Customs, Excise and Gold Tribunal - Bangalore
Pragathi Concrete Products Pvt. Ltd. ... vs Commissioner Of Central Excise on 27 December, 2004
Equivalent citations: 2005(183)ELT487(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. These two appeals have been filed against the Order-in-Original No 14/2001 dated 23.8.2001 passed by the Commissioner of Central Excise, Bangalore.
2. Briefly stated the facts are as follows. The appellants manufacture PSC pipes for supply to M/s Karnataka Urban Water Supply and Drainage Board (herein after referred to as `KUWSDB' or the `Board' in short). The issue relates to the valuation of pipes supplied by the appellants to KUWSDB and also the differential duty payable on escalation cost awarded by KUWSDB. The appellants had a contract with KUWSDB not only for the supply of the PSC pipes but also for laying, joining, commissioning, testing and maintenance of pipeline for 12 months. The contract is a composite contract and the contracted amount includes the cost of the PSC pipes and the cost of the other activities. In other words, the cost of the PSC pipes is not bifurcated in the contract amount. However, the appellant discharged duty based on the cost of the PSC pipes certified by their Chartered Accountant. The scrutiny of the Chartered Accountant certificate indicated that while arriving at the cost of PSC pipes, the cost of certain elements like nuts, hard crates, MS rods, overheads like interest, depreciation, maintenance of machinery and profit margin was not included. The Revenue conducted certain investigations and obtained the cost data rates from the KUWSDB. Further the cost of similar products manufactured by M/s Indian Hume Pipes, Bangalore was also obtained. It was also revealed that the composite contract had an escalation charges and the Board awarded the escalation charges of Rs. 106.12 lakhs to the appellants. No duty was paid on the above charges. Therefore, Show Cause Notices were issued to the appellants. The Commissioner fixed the value of the PSC pipes in terms of Section 4(1)(b) read with Rule 7 of the Valuation Rules on the ground that Section 4(1)(a) is not available. The value arrived at by the Commissioner was based on the data rate worked our by KUWSDB while arriving at the assessable value by the best judgment method. The Commissioner had relied on the decision of the Tribunal in the case of M/s Indian Pipe Co. Ltd. v. Commissioner of Central Excise, reported in 1994 (70) ELT 752 (T) wherein it was held that laying, joining, testing and maintenance of pipes are post manufacturing activities and cost thereof was not includible in the assessable value and the manufacturing cost of pipes and profit worked our to 87% of the composite contract value, which was liable to duty and the balance of 13% was for transportation, laying, joining maintenance etc. Even though the Tribunal ruling indicated 87%, the Commissioner had taken 73% of the composite cost on the basis of the data rate as assessable value and found that the same was much lesser and reasonable. He had also demanded duty on the escalation charges considering the same as additional consideration. A penalty of Rs. 1,00,000/- under Rule 173Q has been imposed. Interest under Section 11AB has been charged. A penalty of Rs. 50,000/- has been imposed on Shri B.S. Ravi Kiran, Managing Director of the appellant's Company under Rule 209A of the Central Excise Rules, 1944.
3. Shri S. Raghu, learned Advocate appeared on behalf of the appellants and Shri L. Narasimha Murthy, learned SDR appeared on behalf of the Revenue.
4. The learned Advocate assailed that the Commissioner's order on the following grounds -
(i) The demand is not sustainable on merit and also clearly barred by limitation.
(ii) In the cross examination during the adjudication proceedings, it has been brought out that the document of the Board is a confidential document which is not made available to any of the bidder for tender. Hence the rate proposed to be adopted by the Department based on the data rate is not sustainable.
(iii) The document of M/s Indian Hume Pipes cannot also be relied upon as their rate was based on their costing and independent of data rate of the Board.
(iv) The cost adopted by M/s Indian Hume Pipes cannot be compared to the costing adopted by the appellants as the goods were not comparable in all respect. Moreover, the various factors differ from company to company.
(v) The duty cannot be demanded on mere assumption and presumption. In the tender document, it has been stated that each contractor should quote specific rate for each item without reference being made to KUWSDB schedule of rates or the estimate rates. This itself is enough to prove that the rate of either the Board or M/s Indian Hume Pipes cannot be adopted as each contractor is supposed to quote his own rates. The Hon'ble Madras High Court in the case of Ashok Layland Ltd. v. Controller of Imports and Exports, Madras reported in 1999 (105) ELT 30 (Mad.) had held that the Departmental Circular marked "Confidential" and hence public being unaware of its contents, cannot be held against the citizen if he has not fulfilled the instructions contained therein. In view of the above ruling the valuation based on the Confidential document of the Board is not sustainable.
(vi) The Chartered Accountant's Certificate was produced in 1995 itself. The Department has chosen not to initiate any action till 2000. The Hon'ble Apex Court in the case of M/s Union Carbide India Ltd. reported in 2003 (58) RLT 715 (S.C.) has held that the cost as reckoned by a man of commerce is to be adopted.
(vii) The demand for differential duty is for the periods from 1.1.95 to 31.8.99 and from 1.11.99 to 30.3.2000. Though the Chartered Accountant's Certificate was submitted in 1995, the show cause notice was issued only on 1.2.2000. Nothing prevented the Department from making enquiries about the transactions and clearances of PSC pipes to KUWSDB. The inaction on the part of the Department for five long years is not a ground to allege suppression and to invoke larger time limit. During the relevant period, all statutory returns were submitted and audits have also taken place. The appellants relied on the following case laws -
(i) Champhor Drugs & Linaments - 1989 (40) ELT 276 (S.C.)
(ii) Cosmic Dye Chem - 1995 (75) ELT 721 (SC)
(iii) Pushpam Pharmaceuticals - 1995 (78) ELT 401 (SC)
(iv) Singareni colleries - 1998 (37) ELT 361 SRB
(v) Padmini Products - 1989 (43) ELT 195 (SC)
(vi) Cedilla Lab Pvt Ltd. - 2003 (55) RLT 1 SC
(vii) Ambika Steel Rolling Mills - 1991 (52) ELT 15 (DEL)
(viii) Thermo Electrics - 1991 (54) ELT 92 (T)
(ix) Applied Industrial Products - 1992 (62) ELT 364 (Kar.)
(x) Raymond Cement Works - 1995 (76) ELT 346 (T)
(xi) Tamilnadu Housing Board - 1994 (74) ELT 9 (SC)
(xii) Ellora Mechanical - 1998 (98) ELT 109 Moreover, the Tribunal had held in a large number of cases that the larger period is not invokable when a bonafide view is entertained by an assessee. The appellant firmly pleaded that the valuation adopted by them is proper and legal.
(viii) As regards the escalation charges, the statement recorded on 24.8.99 is clearly stated that they have received initial escalation of about 14.5% in respect of their Bill dated 28.11.95 and the amount so received for pipes works out to Rs. 2,93,062/- for the quantity of 7815 mtrs for which the excise duty is to be paid.
(ix) With regard to the second escalation of about 17.39% awarded in February 1997 amounting to Rs. 25.90 lakhs, it was stated that the escalation was yet to be received. Even though the appellants had been awarded escalation charges amounting to Rs. 106.12 lakhs, they have not accepted the escalation awarded The duty is become payable only when the amount is received and the same is collected by raising an excise invoice.
(x) The quantification of escalation charges is not correct because the Department has assumed that the cost of manufacturing, supplying, laying etc. of PSC pipes works out to 85% as claimed by the appellant in their letter dated 21.3.97 and the assessable value of the PSC pipes works out to 73% of the contract price of PSC pipes. The Department's quantification is solely based on assumption and presumption and therefore, the demand of duty for escalation charges is not sustainable as it is premature. In the case of Electrical Engineering Equipment Co. reported in 1997 (92) ELT 189, it was held that when there is price escalation subsequent to clearance of goods - amount actually realized by appellant towards price escalation alone form part of assessable value of goods. It was also held in the case of Hindustan Shipyard Ltd. reported in 1987 (28) ELT 586 (T) that a mere demand for payment is not realization of the amount demanded when the demand is not complied with but is disputed.
(xi) The learned Advocate urged that as the demand of duty is not sustainable, imposition of penalty and demand for interest are illegal. It was also urged that no penalty can be imposed under Section 11AC as well as Rule 173Q held in Parasumpuria Synthetics Ltd. reported in 2002 (51) RLT 918 (CEGAT - Del.). It was also state that Shri B. S. Ravi Kiran, Managing Director of the appellant's company had not played any role in commissioning alleged offence and hence, the penalty under Rule 209A of the Act imposed on him is not justified.
5. Shri L. Narasimha Murthy, learned SDR reiterated the observations raised by the Commissioner in the Order-in-Original and said that in the absence of Section 4(1)(a), the best method adopted by the Commissioner is legal proper.
6. We have considered carefully the submissions made by both the sides and perused the records of the case. The appellant supplied PSC pipes to KUWSDB. In a composite contract, there is no way of knowing the real cost of the PSC pipes. The appellant cleared the goods on the basis of the cost certified by the Chartered Accountant. There is nothing wrong is this. But the Revenue is not bound to accept the Chartered Accountant's certificate on its face value when certain items of cost as found by the Commissioner were not included. Therefore the reliance of the learned Advocate on the decision of the Hon'ble Supreme Court in the case of Union Carbide India Ltd. (supra) is mis-placed. The Chartered Accountant's certificate is not a gospel truth to be accepted uncritically. As the cost certified by the Chartered Accountant did not appear to be correct, the Revenue was right in adopting Rule 7 of the Central Excise (Valuation Rules) 1975. The Rule 7 is reproduced below -
"RULE 7. If the value of excisable goods cannot be determined under the foregoing rules, the proper officer shall determine the value of such goods according to the best of his judgement, and for this purpose he may have regard, among other things, to any one or more of the methods provided for in the foregoing rules."
Rule 7 is also known as the best judgment method. It is a fact that the appellant supplied the PSC pipes to KUWSDB. It is also seen that M/s Indian Hume Pipes also supplied similar products to KUWSDB. The data rates of the Board have been arrived at in a scientific manner as revealed during the cross examination of Shri Raveendra Bhatt, Superintendent Engineer of KUWSDB on 22.5.2001 during the adjudication proceedings. It was stated that the data rate has been prepared based on the observed data and the rates are worked out based on manufacturing process and the procedures adopted by different manufactures which are observed and also based on feed back obtained from different manufactures. It was also stated that the data rates are confidential document of the Board and used of arriving schedule of rates. The Commissioner has found that the rates adopted by M/s Indian Hume Pipes are comparable to the data rate of the Board. In these circumstances, the Commissioner's method for arriving at the assessable value in respect of the appellant's product is very scientific and not based on assumptions and presumptions as contended by the appellants. He has also taken into account the Tribunal ruling in the case of M/s Indian Pipe Co. Ltd., reported in 1994 (70) ELT 752 (T). When the appellant has not adopted the correct value in clearing his goods, the Commissioner's action in valuation on the data rate of the Board to whom the appellant supplied the goods is correct and cannot be assailed on the ground that the data rate is a "confidential" document. The decision of the Madras High Court in connection with Confidential Department's Circular has been quoted out of context by the learned Advocate. Hence, we have no hesitation in concluding that on merits the demand of duty on account of under valuation by the Commissioner is sustainable.
7. Further, we find that the Show Cause Notice issued on 1.2.2000 covers the period from 1.1.95 to 31.8.99. It is on record that the appellants had submitted the Chartered Accountant's Certificate in 1995 itself. The Department had not taken action for more than 5 years. The appellant's unit had also been audited several times. They had also filed their periodical returns properly. In these circumstances, there is no justification for invoking the longer period. Hence the demand of duty on account of under valuation is clearly time barred. Hence the demand of duty of Rs. 15,09,818/- under Section 11A is set aside. The demand of differential duty of Rs. 1069/- for the period from 1.11.99 to 30.3.2000 is confirmed as the show cause notice fir this demand was issued on 16.8.2000. The penalties under Section 11 AC and under Rule 173Q are set aside. The penalty of Shri Ravi Kiran, Managing Director of the appellant's company under Section 209A of the Act is also set aside as there is no justification to penalize him.
8. As regards the escalation charges, the appellant has stated that as the matter is under dispute, the demand of duty on them is premature. In view of the case laws cited by the appellant, the duty on the escalation charges which have not been finalized and received cannot be demanded. Hence the demand of duty of Rs. 11.89 lakhs is set aside.
9. These two appeals are disposed of in the above terms.