Custom, Excise & Service Tax Tribunal
M/S Lanco Kondapalli Power Ltd vs Commissioner Of Central Excise, ... on 24 February, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE FINAL ORDER No. 20279 / 2014 Appeal (s) Involved C/1231/2010-DB [Arising out of the Order-in-Original (Adjudication Order) No. 11/2010 (PVR) dated 29.3.2010, passed by the Commissioner of Central Excise & Customs, Visakhapatnam-II] M/s LANCO KONDAPALLI POWER LTD LANCO HOUSE, PLOT NO.4, SOFTWARE UNITS LAYOUT, HITEC CITY, MADHAPUR, HYDERABAD-500081. Appellant(s) Versus Commissioner of Central Excise, Service Tax and Customs - VISAKHAPATNAM-II CENTRAL EXCISE BUILDING, PORT AREA, VISAKHAPATNAM -530035 Respondent(s)
Appearance:
Mr. S.S. Naganand, Sr. Advocate & Mr. Yogesh Pakki, Adv.
C/o MULLA & MULLA & CRAIGUIE BLUNT & CAROE, ADV. & SOLICITORS 209, REGENCY ENCLAVE, 4 MAGARATH ROAD, BANGALORE-560025. For the Appellant Mr. P.R.V. RAMANAN, SPL COUNSEL For the Respondent CORAM:
HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER HON'BLE SHRI ANIL CHOUDHARY, JUDICIAL MEMBER ________________________________________ Date of Hearing: 24 & 25/10/2013 Date of Decision: 24/02/2014 Per B.S.V. MURTHY Appellant is engaged in the business of generation, transmission and distribution of electricity within the State of Andhra Pradesh. On 24.7.1996, Andhra Pradesh State Electricity Board awarded a project to the appellant for setting up a 355 MW Combined Cycle Power Plant at Kondapalli, Krishna Dist., Andhra Pradesh. The appellant invited international bids to award a turn key engineering procurement and construction contract for setting up the Power Project. The contract was awarded to Korea Heavy Industries Ltd. (KHIL). On 3.11.1997, a Co-ordination Agreement was entered between KHIL, SAEAN Engineering Co. Ltd. (SAE), Hanjung DCM Co. Ltd. (HDCM), INKOR Engineering Pvt. Ltd. (INKOR) and the appellant. The Co-ordination Agreement provided that the appellant would enter into negotiations with HDCM for supply of equipment under Offshore Equipment Supply Contract (OESC) and with SAE for Offshore Engineering Technical Assistance Contract (OETAC). Further, the appellant also entered into negotiations with INKOR for Onshore Equipment Supply and with KHIL for Onshore Civil Contract (OCC). Negotiations culminated into OESC, OETAC, OESC and OCC with companies as proposed in the Co-ordination Agreement on 01.2.1998. We are concerned with only two agreements namely OESC and OETAC which are the subject matter of dispute between the department and the appellant. Subsequently, both HDCM and SAE were taken over by M/s Doosan by virtue of Novation Agreement in November 1998. As a result, both OESC and OETAC were executed by M/s Doosan.
2. In terms of OESC dated 1.2.1998, 12 equipments were to be sourced and supplied by M/s Doosan to the appellant for its Power Project for consideration of US $103 Millions. Since the equipment to be imported were for Power Project classifiable under Chapter Heading 98.01, the appellant applied on 11.2.1999 for Registration for imports under the Project Import Regulations, 1986. While making application, the appellant had declared that there is no foreign collaboration and Rule 9 of the Customs Valuation Rules, 1988 was inapplicable in respect of the equipments being imported. The application was accepted and imports were allowed under the Project Import Regulation Act, 1986.
3. Proceedings were initiated by Revenue by issuance of show-cause notice on 19.6.2003 requiring the appellant to show-cause as to why an amount of Rs. 48, 11, 68,010/- under Section 28 of the Customs Act, 1962 along with interest thereon should not be recovered from them; imported equipment/goods should not be confiscated and penalty under Section 114A of the Customs Act, 1962 should not be imposed.
4. The matter travelled up to the Tribunal on two occasions and this is the 3rd round of litigation. In the impugned order which is the 3rd order passed by the Commissioner of Customs, a differential duty of Rs. 25,46,07,043/- has been demanded and penalty equal to this amount has been imposed under Section 114A of the Customs Act, 1962. Further, goods have been confiscated but allowed to be redeemed on payment of fine of Rs. 10 crores. The Commissioner has also ordered appropriation of 4 Bank Guarantees for an amount aggregating to Rs. 7.42 crores and cash security of Rs. 1,01,64,432/- against the dues payable by the appellant.
5. It is the case of the Revenue that appellant indulged in miss-declaration of value of plant and machinery imported under Project Import Regulations Act, 1986 and value of certain costs or services under Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988. According to the Revenue, while registering the imports under Project Import Regulation Act, the appellant did not disclose the fact that there was OETAC with SAE that was subsequently taken over by M/s Doosan (KHIL). It was submitted that the work covered under both contracts was executed by KHIL. The value of OESC was US $ 103 millions and OETAC was US $ 49 millions. It was in May 1999, the department called for information about cost and service actually paid by them in relation to the import. There was no response to the query. Thereafter, according to learned Special Counsel, the department conducted a detailed investigation in February 2002 and the appellant in their letter dated 29.3.2002 disclosed the existence of OETAC but submitted that OETAC was not related to OESC and application and performance of both contracts were mutually exclusive.
6. The issues that come up for consideration in this case are as follows:-
a. the core issue is whether the appellant resorted to misdeclaration of the value of plant & machinery imported under the Project Import Regulations by deliberate non-addition of the value of certain costs and services forming part of Off-Shore Engineering/Technical Assistance Contract (OETAC) and whether such value of costs and services are required to be added to the declared value of plant & machinery under Rule 9(1) (b) (iv) of Customs Valuation Rules, 1988.
b. Whether action taken by the Revenue in issuing a show-cause notice for short-levy under Section 28 of Customs Act, 1962 was in order when the assessments were provisional.
c. Whether goods could have been confiscated and penalty could have been imposed without finalizing provisional assessments.
6 (a) whether the appellant resorted to misdeclaration of the value of plant & machinery imported under the Project Import Regulations by deliberate non-addition of the value of certain costs and services forming part of Off-Shore Engineering/Technical Assistance Contract (OETAC) and whether such value of costs and services are required to be added to the declared value of plant & machinery under Rule 9(1) (b) (iv) of Customs Valuation Rules, 1988.
Provisions of Rule 9(1) (b) of Customs Valuation Rules, 1988 (Valuation Rules) envisage addition of the value of goods and services subject to the provisions therein. For ready reference, the rule is reproduced as under:-
Rule 9. Cost and Services:-(1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, --
(a) --- ---
(b) The value, apportioned as appropriate, of the following goods and services where supply directly and indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely
(i) --
(ii) --
(iii) --
(iv) engineering, development, artwork, design work and plans and sketches undertaken elsewhere than in India and necessary for production of imported goods.
The learned special counsel argued that the provisions of rule reproduced above would mean:
(a) The expression for use in connection with is of wide import. This does not imply only immediate nexus to vendors cost and prices.
(b) The expression Engineering appearing in clause (iv) is again of wide import. Once the goal of a project is set, engineering starts with task specification, concept formulation followed by development, analysis, solution specification, basic design, detailed design and manufacture of the desired product and finally installation and erection. At every stage, engineering comes into play. [Even as per Art. 4.1(c) of OETAC, KHILs engineering services included the preparation of drawings, specifications, schedules and estimates and coordination with the engineering efforts of sub-contractors and company contractors.]
(c) The expression necessary should not be interpreted so as to include only design costs incurred by the manufacturing vendors. Without the pre-manufacturing engineering and design no product can come into being.
6(a) (1). The question that arises is whether the services rendered by KHIL under this contract can be said to be used in connection with and necessary for the provision/sale of the imported goods. According to the scope of work which comes under the broad heading of Performance Standards in Article 4 of OETAC, the scope of work of the contractor are:
6(a) (2) The introduction itself provides that contractor shall be solely responsible for all means, methods, techniques, sequences, procedures and safety programs in connection with the performance of the work without limiting the generality of the earlier provisions.
6(a) (3) The contractor is required to supply and provide all engineering and detailed design for the scope of work as set out in attachment 1. In attachment-1, under the heading Engineering and design service, the KHIL was expected to undertake mechanical engineering and design, electrical engineering and design, instrumentation and control engineering, design, system engineering and thermal design, purchasing support. Under the category of equipment and system design, item such as gas turbine generator and auxiliaries, cooling water system, heat recovery steam generator, steam turbine generator and auxiliaries etc. are listed and in each case, it has been provided in column 3 and 4 that the contractor would be responsible for conceptual as well as detailed engineering and PMT. The contract itself provides that contractor shall design plant, equipment and systems. In clause 4(c) of Article 4, it also provides that contractor shall perform detailed design and engineering as per attachment 1 (discussed above) including appropriate specification of equipment, materials and systems to be incorporated in the project. It also provides that contractors engineering services include the preparation of drawings (not obtaining from the suppliers) specifications, schedules and estimates and coordination with the engineering efforts of sub-contractors and company contractors. Further the contractor is expected to provide all services required to procure all equipment materials, supplies and other items necessary for the construction.
6(a) (4) It was argued that the basic engineering/conceptual design is limited to system design only. The learned counsel also stated that the equipments purchased were standard equipments which had been supplied to various power plants all over the world and the prices charged by the suppliers were all inclusive. He also submitted that the scope of service under OETAC had nothing to do with the designing of the equipment supplied under Offshore Equipment Supply Contract (OESC). It was his submission that there is difference between designing of plant and designing of equipment and both contracts are mutually exclusive. He submitted that the equipments supplied under OESC are basically of standard design and there was no requirement of designing or engineering or preparation of the drawings of supplied items. He relied on Annexures E to J6 to submit the fact that design of the equipments was not provided to the suppliers and the price was all inclusive.
6(a) (5) As per Attachment-1, scope of work, as already discussed above, comprises of rendering of services outside India for the facility to be set up in India including those required for the plant systems and engineering, architectural engineering, major equipment design and engineering, project management services. The provisions made in the attachment-1 discussed above earlier would clearly show that providing specifications for equipment/material was only one of the items of work. The contractor was required to provide conceptual and detailed design services related to the imported equipment and also provide procurement assistance and technical obligation in respect of imported equipments and materials. According to Article 15.1, KHIL was to submit 10 copies of drawings and documents including imported equipments and materials. It was submitted by the learned special counsel that from the above facts extracted from the OETAC, it is evident that KHIC was entrusted with the task of setting up of a power plant on turn-key basis. Though there were two contracts OESC and OETAC, there were identical provisions and reference to the imported equipment in both would show that the services under OETAC were substantially used in connection with the provision of imported goods.
6(a) (6) However, the appellants submitted that this has nothing to do with the supply of imported goods and the designs etc. provided by the contractor under OETAC were not for use in connection with the supply. Some of the sample agreements were relied upon by the learned counsel to support his submission that in all the cases of major equipments supplied, equipments were standard supply and there was no question of providing any design or specification in connection with the supply. We examined some of them. M/s. GE Energy Products Europe in their letter dt. 26/02/2004 stated that in respect of gas turbines supplied by them based on a standard design identified by the model number available on order, they had supplied certain customized auxiliary equipment which was designed and manufactured for the purposes of the contract. Further they go on to observe that the contract includes a standard description of their equipment, materials and design with certain options and modifications as required by the contract specifications. What emerges from the letter appears to be that certain modifications were suggested and naturally if modifications were to be suggested, that requires certain changes in the design and specifications, which would have been carried out by the contractors in this case and given to the suppliers who studied the same and finally designed the item which is supplied. The letter of the supplier in this case has to be read with OETAC which would show that the responsibility for basic engineering and design lies with the contractor and therefore the contractor would have put in efforts to prepare engineering and designs to undertake to design and engineering work. In the case of vacuum pump, the supplier specifically stated that the item supplied was not a standard product of Nash Korea. The packages were designed and manufactured by Nash Korea permit the purchase specifications from M/s. Doosan. In Annexure G, Land Instruments International Combustion and Environmental Division stated All of the items supplied were standard land catalogue items with the exception of the mounting frames upon which the systems were installed and the calibration gases. Special project engineering services were included to package the standard components into standalone systems as required by the Hanjung procurement specification and Lands own design requirements. Another important point that has to be taken note is that if the standard equipments were available and understood by the contractor and the buyer as specified by the requirements of the buyer, there was no need to undertake item wise performance required by the contractor in respect of these standard equipments and interpreting basic design and engineering, conceptual as well as project management in the attachment to OETAC. Very fact that OETAC and OESC have similar provisions with regard to designing and engineering both on conceptual as well as project management aspects goes against the submissions by the counsel for the appellants.
6(a) (7) In fact, it is seen that in paragraph 79 to 84, Commissioner has examined the scope of work and other features under OETAC and OESC and came to the conclusion that two contracts are closely related. In fact on going through the relevant paragraphs, it is seen that Commissioner has compared the work undertaken in respect of separate equipments in paragraph 81. Further he has also taken note of a striking similarity between the payment schedules for both the contracts in terms of date of payments and proportions of payment. It is seen from the table extracted by the Commissioner on comparing both the contracts, the dates as well as the percentages of payment to be made exactly tallies between OESC and OETAC and even the dates are same. Except for the advance payment of 31.4% under OESC, all other payments are to be made on the same dates in both the contracts. 31.4% advance has been adjusted in 2nd and 3rd payments by adding 15.7% to each payment. When there is no relation between the two contracts according to the appellants, there is no explanation forthcoming as to why such similarity exists. The learned counsel simply denied and stated that these observations are not relevant but did not explain how both could be same.
6(a) (8) The Commissioner examined the arguments advanced by Lanco in paragraphs 85 to 87 and came to the conclusion that service portion of KHIL in the manufacturing of imported equipments is important and the cost of these services are to be added to the declared assessable value. The learned counsel submitted that this was not a logical conclusion. The Commissioner has taken note of the fact that it was advised that KHIL would provide sub-vendors with the manufacturing and drawings for the integral parts of steam drums etc. In the case of purchase of GTG and STG, there is continuous interaction between the supplier and the KHIL and specifications and parameters have to be provided or approved by KHIL before the equipment is manufactured. KHIL is also obliged to review and approve all drawings and specifications relating to manufacture and installation. There is no exclusion of any of the plant and equipments for this requirement. If major portion of the equipments were procured from manufacturers and were of standard design and required no modification, why this requirement in the OETAC begs answer without there being one. When we take these factors into consideration, obvious conclusion is that conclusion that the Commissioner has reached viz. KHIL was required to provide technical specifications, drawing, and guidance to the sub-vendors or examine the specifications, drawings etc. given by suppliers, suggest modifications, get the same done and approve the same. This cannot be considered as mere coincidence of dates as submitted by the learned counsel while arguing about this paragraph. It was also submitted that there is no material to show that the said services were rendered by KHIL. It is also to be accepted that there is no material submitted by the appellants also to show that what was the meaning of engineering, conceptual design and engineering and project management in respect of each and every equipment mentioned in the attachment-1. If no work was to be done in respect of standard equipment, why such responsibility was mentioned in the attachment has not been answered at all. Except for stating that the Commissioner has passed the order on presumptions and assumptions, the fact that Commissioners observations are based on a reading of the contract and interpretation of the contract and without showing why such interpretation does not emerge from the contract, simply stating that order is passed on presumptions and assumptions, in our opinion, would not take the case of the appellant any further.
6(a) (9) The learned counsel drew our attention to the Commissioners observation in paragraph 89 I have gone through the clause 8.1 of OESC and could not find any reference to the effect that the price is inclusive of design and drawings. In fact the clause does not contain the words/phrase design and drawings. In the absence of this, KHIL statements and assessees claim that the price of the above equipment is inclusive of cost of design and drawing is not acceptable. It was submitted that this observation is not correct. However, we have already taken note of the fact that according to the contract, KHIL was required to provide 10 copies of designs and drawings to the buyer. The responsibility for providing the designs and drawings was of KHIL and not of the overseas suppliers as far as the buyer is concerned.
6(a) (10) The learned counsel vehemently argued that the appellants had taken expert opinion from M/s. TCE Consulting Engineers (TCE) and the expert had opined that design, manufacture and supply of imported equipment can be carried without the activities listed in OETAC and also stated that the activities under OETAC are not related or necessary for the manufacture of imported equipment.
6(a) (11) In paragraph 91, this expert opinion has been discussed by the Commissioner. The conclusion the Commissioner has reached is that according to the opinion given by the TCE, there is no categorical opinion that the goods under consideration have been manufactured without the activities under OETAC. Annexure K filed by the appellants with the appeal memorandum contains the opinion given by TCE.
6(a) (12) In paragraph 4.1., the TCE had broadly classified activities under OETAC as basic engineering, procurement services, detailed engineering, site related services and coordination of the above activities. The consulting engineers have explained each item head under the activities. According to the consulting engineers, as per Para 4.5, detailed engineering covers detailed design, construction drawings related to civil, electrical, mechanical and C&I disciplines. However, why it should be discussed under each and every item categorically and the design has to be divided into two categories viz. conceptual and detailed have not been considered or elaborated by the consulting engineers at all. The explanation given in detailed engineering is similar to the basic engineering and it does not explain as to what exactly the meaning of detailed design in respect of equipments. It has to be noted that detailed design of equipments and construction drawings related to civil, electrical, mechanical disciplines are entirely different and cannot be put under one category. It gives an impression as emerging from Para 4.7 that a successful project revolves around a strong and efficient coordination team which seems to be given a meaning that role of KHIC is of a coordination team whereas the contract seems to speak exactly differently.
6(a) (13). Naturally heavy reliance was placed on Para 4.8 and considerable time was spent in arguing on this paragraph. Therefore, the same is reproduced below:-
4.8. The basic engineering/conceptual design mentioned in Para 4.1 above purport to system design only. They provide system requirement and furnish data for equipment sizing. To a query which may arise whether the design, manufacture and supply of imported equipment has been carried out without the activities listed in OETAC, we can state that these activities can be carried out without the activities listed in OETAC.
During the discussions, it was argued this observation is like saying that sambar can be prepared without toor dal or curd rice can be eaten without pickle. No doubt, sambar can be prepared without toor dal also or it can be prepared by using some other dal also. If somebody asks when sambar is prepared and given, whether the sambar has been prepared by using toor dal or not, the answer has to be specific whether toor dal has been used or not in the preparation of that sambar. If the answer is that the sambar can be prepared without toor dal, can we say that supports the claim that sambar has been prepared without using toor dal. This does not seem to be a correct way of confirming that the activities under OETAC had nothing to do with the equipments and machinery purchased form the suppliers. An examination of OETAC and OESC as done by the Commissioner and discussed in detail, cannot be substituted by an expert opinion which does not contain such details and which does not evidence that such detailed consideration have gone into. It can be said that TCE have the expertise but even if a person is an expert, unless specifications are gone into and a comparison with OESC is made and details are examined, it cannot be said that the expert opinion has to be preferred to a detailed analysis of different agreements made by the adjudicating authority and also the letters from the suppliers produced before him.
It was submitted that the emphasis in the impugned order as well as the submissions on behalf of the Revenue to the terminology contained in the OETAC is unwarranted and contrary to the settled law that substance has to be prevailed over form. There cannot be any dispute as regards this submission. The question is only what substance is and what is for. When the contract has used specific terminology and the responsibilities of the contractors in OESC as well as OETAC in respect of several major items happens to be same, the obvious conclusion would be for an ordinary prudent person, conclude that the activities performed under different contracts are as per the contracts unless proved otherwise. In this case, there is absolutely no evidence to show that the terms of contract were not correct or what exactly was to be performed was different. When the equipment-wise, item-wise work to be done in both the contracts are similar and payment schedules are similar, without explaining why these are not relevant, if an expert opinion is obtained who without clearly undertaking as to whether the expert has considered all the contracts or both the contracts would be relevant. In this case in Para 1.3, the consulting engineer stated that their note highlights the details of OETAC and observations thereof.
6(a) (14) In Para 8 of the decision in the case of Sundaram Finance Ltd. Vs. ACIT (Supreme Court) [(2012) 10 SCC 430] relied upon by the learned counsel for the appellants, the Honble Supreme Court observed as follows:
8. It is now well settled that in determining whether a receipt is liable to be taxed, the taxing authorities cannot ignore the legal character of the transaction which is the source of the receipt. The taxing authorities are bound to determine the true legal character of the transaction. In the present case, the assessee received Rs.36, 47,585/- in Assessment Year 1998-1999. As per the statement made by the learned counsel for the assessee in Court on 06/09/2012 (which statement is ordered to be taken on record and marked x), the said sum of Rs.36,47,585/- was not kept in a separate interest-bearing bank account but it formed part of the business turnover. In view of the said statement, we see no reason to interfere with the impugned judgment. Applying the substance over form test, we are satisfied that the in the present case the said sum of Rs.36, 47,585/- constituted income. The said amount was part of the turnover. The said amount was collected from the customers. The said amount was collected towards sales tax liability. The said amount formed part of the turnover.
We are unable to appreciate how this decision is helpful to the submissions on behalf of the appellant. After citing this decision, it was submitted that terminology contained in OETAC cannot be the basis for taking a view that design of imported equipments is part of OETAC. It was submitted that appellant had produced overwhelming evidence to show that the design of the imported equipment was not supplied to the suppliers of the imported equipments. However, we find that there is contradictory information emerging from the contract itself. For example, the contract itself requires KHIL to provide all documents, design etc. to the buyer. The responsibility for providing the entire design is on KHIL and as already observed in some of the suppliers letter, it has been indicated that modifications were made as per the specifications provided by the buyer. If only procurement specifications were to be finalized and identification of the supplier was the only responsibility, there was no need for the attachment and giving details in respect of each and every equipment and striking similarity between OETAC and OESC. None of these has been explained. Other than the opinion of the consulting engineer, there is not much else provided by the appellants. While we agree that substance has to be preferred to form, in this case, we find that it is the appellant who is requiring the adjudicators to prefer form over substance.
6(a) (15) Further it is also seen that the opinion of the expert consulting engineer to a specific question on the fact of use, is hypothetical. As submitted by the learned special counsel, references to equipment design and connected engineering work in the contract have not been reflected upon in the expert opinion.
6(a) (16) The above analysis of the different contracts and the type of services rendered by KHIL as per OETAC would show that the submissions made by the learned special counsel for the Revenue regarding addition to be made in terms of Rule 9(1)(b)(iv) of Customs Valuation Rules have to be upheld and accepted.
6(a) (17) At this juncture, it has to be noted that the total amount added by the Commissioner to the assessable value attributable to OETAC is only 53.26% of the total amount paid under OETAC and he has also added R&D cess, withholding tax and profit element to the extent of same percentage. The provisions of OETAC cannot be overridden by letters from suppliers some of which we have examined. No detailed specific arguments were advanced by the learned counsel for the appellants as to the correctness of the additions made by the Commissioner as an alternative submission in case his submissions that the amount paid under OETAC totally cannot be excluded is not accepted. In any case, it is noticed that Commissioner has discussed this issue elaborately item wise and head-wise and has allowed substantial amount as deductible and has added only a portion of the total OETAC to the value of imports. In paragraph 101 and 102 of the Order-in-Original, the learned Commissioner has examined each and every category of the amount and has discussed the issue. It is also to be noted that while discussing the question of inclusion of the amount of USD 8,89,199 paid to KHIL who had in turn sub-contracted M/s. Fichtner, the learned Commissioner has found that the work done by M/s. Fichtner involved conceptual as well as detailed design under the heading equipment and system design and engineering and designing services provided by them related to certain items/elements of the equipments imported under the OESC and they were paid by KHIL for such design and engineering services. Since we find the additions to be fair and reasonable and in accordance with rules and we may have to reproduce what the Commissioner has written in the order just to show we agree with him, we consider it is sufficient if we say so.
6 (b) The next issue is whether show-cause notice for short-levy could have been issued under Section 28 of the Customs Act 1962 when the assessments were provisional.
6 (b) (1) The learned counsel for the appellants relied upon the following decisions:
UOI Vs Godrej & Boyce Mfg Co. Pvt Ltd. [1989 (44) ELT 3 (Bom)] Serai kella Glass Works Vs CCE [1997 (91) ELT 497] CCE Vs ITC Ltd. [2006 (203) ELT 532] Dunkans Industries Ltd. Vs CCE [2006 (201) ELT 517] CCE Vs Godfrey Philips India Ltd. [2007 (211) ELT 52] CCE Vs Siddhartha Tubes Ltd. Vs CCE [2006 (194) ELT 28] 6 (b) (2). All these cases relied upon by the learned counsel relate to central excise matters. In all these cases as submitted by the learned counsel, Honble Supreme Court and other authorities took a view that show-cause notice for short levy could not be issued when the assessment is provisional.
6 (b) (3). After considering the relevant provisions under the Customs Act, Central Excise Act and Central Excise Rules it is seen that by and large, the provisions are pari-materia. The major difference between the Central Excise Act and the Customs Act relating to provisional assessment is that in the case of Customs Act, provisional assessment can be ordered by the assessing officer for specific reasons given therein whereas in the case of Central Excise it can be done only at the request of the assessee. However, the provisions relating to refund and recovery in respect of both as far as relevant date for computing the time limit is concerned is the same. It is necessary to take note of the fact that Section 124 of the Customs Act 1962 applies to both Central Excise law as well as Customs Law. According to Section 124 of the Customs Act 1962, no order confiscating any goods or imposing any penalty on any person shall be made unless the owner of the goods is given a notice in writing and given reasonable opportunity of being heard. Nevertheless it is a settled law that any decision or order in exercise of quasi judicial power resulting in prejudice to an assessee has to be passed only after observing principles of natural justice which require issue of a show-cause notice. Therefore, even when a provisional assessment is to be finalized in customs matters, if the ultimate conclusion while finalizing the assessment is going to be against the importer/exporter, it becomes necessary to issue a show-cause notice even though the provisions of Section 18 do not require the same to be done. In central excise law, the system of assessment by the central excise officer is no longer in existence. Assessee is required to assess the goods himself, collect the tax and pay the tax and if there is a short levy or short payment, the Central Excise Officer can issue a show-cause notice without assessment. Therefore the most important decision relied upon by the learned counsel in the case of Serai Kella Glass Works becomes totally inapplicable in the present situation. In that case, in paragraphs 16, 17 & 18 the Honble Supreme Court has considered the relevant provisions and observed as follows:
16. The assessee is entitled under Rule 173F to determine his liability for copy on the excisable goods manufactured by him and to remove such goods on payment of duty on self assessment in accordance with the provisions laid down in the Rules. But this is only the first step in making of the assessment. The proper officer is empowered to assess the duty on the goods so removed by the assessee and complete the assessment on the return filed by the assessee. A copy of the return so computed by the proper officer has to be sent to the assessee. The duty assessed and paid by the assessee on self assessment will be set-off against the duty assessed by the proper officer. If the duty paid by the proper officer on final assessment is more than the duty determined and paid by the assessee, the assessee has to pay the deficiency by making a debit in the account-current within ten days of the receipt of the copy of the return from the proper officer. If the duty on final assessment payable by the assessee is less than what he has actually paid, the assessee is entitled to take credit in the account-current for the excess payment. No question of any show cause notice under Section 11A arises at this stage. The duty has to be paid by making adjustment in the account-current which has to be maintained by the assessee within ten days time.
17. Section 11A deals with recovery of duty not levied or not paid or short-levied or short-paid or erroneously refunded. Proceedings under Section 11A have to be commenced with a show cause notice issued within six months from the relevant date. `Relevant date has been defined under sub-section 3(ii) to mean in a case where duty of excise is provisionally assessed under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof.
18. After final assessment, a copy of the order on the return filed by the assessee has to be sent to him. Duty has to be paid by the assessee on the basis of the final assessment within ten days time from the receipt of the return. No question of giving any notice under Section 11A arises in such a case. It is only when even after final assessment and payment of duties, it is found that there has been a short-levy or non-levy of duty, the Excise Officer is empowered to take proceedings under Section 11A within the period of limitation after issuing a show cause notice. In such a case, limitation period will run from the date of the final assessment. The scope of Section 11A and Rule 173-I are quite different. In this case, the provisional assessment earlier made by the proper officer has been quashed and pursuant to the direction of the High Court, the proper officer has made the final assessment. No question of failure of issuance of show cause notice under Section 11A arises in this case. Even otherwise, we do not find any infirmity in the order of the Tribunal.
It can be seen from the above that the provisions which resulted in such observations are no longer in existence. In fact Honble Supreme Court was not examining a situation where final assessment order is passed without issue of show-cause notice. Normally what happens in such cases is that the matter is remanded to observe principles of natural justice and finalize assessment. In fact in none of the decisions relied upon by the learned counsel listed above, there is no discussion as to what would happen if there is a dispute about finalization of assessment by the proper officer itself and assessee does not pay the amount which is required to be paid as per law. Because short levy resulting as a result of assessment is covered by the provisions of Section 11A in Central Excise Act 1944 and Section 28 in Customs Act 1962. In all such cases, the matter was sent back so that whether as a result of finalization of assessment short levy occurred or not itself can be reconsidered and finalizing the assessment which does not result in payment, procedure for recovery under Section 11A and Section 28 of Customs Act 1962 are being invoked. Therefore as argued by the learned special counsel for the Revenue, if the finalization of assessment as well as proposal for penalty and confiscation of goods are combined, no prejudice would be caused to the appellant or the assessee. It will only reduce parallel adjudication proceedings and multiple litigation on the same subject. The question as to whether finalization of provisional assessment and proposal for confiscating and penalty can be undertaken simultaneously has not come up for consideration in any of the precedent decisions relied upon by the learned counsel for the appellant in this case. In all the decisions relied upon by him which relate to central excise matters the consideration was whether show-cause notice could have been issued for recovery of short levy/short-paid duty and whether confiscation and penalty could have been imposed in the same proceedings. In all the cases, Section 11A has been invoked straightaway without proposing finalization of provisional assessment and therefore the issue as to whether finalization of provisional assessment and recovery of short-levy with penalty and confiscation can be proposed at a time and decided is not covered by any precedent decision. Therefore we are inclined to agree with the learned special counsel for the Revenue that in this case, wherein the demand has been confirmed by the Commissioner in his capacity as an assessing officer by finalization of provisional assessment for the offences which have been found to have been committed by the appellant by the learned Commissioner, confiscation of the goods has been resorted to and penalty has been imposed is in accordance with law.
6 (b) (3). In fact the Honble Supreme Court in the case of Collector of Central Excise, Calcutta Vs Pradyumna Steel Ltd. [1996 (82)ELT 441(SC)] had clearly observed that mere mention of wrong provision of law when power exercised is available even though under a different provision is by itself not sufficient to invalidate the exercise of that power. In this case, the learned counsel for the appellant has not shown that Commissioner did not have the power to finalize the provisional assessment and thereafter confirmed the demand for duty under Section 18 of the Customs Act 1962 and resorted of confiscation and imposition of penalty is not correct. Therefore, the stand taken by the appellant that since there was provisional assessment, impugned order cannot be sustained because the short levy could not have been collected under Section 28 of Customs Act is not correct.
6 (b) (4). As rightly submitted by the learned special counsel for the Revenue, in this case no doubt the show-cause notice was issued invoking Section 28 of Customs Act 1962. In the very first order-in-original, the objection raised with regard to this procedure was accepted and in all the three adjudication orders, passed in the different rounds of litigation, assessments have been finalized and differential duty has been demanded under Section 18(2) of the Customs Act 1962.
6 (b) (5). Moreover, as submitted by the learned Spl. Counsel, in the very first order-in-original, the Commissioner after taking note of the decisions cited by the appellants had followed the decision in the case of Dhabol Power Company 2004 (171) ELT 354 (T-Del). Delhi Bench of this Tribunal while considering the appeal filed by Dabhol Power Company ordered the finalization of provisional assessment as done by the Commissioner in the light of the findings of their order. We find that in the case of Dabhol Power Co., the Tribunal had approved the course adopted in finalizing the provisional assessment simultaneously invoking provisions of Section 28 of the Customs Act 1962. Even though a rejoinder was submitted to the submissions made by learned special counsel for the appellants, applicability of the decisions of Tribunal in the case of Dabhol Power Company has not been discussed. This was a rejoinder filed in response to the written submissions made by the Spl. counsel for the Revenue.
6 (b) (6). The learned counsel also relied upon some decisions which are dealing with customs matters only. The first such decision is in the case of A.S. Syndicate (warehousing Pvt Ltd.) Vs CC (Port) reported in 2011 (267)ELT 469 (Cal)]. This decision cannot be considered since the show-cause notice itself had been challenged and show-cause notice itself was quashed by allowing the writ petition filed by the party. The Honble High Court accepted the submission that there is no provision for issuance of show-cause notice for finalization of assessment and took note of the fact that the show-cause notice issued was demand-cum show cause notice and therefore did not accept the submission that the show-cause notice was for finalization of provisional assessment and also for confiscation of goods and imposition of penalty. The Honble High Court did not accept the arguments that the show-cause notice was for the purpose of finalization of assessment under Section 18 of the Customs Act 1962. Unfortunately, the fact that quoting a wrong provision in show-cause notice may not vitiate the final proceedings as held by the Honble Supreme Court in the case of Pradyumna Steel Ltd. appears to have not been brought to the notice of the Honble High Court of Calcutta. Moreover, we also do not know what were the contents of the show-cause notice. In fact in paragraph 6, the Honble High Court has taken note of the fact that though demand-cum-show cause notice has been issued but the ground on the basis of which show-cause notice was issued is not available. Under these circumstances, in view of the above situation, the decision cannot be applied to the facts of this case. Another decision the learned counsel has relied upon is the decision of the Honble High Court of Bombay in the case of CC (Imports) Mumbai Vs Mahesh India [2009 243 (ELT) 339]. In that case also show-cause notice was issued by DRI on 22.03.1993 in respect of goods admittedly cleared on provisional assessment basis. However, the final assessment order was passed on 22.06.1994 without taking notice of the show-cause notice issued by DRI. The Honble High Court observed: in the facts of the present case, since the goods were provisionally assessed, there could not be any short-levy and consequently show-cause notice on the ground of short levy could not be issued. The Honble High Court did not examine nor did the department resort to the finalization of assessment under Section 18 taking note of the show-cause notice and thereafter resorting to confiscation and penalty, if called for, as has been done in this case. If the action of the Revenue was as in the present case, the Honble High Court probably would have examined as to whether the procedure followed for simultaneous finalization of provisional assessment and imposition of penalty and confiscation was proper. Therefore this decision also cannot be applied to the present case before us. In the case of CC (imports) Mumbai Vs Orkay Steel Mills [2001(133)ELT 698 (Tri-Mum)], the Tribunal relied upon the decision of the Honble Supreme Court to hold that where assessments are provisional, show-cause notice invoking extended period could not be issued. Since we have already differentiated and considered the decision of the Honble Supreme court in Serai Kella Glass Works, this decision of the Tribunal also cannot be applied to the facts of this case.
6 (b) (7). Another decision which has been relied upon by the learned spl. Counsel for Revenue is the decision of this Tribunal in the case of MRPL in Customs Appeals No. 525/2007 and 496/2007 dated 8.8.2012. In that case, the facts are almost similar to the facts of this case. MRPL was expanding the capacity of their refinery and for this purpose, they entered in to three contracts. The contention of the Revenue was that the amount paid in terms of other contracts should be included in the assessable value. The three contracts covered three different stages namely basic design package, extended basic design package and detailed design package. This Tribunal took a view that all the three elements are liable to be included. In fact this decision which is very detailed and elaborate goes much beyond the allegations made in the present case and since Revenue is not in appeal against the decision of the Commissioner in allowing certain deductions as proposed by the show-cause notice, the decision of the Tribunal in the case of MRPL need not be considered by us in great detail. In the case of MRPL also, enhancement of assessable value, finalization of assessment along with imposition of penalty and confirmation of demand of differential duty was upheld. This is the latest decision of the Tribunal which in our opinion would apply to the facts of this case. The discussion above would show that the decision we have taken is covered by the precedent decisions of the Tribunal and legally also is correct. In view of the detailed discussion by us as above, the legal issue raised by the appellant in this case that as there was provisional assessment, without finalizing provisional assessment, notice for recovery of differential duty, imposition of penalty and confiscation of goods could not have been resorted to cannot be accepted.
6 (b) (8). There is another way of looking at the statutory provisions. In both Central Excise Act as well as Customs Act, assessment is defined as assessment which includes provisional assessment, reassessment, self-assessment etc. In the case of Central Excise, assessment is determination of rate of duty and value of the goods. It is the same in Customs Act also. The decisions relied upon by the learned counsel have proceeded on the basis that the relevant date has been defined both under Section 11A and Section 28 of the Central Excise Act and Customs Act respectively. Since the relevant date speaks of the limitation running from the date of finalization of provisional assessment, it has been held that show-cause notice for short-levy cannot be issued when assessment is provisional. In both customs and central excise at present self-assessment is provided for. Even if it is not provided for, there cannot be any dispute that provisional assessment is also assessment. Let us take the example of the present case itself. Assessee in this case is importing several items for setting up a refinery and the importation takes place over a period of 2-3 years. Thereafter, the importer is required to submit the final invoices issued by the supplier, the total quantity of goods imported vis-a-vis the plan made at the time of taking permission under Project Import Regulations. The question that arises is when there was a contract in existence, even before the supply contract came into picture and legitimately and legally such values were to be included in assessable value but the omission of inclusion of such items could probably have been found out only because of intelligence received or because of detailed investigation conducted, question arises whether Revenue should wait for the assessee to submit all the details and seek finalization of assessment. The question also arises, if the assessee does not give the details in a case like this, Revenue may not even know whether the imports have been completed or not. In such a situation, if the assessee delays submission of details, no finalization can take place and even if the department has all the details collected because of investigation, if the stand taken by the assessee for appellant in this case is legally correct, the department will have to keep on waiting for finalization of assessment or propose finalization of assessment at the higher rate of duty for all the imports made. In case of project imports, all the goods will have to be reassessed under relevant headings, duty to be calculated which again will not be possible without the cooperation of the assessee.
6 (b) (9). Looking from the side of assessee also, no refund claim can be made when there is a provisional assessment and without challenging the assessment. Question arises whether provisional assessment can be challenged. This is because there are decisions taking a view that unless assessment is challenged no refund claim can be filed. Therefore a logical and legally correct view appears to be one which would make the assessment to include provisional assessment and is subject to rigors of any regular assessment and subject to the usual challenges and procedures which are applicable to any regular assessment such as refund claim that can be filed by the assessee, challenge to the assessment by way of filing an appeal either by Revenue or by the assessee, and challenge to the assessment or issue of show-cause notice for short levy in case the records which were not produced by the assessee which should have been produced otherwise are recovered during the course of investigation. This would result in a logical conclusion and would be fair to both assessee as well as the Revenue. In fact there are many instances where the refund claims have been held to be inadmissible because the provisional assessment had not been finalized. In such cases, many times, the judicial authorities specified a time limit so that relief will be available to the assessee. A question of res judicata may not arise in view of the fact that provisional assessments are resorted for specific purposes and once the assessee is able to specify the purpose for which provisional assessment was resorted to, the assessment can be finalized. Therefore, even if short-levy is disputed, notice issued, adjudicated, the finalization of provisional assessment or assessment process as per the document can be a separate subject and in both cases issues involved will be different.
6 (b) (10). These observations are not the basis for coming to the conclusion against the appellants and while considering the issue and going through decisions and going through the law, it was felt that law can be looked at it in this manner also and it was also felt that it would result in fairness and justice to both sides. Therefore, we have chosen to make mention of these aspects also in the order even though the conclusion as regards the duty demand has no relevance or the conclusions reached are not required to be considered. The fact remains that these conclusions also support the case of the Revenue.
6 (b) (11). In the present self-assessment regime, there may be many occasions where the assessee may assess and pay higher duty and assessment be provisional. In our opinion, the conclusions reached by us above are more valid today than ever before especially in view of the complications involved in application of law to the facts and difficulties involved in making self-assessment.
6 (c). The next issues to be considered are whether confiscation of goods and penalty imposed by the Commissioner can be sustained.
6(c) (1). We have already taken a view that there was gross undervaluation by the appellant and non-declaration of OETAC to the original assessing authority amounted to suppression of facts and miss-declaration of value. We have also upheld the quantum of additions made by the Commissioner in the impugned order. Therefore, there is no doubt that the appellant has rendered the goods liable for confiscation. In view of the suppression and miss-declaration, they are liable to penalty under Section 114A of the Customs Act, 1962.
6(c) (2). We have considered the submissions made by both sides and also noticed that the Commissioner has elaborately considered the issue before coming to the conclusion and, in our opinion, the facts discussed by us and all relevant documents available on record are sufficient to conclude that the action taken by the Commissioner is sustainable.
6(c) (3). Learned counsel has relied upon several decisions to support the submission that there cannot be any confiscation and penalty. The first submission was that without finalization of provisional assessment, Revenue could not have issued a show-cause notice under Section 28 of the Customs Act, 1962. We have already discussed the relevant decisions cited by learned counsel and have come to the conclusion that in this case, the demand arises as a result of finalization of assessment. Therefore, finalization of provisional assessment under Section 18 of the Customs Act, 1962 and demand of differential duty under Section 28 of the Act, even though contained in the same order, are sustainable in view of the detailed examination of provisions of law as well as the decisions of the Tribunal in the cases of Dabhol Power Company and Mangalore Refinery & Petrochemicals Ltd. referred to supra.
6(c) (4). One of the other decisions which was relied upon by learned counsel is discussed below :
In the case of Commissioner of Customs vs. Exotic Fashions [2010 (262) E.L.T. 651 (Tri.-Mum)], the Tribunal held that no duty demand could be made until finalization of provisional assessment and if there was no finalization of provisional assessment, proposal for confiscation of the goods and penalty would have no relevance. As already observed by us, in this case the Commissioner has finalized the assessment and demanded differential duty and thereafter proceeded to confiscation of the goods and imposed penalty. Therefore, this decision does not help the importer.
6(c) (5). Learned special counsel for Revenue has also relied upon decision of the Tribunal in the case of Sri Ganesh Overseas vs. Commissioner of Customs, Ahmedabad [2002 (150) E.L.T. 145 (Tri. Del.)] which was affirmed by Honble apex court. Learned counsel submitted that this decision cannot be applied to the facts of this case. It was submitted that in that case, the proprietor attempted to defraud revenue. Instead of producing satisfactory evidence in support of the declared value, he disowned the transaction and stated that he was holding himself as the importer at the behest of another person. It was submitted that there is finding of the fact in the case of Sri Ganesh Overseas (supra) that there was complete fraud committed. In this case what the appellants submission is whether action of the importer does not amount to defrauding revenue or not has to be based on the gravity of offence. It is submitted that in this case, the appellant had a bona fide belief. However, the submission of Revenue is contrary and we happen to agree with the submission of Revenue. Therefore, while we may not call action of the appellant as equivalent to action of the importer in case of Sri Ganesh Overseas (supra), We definitely do not agree with the claim of bona fide belief on the part of the appellant. Therefore, distinction made by learned counsel, in our opinion, is not acceptable. In this view of the matter, the submission made by learned special counsel as regards penalty and confiscation of the goods have to be accepted especially in view of the Tribunals decision in the cases of Dabhol Power Company (supra) and MRPL (supra) and our observations herein above.
6 (d). The next question that arises is quantum of redemption fine imposed and quantum of penalty.
6 (d)(1). As regards the redemption fine, we find that the value of the goods involved is Rs. 478,16,46,485/- after enhancement of value by the Commissioner. He has confiscated the goods and imposed a fine in lieu of confiscation of Rs. 10 crores. Having regard to the nature of additions, nature of transaction and facts of the case, we consider that the Commissioner has been very reasonable and redemption fine of about 2.1% can be considered as nominal. Therefore, we do not consider it necessary to give any relief.
6 (d) (2). As regards penalty, penalty is mandatory under Section 114A once suppression and miss-declaration are sustained. Therefore, we cannot go into reasonableness of quantum of penalty under Section 114A. Accordingly, penalty imposed under Section 114A of the Customs Act, 1962 also has to be upheld.
7. In view of above discussion, appeal filed by the appellant has no merit and the same is, accordingly, rejected.
(Pronounced in open court on 24/02/2014) (ANIL CHOUDHARY) JUDICIAL MEMBER (B.S.V. MURTHY) TECHNICAL MEMBER /vc/