Customs, Excise and Gold Tribunal - Delhi
Herschel Rubber (Pvt.) Ltd. vs Collector Of Central Excise on 5 March, 1987
Equivalent citations: 1987(12)ECR148(TRI.-DELHI), 1987(30)ELT454(TRI-DEL)
ORDER M. Gouri Sankara Murthy, Member (J)
1. The facts, in so far material, in this Revision Application, transferred to the Tribunal and heard as if it were an appeal, pursuant to Section 35(F) of the Central Excises and Salt Act, 1944 (hereinafter the Act for short) are -
(a) the appellant, a manufacturer of rubber goods, including ply Rubber Hoses, entered into an agreement with M/s. Goodyear for manufacture and supply of the aforesaid hoses. That agreement, inter alia, provided for, -
(i) technical assistance by M/s. Goodyear, free of cost, to enable manufacture in accordance with their specifications, as well as, advance of money for the procurement of raw material,
(ii) supply after approval by M/s. Goodyear,
(iii) affixture of the brand name of M/s. Goodyear on the goods manufactured and supplied to M/s. Goodyear,
(iv) undertaking not to sell any of the goods affixed with the brand name of M/s. Goodyear to any other than M/s. Goodyear,
(v) fixation of price - F.O.R. Calcutta/Howrah/Shalimar -inclusive of packing but exclusive of excise duty, and other statutory levies, "which, if and when imposed, will be changed separately";
(b) admittedly, a price list, for the period between 4-8-1972 and 31-3-1973, disclosing the assessable value to be the price of M/s. Goodyear to their wholesale dealers - and not the price the Appellant realises from M/s. Goodyear - was filed and approved. That approval became final and the goods were assessed to duty and cleared from time to time during the aforesaid period [para 1 of the Order-in-adjudication];
(c) nevertheless, an application for refund of a sum of Rs. 11,171.50, said to have been paid in excess in the aforesaid period was preferred before the Assistant Collector, on 23-4-1973 principally on the grounds of -
(i) determination of the assessable value solely on the manufacturing cost and manufacturing profit of the Appellant ton the basis of the ratio of the Supreme Court in AIR 1973 S.C. 225 A.K. Roy v. Voltas Ltd.], rather than the price of M/s. Good-year to their customers which might include their own selling expenses including those incurred towards advertisement, sales net work etc.,
(ii) the arm's length nature of the contract with M/s. Good-year and the price payable in terms of it, which alone furnishes the basis for determination of the assessable value. A copy of the refund application was not filed before us by the respondent, though required to do so;
(d) in adjudication, it was held, inter alia, that M/s, Goodyear were themselves the manufacturers in terms of the definition of that word in Section 2(f) of the Act, in view of -
(i) the manufacture on their behalf, affixture of their trade mark, and marketing of products by them,
(ii) the restriction upon sale of these goods affixed with the trade mark of M/s. Goodyear to others,
(iii) the fact that the goods are embossed with the brand name of M/s. Goodyear which would imply that they are not normally manufactured by the Appellant,and, accordingly, the application for refund was dismissed;
(e) dismissing an appeal against the aforesaid order, the Appellate Collector held that -
(i) the question of valuation of the goods for a computation of the duty levied ad valorem, is to be decided without reference to the question as to who the manufacturer was in terms of Section 2(f) of the Act,
(ii) valuation is, in terms of Section 4 of the Act, on the basis of a wholesale cash price at the time and place of removal or at a place nearest to it, provided that the deal is at arm's length [AIR 1973 S.C. 225],
(iii) the terms and conditions of the agreement between the Appellant and M/s. Goodyear leave no manner of doubt that the sale of the Appellant's products was not at arm's length. The price paid by M/s. Goodyear is not one in the course of wholesale trade. It is more in the nature of job work. The so-called manufacturing cost and manufacturing profit which is claimed to furnish the basis of the assessable value does not obviously include the expenditure incurred by M/s. Goodyear for technical assistance furnished free of cost. Since there is no wholesale market at the place of removal, the nearest wholesale price happens to be the price at which M/s. Goodyear sell their products;
(f) the Revision now heard by us, as if it were an appeal, was the sequel.
2. In the Revision Application it was submitted, inter alia, that -
(a) the appellant is the manufacturer - not M/s. Goodyear;
(b) the price realised by the Appellant represents truly the manufacturing cost and manufacturing profit;
(c) M/s. Goodyear incur various costs for the sales of the manufactured products purchased from the Appellant and their price, necessarily, includes all such costs and consequently their prices are higher;
(d) since the time the goods in question were brought to levy, their assessable value was always determined at the price realised by M/s. Goodyear from their customers and following the Self Removal Procedure, they had been paying duty "as per assessments of the authorities of Central Excise" on that basis;
(e) it is not as if the price stipulated to be paid in terms of a contract between the manufacturer and his dealers at arm's length does not represent the wholesale cash price at the time and place of removal. Accordingly, the price stipulated in terms of the agreement between the Appellant and M/s. Good-year represents the wholesale cash price;
(f) while it may be that, in terms of the agreement, the Appellant is precluded from selling the goods bearing the trade mark of M/s. Goodyear to any one else, that does not, necessarily imply that the sale is not at arm's length. Notwithstanding the agreement, the Appellant is free not to sell and M/s. Good-year free not to buy the goods in question. The property in the goods had always remained with the Appellant till they were sold to M/s. Goodyear. There is, therefore, no question of job work, where the job worker gets no title to them. Goods manufactured under technical advice, upto certain specifications with the brand name of M/s. Goodyear does not mean that the price at which they are sold does not represent the Appellant's manufacturing cost and manufacturing profit. Free techni-cal advice or use of specifications or brand name are not relevant to and do not militate against an arm's length sale. The price as per the agreement is the wholesale cash price at the factory gate of the Appellant and the price of M/s. Goodyear, all over India, has no relevance and is not to be taken into consideration on the specious ground that there is no wholesale market at the factory gate.
3. It was submitted by Shri Lakshmikumaran, in reply to a query by one of us that - notwithstanding that the determination of the assessable vlaue and subsequent assessments, if any, in accordance with it, became final - not having been appealed against - they can still be re-opened and redetermined and re-assessed in an adjudication of an application for refund of any duty paid or adjusted pursuant to such determination. Such an application can still maintain in terms of Rule 11 of the Central Excise Rules, and any order made in adjudication thereof contrary to or inconsistent with the earlier final determination of the assessable value can equally maintain despite the contrariness or inconsistency. This is so because -
(a) in accordance with the ratio of the Hon'ble Supreme Court in 1978 ELT 416 [Assistant Collector of Central Excise v. National Tobacco, as well as 1986 (25) ELT 3, Andhra Re-rolling Mills v. Union of India], "Rule 10 of the Rules pre-supposes an assessment which could be re-opened on specific grounds within the period specified therein". The Karnataka High Court as well held following the decision of the Supreme Court, in 1985 (22) ELT 751 [Shyam Sunder U. Nichani v. Assistant Collector of Central Excise, Bangalore] that an assessment could be reopened for any short levy resulting from inadvertence, error or misconstruction;
(b) if this were so, a completed assessment can also be reopened for the grant of a refund that may be due precisely for the identical reasons - namely, inadvertence error or misconstruction, in terms of Rule 11 of the Rules, notwithstanding that the order in assessment had become final;
(c) a contrary construction would render the aforesaid Rule otiose and ineffective.
4. This apart, in his submission, -
(a) Rule 11 of the Central Excise Rules, as it read at the material time, significantly omitted all reference to an assessment. It spoke only of a payment or adjustment of duties or charges in account current through inadvertence, error or misconstruction. If, therefore, a payment was made in error, or inadvertently or owing to misconstruction, it has to be refunded in terms of that Rule regardless of any previous assessments or quasi-judicial determination of the assessable value preceding such assessments;
(b) in any view, there being nothing on record, the question as to whether there were, indeed, assessments made or not, on the basis of a pre-determined assessable value is a mixed question of law and fact and cannot be raised now. A mechanical adjustment by way of debit entries in an account current is not to be equated with an assessment - a quasi-judicial process involving due application of mind to the facts as well as the requirements of law - and an assessment is not to be presumed but has to be proved [1978 ELT 416 cited supra]. Such proof is not available on the record.
(c) further, the order under appeal should sustain on the grounds revealed therein and no new ground should be raised. The right of the Respondent to raise additional grounds to sustain the impugned order is very much restricted and should be confined to the rarest of- rare cases [Reliance on AIR 1978 S.C. 851; (1978) 2 S.C. R. 272 - Mohindersingh Gill v. The Chief Election Commissioner].
5. On merits, he contended that the Appellate Collector made erroneous assumptions in the course of his order. Firstly, in assuming that a free sale is a sine qu& non for the existence of a wholesale market at the time and place of removal. Secondly, in assuming that the transaction was in the nature of job work, when, for a fact, the ownership of the goods remained with the Appellant till it was conveyed by the completion of the sale to M/s. Goodyear. Thirdly, in thinking that the manufacture in accordance with the specifications furnished by M/s. Good-year and under their technical guidance and branded with their trade mark or name militates against the true nature of the transaction - a sale at arm's length. Basically, the claim for refund is one for the difference in duty between that assessed on the basis of the appellant's price to M/s. Goodyear and the price at which M/s. Goodyear sell to their customers. [Reliance upon (i) 1985 (22) ELT 302 - Union of India v. Cibatul and (ii) 1985 (22) ELT 324 - Joint Secretary to Government of India v. Food Specialities].
6. On a perusal of the record and on the submissions made before us, it would appear that -
(a) admittedly, assessments had taken place on the basis of the assessable value determined earlier. [Para 1 of the adjudication order as well as para 10 of the Revision]. What is admitted need not be separately proved. Once it is on record that assessments had taken place, there is no question of raising any new ground involving a question of fact or a mixed question of fact and law;
(b) nor does the decision in AIR 1978 S.C. 851 lay it down that the order under appeal is to sustain on its own and no new grounds in support of it could, invariably, be advanced by the Respondent in an appeal against it. That was a case where an order of cancellation of a poll and fixation of dates for a repoll by the Election Commission of India was challenged by a Writ Petition. Obviously that order has to stand or fall on its own reasons and the reasons contained therein cannot be supplemented by an affidavit or otherwise by the Election Commission. It was in this context, that the Hon'ble Supreme Court observed that "when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise". We are concerned here with a quasi-judicial order made by the Appellate Collector. He is not supplementing the reasons he had furnished by affidavit or otherwise. In an appeal against his order, the Respondent can always sustain his order either on the grounds stated therein or such other grounds that he may advance in support of it. In the C.P.C. in Order 41, Rule 22, it had been specifically so provided and the Hon'ble Supreme Court has held in the State of Uttar Pradesh v. Anand Swarup [(1974) 2 SCR 188; 1973 Ren C.R. 830] on the analogy of that Rule that, short of relying upon a ground which mutilates or destroys the decree, a Respondent in an appeal is entitled to support the decree on any ground available to him within the ambit of law. A pure legal issue can be raised any time in appeal or even later [AIR 1965 S.C. 1325 - Chittori Subbanna v. Kudappa Subbanna]. There is nothing in the Act or Rules rendering these fundamental principles in Civil Procedure inapplicable to the proceedings under the Excise laws;
(c) in the premises, the question of maintainability of an application for refund, contrary and inconsistent with quasi-judicial orders in assessment or determining the assessable value, which had become final, can be raised in the instant proceedings;
(d)(i) an "assessment had not been defined in the Act itself. In terms of Rule 2(1)(a), an "assessment" means assessment of duty made by the proper officer and includes re-assessment, provisional assessment under Rule 9B, summary assessment under Rule 37A, best judgment assessment under the Valuation Rules" and any order of assessment in which the duty assessed is nil. An assessment is a quasi-judicial process which involves due application of mind to the facts as well as the requirements of law" [Assistant Collector of Central Excise v. National Tobacco Co. - 1978 ELT 416]. It is the quasi-judicial determination of the quantum of duty payable on the occurrence of the taxable event - namely manufacture. In Central Excise and Customs, assessment involves the determination of questions in relation to classification and valuation where the duty has been levied ad valorem;
(ii) for convenience, the assessment is linked to removal of goods from the place of manufacture [Rule 49 of the Rules], and such removal is ordinarily, prohibited unless duty leviable thereon has been paid. The payment could also be effected by making debit entries in an account current [Rule 9 of the Rules]. When a manufacturer desires to remove goods on payment of duty, he has to apply in the prescribed form. It is only on assessment of the duty by the proper officer and on production of evidence of the duty assessed that the goods can be cleared. In case the removals are frequent and the assessee maintains sufficient credit balance in his account current, removal can be permitted on presentation of a gate pass [Rule 52 of the Rules]. Monthly returns are to be filed showing, amongst others, the quantity of excisable goods manufactured and removed [Rule 54 of the Rules]. Separate rules had also been framed prescribing the procedure for removal of specified excisable goods like e.g. matches, sugar, etc. and abatement of duty in respect of damaged goods and refund of duty on goods returned to the factory after clearance for export or otherwise [Rules 58 to 138] as well as warehousing of goods [Rules 139 to 173];
(iii) it may be observed that in all the cases to which the aforesaid Rules apply, it is only in the course of the assessment that the classification as well as valuation of the goods is determined and the appropriate duty quantified. There is no predetermination of either the classification or valuation of the goods prior to assessment on clearance, although, it may be that, consistent with previous practice, both the aforesaid issues of classification and valuation may- not require an elaborate consideration every time -there is a removal;
(iv) the Rules thereafter provide for the removal of goods on determination of duty by the "Producers, Manufacturers or Private Warehouse licensees" - in other words, removal on self-assessment by the assessees (Chapter VII-A). The procedure of removal or self-assessment introduced in 1968, applies only to such goods as may be notified and the provisions in relation thereto over-ride the provisions in regard to removal after assessment, generally applicable to all manufactured goods and salt (Rule 173-A). Although, initially, it was only a few only of the items of goods set forth in the First Schedule to the Act that were notified in course of time, practically all the goods in the First Schedule had been notified, some of them on and off. Items IE, 5 and certain items of manufactured tobacco, nowever, do not appear to have been notified for self removal at any time;
(v) unlike the earlier general provisions for assessment on removal, Rules 173-B and 173-C provide for the manner and method of pre-determination of classification and assessable value. Such pre-determination is, necessarily and indisputably quasi-judicial. An order determining classification or valuation was earlier subject to revision by the Collector and now appealable to the Collector (Appeals);
(vi) while Rule 173-B(4) and (5) speak of specific reasons for an alteration (by the assessee) or modification (by the proper officer) of an approved classification list, Rule 173-C(10) speaks merely of an alteration that "becomes necessary for any reason" in a price list that has already been approved. In terms of Rule 173-B(4), when an alteration in an approved classification list becomes necessary, for any of the reasons specified therein, the assessee is to file a fresh list or amend the list already filed. Where a modification became necessary, for any reason affecting the rate of duty, the proper officer is to make such modification. On the contrary, if an alteration becomes necessary in an approved price list, it is only the assessee that is to file a fresh list or amend the previous list. The proper officer has no power to modify the previously approved price list on his own, as in the case of a classification list. The modification by the proper officer adverted to in Sub-rules 3 and 7 of Rule 173-C are prior to approval of the price list and not modifications in an approved price list;
(e) the other provisions material at the relevant time are the un-amended Section 4 of the Act and Rules 10, 10-A and 11 of the Central Excises Rules, 1944;
(f) in the backdrop of the aforesaid provisions, the questions that arise for consideration in the facts of the case, in the first instance, are -
(i) Could a quasi-judicial determination of either the rate of duty (classification) or the value for purposes of assessment (assessable value or valuation) which had become final -not having been set aside in an appropriate proceeding by way of appeal or revision - be reviewed or re-opened and if so, when and in what circumstances?
(ii) Could an assessment which had become final likewise be reviewed or reopened and if so, when and in what circumstances?
(g) in a consideration of the aforesaid questions, it cannot be forgotten that -
(i) Rule 10-A on which reliance was placed by the Hon'ble Supreme Court in 1985(20) ELT 416 (Asstt. Collector v. National Tobacco), 1985(20) ELT 212 (= AIR 1985 S.C. 537 -D.R. Kohli v. Atul Products), and 1986(25) ELT 3 (Andhra Re-rolling Mills v. Union of India) was repealed and not re-enacted by Notification No. 267/77 on 6-8-1977. No Rule corresponding to Rule 10-A was to be found in Rules 10 and 11 brought into force by virtue of the aforesaid notifications,
(ii) all the aforesaid decisions were rendered in the context of the Rules existing prior to the introduction of the procedure for removal on self assessment in 1968;
(iii) on the contrary, in the instant case self removal procedure was applicable. Rules 10, 10-A and 11 in force at the time relevant for the aforesaid rulings were also substantially those applicable to the facts of this case;
(h) when, therefore, the Hon'ble Supreme Court were observing that Rule 10 presupposes an assessment which could be reopened on specific grounds within the period specified therein, it could not have been in the context of the self removal procedure and a pre-determination quasi-judicially of the classification as well as the assessable value in terms of Rr. 173-B and 173-C;
(i) for the reasons set forth by me in extenso in the decisions reported in 1984(16) ELT 389 (Entremonde Polycoaters Pvt. Ltd. v. Collector of Central Excise, Pune and 1985(22) ELT 795 (Rainbow Industries v. Collector of Central Excises), I am unable to persuade myself to hold that where the classification or assessable value had been determined prior to any assessment whatsoever in the context of Rules 173-B & C, such quasi-judicial determination can be reopened or reviewed by the self same authority. Since they are not in any view of the matter orders in assessment resulting in short levy or non-levy;
(j) nor can a completed assessment be reopened on account of inadvertence, error or misconstruction when the assessment had become final not having been appealed against. A final order of assessment and a refund order inconsistent with it cannot co-exist;
(k) on a difference between two of us, the Hon'ble President had occasion to deal with the aforesaid issues in Appeals Nos. E/124/ 76-A,E/2450 - 2460/63-A (Modi Rayon and Silk Mills, Modi Nagar v. Collector of Central Excise, Meerut). It was categorically held by him that an assessee, who does not agree with a decision on a classification list or a price list can challenge it directly by appealing against that decision and not indirectly by filing a refund claim on an assessment based on that decision;
(1) agreeing with him in the aforesaid view it had necessarily to be held that the application for refund in the Instant appeal cannot sustain, the assessments having become final.
7. Without, therefore, going into the merits of the determination of the assessable value originally, I hold that the Appeal cannot sustain and, therefore, is to be dismissed.