Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Nasik vs M/S. Mahindra & Mahindra Ltd on 19 November, 2009
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO. E/2629/04
(Arising out of Order-in- Appeal No.CEX-XI/JMJ/212/916/NSK/APL/2004 dtd. 27.5.2004 passed by the Commissioner of Central Excise (Appeals), Nasik )
For approval and signature:
Honble P.G.Chacko, Member(Judicial)
And
Honble Mr. B.S.V.Murthy, Member(Technical)
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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?
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Commissioner of Central Excise, Nasik
:
Appellant
VS
M/s. Mahindra & Mahindra Ltd.
Respondent
Appearance
Shri H.B.Negi, SDR for Appellant
Shri R.Nambirajan Advocate for the Respondent
CORAM:
Mr.P.G.Chacko, Member(Judicial)
And
Mr.B.S.V.Murthy, Member(Technical)
Date of hearing: 19/11/09
Date of decision 26.11.09
ORDER NO.
Per : B.S.V.Murthy
The issue involved in the appeal is valuation of bullet proof vehicles supplied to Jammu & Kashmir Police by the respondent. Two purchase orders were placed on the respondent. Both the orders have similar terms and conditions except difference in prices. Two orders were placed on Mahindra Defence Systems on 2.8.200 and 23.3.2002, a division of Mahindra & Mahindra Ltd (MML). Base vehicles were cleared from manufacturing unit in Nasik on payment of duty on the basis of value indicated in the purchase order. The bullet proofing was done by a job worker/sub-contractor and thereafter vehicles were supplied to J & K Police. Revenue took a stand that respondent (manufacturing unit in Nasik) should have discharged duty on the total price of bullet proof vehicles and consequently proceedings were initiated by issuance of two show-cause notices on 7.2.2003 & 2.7.2003 proposing recovery of more than Rs. 1.21 crores. The Asstt.Commissioner vide Order-in-Original No.396/2003 dated 30.9.03 confirmed duty demand of Rs. 92,96,308/- with interest as applicable and he also imposed penalty of Rs. 10 lakhs. On appeal filed by the respondent, Commissioner(Appeals) in the impugned order set aside the demand. Hence, Revenue is in appeal.
2. Learned D.R. on behalf of Revenue submitted that duty of Central Excise is required to be paid on the transaction value according to the provisions of Section 4 of Central Excise Act, 1944 (Act). In this case, order was placed on Mahindra & Mahindra Ltd. (MML); transaction was with MML; purchase order was for bullet proof vehicle; MML was required to do bullet proofing and supply the vehicle; there was no question of segregation of supply of base vehicle & bullet proof vehicle; vehicles were required to be delivered at Jammu; inspection of vehicles was also required to be done after bullet proofing. Observation by Commissioner(Appeals) that base vehicles were delivered to J&K Police is not correct. MML made an artificial segregation of activity only for the purpose of payment of central excise duty by separating bullet proofing activity. What was intended by both sides was a single transaction with a single transaction value which would be the correct basis for levy of central excise duty. It was also submitted that after amendment of Section 4 of the Act, the concept of deemed normal price is no longer valid and actual transaction value is what is to be considered. Learned D.R. also relied upon Note 6 to Chapter XVI in support of his contention that vehicle in this case is to be treated as incomplete or semi finished and therefore cost of bullet proofing is also to be added. .
3. Ld.Counsel for the respondent submitted that in this case respondent has assessed base vehicle before removal; it is settled law that goods have to be assessed in the form in which they are removed after assessment; what the respondent removed was the base vehicle. Since what was removed was the base vehicle, the value adopted was that of the base vehicle only. He submitted that bullet proofing was a separate and distinct activity and was undertaken by a sub-contractor in Delhi. If the process amounted to manufacture, proper course was to demand duty from the sub-contractor. He also submitted that Chapter note 6 of Chapter XV of Schedule to the Central Excise Tariff Act is not applicable in the absence of any evidence to show that the contention of respondent that vehicle was fully manufactured and marketable is incorrect.
4. We have considered the rival submissions and relevant records. The moot point is what is the transaction value in this case. Departments contention is that since MML is a single entity and order is placed on one of their divisions, the value to be adopted is for the vehicle supplied to the customer and not the value of the base vehicle removed from the respondent. It would be appropriate to consider the relevant legal provisions and consider this submission.
5. Factory as defined under Section 2(e) of the Act means:-
Factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on.
Rule 174 of erstwhile Central Excise Rules, 1944 and Rule 9 of Central Excise Rules,2002 required every manufacturer to be registered and CBEC is empowered to specify conditions and limitations. The Board vide notification No.35/2001-CE(NT) dated 26.6.2001 as amended has prescribed conditions. According to the notification, if a registered person has more than one premises, he shall obtain separate registration certificate for each premises. The fact that each premises should have a registration emerges from the provisions of Sec.4 of the Act which requires determination of value at the place of removal. Naturally, place of removal has to be one place. What follows from the provisions relating to registration is that each factory or premises of a manufacturer is required to be registered except those who are covered by exemption.
6. In terms of the legal provisions discussed above, it is quite clear that goods have to be assessed at the place of removal and if the value cannot be determined under main provisions of Section 4(1) (a) of the Act, rules for valuation have to be resorted.
7. A hypothetical example makes the position clear. Let us take an assessee who has 4 divisions in different parts of the country, each making plastic granules, plastic films, plastic bags and printed bags. For the finished product of one division, the finished product of another division is the raw material. If a purchase order is placed on the division for printed plastic bag, question arises whether the division clearing the granule can be asked to pay duty on the value of printed bags or any of other two divisions can be asked to do so. If the product undergoes a process which does not amount to manufacture, department can not demand duty including cost of each process just because the unit making raw material belongs to the same company. Legal provisions remain the same irrespective of who takes up the process. If there is no sale or if value cannot be determined under Sec.4(1)(a) value has to be determined under Sec.4(1)(b).
8. We also find that Commissioner(Appeals) in her order has considered this aspect in detail before setting aside the order. Her observations relevant are reproduced below for better appreciation:-
15. Now the question as to under these types of transaction and circumstances, whether the value of processing carried out by the independent contractor can be included in the assessable value of the goods cleared, without carrying out such process from the appellants premises. In this regard the appellants have referred to the CBEC Circular No.139/08/2000-CX dtd. 04.01.2001 on the subject, in which while dealing with similar circumstances, the Board has clarified as under:
In view of the Supreme Court judgment in the case of M/s. Siddharth Tubes Ltd. (2000(115) ELT 32 (SC) and in J.G.Case (1998(97)ELT 5 (SC) Ministry of Law was requested to advise as regards to duty liability on value addition where the duty paid goods are cleared to other units for carrying further processes not amounting to manufacture and the other unit belongs to same group or is that of the job workers who merely processes the goods without owning them and collects job charges and return or cleared the goods on behalf of the supplier of the goods. The Law Ministry has advised that the judgment of the Siddharth Tubes Ltd. does not enable the department to charge duty on value addition outside the factory of clearance on account of certain processes not amounting to manufacture of manufactured goods in a separate/other unit of the same group or by any independent job worker.
The advise of the Ministry of Law has been accepted by the Board.
16. Now as per the above clarification, the duty cannot be charged on the value addition carried out outside the factory of clearances on account of certain processes not amounting to manufacture of manufactured goods by an independent job worker. I am inclined to agree with the appellants contention that the above clarification squarely applies in their case where the bare vehicles were cleared from their factory on payment of duty and the value addition on account of bullet proofing was carried out by the independent job worker viz. M/s. Metaltech Motor Bodies, in the premises of the job worker.
6). Almost an identical issue relating to the place of removal after the amendment came up before the two member Bench headed by the President of the Tribunal, in Castrol India Ltd. vs C.C.E, New Delhi 2000(118)ELT 35 (Tribunal) = 2000(41)RLT 652 (CEGAT). In that case blended lubricating oil was removed from the place of manufacture in bulk in tankers to the depots/packing place from where oil was sold after repacking in smaller quantities. The cost of packing done at the depot/packing place was sought to be included in assessable value even after amendment of Section 4, effective from 28.09.1996, but the same was disallowed by the Tribunal and it was observed as under:-
In the case of removal of goods from the depot the time of removal shall be the time at which such goods were cleared from the factory as per definition of time of removal provided by sub-clause(b)(a) to clause (iv) of Section 4 of the Act.
The same view had also been taken by the western bench of the Tribunal in Sarita Chemicals Ltd. vs C.C.E., Mumbai IV 2000(119) ELT 394 (Tribunal) 1999(34) RLT 573 (CEGAT).
18. It is seen from the aforesaid observations of the tribunal that the goods should b e assessed in the condition in which the same are cleared from the factory and the value addition on account of the processing carried out by the job worker subsequent to the clearance of the goods should not be taken in to account.
9. We find ourselves in complete agreement with the conclusion of Commissioner(Appeals). The Boards circular cited by her shows that CBEC had consulted Law Ministry and had reached the same conclusion. Decisions cited by Commissioner(Appeals, Boards circular and our analysis of legal provisions show that Commissioner(Appeals) order has to be upheld. We find no merit in the appeal and dismiss the same.
(Pronounced in court on 26.11.09 )
P.G.Chacko
Member(Judicial)
B.S.V.Murthy
Member(Technical)
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