Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Usv Ltd on 23 July, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. II Appln.No.E/CO/107/12 APPEAL No.E/1010/12 (Arising out of Order-in-Original No.05/CEX/COMMR/KOP/2012 dated 27/02/2012 passed by Commissioner of Central Excise, Goa) For approval and signature: Honble Mr. Anil Choudhary, Member (Judicial) Honble Mr. Raju, Member (Technical) 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? ========================================
Commissioner of Central Excise, Mumbai Appellant Vs. USV Ltd., Respondent Appearance:
Shri.Hitesh Shah, Commissioner (AR) for appellant Shri.M.P.Baxi, Advocate, for respondent CORAM:
Honble Mr.Anil Choudhary, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of Hearing : 23/07/2015 Date of Decision : /09/2015 ORDER NO Per: Raju
1. The appeal is directed against Order-in-Original No.05/CEX/COMMR/KOP/2012 dated 27/02/2012 passed by Commissioner of Central Excise, Goa.
2. M/s USV Ltd. manufactures pharmaceuticals and consumes DMF and IPA as raw materials for the same. During this process spent DMF and a spent mixture of DMF and IPA is generated. MS USV Limited get these spent materials the processed by 3 outside units, namely, M/s Sulakhi, M/s Sahastra and M/s Sangadeep. The reprocessed material is again used in the manufacture of pharmaceuticals by M/s USV Limited.
2.1 In September 2005 M/s USV converted a part of their unit into our hundred percent EOU. Prior to this conversion they were using the job work facility available under Central Excise law. After conversion they applied for job work permission under EOU scheme. The said permission was granted some time in 2006. There were also periods in subsequent years when their job work permission under EOU scheme was not available and hence they were unable to clear the goods for reprocessing without payment of duty under job work scheme. During these periods, when they did not have the permission under job work they cleared the goods on payment of duty.
2.2 Prior to September 2005 M/s USV had entered into an agreement with M/s Sulakhi about the terms of the transaction. The said contract dated 2 September 2003 contained following notable clauses
2. Duration:
2.1 This Agreement shall come into effect from the 1st day of May 2003. Subject to the provisions of clause 13 hereof, this agreement shall remain in force for a period of 10 (ten) years from the effective date and may be renewed thereafter by the parties hereto for such further periods and on such terms and conditions as may be mutually agreed between the parties.
4. Supply of Material, etc. 4.1 The Company shall supply and impart to the Processor the technical information of the said product for the purpose of enabling the Processor to process the said product and obtain the said Processed Product.
4.2 The said Products and the said Processed Product shall belong to the Company and shall remain the property of the Company and at no time, whether during the continuance of this Agreement or after its termination, shall the Processor be untitled to claim any right or interest in any of the said materials. The Processor will account for the materials and will send a statement of reconciliation every month indicating the details of the receipt of the said Product from the Company and the recovery of the said Processed Product after processing.
4.3 The Processor shall also submit to the Company a weekly statement confirming receipt of the said Product sent to the Processor, either from the Companys plant or directly form their supplier or other processor or otherwise in the prescribed format provided by the company. The processor shall also report to the Company the issues during the period and the closing stock of the said materials, work in process and finished goods at the end of every week and also as at each month and by the third day of the following month. The Processor shall also be liable to give the above information whenever a request is made by the Company in that behalf. The processor acknowledges that the Company has to make ON LINE entries in SAP ERP Package installed by the Company and the processor takes the responsibility of sending the related documents to the Company on a weekly basis to enable the Company to make the relevant entries. The Processor shall be fully and safely responsible or the same and be bound by the same. It is understood that delays in updation of SAP R/3 will be considered in evaluating the performance of the processor.
4.4 It is hereby agreed and accepted that the said Processed Product shall conform to the specifications provided by the company. In the event the same do not meet the specifications the processor shall reprocess the same at its own cost and labour.
4.5 It is agreed and accepted that against each consignment of the said Product, the Processor shall at least recover and dispatch to the Company 63% of the said Processed Product is quantity confirming to the technical information including the specifications provided by the company. In case the recovery is less than the agreed percentage of 63%, the processor shall be liable to reimburse to the company the value of such short delivery of the said processed product calculated at Rs. 25 per Kg or the then prevailing market rate of the said Processed Product whichever is higher.
5. Processing:
5.6 In the event of the said Processed Product giving a yield which is less than the yield specified, then and in such an event, without prejudice to any other right and remedy that the Company may have, the Processor shall be liable to make good the shortfall in the yield in such manner that may be directed by the Company from time to time. In such an event the company will adjust the value of such shortfall in the product to be calculated at its prevailing price, from any amount due and or payable to the processor and the company will have charge on all (tangible/intangible) belonging to the Processor against all amounts due from the processor.
8. Processing charges:
8.1 The Company shall pay to the Processor, the processing charges at Rs. 8.70 Per Kg. and in a manner that may be mutually agreed between the parties.
9. General obligations of the processor:
9.1 The Processor hereby undertakes and agrees with the Company that it shall at all times during the continuance of this agreement, observe and/or perform all the terms and conditions set out in this Agreement and in particular, the Processor shall:
(c) not assign, transfer, charge, delegate performance of this agreement or in any manner make over or purport to assign, transfer, charge, delegate performance of this agreement or make over this Agreement or the rights hereunder or any part thereof without obtaining the previous consent in writing of the Company. In the event of the Processor appointing sub-agents with the permission of the Company as above, it shall be the primary liability of the Processor to ensure that the sub-agent duty complies with the terms of this Agreement. The Company shall hold the Processor liable and/or responsible for any breach by any sub-agent. For this purpose, the breach by the sub-agent shall be equivalent to a breach by the Processor himself.
11.2 The said product and the said processed product that may be delivered by the company to the processor shall remain the sole and absolute property of the company who shall be the legal and equitable owner thereof but the said product said processed product and work in process shall nonetheless be at the processors risk until duly delivered by the processor to the company in terms of this agreement. The processor shall not have or claim any right, title, or claim either on the said product said processed product and work in process.
--
14. Consequence of Termination:
14.1 Upon the termination or purported termination of this agreement or sooner determination thereof for any reason whatsoever, the processor shall forthwith:
(a) cease to process and manufacture the said product;
(b) return the technical information to the company
(c)deliver to company at such place as may be specified by the company, the said product, the said processed product and work in progress.
14.2 This agreement supersedes all prior discussions and writings and constitutes the entire agreement among the parties with respect to the said matter hereof.
14.3 The termination or sooner determination of this agreement shall not absolve or relieve the processor from any liability, which the company may have incurred under or by virtue of this agreement. The termination or sooner determination of this agreement for whatever reason shall be without prejudice to any claims or rights of the action accrued prior to such termination or determination to the company against the processor.
2.3 There was however, no such agreement recovered in respect of M/s Sahastra and M/s Sangadeep. The new EOU unit continued to make clearances of spent material for reprocessing to the aforesaid units. Since for certain periods there was no job work permission available under EOU scheme the spent material had to be cleared on payment of duty. M/s USV started clearance of spent material at following assessable value:
Spent DMF Rs. 5 per KG Spent DMF and IPV mix Rs 7.5 per KG
The reprocessed material was brought back by M/s USV at following cum duty rates DMF Rs 26 per KG IPV Rs 35 per KG The spent material consisted of the following mix Spent DMF 68% DMF Spent DMF and IPV mix 68.5% DMF and 28.5% IPV During this period the assessable value of imports were as follows DMF Rs 36 60 per KG IPV Rs 50 54 per KG 2.4 In this background investigation was conducted. Show cause notices were issued to M/s USV alleging that they have undervalued the assessable value of the spent DMF and spent DMF/IPV mix and have failing to pay correct Central Excise duty leviable under the Central Excise act. It was alleged in the show cause notice that prior to conversion of DTA unit into EOU unit they were mentioning a price of Rs.21 per KG in their job work challans and immediately after converting to EOU they started valuing their clearance at Rs.5 per KG. It was also alleged that noticee were not entitled to avail notification 23/2003. It was alleged that the declared price of Rs.5 and Rs.7.5 per KG was a conditional price and therefore could not be accepted as assessable value as prescribed under section 14 of the Customs act. It was alleged that the value of goods in the circumstances has to be ascertained under Customs valuation (determination of price of imported goods) rules 1988 or 2007 as the case may be. Under these circumstances it was alleged that the valuation cannot be done under rule 4-7 of CVR 1988 or rule 3-9 of CVR 2007. Therefore the value declared has to be rejected under rule 10A of CVR 1988 or rule 12 of CVR 2007 and valuation has to be done under residual rule 8 of CVR 1988 or rule 9 of CVR 2007.
2.5 During the investigation statements of following persons were recorded:
i) Bhalchandra Namdev Katkar Plant Manager of M/s USV Ltd
ii) Pratap Rajaram Mahadik, Administrative Manager of M/s USV Ltd
iii) Dileep Anandrao Pandit, General Manager (Commercial) of M/s USV Ltd
iv) Krutarth Atul Shah, Director of Sungadeep and Partner of M/s Nayomi Chemisol
v) Promod Ramprasad Shukla, Plant Manager of M/s Sulaki 2.6 None of these statements have been retracted nor any of these persons cross-examined by the respondents. On the basis of the about evidence the assessable value for these goods cleared by M/s USV to various processors was sought to be changed by resorting to residual rule 8 of CVR 1988 or rule 9 of CVR 2007. To arrive at the assessable value of the goods the notice attempts to calculate backwards from the assessable value of the prime material imported at the material time. To arrive at the assessable value of the spent material by employing residual method of calculation was made of the spent material required and the processing costs paid to the processors.
2.7 The Commissioner dropped the proceedings under the show cause notice. The Commissioner observed that there are 4 issues which need to be decided and listed them as follows:
Thus, the questions to be decided is:
(i) Whether the spent IPA+DMF mixture and spent DMF are excisable goods and attract central excise duty. If so, whether the exemption under Notification No.23/2003 is available to the noticee.
ii) Whether the assessable value determined by the noticee is correct or it is required to be determined as proposed in the notices.
iii) Whether the extended period invoked for demanding duty is justifiable; and
iv) Whether penalty is imposable as proposed under various clauses in the notices 2.8 On the first issue the Commissioner decided in favour of the appellants and the revenue is not in appeal and therefore, the issue is settled. On the 2nd issue the Commissioner observed:
i) There is no evidence of any extra consideration flowing from the processor to the appellants
ii) Income tax authorities and sale tax authorities have not challenged the transaction values between the appellant and the processor.
iii) Just because the price shown while clearing to job worker prior to September 2005 was much higher and reduced immediately on conversion to EOU is not sufficient to establish that there was undervaluation.
iv) The notice itself states that no comparative prices of similar goods are available
v) The DTA unit of the respondent cleared similar goods the same processor at a price lower than the price at which the appellants cleared, and the same has not been challenged.
2.9 On the basis of above he held that there is a transaction value available between the assessee and the processor and the same should be accepted as assessable value of any other. An appeal against the aforesaid order has been filed on the following grounds:
i) The valuation of the goods should have been done under rule 8 of CVR 1988 or rule 9 of CVR 2007 as the transaction is not independent/fair. The reasons for stating that the sales are not independent/fair was, firstly prior to September 2005 the same goods were cleared on job water challans stating the price of the goods to be Rs.21 per KG and secondly because there was an understanding with the processor that the material will be supplied to them at a predetermined price and the same will be returned at a predetermined price. In fact it is stated that the agreement between the parties showed that in case the recoveries were less than a particular percentage there will be a compensation paid by the processor. In the statements recorded the employees of the respondent have clearly admitted that their technical persons regularly visited the job workers premises to check the stock position of the spent and reprocessed goods. On the bases of these facts it was claimed that this transaction between these parties was not an independent transaction.
ii) It was also alleged that the Commissioner erred in concluding that there is no strong evidence to prove collusion, fraud or intent to evade duty. It is claimed that since the respondents have supervised the activities and the processors premises and because the sale and purchase of goods are interlinked and dependent on each other, the sale price is not free and independent and therefore the respondents have not correctly determined the value per Customs valuation rules of 1988 or 2007.
3. On the basis of above, it was prayed that the order in original be set aside.
4. Learned AR argued that Commissioner has confused if the transaction between the respondents and the processor is that of a job work or that of sale. He argued that as per loan licensee agreement para 4.1 to 4.5 of the said agreement (reproduced in part in para 2.2 above) it is clear that the transaction between the respondent and the processor is that of a job worker and not sale.
4.1 It was also argued that the said agreement was reached between the parties before the said unit was converted to an EOU unit. It was argued that the processing charges remain the same. In this regard he brought our attention to parts of Para 5,8,9 and 11.2 to 11.5 of the agreement (reproduced in para 2.2.above).
4.2 Learned AR brought our attention to the various statements recorded during investigation. Shree Bhalchandra Namdeo Katkar working as Plant Manager with the respondent. He has been employed with the respondent since 1989 and has been working as Plant manager since August 2006. In the statement he has inter alia stated the following:
Q.No.4 Whether do you have separate storage facility for imported and indigenously procured Fresh DMF/IPA in the EOU?
A. We do not have separate storage facility for imported and indigenously procured fresh DMF and IPA in EOU. However, we have separate storage tanks to store fresh DMF/IPA, Crude DMF/IPA, Crude DMF+IPA Mix and re-processed DMF and IPA in EOU.
Q.No.5 So, is it true that in EOU, you mix up Fresh DMF procured indigenously and imported in one tank in such a manner that both quantities cannot be separated?
A. Yes, It is true Q.No.12 Is it true that you have supplied Crude DMF to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals on job work basis for reprocessing of DMF by way of distillation?
A. Yes; it is true Q.No.13 Whether have you entered into any agreement with M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals for job work of re-process of Crude/Spent DMF?
A. Yes; we have entered into a Loan license Agreement with M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals for job work of reprocess of Crude/Spent DMF.
Q.No.14 Is it true that through the Crude DMF is supplied to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals for reprocessing, it is property of and owned by M/s.USV Ltd. (EOU) as per the said agreement.
A. Yes it is true Q.No.17 Is it true that all the Crude DMF supplied by M/s.USV Ltd. (EOU) to M/s.Sulaki Chemicals Pvt.Ltd. and M/s.Sahastra Chemicals is bound to be returned to M/s.USV Ltd. (EOU) after reprocessing, and that, M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals have no liberty to sell it to any other party other than M/s.USV Ltd. (EOU)?
A. Yes; it is true Q.No.18 Is it true that M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals have so far never sold Crude DMF supplied by M/s.USV Ltd. (EOU) or re-processed DMF manufactured out of the said Crude DMF to any other party other than M/s.USV Ltd. (EOU)?
A. Yes, it is true that M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals have so far never sold Crude DMF supplied by M/s.USV Ltd. (EOU) or reprocessed DMF manufactured out of the said Crude DMF to any other party other than M/s.USV Ltd. (EOU) Q.22 Why have you paid excise duty on supply of Crude/Spent DMF to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals during the period from September 20005 to March 2006 and September 2006 though the said Spent/Crude DMF is sent to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals on job work basis?
A. We have paid excise duty on supply of Crude/Spent DMF to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals during the period from September 2005 to March 2006 and September 2006 though the said Spent/Crude DMF is sent to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals on job work basis because after conversion of M/s.USV Ltd. into 100 per cent export oriented unit from 01/09/2005 we did not have job work/sub-contracting permission, as required, from Central Excise Department.
Q.No.26 Is it true that technical personal of M/s.USV Ltd. regularly visit the job workers premises viz., M/.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals to supervise quality control and to check stock position of Crude/Spent and re-processed DMF?
A. Yes; it is true.
Q.No.27 Is it true that if the recovery is less than 63% during the course of distillation at the job workers end i.e. M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals, the job workers are liable to reimburse to M/s.USV Ltd. value of short delivery of Processed/Pure DMF @ Rs25/- per kg. or the then prevailing market rate, whichever is higher?
A. Yes; it is true.
Q.28. What is your relationship with M/s.Sangdeep Acid Chem Pvt. Ltd., C/26, Old Pawana MIDC, TTC Industrial Area, Navi Mumbai? Whether do you send Crude/Spent DMF+IPA Mix to M/s.Sangdeep Acid Chem Pvt. Ltd., for re-process on job work basis?
A. M/s.Sangdeep Acid Chem Pvt.Ltd., C/26, Old Pawana MIDC, TTC Industrial Area, Navi Mumbai is our customer and we are selling them IPA+DMF Mixture. It is appears from our input invoices of M/s.Nayomi Chemisol that IPA and DMF manufactured by M/s.Sangdeep Acid Chem Pvt. Ltd. is supplied to us. However, there is no binding clause on M/s.Sangdeep Acid Chem Pvt. Ltd. to supply us reprocessed IPA and DMF mixture supplied by us. We are purchasing IPA and DMF from M/s.Nayomi Chemisol as fresh IPA/DMF and we may not getting IPA/DMF re-processed out of IPA+DMF mixture supplied by us to M/s.Sangdeep Acid Chem Pvt. Ltd., 4.3 Learned AR brought our attention to the various statements recorded during investigation. Shree Pratap Rajaram Mahadik, the then Administrative Manager, who has been working with the respondent since 1992, in the statement, interalia, stated as follows:
Q.No.4 How have you determined assessable value of Crude/Spent DMF sent to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals on payment of excise duty during the said period?
A. We have received Purchase Orders from M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals for purchase of Crude/Spent DMF @ Rs.5/- kg. and so we have accepted the said price as assessable value of the said goods for payment of excise duty during the said period.
Q.No.5 Whether have you determined assessable value of Crude/Spent DMF sent to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals in accordance with the provisions of Section 3 of the Central Excise Act, 1944 read with Customs Act, 1962 and Customs Tariff Act, 1975?
A. Presently, I do not know as to whether the assessable value of Crude/Spent DMF is determined in accordance with the provisions of Customs Act, 1962 and Customs Tariff Act, 1975 as the same is being dealt with by Commercial Department of the factory housed in Mumbai Office. I have to consult this matter with my superior officers of Commercial Department viz. Shri DA Pandit, General Manager (Commercial) and Shri Vijay Dhanawade, Purchase Department Head. I will reply you on this after making discussions withboth the above named officers as I do not know the fact.
Q.No.6 Is it true that prior to conversion of M-3 Plant into EOU you have supplied Crude DMF to M/s.Sulaki Chemicals Pvt. Ltd., and M/s.Sahastra Chemicals on job work basis for reprocessing of DMF by way of distillation considering the price of Crude/Spent DMF @ Rs.21/- per Kg?
A. Yes; it is true.
Q.No.9 Is it true that while 100% of Crude/Spent DMF sent to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals is returned back by them after reprocessing to M/s.USV Ltd. at Lote, the price charged by them (M/s.Sulaki and M/s.Sahastra) is Rs.22/- to Rs.24/- per kg?
A. Yes; it is true.
Q.No.15 Can you explain as to why the sale transaction was carried out by issue of Invoices of Crude/Spent DMF during the period from September 2005 to September 2006 when M/s.Sulaki Chemicals and M/s.Sahastra Chemicals were your job workers for past 10 years?
A. After conversion of M-3 Plant into 100% EOU, the matter of obtaining job work permission was under process; and so during the said period the Crude/Spent DMF was sent by following sale transaction procedure by issue of C.Ex. Invoices.
Q.No.21 Do you know as to what factors were considered by M/s.USV Lt. (EOU) while placing PO on M/s.Sulaki Chemicals and M/s.Sahastra Chemicals to negotiate the purchase price between Rs.22/- to Rs.24/- per kg?
A. I do not know the details on this as the same is dealt with by Commercial Deptt. Of our company located at Mumbai.
16. Learned AR brought our attention to statement of Shri Dileep Anandrao Pandit, Gen manager Commercial, working with the respondent since 1988. In the statement he has inter alia stated the following:
Q.No.2 Please state as to how have you arrived at the price of Spent/Crude DMF removed out of factory during the period from September 2005 to November 2006 as Rs.5/- per kg applying the provisions of Customs Act, 1962?
A. I would like to state here that in September 2005 we have converted a part of our unit as EOU. We are required to remove Spent/Crude DMF for reprocessing to M/s.Sulaki Chemicals and M/s.Sahastra Chemicals. We have been doing this for last few years on job work basis without payment of duty; however, on conversion into EOU, we were not able to remove such Spent/Crude DMF without specific job work permission from C.Ex. Deptt. Since we cannot stop removal of spent/Crude DMF for reprocessing, we had no alternative but to remove such material for reprocessing making sale & purchse transactions. At this point of time we invited quotations from M/s.Sulaki Chemicals as well as M/sSahastra Chemicals and based on the quotes, we freeze the sales price at Rs.5/- per kg. of Spent DMF. Subsequently, the job workers placed Pos for purchase of such Spent/Crude DMF @ Rs.5/- per kg. So, as per PO placed by these two units, we have cleared Spent/Crude DMF @ Rs.5/- per kg. The same is the case in case of determination of assessable value of IPA+DMF Mixture removed by us.
Q.No.3 It is seen from records of your factory that prior to 01/09/2005 when Spent/Crude DMF was sent for job work outside the factory of USV the price was Rs.21/- per kg. however, when the same material viz., Spent/Crude DMF is sold on invoice during the period from September 2005 to November 2006, the price is shown as Rs.5/-per kg. Please explain for the sudden & steep variation in the price.
A. I would like to state due to mistake the price of re-processed material was being shown on job work challans prior to 01/09/2005 for many years as Rs.21/- per kg. If one goes through the current cost construction of the same material being sent on the job work basis, it can be seen that the price of reprocessed DMF comes to around Rs.21/- per kg. considering the price of Spent/Crude DMF as Rs.5/- per kg. and job charges as Rs.8.70 per kg. and yield of pure DMF as 63%.
Q.No.4 Please state as to whether have you obtained Cost Certificate from the competent authority for determination of assessable value of Spent/Crude DMF and IPA+DMF Mixture removed out of factory USV-EOU during the period from September 2005 to November 2006.
A. In view of my reply to Question No.2 above, there was no need to obtain Cost Certificate from competent authority to determine assessable value of Spent/Crude DMF and IPA+DMF mixture, because we have invited quotations from M/s.Sulaki Chemicals as well as M/s.Sahastra Chemicals and based on the quotes, we freeze the sales price at Rs.5/- per kg. of Spent DMF.
Q.No.5 Please state as to what factors were considered by USV-EOU while placing Purchase Order(s) on Sulakhi Chemicals and Sahastra Chemicals for purchase of reprocessed DMF and to negotiate the price between Rs.22/- and Rs.24/- per kg.
A. I submit the details of costing of reprocessed DMF as under:
i) Cost of Spent/Crude DMF Rs.5.00 per kg.
ii) Excise duty component Rs.0.50 per kg.
iii) Processing charge incl. profit Rs.8.70 per kg.
iv) sub-total Rs.14.20 per kg.
v) Conversion ratio of 63% Rs.8.94 per kg
vi) Price of reprocessed MDF Rs.23.14 per kg.
Q.No.6 Please state as to whether job work contract between USV and Sulaki Chemicals/Sahastra Chemicals was submitted to Central Excise Deptt.
A. The same was not submitted as it was not mandatory to do so.
4.4 Learned AR brought our attention to the statement of Shri Krutarth Arul Shah, director of M/s Sangadeep Acid Chem Pvt Ltd. In the statement he has inter alia stated the following:
Q.No.1 Please state general information about M/s.Sangdeep Acid Chem Pvt. Ltd.
A. M/s.Sangdeep Acid Chem Pvt.Ltd. is basically a distillation plant and engaged in the business of distillation/purification of Spent IPA+DMF mixture purchased from M/s.USV Ltd., Lote Industrial Area, Tal.Khed,Dist.Ratnagiri.
Q.No.4. What do you do with the Spent/Crude IPA+DMF Mixture procured from M/sUSV Ltd. (DTA Unit and M/s.USV Ltd. Unit-1 (EOU) ?
A. We procure Spent/Crude IPA+DMF Mixture from M/s.USV Ltd. (DTA unit & EOU) subject it to the distillation process to obtain pure IPA and pure DMF. The said material is sold back to M/s.USV Ltd. (DTA unit and EOU) through our sister concern M/s.Nayomi Chemisol, who are Registered Central Excise Dealer.
Q.No.5 Whether do you have any contract with M/s.USV Ltd. (DTA & EOU) for purchase or job work in respect of processing of Spent IPA+DMF Mixture?
A. We do not have any contract with M/s.USV Ltd. (DTA unit & EOU) Q.No.6 What is your relationship with M/s.Nayomi Chemisol, Mumbai?
A. M/s.Nayomi Chemisol is our sister concern and a partnership firm. I am one of the partners in M/s.Nayomi Chemisol. The other two partners in the firm are my brother Shri Vaibhav Atul Shah and aunt Mrs.Sangeetha S Shah.
Q.No.7 Do you know what M/s.Nayomi Chemisol does with the processed/purified/distilled IPA and DMF sold by you to them?
A. As replied above, processed/purified/distilled IPA and DMF sold by M/s.Sangdeep Acid Chem Pvt. Ltd. to M/s.Nayomi Chemisol is further sold back to M/s.USV Ltd. (DTA Unit & EOU) Q.No.10 Whether do the officials of M/s.USV Ltd. visit your factory for verification of stocks as well as supervision of process and quality control of purification/distillation process of Spent/Crude IPA+DMF Mixture?
A. No. Q.No.11 Who does determine the price for Spent/Crude IPA+DMF Mixture purchased from M/s.USV Ltd. (DTA unit & EOU)?
A. M/s.Sangdeep Acid Chem Pvt. Ltd. determine the price for Spent/Crude IPA+DMF Mixture purchased from M/s.USV Ltd. (DTA unit & EOU) based on the selling price of pure IPA and pure DMF back to M/s.USV Ltd. (DTA unit & EOU). I produce herewith a Cost Worksheet of pure IPA and pure DMF to explain the composition of price structure.
Q.No.12 Is it true that purchase price for Spent/Crude IPA+DMF Mixture was initially determined for the purchases from M/s.USV Ltd. (DTA Unit) and the same is made applicable to the purchases of the said material from M/s.USV Ltd. (EOU)?
A. Yes; it is true.
Q.No.13 Do you agree that price of pure IPA and pure DMFs is ranging from Rs.26 per kg to Rs.57 per kg. if procured from indigenous market or international market?
A. Yes; it is true but there is difference in the prices of DMF and IPA if manufactured by original manufacturers and if obtained by way of distillation of impure materials.
Q.18 From the replies given by you above, does it not appear that there is abnormal reduction from the ordinary competitive price viz., Rs.26/- per kg to Rs.54/- per kg. of Spent/Crude IPA+DMF Mixture purchased by you from M/s.USV Ltd. (EOU)?
A. We are a small company and are undertaking distillation of spent material. We are not original manufacturers of IPA and DMF from the raw materials. We have a limited market for the above reasons and considering that we have to sell pure DMF & pure IPA back to M/s.USV Ltd. for Rs.26/- per kg. and Rs.35/- per kg, we have quoted the rate of Rs.7.50 per kg. for Spent/Crude IPA+DMF Mixture. If this rate is compared to international market or indigenous market of original manufacturers, there appears reduction in the price but we have explained the reasons.
Q.No.19 As agreed by you the entire quantityof IPA and DMF processed/purified/distilled by you out of Spent/Crude IPA+DMF Mixture purchased by you from M/s.USV Ltd. (EOU) is again sold back to M/s.USV Ltd. (EOU) through M/s.Nayomi Chemisol, which is your sister concern. Therefore, is it not correct that there were restrictions imposed on you by M/s.USV Ltd. (EOU) as to the disposition of Spent/Crude IPA+DMF Mixture? That is to say you have to process/purify/distill Spent/Crude IPA+DMF Mixture to obtain pure IPA and pure DMF and return the same back to M/s.USV Ltd. (EOU); which you have done though through M/s.Nayomi Chemisol; your sister concern?
A. There is no written or unwritten restriction from M/s.USV Ltd. but considering the quality of the spent material received from M/s.USV Ltd., the rate quoted for re-purchase of pure IPA and pure DMF, we sell this material back to M/s.USV Ltd. So, if there is any restriction of any kind that is of quality and rate of the material purchased and sold back to M/s.USV Ltd.
Q.No.20 Do you agree that purity of the processed/distilled/purified IPA and DMF is the same with that of other pure IPA and pure DMF sold by original manufacturers in the market?
A. Yes; I do agree.
4.5 Learned AR brought our attention to the decision of Tribunal in case of Morarjee Brembana Ltd Vs. CCE, Nagpur - 2003 (154) ELT 500 (Tri-Mumbai), wherein it has been held that for clearance from an EOU sale price charged to a customer in India cannot be held to be a price in the course of International Trade.
4.6 The said decision of Tribunal has been upheld in the Supreme Court in the case of CCE, Nagpur Vs. Morarjee Brembana Ltd., reported in 2015 (318) ELT 600. In the said decision the Hon Supreme Court has held as follows:
9. Mr. Radhakrishnan has, however questioned the aforesaid view of the Tribunal and argued that since the respondent is hundred per cent export oriented unit, any sale or clearance of cotton fabric by the respondent to DTP should be treated as transaction sale and therefore Rule 4 would be applicable. However, this argument has to be rejected in view of proviso to Section 3 of the Central Excise Act, 1944 which reads as under :
Duties specified in the [Schedule to the Central?Section 3. Excise Tariff Act, 1985] to be levied. - (1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the Schedule to the Central Excise Tariff Act, 1985 :
Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, --
(i) In a free trade zone and brought to any other place in India; or
(ii) By a hundred per cent export-oriented undertaking and allowed to be sold in India;
shall be an amount equal to the aggregate of the duties of customs which would be leviable under section 12 of the Customs Act, 1962 (52 of 1962), on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; 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 the Customs act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).
10. As is clear from the bare reading of the aforesaid proviso, in those cases where excisable goods are produced or manufactured by hundred per cent export oriented undertaking are allowed to be sold in India, the duty of excise has to be the amount equal to the aggregate of the duties of customs which would be leviable under Section 12 of the Customs Act, on like goods produced or manufactured outside India if imported into India and where the said duties of custom are chargeable by reference to their value, the value of such excisable goods shall be determined, in accordance with the provisions of the Customs Act and Customs Tariff Act, 1975.
11. Keeping in view the aforesaid proviso to Section 3 of the Central Excise Act, in our opinion the Tribunal has rightly held that the sale price charged to customer in India of the goods under assessment cannot be considered as a price in the course of International trade. To this extent we do not find fault with the view taken by the Tribunal.
12. As pointed out above, if Rule 4 is not applicable, the valuation of the goods has to be arrived at by applying Rules 5 and 8 in sequential order. It is here, as noted above, the Tribunal fell in error as applicability of Rules 5 and 6 depended on certain factual aspects which had to be gone into. The Tribunal has made certain observations on facts but without any material before it. 4.7 On the basis of the above evidence and citations, the learned AR vehemently argued that there is a strong evidence to prove that the purchase and sale prices between the respondents and the processors are interlinked and dependent on each other and should be rejected as a normal sale price.
4.8 On the issue of revenue neutrality, the learned AR, argued that this principle is not applicable to current situation as the respondents and the processors are two different entities. In this regard he pointed out to the decision of five member bench of Tribunal in case of Jay Yushin Ltd Vs. CCE, New Delhi - 2000 (119)ELT) 718 . In para 13 of the said order the following has been stated:
13. In the light of the above discussion, we answer? the reference as under:
(a) Revenue neutrality being a question of fact, the same is to be established in the facts of each case and not merely by showing the availability of an alternate scheme;
(b) Where the scheme opted for by the assessee is found to have been misused (in contradistinction to mere deviation or failure to observe all the conditions) the existence of an alternate scheme would not be an acceptable defence;
(c) With particular reference to Modvat scheme (which has occasioned this reference) it has to be shown that the Revenue neutral situation comes about in relation to the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessees manufactured goods;
(d) We express our opinion in favour of the view taken in the case of M/s. International Auto Products (P) Ltd. (supra) and endorse the proposition that once an assessee has chosen to pay duty, he has to take all the consequences of payment of duty. 4.9 Learned AR brought to attention the decision of Honble High Court of judicature at Allahabad in case of Rathi Steel and Power Ltd. (2015 (321) ELT 200). In para 32 40 has held as follows:
32.?We further find that under Rules, 2004, a burden is cast upon the manufacturer to ensure that Cenvat credit is correctly claimed by them and proper records are maintained in that regard.
33.?The assessee, in response to the show cause notice had stated that there is no provision in Central Excise Law to disclose the details of the credit or to submit the duty paying documents, which in our opinion is false and an attempt to deliberately contravene the provisions of the Act, 1944 and the rules made thereunder with an intent to evade the duty.
34.?In our opinion, the facts of the present case clearly suggest willful suppression of material facts by the assessee as well as contravention of the provisions of the Act and rules framed thereunder with an intent to evade the demand of duty as would be covered by Clauses IV and V of Section 11A(1) of the Act, 1944. Therefore, the invocation of the extended period of limitation in the facts of the present case is fully justified.
35.?Reference may be had to the judgment of the Apex Court in the case of Usha Rectifier Corporation (I) Ltd. (supra), whereunder the Apex Court has held that where the assessee had not disclosed the fact of manufacturing of the goods to the department and the knowledge of manufacture came to be acquired by the department only subsequently and in view of non-disclosure of such information by the assessee and suppression of relevant facts would rightly result in invocation of extended period of limitation. (Reference paragraph no. 12).
36.?Similarly in the case of Commissioner of Central Excise, Visakhapatnam v. Mehta & Company (supra), the Apex Court has explained that where the excisable goods are removed without payment of proper duty of excise, it is explicit that there was an intention on the part of the assessee to evade the payment of duty. (Reference paragraph no. 22).
37.?The Division Bench of the Gujarat High Court in the case of Commissioner of Central Excise v. Neminath Fabrics Pvt. Ltd. (supra) has explained that proviso to Section 11 comes into play only when suppression etc. is established or stands admitted. (Reference paragraph no. 18).
38.?So far as the judgment of the Apex Court in the case of Continental Foundation Joint Venture (supra) relied upon by the learned counsel for the assessee is concerned, the same is clearly distinguishable in the facts of the present case. In the said case, there were various circulars of department operating at different points of time and there was scope for entertaining a doubt about the views expressed by the authorities themselves. It is in this background that the Court had gone to hold that there had been no deliberate suppression.
39.?Similarly the judgment of the Apex Court in the case of Jai Prakash Industries Ltd. (supra) relied upon by the learned counsel for the assessee is also clearly distinguishable in the facts of the present case. In the said case, there were divergent views of the various High Courts, the issue as to whether crushing of bigger stones or boulders into smaller pieces amounts to manufacture. In these facts, it was held that if the assessee had not taken licence or he did not pay the duty, the extended period of limitation could not be invoked.
40.?For the reasons recorded above, we find that the Tribunal under the order impugned is not justified in recording a finding that the extended period of limitation cannot be invoked, inasmuch as from what has been recorded by us herein above, it is crystal clear that there has been suppression of material fact as well as contravention of the provisions of the Act, 1944 and the rules framed thereunder at the hands of the assessee with an intent to evade the demand of excise duty. Therefore, extended period of limitation had rightly been invoked in the facts of the present case.
4.10 He pointed out that the responsibility of declaring the correct assessable value is on the respondents and as per this decision of Honble High Court the respondents have clearly failed in the responsibility and therefore extended period has been correctly invoked.
4.11 Learned AR asserted that since the contracts were not brought to the notice of the Department, there was no way Department could have known that the transaction of sale and purchase between the respondents and the processor was interlinked. For this purpose he relied on the decision of Tribunal in case of CCE Chandigarh Vs. Punjab tractors Limited (2010 (259) ELT 123). He brought our attention the para 6 of the said decision which reads as follows:
6.?As regards the question of limitation, we find that the SCN dt. 3-4-02, 20-9-02, 13-3-03 and 11-9-03 are within normal limitation period. It is only the first show cause notice dt. 28-3-01 in respect of period from 1-9-2000 to March 01 which has been issued by invoking the extended period which in our view would be available to the Department, as the details of the respondents contract with the buyers were never disclosed to the Department.
In the said decision it has been held that where the contract between the respondents and the buyers has not been disclosed to the Department extended period can be invoked.
5. Learned Counsel for the respondent asserted that the material being cleared is spent material, that is to say, it is a waste material and hence no central excise duty can be levied on this material. In support of his claim he cited Tribunal or decision in case of Aurobindo Pharma Ltd. (2006 (200) ELT 236) wherein it has been held that the spent solvent cannot be considered as goods and therefore no central excise duty can be charged on the same. He also pointed out that the said decision of Tribunal has been approved by the Honble Supreme Court (2011 (269) ELT A147). He asserted that they are unable to press this ground in his argument as the same has not been taken earlier in the proceedings.
5.1 He asserted that what is imported is a product very different from the product cleared from his factory to the processor. He asserted that the price of imported product cannot be used to arrive at the price of the spent material cleared from his factory.
5.2 He asserted that the notice presumes a job charges of Rs.8.7 per KG across-the-board. The notice does not give any reason why the same job charges have been adopted for all commodities across the board. He also asserted that rate mention in loan licensee agreement applicable to DMF has been applied to the DMF/IPV mixture also. He further asserted that the transaction between respondents and the processor is of the sale and purchase of goods and not that of job worker. He asserted that it does not matter what language has been used in the notice but the transaction between them was of sale and purchase of goods only.
5.3 On specific query he clarified that the sale and purchase of the material between them and the processors took place only during the period when they were not having the job of permission. The periods, during which they had job work permission under EOU scheme, they had not entered into sale or purchase of said goods.
5.4 He stated that the sale of goods by respondent to the processor is an independent sale and it is the transaction value as per Customs law. He asserted that that is no evidence of any flow back from the processor to the respondent and therefore the value declared for the sale of goods by respondent to the processor has to be accepted and cannot be rejected under law.
5.5 He asserted that the statements have been recorded with reference to earlier job work done by the processors under loan licensee agreements and therefore cannot be applied to the present situation where there is a sale involved.
5.6 Learned Counsel stated that the decision of Tribunal in case of Morarjee Brembana Ltd (2003 (154) (ELT) 500), is not applicable to the case because the imported materials are very different from the material cleared by them to the processors. He stated that the material DMF/IPV is totally different from the spent DMF and DMF/IPV mix therefore not comparison can be made.
5.7 He asserted that in the notice to substantiate the allegation in support of invoking extended period following allegations have been made:
i) The respondents have not declared their arrangements regarding reciprocal and conditional sale and purchase of goods to the Department. The Department was not made aware of the fact that hundred percent of the material by the processor has to be supplied back to the respondents.
ii) They have not declared the purity of the material sent by them to the processors
iii) They have not informed the Department that they are supervising quality control and the premises of the processor
iv) The respondents have not declared that processors are doing job work for them and have 2 sell back the reprocessed material to the respondents leading to missed declaration of Price in order avoid payment of excise duty.
5.8 He asserted that there is no requirement for declaration of the purity of materials cleared or their arrangement with the processors. He asserted that when there is no requirement of any declaration no allegation of misdeclaration or suppression can be made. He asserted that Commissioner has also in an order (para 23) observed that the activity of respondents clearing spent goods either for job work or for sale on payment of duty was a long-standing practice known to the Department. Commissioner has observed that the allegation of suppression of the conditions of the contract is misplaced as there is no such restriction in any contract and thus the allegation is factually incorrect. Commissioners further observed that there is no allegation of cash flow back or other interests in the notice to establish intent to evade payment of duty. He is observed that in the running of consideration only suspicion is not sufficient to prove the intention to evade payment of duty it should be supported by other strong evidence.
5.9 Learned Counsel further submitted that the issue of the applicability of Notification No.23/2003CE was under dispute in parallel proceedings undertaken much before issue of the impugned notice. He asserted that there is an order lapping period between the two proceedings. He pointed out that the impugned order in original also refers to the order in appeal issued by the Commissioner (appeals) in the parallel proceedings regarding applicability of Notification No.23/2003CE dated 31/03/2003.
5.10 He further pointed out that there is no specific challenge to the observation of Commissioner regarding revenue neutrality in grounds of appeal and therefore that issue cannot be raised at appeal stage.
6. Learned AR in his reply asserted that the respondents cannot claim that the goods cleared by them are not excisable as that would entail a liability under Customs. He pointed out that notification 52/2003 Customs allows exemption subject to certain conditions. One of the conditions is specified in first proviso to paragraph 3 of the said notification. The said condition and proviso reads as under:
3. Notwithstanding anything contained in this notification, the exemption herewith shall also apply to goods which on importation into India or procurement, are used for the purpose of manufacture of finished goods or services and such finished goods and services, (including by-products, rejects, waste and scrap arising in the course of production, manufacture, processing or packaging of such goods) even if note exported, are allowed to be sold in Domestic Tariff Area in accordance with the (Fore Trade Policy) and subject to such other limitations and conditions as may be specified in this behalf by Development Commissioner, or the Board of Approval or the Inter Ministerial Standing Committee, as the case may be, on payment of appropriate duty of excise leviable thereon under Section 3 of the Central Excise Act, 1944 (1 of 1944) or where such finished goods (including by products, rejects, waste and scrap) or, services are cleared to the warehouse appointed or registered under notification of the Government of India in the Ministry of Finance (Department of Revenue) No.26/98-Central Excise (NT) dated the 15th July 1998 or No.46/2001-Central Excise (N) dated the 26th June 2001 or cleared to the warehouse authorised to carry out manufacturing process or other operation under Section 65 of the Customs Act, 1962 (52 of 1962) and under the Manufacture and other operations in warehouse regulation, or cleared to the holders of certificate from Apparel Export Promotion Council and Council for Leather Export for duty free imports as referred to in clause (e) of the paragraph 6.9 of the (Foreign Trade Policy) without payment of duty:
Provided that where such finished goods (including rejects, waste, scrap remnant and by products), if imported are leviable to nil rate of duty of customs specified under First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and nil additional duty leviable under Section 3 of the said Customs Tariff Act, read with exemption notification in this regard, if any, no exemption in respect of inputs utilized for the purpose of manufacture of such finished goods (including rejects, waste, scrap, remnant and by products) shall be available under this notification)
--.
6.1 According to this proviso in case the exempted material imported under this notification is used in Manufacturer of any finish goods including waste which are exempt on non-excisable then benefit of this notification would not be available to imported material use in manufacture of such goods. He pointed out that not claiming non-excisable nature of the goods cleared by them is a well thought out move on their part as otherwise they will end up paying much larger customs duty.
6.2 Learned AR asserted that the loan licensee agreement came into departments notice only in 2008 and therefore any proceedings which were initiated for denial of Notification No.23/2003CE could not have covered the issue regarding undervaluation. In this regard he relied on the Honble Supreme Court decision in case of CCE, Guntur Vs. JOCIL Limited (2008 (226) ELT 8 (SC) wherein it has been held as follows The question before the CESTAT was whether the Department was entitled to invoke extended period of limitation under Section 11A of Central Excise Act in the matter of loading the price of soap noodles with the value by-products. By the impugned judgment the tribunal held that since in the earlier show cause notice department had sought extension of time, which show cause notice was duly replied to by the assessee, it was not open to the Department to seek extended period of limitation by issuance of subsequent show cause notice dated 15-7-1997.
2.?Learned counsel appearing for the Department and for the assessee concede that the two show cause notices relate to different subjects. The former relates to interest on advances, the latter show cause notice is concerning the loading of the price of soap noodles.
3.?In the aforestated circumstances, the impugned order is set aside. The matter is remitted to the tribunal for fresh consideration in accordance with law.
It implies that if two show cause notices relate to different issues, extended period can be invoked in the second notice.
6.3 on the issue of revenue neutrality the learned AR pointed out that the law limits the availability of CENVAT credit of duty paid by an EOU. He pointed out that rule 3 (7) of CENVAT credit rules restricts the availability of credit of duty paid by an EOU as follows 3(7)?Notwithstanding anything contained in sub-rule (1) and sub-rule (4), -
(a) CENVAT credit in respect of inputs or capital goods produced or manufactured, by a hundred per cent. export-oriented undertaking or by a unit in an Electronic Hardware Technology Park or in a Software Technology Park other than a unit which pays excise duty levied under section 3 of the Excise Act read with serial numbers 3, 5, 6 and 7 of Notification No. 23/2003-Central Excise, dated the 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003] and used in the manufacture of the final products or in providing an output service, in any other place in India, in case the unit pays excise duty under section 3 of the Excise Act read with serial number 2 of the Notification No. 23/2003-Central Excise, dated the 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003], shall be admissible equivalent to the amount calculated in the following manner, namely :-
Fifty per cent. of [X multiplied by {(1+BCD/100) multiplied by (CVD/100)}], where BCD and CVD denote ad valorem rates, in per cent. of basic customs duty and additional duty of customs leviable on the inputs or the capital goods respectively and X denotes the assessable value :
[Provided that the CENVAT credit in respect of inputs and capital goods cleared on or after 1st March, 2006 from an export oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such unit pays excise duty under section 3 of the Excise Act read with serial number 2 of the Notification No. 23/2003-Central Excise, dated 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003] shall be equal to [X multiplied by [(1+BCD/200) multiplied by (CVD/100)]] : On this basis learned AR asserted that it was not possible for the job workers to claim the credit of entire duty paid by the appellant.
7. I have gone through the arguments made by both parties and the records of the case. I find that principal issues to be decided are i if the local sale price of the goods can be treated as assessable value for the purpose of payment of customs duty.
ii if not what should be the method of arriving at the assessable value iii if sufficient evidence of suppression/misdeclaration is available to invoke extended period 7.1 On the first issue learned AR has pointed out to the decision of Tribunal in case of Morarjee Brembana Ltd Vs. CCE, Nagpur - 2003 (154) ELT 500 (Tri-Mumbai), wherein it has been held that for clearance from an EOU sale price charged to a customer in India cannot be held to be a price in the course of International Trade. In para 13 of the said decision following has been held as follows:
13. We have considered the submissions made by the appellants and find considerable force in their submission. The circular of the Board also realizes the fact that the value is required to be determined in terms of Rule 8 i.e. best judgment rule. The sales price charged to customer in India of the goods under assessment cannot be considered as a price in the course of international trade as provided under Section 14 of the Customs Act. The goods are sold in India. Therefore the said price cannot be considered as the price in the course of international trade. The appellants contention that the FOB price for the export of goods of similar nature varies from country to country also has considerable force. It is well known that the manufacturer is able to realize higher amount for sales made to developed countries like America, UK, France etc. and the same amount cannot be realized for identical goods when the exports are made to underdeveloped countries like Bangladesh, Malaysia, Similarly the value under Rules 5 & 6 cannot be determined in view of the peculiar nature of the product. The value of the fabric not only depend upon the quality of yarn, count of yarn, but also on the design of fabric, colour etc. Therefore it is very difficult to establish the similarity of the imported fabrics and the fabrics manufactured by the appellants Rule 7 is meant for computing the value when the imported goods are sold in India. As per the provisions of the said rule form the sales price certain expenses and profit is required to be deducted. Further the duty and taxes payable by any importer in normal course of importation is required to be deducted.
It is already observed in the above paras that additional duties under the Textiles and Textile Articles Act is not payable by the manufacturer of fabric in India. Therefore the same will not form part of the component of CVD. Hence in the calculation given by the appellants as reproduced above, the additional duty under the Textiles and Textile Articles Act is not required to be considered. The value thus is required to be recomputed by allowing the deduction mentioned in the example given above but without considering the additional duty under the Textiles and Textile Articles Act. This basis should be adopted for the purpose of determination of assessable value for the fabrics cleared by the appellant in DTA.
The said decision of Tribunal has been upheld in the Supreme Court in the case of CCE, Nagpur Vs. Morarjee Brembana Ltd., reported in 2015 (318) ELT 600. It has been clearly held in this case that the domestic sale price cannot be treated as a price in the course of International trade. The learned counsel has argued that the said decision is not applicable as the imported product is different from the product being cleared from the EOU. I find that the aforesaid judgement lays down a principal that the domestic sale price cannot be a basis that for determining the assessable value in case of clearance from an EOU. It does not lay down any principal regarding how the valuation is to be done, but only lays down how it cannot be done. It clearly lays down that domestic price cannot be a price in course of International trade and therefore cannot form a basis for assessable value. In view of above it can be said that the adjudicating authority has wrongly relied on the domestic sale price as an indicator of the price in the course of International trade. The adjudicating authority has asserted that there is no allegation of any extra consideration. This assertion is also misplaced as even if there was an extra consideration on the local sale price, this local sale transaction would never form the basis of a price in course of International trade. The assertion that the price of the spent DMF declared on the job work challans prior to the appellants converting part of the unit as EOU is not relevant is also correct. Domestic sale price cannot be the basis to arrive at the value of goods cleared by an EOU. Drastic drop in the value from Rs 21 to Rs.5 may be a cause of suspicion but it cannot be the basis to arrive at the assessable value. Thus any reliance on local sale price is totally misplaced. To that extent the order of the Commissioner needs to be set aside.
7.2 The next issue to be decided is if there was a contract between the respondent and the processors. During investigations of contract between one party and the respondents was recovered. In terms of the contract with M/s Sulakhi Limited it is clear that it is valid for 10 years from 1 may 2003 as per clause 2.1 and 11.2 of the agreement. It prescribes in paragraph 4 that the material supplied by the respondents to the processor would be the property of the respondent, proper records of the raw materials will be made and reported to the respondents by the processes. It described in paragraph 4 and 5 that the product will be of a particular specification, failing which the processor has to pay damages. The agreement also fixes the processing charges for the job. There was however, no such agreement recovered in respect of M/s Sahastra and M/s Sangadeep. During the examination of various employees of the respondent and one of the processors following has emerged.
7.2.1 As per statement of Bhalchandra Namdev Katkar Plant Manager of M/s USV Ltd the have supplied the spent material to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals and on the basis, the have a loan licensee agreement with M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals, Crude DMF supplied to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals for reprocessing, is property of and owned by M/s.USV Ltd. (EOU) as per the said agreement, the processers are not allowed to sell the processed goods to anybody else and they have never done so, their technical person visits and supervises the process at processors factory. He also stated that in case of less recovery of final product penalty is being imposed on the processors. In case of M/s.Sangdeep Acid Chem Pvt. Ltd., he clarified that there is no binding clause on M/s.Sangdeep Acid Chem Pvt. Ltd. to supply them reprocessed IPA and DMF mixture supplied by them. He also clarified that they cleared the spent product on payment of duty only when they did not have job at permission. They are purchasing IPA and DMF from M/s.Nayomi Chemisol as fresh IPA/DMF and they may not be getting IPA/DMF re-processed out of IPA+DMF mixture supplied by them to M/s.Sangdeep Acid Chem Pvt. Ltd.
7.2.2 Shree Pratap Rajaram Mahadik, the then Administrative Manager, who has been working with the respondent since 1992, deposed in his statement that they have received Purchase Orders from M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals for purchase of Crude/Spent DMF @ Rs.5/- kg. and they have accepted the said price as assessable value of the said goods for payment of excise duty during the said period, he does not know how the assessable value was the determined and Shri DA Pandit, General Manager (Commercial) and Shri Vijay Dhanawade, Purchase Department Head would know how it was determined. He also confirmed that hundred percent of the Crude/Spent DMF sent to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals is returned back by them after reprocessing. He also clarified that when the matter of obtaining job work permission was under process, the Crude/Spent DMF was sent by following sale transaction procedure by issue of C.Ex. Invoices.
7.2.3 Shri Dileep Anandrao Pandit, Gen manager Commercial, working with the respondent since 1988 has in his statement deposed that in September 2005 they have converted a part of our unit as EOU and they were required to remove Spent/Crude DMF for reprocessing to M/s.Sulaki Chemicals and M/s.Sahastra Chemicals. They have been doing this for last few years on job work basis without payment of duty; however, on conversion into EOU, they were not able to remove such Spent/Crude DMF without specific job work permission from C.Ex. Deptt. Since they could not stop removal of spent/Crude DMF for reprocessing, they had no alternative but to remove such material for reprocessing making sale & purchse transactions. At this point of time we invited quotations from M/s.Sulaki Chemicals as well as M/s Sahastra Chemicals and based on the quotes, they froze the sales price at Rs.5/- per kg. of Spent DMF. Subsequently, the job workers placed Pos for purchase of such Spent/Crude DMF @ Rs.5/- per kg. So, as per PO placed by these two units, they have cleared Spent/Crude DMF @ Rs.5/- per kg. The same is the case in case of determination of assessable value of IPA+DMF Mixture removed by them. He also clarified that due to mistake the price of re-processed material was being shown on job work challans prior to 01/09/2005 for many years as Rs.21/- per kg. He asserted that if one goes through the current cost construction of the same material being sent on the job work basis, it can be seen that the price of reprocessed DMF comes to around Rs.21/- per kg. considering the price of Spent/Crude DMF as Rs.5/- per kg. and job charges as Rs.8.70 per kg. and yield of pure DMF as 63%. He clarified the method of costing as follows
i) Cost of Spent/Crude DMF Rs.5.00 per kg.
ii) Excise duty component Rs.0.50 per kg.
iii) Processing charge incl. prof Rs.8.70 per kg.
iv) sub-total Rs.14.20 per kg. v) Conversion ratio of 63% Rs.8.94 per kg vi) Price of reprocessed MDF Rs.23.14 per kg.
7.2.4 Shri Krutarth Arul Shah, director of M/s Sangadeep Acid Chem Pvt, one of the processors, deposed that they are basically a distillation plant and engaged in the business of distillation/purification of Spent IPA+DMF mixture purchased from M/s.USV Ltd. He further deposed that they procure Spent/Crude IPA+DMF Mixture from M/s.USV Ltd. (DTA unit & EOU) subject it to the distillation process to obtain pure IPA and pure DMF. The said material is sold back to M/s.USV Ltd. (DTA unit and EOU) through their sister concern M/s.Nayomi Chemisol, who are Registered Central Excise Dealer. He also clarified that processed/purified/distilled IPA and DMF sold by M/s.Sangdeep Acid Chem Pvt. Ltd. to M/s.Nayomi Chemisol is further sold back to M/s.USV Ltd. (DTA Unit & EOU). That they do not have any contract with the respondents, nobody visits their factory on behalf of the respondents for verification of stocks. He clarified that M/s.Sangdeep Acid Chem Pvt. Ltd. determine the price for Spent/Crude IPA+DMF Mixture purchased from M/s.USV Ltd. (DTA unit & EOU) based on the selling price of pure IPA and pure DMF back to M/s.USV Ltd. (DTA unit & EOU). He reasoned that they are a small company and are undertaking distillation of spent material. They have a limited market for the above reasons and considering that we have to sell pure DMF & pure IPA back to M/s.USV Ltd. for Rs.26/- per kg. and Rs.35/- per kg, therefore they have quoted the rate of Rs.7.50 per kg. for Spent/Crude IPA+DMF Mixture. There is no written or unwritten restriction from M/s.USV Ltd. but considering the quality of the spent material received from M/s.USV Ltd., the rate quoted for re-purchase of pure IPA and pure DMF, they sell this material back to M/s.USV Ltd. So, if there is any restriction of any kind that is of quality and rate of the material purchased and sold back to M/s.USV Ltd. He further clarified that purity of the processed/distilled/purified IPA and DMF is the same with that of other pure IPA and pure DMF sold by original manufacturers in the market.
7.3 None of these statements have been retracted. From these statements it is apparent that the price at which spent goods were being cleared from the respondents premises was linked to the price at which the processed goods were to be sold back to the respondents. This is clear from the statements recorded and from the terms of the contract. In the circumstances it cannot be said that the price negotiated between the respondent and the processors was price determined on an arms length. The price of spent goods was directly linked to the price of the processed goods received back from the Processor. There may or may not have been a written contract between the parties to the contract but there was a clear understanding. Therefore in addition to the sale by the respondents to the processor not being an international transaction, it was also not at arms length. The Commissioner in his order has also relied on the fact that the DTA unit is selling the spent material at the same price to other manufacturers as one of the grounds for accepting the assessable value of the same products of EOU unit. The Commissioner has failed to appreciate that the transaction in case of a DTA sale is a local transaction price whereas in case of clearance of an EOU unit the assessable value should be the price in the course of International trade.
7.4 The issue that needs to be decided is that under these circumstances, what should be the basis of arriving at the assessable value for the purpose of Levy of Central Excise duty. The show cause notice attempts to arrive at the value from the import price of the fresh DMF/IPV imported by the respondents during the relevant period. It is noticed that the reprocessed DMF/IPV is stored in the same common tank as the fresh DMF/IPV. This has been confirmed by Shree Bhalchandra Namdeo Katkar working as Plant Manager with the respondent in the statement in response to question number 4. It is obvious that the fresh DMF/IPV are of the same quality and hence of comparable value. In those circumstances it seems logical to work backwards from the value of imported DMF/IPV. It is seen that that is not enough discussion on the alternate method of valuation in the order in original, as the Commissioner has treated the domestic sale value as a sale in the course of International trade as the transaction value under rule 4(2) of CVR 1988 or rule 3(2) of CVR 2007. In fact the Commissioner while crystallising the issues has formed the question as ii) Whether the assessable value determined by the noticee is correct or it is required to be determined as proposed in the notices. Having arrived at the conclusion that the domestic transaction value is to be accepted as the assessable value, due consideration has not been given to the arguments regarding alternate method of valuation in case the domestic transaction value is not accepted as assessable value. The respondents have raised many issues, like using common processing charges for calculations, regarding the method adopted in the show cause notice which have not been answered in the order of Commissioner as he has accepted the domestic sale price as the assessable value.
8 The Commissioner in his findings on the issue of limitation has relied on the revenue neutrality. The learned AR brought to our attention that the processor and the respondents are two different legal entities. He cited the decision of the larger bench of the Tribunal in case of Jay Yushin2000(119)ELT 718, where in paragraph 13 (c), it has been held that With particular reference to MODVAT scheme (which has occasioned this reference) it has to be shown that the revenue neutral situation comes about in relation to the credit available assessee himself and not the buyer of the assessees goods 8.1 Moreover he rightly pointed out that the Cenvat credit rules limit the amount of credit available in respect of duty paid by EOU and therefore credit of entire duty is not available to the processor and hence it is not the revenue neutral situation. From the above it is clear that it is not a case of revenue neutral situation and Commissioners observation regarding with any neutrality is misplaced.
8.3 The notification 72/2003 C. E. Prescribes the format of Monthly return to be filed by an EOU. Instruction 10 (a) clearly mentions that where goods attract advalorem rate of duty, the assessable value means the value as per proviso to section 3 (1) of Central Excise act, 1944 (one of 1944). It is seen that respondents have clearly ignored this and paid duty on goods at negotiated price which is dependent on the price at which goods are repurchased by them from the processor. This is a clear misdeclaration.
8.4 It has been argued by the respondents that there was no requirement of declaring the contract conditions to the revenue. There was no need to declare that there was a practice of return of hundred percent of the processed material from the processor. There was no need to declare that the price of reprocessed goods was much lower than the price of imported goods. The Commissioner has accepted these arguments, however he has ignored the fact that it is the responsibility of the respondents to declare the correct assessable value. The Commissioner was of the opinion that the respondents have declared the correct assessable value and therefore did not give much credence to these arguments. While it is correct to say that there is no need to declare these facts but the revenue but it is the responsibility of the respondents to take into consideration these facts while arriving at the correct assessable value. Learned AR has relied on the decision of Honourable High Court of judicature at Allahabad in case of Rathi Steel and Power Ltd. (2015 (321) ELT 200). The Honourable High Court has held as follows
32.?We further find that under Rules, 2004, a burden is cast upon the manufacturer to ensure that Cenvat credit is correctly claimed by them and proper records are maintained in that regard.
33.?The assessee, in response to the show cause notice had stated that there is no provision in Central Excise Law to disclose the details of the credit or to submit the duty paying documents, which in our opinion is false and an attempt to deliberately contravene the provisions of the Act, 1944 and the rules made thereunder with an intent to evade the duty.
34.?In our opinion, the facts of the present case clearly suggest willful suppression of material facts by the assessee as well as contravention of the provisions of the Act and rules framed thereunder with an intent to evade the demand of duty as would be covered by Clauses IV and V of Section 11A(1) of the Act, 1944. Therefore, the invocation of the extended period of limitation in the facts of the present case is fully justified.
35.?Reference may be had to the judgment of the Apex Court in the case of Usha Rectifier Corporation (I) Ltd. (supra), whereunder the Apex Court has held that where the assessee had not disclosed the fact of manufacturing of the goods to the department and the knowledge of manufacture came to be acquired by the department only subsequently and in view of non-disclosure of such information by the assessee and suppression of relevant facts would rightly result in invocation of extended period of limitation. (Reference paragraph no. 12).
We find that in this case too the responsibility of arriving at correct assessable value is of the respondents. The respondents have claimed that they had no responsibility to declare the arrangements or the contract between them and the processors. In this case too the facts were discovered during investigations. These facts had a bearing on the determination of the assessable value. Under the circumstances, in the light of above decision of Honourable High Court, the conduct of the respondents amounts to suppression and misdeclaration.
8.5 It was argued by the respondents that there were parallel proceedings taking place in respect of the same clearance of goods in so much as admissibility of modification 23/03 CE is concerned. That being so extended period cannot be invoked in respect of the same set of clearance by a show cause notice issued on a later date. The learned AR argued that while the clearances may be the same the issue under dispute is totally different in so much as in the impugned notice the issue of proper assessable value was to be decided. In this regard learned AR relied on the decision of Honourable Supreme Court in the case of JOCIL 2008(226)ELT 8(SC). In the said judgement Honourable Supreme Court has held that in in cases involving different issues show cause notice invoking extended period can be raised. The learned AR also relied on the decision of Honourable High Court of Delhi in case of LSM exports 2015 (315) ELT 407 (DL), then it has been held that 2nd show cause notice invoking extended period can be raised on account of new facts coming to light. Furthermore the extended period has been invoked on account of recovery of the contract between the respondents and one of the processors in the year 2008. The said agreement was not in the knowledge of the revenue and the terms of transaction between the respondents and the processors were not in the knowledge of the Department and were not declared to the Department. I find that the terms between the respondents and it processors are of extreme importance in determining the assessable value and therefore non-consideration and nondisclosure of the said terms amounts to misdeclaration and suppression.
9 In view of discussion above, the impugned order is set aside and the matter is remanded to adjudicating authority for ascertainment of the assessable value after giving due consideration to the arguments of the respondent in this regard. The respondents are at liberty to give the actual data pertaining to transactions in form of Ledgers and other records in case they wish to dispute the data taken in the show cause notice for determination of assessable value. The Cross objection is also disposed of.
(Pronounced in Court on ..) (Anil Choudhary) Member (Judicial) (Raju) Member (Technical) 1 3