Customs, Excise and Gold Tribunal - Mumbai
S.R. Jhunjhunwala vs Collector Of Central Excise on 7 January, 1998
Equivalent citations: 1999(114)ELT890(TRI-MUMBAI)
ORDER K.S. Venkataramani, Member (T)
1. The appellants M/s. Ram Decorative and Industrial Laminates are manufacturers of paper-based decorative, laminated boards falling under Tariff Item 15A(2) of the old Central Excise Tariff and presently under sub-heading 3920.31 of Central Excise Tariff Act 1985, according to the Department, whose case is that the appellant's premises were searched by the Central Excise officers following information that they had adopted certain methods of evading Central Excise duty by declaring in their price lists submitted to the Department a much lower price for their goods wherein the expenses incurred towards marketing and sales promotion were not included which should form part of the assessable value. But these expenses were passed on off loaded to their associate firms who are the other appellants Ram Laminates Bombay, and Poona, Ram Metal Industrial and another service agent appellant Maharashtra Laminates, Bombay. These firms raised separate bills for such expenses which were substantially on the higher side compared to the assessable value declared by the appellants to the Department.
2. Further enquiries revealed that the goods were despatched from the factory premises at Tarapur to their respective distributors/stockists and Central Excise Gate passes were prepared accordingly. The head office of M/s. Ram Decorative & Industrial Laminates prepared invoices for the relevant gate passes and on the same date the respective agents raised a separate bill wherein the charges towards handling, delivery and other charges were separately recovered. In these bills the selling agency (agents) quoted the relevant delivery challan/bill No. of appellant Ram Decorative Laminates under which the goods were despatched. The extra amount recovered as service charges by the agents included the expenses towards sales promotion/advertisement and publicity, transport, loading and unloading charges. All these agents were based in the same premises of the head office of Ram Decorative Laminates and One of the partners of each of the selling agent was a director of Ram Decorative Laminates. Hence, it was found that the expenses incurred by the selling agent towards various items of expenses includible in the assessable value of the Decorative Laminates. The service agents were paying Rs. 10/- per sheet to the manufacturer out of service charges collected by him. After further enquiries and obtaining statements from various person including partners and directors of appellant firms and service agents show cause notice was issued on 27-10-1988 to the appellants proposing to recover differential duty by enhancing the assessable value loading it with the expenses borne by the selling agents and paid back to the appellants and also proposing penalty on the appellant Ram Decorative Laminates under Rule 173Q Central Excise Rules and proposing penalty on the other appellants herein under Rule 209A alleging that they had dealt with excisable goods which were undervalued with an intention to evade payment of duty knowingly. These appellants included the firms Ram Metal Industries Bombay, Ram Laminates Bombay and Poona, Shri R.R. Jhunjhunwala, Chairman and Managing Director of appellant Ram Decorative Laminates, O.P. Mundra, General Manager of the same, M.R. Jhunjhunwala, Director of the same and partner of Ram Laminates Poona, S.R. Jhunjhunwala, another Director and Partner of Ram Metals Industries, and R.A. Singh, Director of Maharashtra Laminates and Mrs. Girija G. Nair, another Director of Maharashtra Laminates.
3. After considering their defence the Collector confirmed the differential duty demand by loading the assessable value with the expenses as noted above. He ordered confiscation of plant and machinery of the appellants Ram Decorative & Industrial Laminates levying a redemption fine of Rs. 5 lakhs, on the ground that the short levied duty in this case exceeded Rs. 1 lakhs, attracting confiscation under that Rule. The Collector further imposed a penalty of Rs. 5 lakhs on appellant Ram Decorative Laminates under Rule 173Q. Penalty under Rule 209 A of Rs. 1 lakh each was also imposed on the other appellants.
4. Shri Doiphode, learned Counsel argued the case for all the appellants and Shri S.V. Singh, the learned DR presented the Department's case.
5. We have considered the rival contentions. On the question of limitation, the demand is for the period February, 1984 to June, 1988 raised by issue of show cause notice dated 27-10-1988 invoking the longer period under Section HA of Central Excises Act, 1944. The appellants say that there was no suppression of facts by them so as to justify invoking the longer period for the demand. They rely upon their letter dated 8-12-1986 whereby they informed the Department that as per the practice in the trade they had appointed agents to procure business from dealers and distributors and that these agents charge separately to trie dealers for the services rendered to them and such charges included insurance, octroi and transport and that the agents paid the appellants towards the expenses incurred towards insurance, transport, handling charges, etc. In that letter they further stated that recently Excise authorities in the case of some of the units in the trade have sought to include part of the realisation by the agents in the assessable value of the product and in that con- text the appellants wrote requesting the Department to examine the pattern of sale for correct valuation of Section 4 of the Central Excises Act undertaking to furnish all information and records for examination by the officers.
5. As against this the learned DR following the Collector's reasoning has urged that the letter of 8-12-1986 referred only to transport charges and insurance charge and octroi which are anyway deductible from the assessable value and it was significantly silent about the realisation of publicity and sales promotion expenses undertaken by the agents and paid back to the appellants and that there is thus suppression of facts. We are unable to agree. A perusal of the letter of 8-12-1996 clearly indicates that the appellants had volunteered on their own to seek a clarification from the Department as to how the Department would determine the value under Section 4. The charges referred to in the letter were not exhaustive and in any case the appellants have stated therein that they would furnish all information and records for examination by the officers.
6. In these circumstances the specific non-disclosure of the pattern of charging publicity and sales promotion expenses cannot be made the basis of a finding of suppression of facts by the appellants, because the appellants had given an opening on their own to the officers to go into the whole pattern of sales. Therefore we hold that the demand for duty in this case is time barred for the period 8-12-1986 to June, 1988.
7. As regards the service charges the Collector's finding is based upon the judgment of the Supreme Court in the case of Coromandel Fertilizer -1984 (17) E.L.T. 607, whereby Supreme Court has disallowed agency commission given to a selling agent for services rendered by him as a deduction from the assessable value. Collector's finding is hence upheld.
8. It is also found that the Collector has held that only deduction of actual amounts of transportation costs and insurance charges are deductible under Section 4 of the Act. However, this view is no more good law and stands settled against the Department by the Supreme Court judgment reported in 1997 (94) E.L.T. 13, Baroda Electric Meters v. Collector cited and relied upon by the learned Consultant. Though that judgment dealt with excess realisation of transport cost over actuals, the same principle is applicable to the insurance charges also, as these have already been held to be non-includible in the Supreme Court judgment Union of India v. Bombay Tyre International -1983 (14) E.L.T. 1896. The Supreme Court held that duty of excise is on manufacture and not a tax on profit made on transportation. Therefore we hold that the amount received by the appellant in excess of actual transportation charges incurred by them is not includible in the assessable value.
9. It has been further argued that the excise duty payable on the goods manufactured is to be deducted to arrive at the assessable value in terms of Section 4(4)(d)(ii) of the Act. Oh this issue we find force in the Collector's finding, that this plea cannot be accepted because the differential value was recovered in respect of excisable goods and if valuation was done correctly, they would have paid this differential duty and recovered it from their customers. The Collector's conclusion also finds support in the judgment of the Supreme Court in the case oiAsstt. Collector, Central Excise v. Bata India -1996 (84) E.L.T. 164 (S.C.) wherein it was held that "amount of duty payable, if any" in Section 4(4)(d)(ii) will mean the amount of duty payable computed as per tariff as reduced by a notification granting exemption. The assessee cannot invoke the provision to claim deduction of a part of the profit as excisable duty payable for the goods.
10. It has also been urged that the classification of decorative laminates manufactured by the appellants should be under Tariff Item 68 CET covering goods not elsewhere specified in the tariff, and not as plastic sheets under Item 15A(2) CET for the period prior to March, 1986 in view of the Supreme Court judgment in the case of Collector v. Bakelite Hylam - 1997 (91) E.L.T. 13 holding that laminated sheets being composite material are not classifiable under Item 15A(2) but under Item 68 CET. Before the Collector the same argument had been put forth based on Tribunal decision to the same effect in C.C.E. v. Melamine Fibre Board. Ld. DR, had repelled this contention before us by contending that classification of the goods was not an issue in the show cause notice in this case. The allegation therein related only to the valuation of the goods for assessment purposes and it was further urged that it is a well settled principle that adjudication has to confine itself to the charges in SCN. However, we find that in this regard the appellants reliance on the Tribunal decision in the case of Lili Foam Industries v. Collector -1990 (46) E.L.T. 462 is well founded. In that case also it was argued by the Department that the appellants therein had paid duty as per approved classification and that they cannot make use of the proceedings against them under Section 11A for demanding short levied duty to question correctness of rate of duty and classification. The Tribunal however, did not accept this contention and held that the assessee had raised the issue of classification before the Collector, and that even though an assessee may not have contested the correct rate of duty of a commodity cleared by them earlier, whenever the Department seeks to reopen past assessments it is open to the assessee to contend that the rate of duty originally applied was wrong. The Tribunal held that even if allegations against them in the proceedings are found to be correct, the amount of differential duty to be paid by them can be questioned, as the correct quantum of duty in a case of ad valorem assessment depends on value of the goods and the rate of duty. The ratio of the decision, we hold, applies to the present case and the demand herein has to be accordingly redetermined.
11. This brings us to the question of penalty on all the appellants herein. As for the penalty imposed on the appellants under Rule 209 A we find that the SCN has not set out specific allegations against each of them. The Collector's reasoning in this regard is somewhat cryptic by merely saying that the ten appellants knowingly dealt with excisable goods which were undervalued. There is no elaboration as to how this conclusion is arrived at and how the ingredients of Rule 209A are satisfied. Therefore we hold that penalty on these appellants is not sustainable, and it is accordingly set aside.
12. In view of the findings partially in favour of appellants in respect of limitation and on certain aspects of valuation as above, we reduce the fine in lieu of confiscation under Rule 173Q(2) from Rs. 5 lakhs to Rs. 75,000/- and the penalty on them under Rule 173Q from Rs. 5 lakhs to Rs. 50,000/-.
13. It is also directed that the duty demand be redetermined in the light of our findings as above.
14. The appeals are disposed of in the above terms.