and other indirect taxes, if any, paid on the goods;
(ii) Less : Cost of raw materials and packing material consumed in the said goods;
(iii) Less : Cost of fuel consumed if eligible for input credit under CENVAT Credit Rules, 2004;
(iv) Plus : Value of said goods available as inventory in the unit but not cleared, at the end of the financial year;
(v) Less : Value of said goods available as inventory in the unit but not cleared, at the end of the financial year preceding that under consideration.
Special rate shall be the ratio of actual value addition in the production or manufacture of the said goods to the sale value of the said goods excluding excise duty, Value Added Tax and other indirect taxes, if any, paid on the goods. goods. (emphasis supplied)
9. We find that the procedure of payment of duty through PLA and subsequent refund of the same amount, are merely a mechanism to implement the area based notification. Admittedly, the clearance of the goods is under an exemption notification issued under sub section (1) of Section 5A of Central Excise Act, 1944. If the intent is to ascertain actual value addition, then this artificial mechanism of paying duty and subsequent refund, which is merely a mechanism to implement the exemption notification will required to be kept out of calculation. The Commissioner has clearly fallen into an error when he claims that refund is the exemption notification is an incentive and not value addition. We note that refund is not due to any excess duty paid but an extraordinary mechanism to implement the exemption notification. The refunded amount is the portion which is exempted. We also find that had there been plain exemption, then this problem would not have been arisen.
10. We also note that the term used in the Explanation to the paragraph 6 (5) of the notification is excise duty whereas the terms used in paragraph 4 (a) and 7(1) is the total duty paid. Hence, it is not correct to conclude that both the terms are identical. In para 7(1) the wording and context make it evident that the total duty paid means the total excise duty paid through PLA i.e. other than the amount paid through Cenvat Credit.
11. We find force in the contention of the Ld. Advocate that Notification no.1/2010-CE provides for partial exemption. It is also evident from the Boards Circular No. 682/73/2002-CX, dated 19.12.2002, which was issued when Notification No.56/2002-CE dated 14.11.2002, for area based notification in J&K was initially issued. Para 3 of the said Circular is relevant in this regard and is reproduced below:
3.In this context, it may be pointed out that the Refund envisaged in the notifications is not on account of any excess payment of excise duty by the manufacturers, but is basically designed to give effect to the exemption. In other words, the mechanism has been adopted to operationalize the exemption envisaged in these two notifications. In view of this aspect of the matter, the provisions of Section 11B of the Central Excise Act, 1944 would not apply in the case of these notifications.
12. We find that similar view has been taken by this Tribunal in the case of CCE, Jammu Vs. Meera & Co.-2007 (217) ELT 460 (Tri.-Del.). We also note that this Tribunal in the case of Dharampal Satyapal Ltd. vs. CCE-2016 (340) ELT 376 (Tri.-Kolkata) took the view that portion of excise duty which is refunded to the appellant under Notification NO.32/95-CE is the duty which is considered as exempt. This Tribunal has held as below:
4.2?A plain reading of the above Rules reveals that area-based exemptions 32/99-C.E. & 33/99-C.E., both dated 8-7-1999, are mentioned along with other area based exemptions. Some of the exemption notifications specified in these Rules are issued much after Notification No. 27/2001-C.E., dated-11-5-2001. The exclusion of Notification No. 27/2001-C.E. from Rule 12 of CCR, 2004 is thus deliberate. Further Notification No. 27/2001-C.E. is an independent exemption Notification and not an amendment to Notification No. 32/99-C.E. or 33/99-C.E. The provision of Rule 12 of CCR, 2004 is a special dispensation with respect to inputs manufactured in specified areas for the purpose of taking Cenvat credit. The argument taken by the appellant, that these provisions are made as an abundant caution or are clarificatory and has no relevance, is thus required to be rejected. On the contrary the opening phrase of this Rule 12 containing the words Notwithstanding anything contained in these Rules has to be interpreted to mean that in spite of the provisions contained in Rule 3 & Rule 6 of the Cenvat Credit Rules, credit of whole of duty paid through PLA will be admissible even if the same stands fully exempted by exemption notifications specified in these Rules. As Notification No. 27/2001-C.E., dated 11-5-2001 is not mentioned, in these Rules, it is held that though area-based exemption is admissible to NCCD but its Cenvat credit has not been made available by a deliberate omission from the provisions of Rule 10 or Rule 12 of the CCR, 2001/2002 or CCR, 2004.
13. In the case of Osaka Alloys & Steels Pvt. Ltd. Vs. CCE & ST., J&K (supra) relied upon by the Revenue, the question of whether net excise duty would be considered for computing sales value has not been addressed. It is mentioned that special rate of value addition has to be calculated on the basis of formula prescribed in the explanation. The other question dealt is on raw material and packing material. Hence, it does not help the Revenue.
14. We also note that while examining the inclusion of VAT in the transaction value of the goods the Honble Supreme Court in the case of CCE vs. Super Syncotex (India) Ltd.-2014 (301) ELT 273 (SC) held that when the tax is actually paid to the Sales Tax Department, no benefit regarding excise duty can be given under the concept of transaction value. If it was not payable or to be paid as Sales Tax/Vat cannot be charged from the buyers and if charged but not paid or payable become parts and parcel of transaction value.
15. In view of foregoing, on the same analogy, we hold that when an amount of duty is refunded to the assessee, under Notification No.1/2002-CE, the same has to be deducted from the excise duty paid by the appellant while arriving at actual value addition.
16. On the issue of freight outward, the Commissioner has held that as per Accounting Standard-9, transaction relating to sale of goods is complete when seller of the goods transferred to the buyer the property in the goods for price. He has concluded that point of sale is the factory gate as the appellant is not stock transferring the goods to the customers premises. Hence, freight and insurance is not be included in the sale value. On the basis of Section 4 of Central Excise Act, the Commissioner has held that the duty of excise is charged on transaction price at the place of removal and such place of removal is place of sale. Hence, outward freight will not form part of the sale value. We find that in this case the sales made by the appellants are on FOR destination basis. The invoices placed on record show that the freight on these goods has been paid by the appellant. Besides this, marine transit insurance policy placed on record also shows that the insurance of the goods is to be done by the appellant. It is settled law that in the context of Section 4(3)(C) when the goods are on FOR destination sales and the freight is paid by the seller and the goods are to be insured by the seller, then the seller cannot claim deduction of freight and insurance from sale price. In this regard, reference is invited to Hard Castle Petrofer Pvt. Ltd. Vs. CCE, Jammu 2014 (304) ELT 576 (Tri. Del.). We also find that in the balance sheet for 2011-2012, the freight outward is shown under selling and distribution expenses. Hence, the freight outward is includible in the sale value.
16.1 In the case law of CCE Shillong Vs. India Carbon Ltd. (supra) relied by the Revenue, the transportation charges upto buyers premises were reimbursed by the buyer. That is not the case in the present appeal. Hence, the ratio of the said case law is not applicable to the facts of this appeal.
16.2 In view of above, the finding of the Commissioner on this count is also not sustainable and is liable to be set aside.
17. In view of foregoing, the order of the Commissioner is not sustainable and is accordingly set aside.
18. In the result, the appeal filed by the appellant is allowed.
(Pronounced in the Court on 31.10.2017)
(ASHOK JINDAL) (DEVENDER SINGH)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)
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