Customs, Excise and Gold Tribunal - Delhi
Ashok Leyland Ltd. vs Collector Of Central Excise on 20 January, 1995
Equivalent citations: 1995(76)ELT361(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. The appellants herein are aggrieved by the order dated 31-3-1993 passed by the Collector of Central Excise (Appeals), Madras by which he has upheld the order of the Asstt. Collector of Central Excise, Madras (II Division) by which the Assistant Collector had held that the price charged by the appellants herein for the components manufactured by them in the spares market should be the assessable value under Section 4(1)(a) of the Central Excises and Salt Act, 1944 in respect of the components removed by the appellants to their other units for captive consumption as original equipments in the chassis manufactured by them. The brief facts of the case giving rise to the present appeal are that (i) the appellants are engaged in the manufacture of motor vehicle chassis i.e. engines, motor vehicle parts and engine parts etc. falling under different chapters to the Central Excise Tariff Act, 1985; (ii) they were clearing these goods i.e. component parts for chassis for replacement markets as well as to their own units at Hosur, Alwar and Bhandra and for captive use within the factory of production; (iii) they filed a series of price lists under part Vl-b under Section 4(1)(b) of the Central Excises and Salt Act, 1944 read with Rule 6(b) (ii) of the Valuation Rules, 1975 claiming assessable value on the basis of cost construction statements. Accordingly, clearances were effected to their other units outside Madras for captive use paying duty on the value claimed under part VI(b) of the price lists; (iv) On verification it was found that the items for which approval claimed under part Vl-b, normal price under Section 4(1)(a) of the Central Excise Act at which the items were sold to the spare market dealers, Regional Sales Offices, State Transport Undertakings etc., was already in existence; (v) It was felt that, when the normal price under Section 4(1)(a) of the Central Excises and Salt Act, was available, the same had to be adopted for the goods cleared for captive consumption and for the clearances effected to their other units for the purpose of payment of duty, and there was no need to resort to Valuation Rules, 1975. Therefore, show cause notice was issued and orders passed by the Assistant Collector, Madras II Division to adopt the normal price under Section 4(1)(a) of the Central Excises and Salt Act, 1944 for all the removals and differential duty of Rs. 2,54,81,720.57 for the period from 1-3-1986 to 31-8-1987 was demanded; (vi) On appeal, the Collector (Appeals) vide order-in-appeal No. 203/88 (M) dated 30-6-1988 upheld the order of the Assistant Collector dt. 28-12-1987; (vii) the appellants preferred further appeal before the CEGAT SRB, Madras, against the order of the Collector (Appeals) Madras, as well as filed writ petitions W.M.R No. 7031 of 1988 in W.R No. 4790/88 before the Honourable High Court of Madras and injunction petition in W.M.P. No. 7031 of 1988 before the Honourable High Court. (viii) The Honourable Tribunal after examining the stay petition ordered that a sum of Rs. 125 lakhs should be paid as deposit and ordered for stay for recovery of the balance amount pending disposal of the appeal vide their order No. 161/88 dated 10-10-1988 and 198/88 dated 30-12-1988 and the appellants complied with the same by paying Rs. 132 lakhs; (ix) The Honourable High Court Madras on 24-7-1988 ordered that the appellants have gone on appeal and injunction dated 22-4-1988 passed by the Court in W.M.R No. 7031 of 1988 shall continue to be inoperative until the appeal is disposed of and the petitioner is at liberty to seek appropriate process depending upon the results in the appeal; (x) The Honourable CEGAT vide order No. 526/91-A dated 5-8-1991 remanded with the direction to enquire the aspect of dual pricing system and to ascertain whether there had been any OE price for the impugned components and to decide the issue accordingly; (xi) In the light of the directions given by the Honourable CEGAT vide order dated 5-8-1981, the Asstt. Collector, after due process of law, has demanded the duty. In the order passed by the Asstt. Collector, he gave a finding that there exists a two tier price structure in the automobile industry. The two prices are - firstly, the price at which components are sold for original equipment purposes, i.e., to the manufacture of I.C. engines and motor vehicles and secondly the price for the replacement market where components are sold as spares for repair and replacement purposes. The Asstt. Collector observed that in both the cases there is definite a sale and transfer of possession and are for a particular purpose. The original equipment price was found to be lower compared to the price for replacement market. The price difference, the Asstt. Collector, found is because of the practice prevalent in the industry, volume of sale involved and the price which the respective market could bear. But the Asstt. Collector also found that in the case of the appellants, M/s. Ashok Leyland Ltd., they have a spare market price, i.e., the price at which the components manufactured by them are sold to the ultimate buyers, their own sale network and through their dealers. But the appellants do not have any other sale, however, there is removal of components from them for manufacture of motor vehicle chassis and engines in their other units which are not for sale but for their own consumption. The Asstt. Collector observed that it is hence established that they do not have an O.E. sale. He came to the conclusion that the two tier price system can be extended only when there are two distinct sales and since they do not have any O.E. sale the Asstt. Collector held there is no scope to apply the system to their removals. The Collector (Appeals) upheld the order of the Asstt. Collector leading to the present appeal.
2. Shri C. Natarajan, learned Counsel appearing for the appellants alongwith the learned Counsel, Shri R. Raghavan made the following submissions :-
The important ingredients going into the value determination under Section 4 are - (a) identifying the goods; (b) identifying the wholesale transaction and (c) identifying the price. The nature of the transaction under clearance is as important as the goods and price therefor. Section 4(1)(a) endeavours to reach the true normal price with reference to the type of transaction and hence this ingredient is important. Section 4 speaks of normal price in the course of wholesale trade. Wholesale trade has been defined under Section 4(4)(e) as meaning sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail. The authorities below have failed to notice, according to the appellants, that the normal price to wholesale dealers as defined under Section 2(k) of the Central Excises and Salt Act cannot be treated as normal price for wholesale trade. The department cannot adopt spare parts price as value when the components are used in further manufacture in the appellants' other units which are used for captive consumption and there is no selling profit nor the usual expenses connected with marketing of the product. When components are sold in the spare market they are priced on the basis of manufacturing cost, manufacturer's profit and marketing expenses. When the manufacturer produces goods for his own consumption the various elements beyond manufacturing cost ought to be excluded. It was submitted that if merely on account of existence of spare parts price such price has been adopted for O.E. components as done by the Collector, it will totally destroy the vehicle cost structure. It will also throw into disarray the facility of taking and utilisation of Modvat Credit on input for paying duty on the finished product. Further Section 4(1 )(a) will apply only for clearances by way of sale what is explicit in Section 4(1)(a) is also made implicit by reading of 3 provisos to that Section each of which contemplates clearances for sale, therefore when the assessee cleared the goods for captive consumption without a sale Section 4(1)(a), it was submitted, cannot be applied for such removal but only Section 4(1)(b) becomes applicable. It was contended that appellants themselves are industrial consumers and the removals of components to their other units as industrial consumers without a sale will attract Section 4(1)(b) which is attracted when the normal price of such goods is not acceptable for the reason that such goods are not sold or for any other reasons in which case, according to the Section, the nearest ascertainable equivalent of normal price is to be determined according to the Valuation Rules. In this context, it was argued that the expression 'any other reason' occurring therein is not exhaustive to enable the authority to invoke Central Excise Valuation Rules on a recognition of the category of clearance and the inapplicability of the value of one type of transaction to a different type or class of clearance like the existence of two tier pricing industry. The other argument was with reference to the wording of Section 4(1) which is subject to the other provisions of the Section. According to the appellants this would show that Section 4(1)(b) will have pre-eminence in a situation as that of the appellants. The decision of the Tribunal in the case of HMT v. CCE-1989 (41) E.L.T. 602 was cited wherein the Tribunal had held that the normal price under Section 4(1)(a) if available can be adopted for goods captively consumed. However, it was argued that this decision is distinguishable. In the case decided by the Tribunal, the percentage of sales to dealers was much higher than in the present case where the captive consumption is much more. The Tribunal also noted the absence of general practice in the watch trade to show that sales to dealers constitute a different class of sales as against clearances for captive consumption. Also 1987 (29) E.L.T. 530 wherein in their own case it was held by CEGAT that clearance for captive consumption can be assessed at the same value as the net dealers' price. This case was also distinguishable as there was no argument before the Tribunal in that case, based on the two tier pricing policy in the industry and that decision was further based on concession by the respondents-assessee therein.
3. Shri B.K. Singh, learned SDR made following contentions :-
If there is a wholesale market price available for the same goods manufactured by the same manufacturer then that should be adopted as value under Section 4(1)(a). It cannot be accepted that captive consumption is a different class of transaction because captive consumption ipso facto does not mean that the goods are not marketable. Goods captively consumed are to be assessed at the value in wholesale trade. It is not as to how they are sold whether as spares or as O.E. that matters, so long as the very goods are sold in the wholesale trade. In the present case, the Department has evidence of the wholesale price for the same goods. Section 4(1)(b) applies only where the normal price is not ascertainable for the reason that the goods are not sold. The appellants in the present case the goods are sold partly in the wholesale market under conditions which fully satisfy the provisions of Section 4(1)(a) and hence there is no need to invoke Section 4(1)(b) of the Central Excises and Salt Act. The HMT decision of the Tribunal as well as the Tribunal decision in the appellants' own case cited by the learned counsel are clear that the price available for sale of the goods in wholesale trade, can be adopted as value under Section 4(1)(a) for the goods captively consumed. The remand order in this case was only to ascertain the factual position about the claim of the existence of two tier pricing system in the industry. The Asstt. Collector has ascertained that there is no two tier system as far as goods manufactured by the appellants herein are concerned since there was no sale of O.E. equipment by the appellant of their components. Since the Department has found that there is normal price for the same goods it should be adopted as the assessable value for the removals to their own unit for captive consumption. The learned SDR further urged that if there are two constructions possible to a provision in a fiscal statute, the ambiguity or doubt should be resolved in favour of Revenue and not in favour of assessee relying upon the Supreme Court decision in the case of Novopan (India) -1994 (73) E.L.T. 769.
4. The submissions made by both the sides have been carefully considered. In the remand order of the Tribunal, it was observed that the department has not considered the existence of the two tier pricing structure prevalent in the automobile industry with respect of prices of components. The Tribunal further noted that in the earlier order of the Tribunal in the appellants' own case reported in 1987 (29) E.L.T. 530 also had no occasion to consider this aspect and the further decision in the HMT case by the Tribunal contained a finding that the appellants therein had not placed any material of the existence of dual pricing in the watch industry considered by it. The Tribunal felt that the factual situation requires to be verified and had remanded the matter to the Asstt. Collector. We have already narrated above the finding of the Asstt. Collector on this aspect. He had found that there did exist such two tier pricing system but he observed that for the products manufactured by the appellants, namely the components, there is only one price namely that of the goods in the spares market. They do not have any sale of the components for O.E. purposes. Therefore, the Asstt. Collector took a view that the two tier pricing system can be taken into consideration for determining the assessable value only when there are two distinct sales and since the appellants do not have any O.E. sales, he found no scope to adopt the assessable value based on the existence in the industry of such a system. The appellants have argued that the main ingredients of Section 4(1)(a), according to them, are identity of the goods, of the price thereof and also the identity of the transaction. Their arguments thereupon had been built on the premises that the difference in the identity of the transactions of clearance on sale of their components to the spares market and removals without sales for captive consumption as O.E. to their other units would form different types of transactions warranting different assessable values. On an examination of the arguments on these lines, it is found that the Supreme Court in the case of Union of India v. Bombay Tyre International, 1983 (14) E.L.T. 1896 had observed that Section 4 envisages a method of collecting tax at the point of first sale effected by the manufacturer. The essential distinction, the Court observed, between Clause (a) and Clause (b) of Section 4 is that Clause (a) is invoked when the wholesale cash price is ascertainable and Clause (b) when the wholesale cash price cannot be ascertained. The Court observed that the price charged by the manufacturer on a sale by him represented the measure of the levy. The Court further noted the Privy Counsil decision in the case of Ford Motor Company v. Secretary of State, 1978 (2) E.L.T. 265 under the Sea Customs Act Valuation Provisions wherein the Privy Council approached the case from the stand point that if a wholesale price satisfying the description contained in Section 30(a) of the Sea Customs Act was ascertainable, the goods could not be dealt with under Section 30(b). Section 30(a) and (b) are substantially comparable with Section 4 of the Central Excises and Salt Act. There was a further observation of the Privy Council in that case noted by the Supreme Court saying that if there is an actual price for the goods themselves at the time and place of importation and if it is a wholesale cash price less trade discount then Clause 30(a) was not inapplicable for want of sales of other goods. The Supreme Court observed that the Privy Council decision illustrates the fundamental distinction between the provisions such as the two clauses of Section 4 of the Central Excises and Salt Act. The Supreme Court further observed that Section 4(a) applies to the goods manufactured by the assessee himself and also that in enacting the new Section 4 no material departure was intended from the basic scheme for determining the value of the assessable article. The Supreme Court further held that under old Section 4(a) value of an assessable article should be taken to be the price at which the article sold by the assessee to a buyer at arm's length in the course of wholesale trade. Where, however, the excisable article is not sold by the assessee in wholesale trade but for example is consumed in his own industry then the case is one where under the old Section 4(a) the value must be determined at the price at which the excisable article or an article of the like kind and quality is capable of being sold in wholesale trade. The normal price mentioned in the new Section 4(1) (a) is the price at which the goods are ordinarily sold by the assessee in the course of wholesale trade. The Supreme Court observed that this is the wholesale price charged by the assessee. Further the Supreme Court decision has held that the phrase normal price is defined by the words in Section 4(1)(a) which follow: It is the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at their time and place of removal where the buyer is not a related person and the price is the sole consideration for sale. In the same judgment, the Supreme Court has laid down the criterion of the identity of the manufacturer and the identity of the price as important for the valuation under Section 4. The Court observed that the old Section 4 as well as the new Section 4 determined the value on the basis of the price charged or chargeable by the particular assessee and the price is charged or is chargeable in respect of the article manufactured by him. The value of the excisable article, the Court observed, is determined in that context. Having set out as above, the salient observations of the Supreme Court as regards the coverage of Section 4(1)(a) and 4(1)(b) it is found that in the present case for the same components manufactured by the appellants herein wholesale cash price satisfying of the ingredients of Section 4(1)(a) is available in the spare parts market. There are also no sale of O.E. equipments which are of captively consumed. In such a situation when normal price for the same goods as manufactured by the same manufacturer is available there will be no justification for abandoning valuation under Section 4(1)(a) and to apply Section 4(1)(b) on the ground that the price under Section 4(1)(a) is not ascertainable by invoking the scope of the expression "for any other reason" occurring under Section 4(1)(b). In this context, the Tribunal decision in HMT case (supra) is relevant wherein the Tribunal observed that under the Central Excise Law if normal price under Section 4(1) (a) is available the same has to be adopted for assessment of all the goods cleared from the factory notwithstanding the percentage of sale at this price the same has to be adopted as the assessable value. Further the Supreme Court in the case of Indian Oxygen v. CCE - 1988 (36) E.L.T. 723 after noting the earlier order of the Supreme Court in the case of Bombay Tyre International (supra) observed that where there is a clear finding that there was an ex-factory price which is ascertainable in such situation that should be the basis upon which the value is to be determined. Para 6 of the Supreme Court decision in the Indian Oxygen case is reproduced below :-
"6. It is necessary to reiterate that value for assessable goods must be determined in terms of section 4 of the Act. The said Section 4(1) provides that where the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section be deemed to be the normal price thereof, that is to say the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale. "Place of removal" under Section 4(4)(b) has been defined to mean a factory or any other place or premises of production or manufacture of the excisable goods or a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from which such goods are removed. The scope of determination of value has been explained and reiterated by this Court in Union India and Ors. etc. etc. v. Bombay Tyre International Ltd. etc. etc. 1983 (14) E.L.T. 1896 (S.C.). Following the principle of the said case the Tribunal noted in the judgment under appeal that the price ex-factory is ascertainable. If once that is the position as the Tribunal rightly pointed out, the issue of deduction of rate from the prices ex-depots does not survive for the decision. But if the ex-factory prices were not ascertainable and the goods were to be assessable ex-depot, then it would be for the manufacturer to claim on the basis of actual evidence of the deductions should be admissible from the price list as per the provisions of the Act."
In view of the above, it is not possible to accept the argument of the appellants that even when the normal price of the same components manufactured by the same assessee is available as in the present case the assessable value should still be differently determined when the same goods are captively consumed. More so when it has been ascertained that though there is a two tier pricing system in the industry there is no sale at all by the appellant of the O.E. equipment. The Supreme Court decisions cited above also do not lend support to the proposition made by the appellant that besides identity of the manufacturer and the identity of the price, the identity of the transaction is also a necessary ingredient under Section 4 for determination of assessable value nor to the proposition that Section 4(1)(b) has pre-exminence over Section 4(1)(a) in valuation. Therefore, so long as the normal price of identical goods produced by the same manufacturer is available, the same should apply to the removals for captive consumption, especially in view of the position, as ascertained by the Assistant Collector, regarding the absence of O.E. sales of the components produced by the appellants, which fact would make the existence of dual pricing in the industry as a whole not material for determination of value in the present case. For the same reason the earlier Tribunal decision in their case 1987 (29) E.L.T. 530 would properly become applicable which has also been the basis for the present valuation by the Department. In the result, we see no reason to interfere with the orders passed by the Collector (Appeals) and accordingly the appeal is rejected.