Customs, Excise and Gold Tribunal - Tamil Nadu
Orchid Chem. And Pharmaceuticals Ltd. vs Commr. Of C. Ex. on 8 February, 2000
Equivalent citations: 2000(72)ECC362, 2000ECR375(TRI.-CHENNAI), 2000(119)ELT485(TRI-CHENNAI)
ORDER V.K. Ashtana, Member (T)
1. To get this appeal heard, appellants are required to pre-deposit duty amount of Rs. 232,51.1717- and penalty of Rs. 2,31,28,779/- for which they have filed application seeking waiver and stay. The issue is with respect to the valuation under Section 4 of the Central Excise Act for clearances of goods in the Domestic Tariff Area (DTA) from an Export-Oriented Unit (EOU), i.e. the appellant.
2. Heard Shri R. Raghavan, ld. Advocate for the appellants and Shri S. Kannan, ld. D.R.
3. Ld. Advocate submits that the applicants are an Export-Oriented Unit who are permitted to sell upto a maximum of 25% of the total value of clearances in DTA as per permission granted by the Development Commissioner of the Zone, which had been obtained. The appellants also claim the benefit of Central Excise Notification No. 2/95, dated 15-1-1995 for such DTA clearances. However, vide Notice, dated 17-11-1998 issued by Additional Director General of Anti-evasion, it was alleged that diferential duty on Cefo-taxime Sodium and Cefazolin Sodium, two bulk drugs covered by DPCO order, was recoverable since they were cleared at a lower price than the maximum price fixed by the DPCO. It was alleged that in terms of Section 4(1)(a)(ii), the maximum sale price fixed by the DPCO would form the assessable value. Suppression of facts were also alleged which led to the passing of the Order-in-Original No. 7/99, dated 22-4-1999 by Commissioner of Central Excise wherein the duty and penalties were imposed as well as interest at 20% per annum was also confirmed under Section 11AB. But the proceedings in respect of confiscation proposals were dropped.
4. Ld. Advocate submits that it is not disputed that the valuation of such goods would have to be in terms of Section 4 of the Central Excise Act as . they were to be sold in the DTA. However, provision (ii) to Section 4(1)(a) of the Act would not apply in this case at all for the reasons that the DPCO only prescribed the maximum selling price applicable for retail sale and did not deal with any wholesale price for sale on the wholesale level. Secondly, he submitted that the said proviso to Section 4(1)(a) would apply only to those excisable goods which were sold at a fixed statutory price. For example, the single fixed price with respect to levy sugar, cement, etc. In this case, the DPCO only fixes the ceiling price, i.e. the maximum price for sale, and therefore the assessees are at liberty to sell at rates lower than the ceiling. Since the assessees can sell the goods legally at a lower price, then obviously the transaction value as per section 4(1)(a) will apply and not the proviso (ii). He further submits that as per the Board's Circular No. M.F. (D.R.) F. No. 31/1/75-CX., dated 8-8-1975 wherein it was clarified as follows :-
10. Proviso (ii) of Clause (a) of Sub-section (1) of the new Section 4. - (1) This proviso gives legal basis for assessment of the goods on the basis of a statutory price. The statutory price may be a fixed price or the maximum price. This proviso however applies only when the goods under assessment are actually sold by the assessee at the statutory price. For goods which are not sold by the assessee at this price the main definition of the 'normal price' would apply. For example, if an assessee sells 50% of the goods to buyers at the price fixed under any law, whereas the remaining goods he sells in open market conditions and not at the statutory price, for the 50% of the goods sold at the price fixed under the law, the statutory price will be deemed to be the 'normal price' and for the 50% goods, the normal price will be determined in accordance with the definition of the normal price in the main Clause. Even where in contravention of any such law, the assessee sells the goods at a price other than the statutory price, this proviso will have no application. Further, the law may fix a maximum price, i.e. the goods cannot be sold above that price but can be sold below that price. If the assessee sells the goods not at the maximum so fixed but at a lower price, or at a higher price in contravention of law fixing the statutory maximum price, even then proviso (ii) will have no application and the goods so sold would be valued under the main Clause (a) of Sub-section (1) of the new Section 4.
(2) It will be relevant to mention that this proviso applies notwithstanding anything contained in proviso (iii). The effect is that even in the case of slaes by the assessee to related person if such sales are at the price or the maximum price fixed under any law, the assessment shall be made at the price or the maximum price so fixed and the 'normal price' will not be determined in the manner laid down in proviso (iii).
He submits that in this case since the goods sold by the present appellants in DTA were not at the statutory price, therefore in terms of the said Circular the normal price under Section 4 would be the assessable value. Ld. Advocate further submits that the question of applicability of the DPCO prices to various drugs is a matter which had been agitated by the Industry before the Central Govt. and the same was pending consideration. Accordingly, vide F. No. 120/7/98-CX. 3, dated 23-12-1998 addressed by the Under Secretary, Central Board of Excise and Customs to all Commissionerates, etc., if had been directed that the show cause notices issued on Pencillin-G demanding differential duty on the basis of the DPCO maximum price should not be enforced at all till further directions from the Board. Ld. Advocate also submitted that the appellants were the only manufacturing unit who have been not only issued with show cause notice, but also the same has been adjudicated upon. In cases of all other competitors, in various parts of the country, though show cause notice may have been issued from time to time to safeguard the Revenue from time bar, they have not been adjudicated upon and recovery enforced, Ld. Advocate further submits that in answer to the Unstarred Question No. 1396, dated 11-12-1998 in the Rajya Sabha as to whether bulk drug companies are flouting DPCO by selling the price below those prescribed by it and thereby evading Excise duty, etc.', the Hon'ble Minister of State in the Ministry of Chemicals and Fertilizers had clarified as under :-
"Under the provisions of DPCO 1995, the Government fixes only the Maximum Sale Price of the bulk drugs under Price Control. The DPCO 1995 does not prohibit sale at lower prices. Prices of bulk drugs not under Price Control, are determined, charged by the manufacturers as per their commercial judgment". In view of the above, the question of evasion of Excise duty etc. does not arise".
Ld. Advocate also submits that since the general practice was to sell the goods even less than the maximum price prescribed by the DPCO, therefore the appellants harboured a bona fide belief that for the reasons explained above, the DPCO price shall not be the assessable value and the normal price at which the goods were sold would be the assessable value. Duty was therefore paid under this bona fide belief. On the contrary, nothing has been shown by the Revenue to show that this was done with any wilful intent to evade duty. The only ground on which the extended period has been invoked in the order impugned is that the DPCO Circular relating to bulk drugs of 1995 was not brought to the department's notice. In this connection, he submits that the said order is a statutory order passed by the Govt. of India and available in the Gazette. There was no need for the appellants to bring this to the notice of another wing of Govt. of India, particularly when they were under the bona fide belief that they had correctly declared the assessable value as per the Board's Circulars cited supra. Therefore, he submits that even the extended period of limitation would not be applicable in this case. Ld. Advocate concludes by praying that since they have demonstrated that the case on merits is totally in their favour both in terms of question of assessable value as well as on limitation, therefore their application for full waiver and stay requires favourable consideration. He further submitted that the matter could be remanded to the Original Authority as he has not only in internal page 9 in para 7 of the order impugned (the Ld. Commissioner has) noted the words 'instructions of 8-8-1975' but has held that he would not follow the same because, they were contrary to provisions of Section 4(1)(a)(ii). In this connection, he cites the decisions of the Hon'ble Supreme Court in the case of Ranadey Micronutrients v. CCE as in 1996 (87) E.L.T. 19 wherein the Hon'ble Apex Court had held that Ciculars issued by CBEC to all Collectorates are not advisory in character but binding on them and the department cannot be allowed to plead that such a Circular was not held in law as they were meant for adoption of uniform practice. Therefore, the departmental officers cannot repudiate the Circular on the ground that it is inconsistent with the statutory provisions. Ld. Advocate submits that the findings of the ld. Commissioner in the order impugned is totally against the said judgment of the Hon'ble Supreme Court. He further cites the decision of the Hon'ble Apex Court in the case of Paper Products Ltd. v. CCE as in 1999 (112) E.L.T. 765 (S.C.) wherein taking a similar view as in the case of Ranadey Micro-nutrients Ltd. (supra), the Hon'ble Apex Court has further held that consistency and discipline are of far greater importance than winning or losing Court proceedings and therefore, the department is totally precluded from challenging the correctness of the Circular even on the ground of the same being inconsistent with statutory provisions. Ld. Advocate submits that in view of the order impugned having not followed both the Circular of 1975 (supra) as well as the ratio of the Board's letter noted supra to keep in abeyance all enforcement procedures with respect to DPCO prices and valuation, therefore the Order-in-Original impugned needs to be set aside and the matter remanded to the Original Authority for a reconsideration of the entire issue in terms of these positions noted above.
5. Ld. D.R. vehementally opposes the request for stay and for remand. In this connection, he submits that firstly, the appellants are a 100% EOU and have taken benefit of duty-free capital goods, raw materials etc. under the Scheme and for clearances under DTA they are governed by Section 3 of the Central Excise Act. Thereunder, the Govt. had issued a Notification No. 2/95-C.E. supra by virtue of which the goods would be on an assessable value fixed in terms of Section 4(1)(a)(ii). The said proviso creates a legal fiction with respect to the assessable value arising out of the price which are starutorily and legally fixed which has also been upheld by the Hon'ble Supreme Court in the decision in the case of Aluminium Industries Ltd. v. C.C.E, in 1998 (99) E.L.T 486 (SC). He further submits that according to the judgment of the Hon'ble Madras High Court in the case of Kanha Labs, the proviso to Section 4(1)(a) was not inconsistent with Section 3 and therefore, the same should be taken as the assessable value of the goods. He further submits that the Hon'ble Supreme Court has also held that the statutory provisions should be interpreted in a way they are not rendered redundant. If the Ld. Advocate's submissions are to be accepted, then the very proviso (ii) in the case of goods for which DPCO has fixed the price would be rendered redundant; because, if the said maximum price is not accepted as the assessable value, then the wholesale price at the factory gate would have to be adopted. Ld. DR files in Court copy of the letter, dated 2-2-2000 from the Office of the Director-General of Anti-Evasion, Chen-nai which contains certain parawise comments in compliance of the Bench direction to get comments on the Board's Circular of 1975. He reiterates the same. In this connection, he submits that the decision of the Tribunal in the case of Soyabeans and Vanaspati Industries v. CCE as in 1999 (105) E.L.T. 238 which held that the assessable value would be at the price at the Essential Commodities Act within that sale has been effected at the lower price. Therefore, ld. D.R. submits that as the Board's Circular of 1975 is very old, it should not be solely relied upon, particularly in the light of the judgment noted above. He, therefore, prays that the appellants may be required to pre-deposit the sums as deemed fit in the matter.
6. At this point ld. Advocate rose to counter that the decision of Soya-beans supra of the Tribunal did not take into consideration the Board's Circular at all. Similarly, the judgment of the Supreme Court in the case of Aluminium Industries (supra) also did not consider the question of following the Board's Circular referred to supra. Therefore, both these pronouncements would have to be distinguished.
7. On a detailed and careful consideration of the rival submissions as well as the records of the case, we are of the considered view that there is substantial force in the submissions of ld. Advocate that the appellants have established, on a prima facie consideration, that they have a strong case in their favour for the following reasons : -
(a) The DPCO prescribes a maximum sale price and in view the submissions noted above, we are of the prima facie view that there is nothing in law which prevents the appellants to sell their bulk drugs at a price lower than maximum price prescribed by DPCO.
(b) We are also of the prima facie considered view that Section 4(1) (a) Proviso (ii) would apply to situations where the price is a statutorily fixed price, that is to say that every manufacturer of that commodity would be forced by law to sell only at that price. In the present case, the DPCO order does not establish such a situation. It only fixes a maximum ceiling price. Therefore, the legal fiction created by the proviso would apply only to statutorily fixed price and not to ceiling price, otherwise the legal fiction created would render contra to the provisions to Section 4(1)(a) itself.
(c) This very view had been taken by the Board of Customs and Excise in their Circular of 1975 (supra). On a prima facie consideration, in view of the decisions of the Hon'ble Apex Court in the case of Ranadey Micronutrients Ltd. and Paper Products (supra), this Circular is binding on the department. In their comments, dated 2-2-2000 (supra) the Office of the ADG, Anti-evasion, Chennai have also conceded that the said Circular, dated 8-8-1975 of the Board is still in currency as no order rescinding the order or cancelling this Circular was received. Therefore, we find that the ld. Commissioner has erred in the order impugned by declining to follow the said Circular on the grounds that it was not in consonance with statutory law. The pronouncements of Hon'ble Apex Court is to the contrary and therefore the Or-der-in-Original does not follow the decisions of the Hon'ble Apex Court in this regard.
(d) The letter of the Under Secretary of the Board asking Field officers to hold in abeyance any recovery action with respect to the drug mentioned under DPCO that was in the context of Pencil-lin-G but on a prima facie consideration, the ratio of the same would also apply to other bulk drugs. In this connection, we also note that no other Commissionerate has adjudicated the numerous show cause notices which have been issued throughout the country on this matter.
(e) We also find that since the appellants harboured a bonafide belief that in view of the said Circular of 1975, the assessable value would not be the maximum price of DPCO but the normal price in terms of Section 4, therefore on a prima facie consideration, they have demonstrated that the extended period may not be invokable in this case.
8. In view of the aforesaid analyses and findings, we are of the clear prima facie view that the appellants having demonstrated that they have a very strong case in their favour both on merits as well as on limitation and also because the Order-in-Original impugned has taken up a position which is totally inconsistent to two judgments of the Hon'ble Apex Court as discussed above, therefore the interest of justice would require that the entire duty, penalty and interest be waived and recovery thereof stayed. Further, since the matter lies on a short compass, we proceed to consider the appeal itself. We have already noted above that the Order-in-original impugned has flouted the decisions of the Hon'ble Apex Court to the effect that the ruling of the Board should be followed and cannot be brushed aside on grounds of being inconsistent with other statutory provisions. Therefore, we consider the validity of the said order impugned and are compelled to set aside the same. We remand the matter to the Original Authority for a de navo consideration of the entire matter on the basis of the said Board's circular of 1975 taking into consideration also the letter, dated 23-12-1998 as well as the judgments of the Supreme Court in the cases of Randay Micronutrients and Paper Products Ltd. (supra). It is hereby clarified that the matter is remanded to the Original Authority on an open de novo basis and he shall consider the representations from the assessees as well as from the Revenue at the appropriate time when he would be required to adjudicate upon this matter. The appeal succeeds by way of remand accordingly and the Stay application is also disposed of in above terms.