Custom, Excise & Service Tax Tribunal
M/S Usv Ltd vs Commissioner Of Central Excise & ... on 6 August, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Application No. E/S/95667/13 in Appeal No. E/87247/13 (Arising out of Order-in-Original No. 05/CEX/COMMR/KOP/2013 dated 18.2.2013 passed by the Commissioner of Central Excise & Service Tax, Kolhapur). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s USV Ltd. Appellant Vs. Commissioner of Central Excise & Service Tax, Kolhapur Respondent Appearance: Shri V.N. Ansurkar, Advocate for Appellant Shri Shobha Ram, Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 06.08.2013 Date of Decision: 06.08.2013 ORDER NO. Per: P.R. Chandrasekharan The appeal and stay petition are directed against Order-in-Original No. 05/CEX/COMMR/KOP/2013 dated 18.2.2013 passed by the Commissioner of Central Excise & Service Tax, Kolhapur.
2. The appellant, M/s USV Ltd., is a manufacturer of bulk drugs namely, Metformin HCL. The appellant has unit at Chiplun and also at Daman and Baddi. They also have Loan License Manufacturers (LLM). The bulk drugs manufactured by the appellant were stock transferred to their own unit and Loan License Manufacturers by discharging excise duty on a valued determined under cost construction basis under Rule 8 of the Customs Valuation Rules, 2009 issued at the relevant time. The goods were also sold to unrelated buyers such as Ranbaxy Ltd., Emcure Pharma, Cadila and Activis Pharma. However, the goods sold to the unrelated buyers were of a higher mesh size, whereas the goods stock transferred to their own unit and the LLM were of lower mesh size. The fact that the appellants were discharging excise duty liability on the goods stock transferred to their own unit/LLM on cost construction basis was known to the department and there are correspondences in this regard between the appellant ant the jurisdictional range officers and the value adopted by the appellant on cost construction basis was also approved by the department and was not disputed. The unit was audited by a Departmental Audit Team including the Dy. Director (Cost), Central Excise, Pune. The Dy. Director (Cost) in his report dated 16.2.2009 pointed out certain shortcomings in the method of costing principle adopted by the appellant. He observed that the appellant is clearing the goods on the cost of manufacture whereas the cost should have been taken at the cost of sale which includes the cost of production, portion of corporate expenses, selling and distribution expenses and other common expenses. Subsequent to the audit, the appellant followed the cost of sale method to arrive at the duty liability and accordingly started discharging duty liability. In view of the observations of the Dy. Director (Cost), the appellant was asked to revise the costing and submit figures for the year 2005-06 to 2009-10. The appellant reworked the duty liability and submitted that during the period 2005-06 to 2007-08, they have paid excess duty of Rs.59,47,517/- whereas during the period 2008-09 and 2009-10, they were required to pay differential duty of Rs.60,47,738/- out of which they had paid a sum of Rs.46,15,019/-during 2008-09 and 2009-10. Thus, the difference between the differential duty required to be paid and excess duty paid worked out to Rs.14,32,710/- and the appellant was directed by the jurisdictional Range Superintendent vide letter dated 02.08.2011 to discharge the said duty liability, which the appellant paid along with interest during September, 2011. On 8.5.2012, a show-cause cum demand notice was issued to the appellant demanding differential excise duty of Rs.7,19,44,971/- for the period 2007-08 to 2011-12 (upto 2.1.2012) on the ground that as per the provisions of Section 3(1) of the Central Excise Act, 1944, a 100% EOU has to discharge duty liability on the value of such excisable goods manufactured by them in accordance with the provisions of Customs Act, 1962 and the Customs Tariff Act, 1975 and, therefore the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of Section 14 of Customs Act, 1962 read with Customs Valuation Rules (CVR in short), 2007. Since the appellant had also sold the goods manufactured by them to unrelated buyers, the valuation has to be done in terms of Rule 5 of the CVR, 2007 and the price at which the goods were sold to the unrelated buyers should form the basis for discharge of duty liability by the appellant in respect of the goods stock transferred to their own unit and also to LLM. The appellant contested the notice and submitted that the goods supplied by them to the unrelated buyers were of different mesh sizes and the mesh size or the particle size of product supplied has a significant impact on the formulations manufactured out of the bulk drugs and the mesh/particle size is a customer specific requirement and varies depending upon the type of formulations required to manufacturer. Thus, it was the appellants contention that price at which the goods were sold to unrelated buyers cannot be the basis for valuation of the goods stock transferred to their own unit and the LLMs. The learned adjudicating authority, however, came to the conclusion that under Rule 5, the price of similar goods can be adopted for determination of customs value and the similar goods means goods which although not alike in all respects but having like characteristics and like component materials which enable them to perform the same functions and should be commercially interchangeable with the goods being valued having regard to quality, reputation and existence of trade mark. Taking into account this definition of similar goods, the adjudicating authority came to the conclusion that the goods supplied to unrelated buyers are similar to those supplied to own unit/LLMs. Therefore, price at which the goods were sold to unrelated buyers should be the basis for determination of duty liability. Accordingly, he confirmed the impugned demand. Aggrieved of the same, the appellant is before us.
3. The learned Counsel for the appellant makes the following submissions: -
(i) The goods supplied to unrelated buyers are of higher mesh size and, therefore, cannot be compared with the goods supplied to own units/LLM, which are of lower mesh size. Further, the supply made to the unrelated buyers are as per their specifications and for their own use and particle size of the bulk drugs has significant impact plus efficacy of the product and, therefore, the goods cannot be compared nor the price.
(ii) Secondly, it was contested that the fact that the appellants were discharging the excise duty liability on the cost construction method was known to the department and it was also approved and agreed to by the jurisdictional authority and, therefore, the revision of value of the goods by invoking the extended period of time is not sustainable in law.
Accordingly, he pleads that the impugned order is not sustainable in law and, therefore, stay be granted.
4. The learned Commissioner (AR) appearing for the Revenue, on the other hand, reiterates the findings of the adjudicating authority. He also submits that except for the mesh size, the goods supplied are similar to those supplied to unrelated buyers and therefore, Rule 5 can be reasonably adopted and, therefore, the impugned demands are sustainable in law. Accordingly, he pleads that the appellant be put to terms.
5. We have carefully considered the rival submissions.
5.1 The first issue for consideration is whether the goods supplied to the unrelated buyers and the goods supplied to own unit/LLMs are comparable at all. The contention of the appellant is that in view of the difference in mesh sizes, the goods are different and therefore their usage is also different, whereas the Revenues contention is otherwise. However, it is seen that no technical/expert opinion has been sought by the department to ascertain whether the goods supplied by the appellant to the unrelated buyers and LLMs are comparable or similar and commercially interchangeable or not. In the absence of expert opinion, it is very difficult to come to any conclusion in this regard. Therefore, we are of the prima facie view that the department should have ascertained whether the goods supplied to unrelated buyers and stock transferred to their own unit or LLMs are commercially interchangeable and/or similar in any way. Since this has not been done, the matter has to go back to the adjudicating authority for fresh consideration. We also note that the appellant has been discharging excise duty on the cost construction basis and this fact was known to the department. Therefore, we do not know how the extended period of time could be invoked for demanding duty. In our view since, the department was in the knowledge of the method of valuation adopted by the appellant, the extended period of time is not invokable. This aspect also needs to be examined by the adjudicating authority afresh.
6. In the light of the above, we remand the matter back to the adjudicating authority for fresh consideration of all the issues discussed above. The appellant is at liberty to produce whatever documentary evidences they want to submit in support of their contentions. All issues are kept open. Thus, the appeal is allowed by way of remand. Stay petition is also disposed of.
(Dictated and pronounced in Court)
(Anil Choudhary) (P.R. Chandrasekharan)
Member (Judicial) Member (Technical)
Sinha
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