Customs, Excise and Gold Tribunal - Mumbai
Cadbury India Ltd. vs Commissioner Of Central Excise on 28 September, 2000
Equivalent citations: 2000(72)ECC622
ORDER Gowri Shankar, Member (T)
1. The common question for consideration in these two appeals before us is valuation of milk crumbs, refined milk chocolate and four other products manufactured by the appellant in its factory at Induri, Pune, and entirely consumed either in that factory or in other factories of the appellants in the manufacture of chocolate.
2. No part of these products is sold by the appellant; nor we are told, is any such product manufactured by any other manufacturer. Accordingly the appellant had sought valuation of these goods under Rule 6(b)(ii) of the rules. This rule provided for basing the valuation on such goods on the "cost of production on manufacture including profits, if any, that the assessee would have earned in the sale of such goods." It filed a declaration showing the price of these goods supported by a statement verified by a chartered accountant. The statement indicated the cost of edible and packing material used in the manufacture and the manufacturing overheads. A separate statement in support of the profit added was formulated. These assessments were provisionally approved. At the time of the finalisation, the department took the view the value of the goods should include the labour cost, direct expenses, total factory expense, administration expenses, travelling expense, insurance premium, advertising expense and interest. The Assistant Commissioner [whose order has been confirmed by the Commissioner (Appeals) had added these elements to the declared value. He has added total expenses of the company as shown in the balance sheet, and deducted the cost material. A percentage of this cost of remaining figure has been treated as the factor by which the assessable value should be increased.
3. The Commissioner (Appeals) has advanced three reasons for his conclusion. The first is that, since Rule 6(b)(ii) itself specified including the profit on the goods captively consumed, it indicated the intention in the rule that the value determined under this rule should be brought to the level of the sale value of the goods. This would include all expenses back advertising expense etc. He has secondly relied upon the circular dated 30.10.1996 issued by the Board relating to captively consumed goods and held that in the light of the Supreme Court's judgment in Ranadey Micro Nutrients v. CCE 1998 (87) ELT 19, this judgment is binding upon it. He has further relied upon paragraph 49 of the Supreme Court's judgment in Bombay Tyres International v. Union of India 1983 (14) ELT 1896.
4. The provisions of Sub-rule (ii) of Rule 6(b) would necessarily have to be invoked only in situations where the goods are not sold and there are no comparable goods. How profit could be conceived of on the sale of goods which are not sold, and in a situation where comparable goods are not sold, is difficult to visualise. It is apparently for this reason that the practice of applying the profit of the manufacturer as a whole product has been sanctioned by the Tribunal in number of decisions. Since the rule contemplates margin of profit to be added and there could be obviously no margin of profit in a situation where there is no sale, same meaning has to be given to the rule. This is what the Tribunal has said in CCE v. Bimetal Bearing Ltd. . We would particularly note a sentence in paragraph 3 "while agreeing that profit margin of the final product cannot be merely adopted, it would not be correct to say the assessing authority should not have had regard to such profit margin at all."
5. From this, therefore it is difficult to conclude that it was the intention behind this rule to treat the value captively consumed goods as if they were to be sold. Further, if that were the case, there is no reason why were the rule when it includes the profit, could also not include specifically the other elements. In the absence of such inclusion, it would not be permissible to attribute such inclusion to the intention of the law maker. When the words of the statute are clear enough, there is no necessity to look for hidden meaning.
6. This position is made clear in the two decisions of the Tribunal which the appellant relies upon. In Hindustan Tyres Pvt. Ltd. v. CCE , the Tribunal did not permit the inclusion in the assessable value of camel back, captively consumed in many of administrative overheads, incurred for manufacture of tyres and retreading of old tyres. In Gec Alsthom India Ltd. v. CCE , the question before the Tribunal was the valuation of electric motors manufactured by the appellant while it captively consumed in the manufacture of pumps. The department had sought to include the value of these motors on the basis of private statement of the appellant, which showed the net price of these motors. The Tribunal accepted the explanation offered by the appellant, that a notional sale price was arrived at for only accounting purpose, only that there was no real sale price since there was no sale of motors. It emphasised that valuation was done under Rule 6(b)(ii), such value being the sum total of the raw material manufacturing cost and profit margin. These two decisions emphasised that it is not permissible to go beyond the element specified in the sub-rule.
7. We are not able to see the relevance of the judgment of the Bombay High Court in Kamala Mills Ltd. relied upon by the advocate for the department. The judgment of the Court that the excise duty paid on cotton yam is includible in the assessable value of cotton fabrics deals with a situation which is exactly reverse of the situation here--inclusion in the value of the finished product of element of cost incurred on a component of finished product.
8. The Circular No. 258/92/96 CX dated 30.10.1996 relied upon by the Commissioner (Appeals) was clarification of an earlier circular under Section 37B of the Act relating to assessment of goods captively consumed. Nevertheless it is not possible to agree that such a circular is binding upon the Commissioner (Appeals). The proviso under Section 37B specifically excludes the applicability of a circular issued under that section so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of the powers. We are not able to see anything in any of the three judgments of the Supreme Court that the Commissioner has relied upon which says or suggests that, this discretion vested in the Commissioner (Appeals) is not to be exercised by him. The reference to the department's officers or Central Excise officers in the judgments whom the Court said was bound by the circular would obviously not include a category specifically excluded by the statute itself. The Commissioner (Appeals) therefore was not, and is not bound by these instructions and was wrong in deducing himself, as being so bound.
9. Paragraph 49 of the judgment of the Supreme Court in Bombay Tyres International explains that the various components of the price of an article including those which have enriched the value and add to its marketability contribute to the value. It says therefore that the expense incurred "on account of several factors which have contributed to the value up to the value of sale" would be included in the assessable value. In this it includes charges such as marketing and selling organisation expenses including advertising. It specifically noted that advertising and marketing expenses promote the marketability of the assessee and enter into the value of the commodity. These considerations are inapplicable in a situation where there is no marketability of goods captively consumed. The question of advertising does not arise.
10. We therefore hold that the expenses other than the cost of manufacture, cost of raw material and the profit would not be includible in the assessable value. We have referred to the certificate in support of the cost claimed in support of the price declared. This certificate is not very clear. It is clear from this certificate, it appears, office expense attributable to the factory in which these goods are manufactured were not included in the price. These expenses incurred in the head office and elsewhere by the appellant were for purposes clearly related to the goods captively consumed at the factory at Induri. On this being pointed out, the advocate for the appellant undertakes to produce before the Commissioner (Appeals) evidence to show that expenses have been included in the price within a month from the date of receipt. After considering this and if he finds appropriate any other relevant evidence, after giving the appellant reasonable opportunity of being heard in accordance with these directions, the Commissioner shall pass orders according to law.
11. The appeal is accordingly allowed and the impugned order set aside.
12. The total duty demanded consequent upon the two orders of the Assistant Commissioner confirmed by the Commissioner (Appeals) is Rs. 27.50 crores. The advocate for the appellant explains the credit of duty of Rs. 4.75 crores already paid has been applied towards payment of duty with the department's permission and a sum of Rs. 10.00 crores had been deposited in accordance with the orders of the High Court, passed before the pendency of the appeal before the Commissioner (Appeals), the appellant would be entitled to a refund of this amount, as a consequence of this order.