Custom, Excise & Service Tax Tribunal
Cce, Bangalore vs M/S. Ontop Pharmaceuticals Ltd on 6 March, 2012
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing:06/03/2012
Date of decision:06/03/2012
Appeal No.E/88/2004
(Arising out of Order-in-Appeal No.305/2003-CE dt. 22/10/2003 passed by CCE(Appeals), Bangalore)
For approval and signature:
Honble Mr. P.G. Chacko, Member(Judicial)
Honble Mr. M. Veeraiyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
CCE, Bangalore
..Appellant(s)
Vs.
M/s. Ontop Pharmaceuticals Ltd.
..Respondent(s)
Appearance Mr. Ganesh Haavanur, Addl. Commissioner for the Revenue.
Mr. S.K. Choudhary, Consultant for the respondent.
Coram:
Honble Mr. P.G. Chacko, Member(Judicial) Honble Mr. M. Veeraiyan, Member(Technical) FINAL ORDER No._______________________ [Order per: P.G. Chacko] This appeal of the Department is directed mainly against the dropping of demand of differential duty of Rs.4,47,520/- ordered by the Commissioner(Appeals) in favour of the assessee(respondent). The facts of the case are as follows: the respondent was engaged in the manufacture of P or P medicaments of Chapter 30 of the 1st Schedule to the Central Excise Tariff Act, 1985. During the period 1999-2000 to 2000-2001, they manufactured certain medicaments on job work basis for M/s. Systopic Laboratories Ltd. (SLL) who supplied the necessary raw materials. The job-worked medicaments were cleared to the said company on payment of duty based on Ujagar Prints formula i.e. the formula laid down by the Supreme Court in the case of Ujagar Prints vs. UOI [1988(38) ELT 535 (SC) and 1989(39) ELT 493(SC)]. The duty was paid on an assessable value comprising cost of raw materials and cost of conversion(job work charges) including profit in terms of the said formula. Later on, a scrutiny of their records for the aforesaid period by the Department showed that they had raised debit notes for a total sum of Rs.10,56,000/- on M/s. SLL towards consultancy charges. The Department also noted that a debit note for Rs.17,41,000/- had been raised on the said company by the respondent for 2000-01 towards product development charges. The Department took the view that these charges collected by the respondent from M/s. SLL would form part of the assessable value of the job-worked goods. On this basis, show-cause notice was issued to the respondent demanding differential duty with interest and proposing penalties. The demand was contested. In adjudication of the dispute, the original authority confirmed the demand of duty against the assessee by holding that the above charges collected by them were essentially for the manufacture of the medicaments and hence should form part of the assessable value of the goods. It also imposed equal amount of penalty on the assessee under Section 11AC of the Central Excise Act besides another penalty of Rs.20,000/- on them under Rule 27 of the Central Excise Rules, 2001. Aggrieved, the assessee(respondent) preferred an appeal to the Commissioner(Appeals). The appellate authority accepted the assessees contention that neither of the above charges was a part of either raw material cost or conversion cost. As neither of the charges was attributable to the job work carried out by the assessee, the Order-in-Original was set aside and the appeal was allowed. The present appeal of the Revenue is against the decision of the learned Commissioner(Appeals).
2. Heard both sides. The learned Additional Commissioner(AR) reiterated the grounds of the appeal. He submitted that the amounts collected by the respondent from their customer as product development charges and consultancy charges were for meeting indirect expenses connected with the conversion of raw materials into finished products and hence clearly identifiable as conversion charges which were liable to be included in the assessable value of the finished product. Per contra, the learned consultant for the respondent submitted that it was never the case of the Department that any of the ingredients essential for valuation of the job-worked goods had been left out by the assessee. He submitted that the goods were valued strictly in accordance with Ujagar Prints formula and therefore there was no room for inclusion of any other charges in the assessable value. He submitted that both product development and consultancy were anterior to manufacture and therefore the above charges were not liable to be considered as part of conversion charges. In this connection, he referred to two debit notes (copies available on record) which indicated that the amounts of Rs.4,80,000/- and Rs.5,76,000/- were debited to the account of the principal manufacturer/raw material supplier viz. M/s. SLL towards professional charges for quality control and inspection by our Senior Technical Executives for your products manufactured at out plant. A reference was also made to another debit note covering an amount of Rs.17,41,000/- collected by the assessee from the raw material supplier towards product development charges. This debit note provided the break-up of amounts debited to the account of the raw material supplier in relation to numerous medicaments specified in the debit note. The learned consultant submitted that, as a matter of fact, some of these medicaments were not manufactured and supplied to M/s. SLL, but the Department did not even care to amortize the product development charges before inclusion thereof in the assessable value of the job-worked medicaments. In this context, reference was made to Kirloskar Ferrous Industries Ltd. vs. CCE, Belgaum [2005(189) ELT 474 (Tri. Bang.)] wherein this Bench held that certain charges collected by the assessee for development of patterns of casting had to be amortized per unit of casting on its expected life. As regards product development charges, it was further submitted that service tax was being paid on these charges ever since they were brought within the net of service tax levy. On this ground also, the learned consultant contested the demand of duty on product development charges. Finally, the learned consultant pointed out that the lower appellate authority did not consider the plea of limitation.
3. We have given careful consideration to the submissions. The main issue raised before us is whether the product development charges and the consultancy charges collected by the respondent(job worker) by raising debit notes on M/s. SLL(principal manufacturer) are liable to be included in the assessable value of the job-worked medicaments cleared to the latter during the period of dispute. It is not in dispute that the assessable value of the goods required to be determined in accordance with Ujagar Prints formula. It is also not in dispute that the assessee worked out the assessable value in terms of this formula (cost of raw material + cost of conversion(labour charges) including profit margin). This factual position is amply clear from an observation made in the impugned order by the learned Commissioner(Appeals), which reads thus: It is not the case of the department that any of the ingredients that are essential for valuing goods on job work has been left out. The appellant has no grievance against his observation made by the lower appellate authority. The learned Commissioner(Appeals) also clearly found that the assessee had taken into consideration the cost of raw materials + packing charges + conversion charges for valuation of the goods. He further noted that the conversion charges included the element of profit. These findings have not been challenged in the present appeal. Apparently, the appellant has broadly accepted the fact that the respondent applied Ujagar Prints formula to determine the assessable value of the goods. The area of dispute is narrow. According to the appellant, the so-called product development charges and consultancy charges should also be included in conversion charges so as to be part of the assessable value of the goods. The respondent is opposed to this view. The view taken by the learned Commissioner(Appeals) is that, as far as a job worker is concerned, any expense which is not attributable to the job work cannot be included in the cost of conversion and hence cannot be added to the assessable value. We are in full agreement with this view of the learned Commissioner(Appeals). In the grounds of the present appeal, we have not found anything which warrants a different view. The appellant has not been able to substantiate their claim that the so-called product development charges and consultancy charges are to be treated as part of the cost of conversion of raw materials into finished goods. For instance, the learned Additional Commissioner(AR) has not been able to successfully meet the argument made by the learned consultant with reference to one of the debit notes. This debit note which was raised by them on 05/02/2001 on the principal manufacturer covers an amount of Rs.17,41,000/- being the total of 13 amounts related to equal number of specified medicaments. The entire amount was debited to the principal manufacturers account, but only some of the specified medicaments were manufactured and supplied by the respondent. This fact has not been disputed before us. Yet, the aforesaid amount of Rs.17.41 lakhs collected by the assessee from the principal manufacturer towards product development charges has not been amortised. In our view, the inclusion of product development charges in the conversion charges for the job-worked medicaments, regardless of the fact that only some of the medicaments specified in the debit note were supplied by the job worker, would ipso facto indicate the fallacy of the Departments claim that the product development charges covered by the debit note are to be treated as part of the cost of conversion.
4. Apart from the above, there is no denial of the fact that the respondent has been paying service tax on product development charges in view of an audit objection dt. 09/09/2004. Therefore, the contention raised by the learned consultant that the same charges cannot be subjected to levy of Central Excise duty is also acceptable.
5. Thus, on merits, the respondent has made out a formidable case and therefore the Departments appeal is bound to fail. It is not necessary to examine the plea of limitation raised by the consultant.
6. In the result, the appeal stands dismissed.
(Operative portion of this order pronounced on conclusion of the hearing) (M. VEERAIYAN) MEMBER (TECHNICAL) ( P.G. CHACKO ) MEMBER (JUDICIAL) Nr 7