Madras High Court
The Commissioner Of Central Excise vs M/S.Australian Foods Ltd on 23 September, 2008
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:23.09.2008 CORAM: THE HON'BLE MR. JSUTICE P.JYOTHIMANI WRIT PETITION NO.11028 of 2007 and other connected miscellaneous petitions. The Commissioner of Central Excise Chennai II Commissionerate No.692, MHU Complex, Anna Salai Nandanam, Chennai 600 035. .. Petitioner vs. 1.M/s.Australian Foods Ltd., Plot No.22 & 23, Ambattur Industrial Estate, Chennai 600 058. 2.Customs & Central Excise Settlement Commission, Additional Bench, II Floor, Narmada Block, Custom House, No.60 Rajaji Salai Chennai 600 001. .. Respondents For petitioner : Mr.T.S.Sivagnanam Sr.Central Govt. Standing Counsel For respondents : Mr.Aravind P.Datar,Sr.Counsel for M/s.V.S.Jayakumar for R.1 .. ORDER
By consent of both parties, the main writ petition itself is taken up for final disposal.
2. The writ petition is filed by the Commissioner of Central Excise, Chennai II Commissionerate against the impugned order of the second respondent dated 06.12.2006, which has been passed as admission-cum-final order on an application filed by the first respondent for settlement of the proceedings initiated against it by means of a show cause notice issued by the writ petitioner dated 31.07.2006.
3. The short facts leading to passing of the impugned order by the second respondent are as follows:
(a) The first respondent is a manufacturer of Cookies and Dough falling under Sub-heading 1905.3100 and 1901.2000 of the Central Excise Tariff Act,1985. It is stated that Dough is the main ingredient used in the manufacture of Cookies and the same had been charged with excise duty from 01.03.2005 by virtue of the amendment made in the Finance Act,2005.
(b) On the basis of the report gathered that the first respondent had been clearing Dough to their franchises and outlets without payment of duty, certain investigations were carried on and it came to light that the first respondent was clearing Dough for preparation of Cookies to their outlets and franchises without payment of duty and that they have cleared CENVAT availed packing materials to their franchises/outlets without expunging the credit taken on the same.
(c) When it was also noticed that the first respondent has cleared excisable goods in bulk to institutional customers by wrongly assessing the same on Maximum Retail Price (MRP), a show-cause notice was issued to it on 31.07.2006, demanding a total duty of Rs.33,82,246/- and education cess amount of Rs.67,645/- along with interest. That apart, the penal provision under the Central Excise Act,1944 (in short, "the Act") was also invoked against the first respondent.
(d) It is the case of the writ petitioner that on the visit by the officials of the Central Excise Department to the factory of the first respondent on 19.01.2006 and 21.01.2006 and by scrutinising the records it was revealed that the first respondent has removed a quantity of 2,20,813 Kgs. of Dough to the value of Rs.1,49,04,162/- without payment of duty from 01.03.2005 to 31.12.2005 to its franchises; removed CENVAT credit availed packing materials without payment of an amount equal to duty as required under the provisions of CENVAT Credit Rules,2004; and also removed Cookies for sale to institutional customers, such as M/s.ITC, M/s.Jet Airways Ltd. etc. by wrongly assessing the goods under Section 4-A of the Central Excise Act,1944, without mandatorily affixing the MRP on the packages, however, the sale is at contractual price.
(e) It is the case of the petitioner that during the course of investigation the first respondent has in fact paid the duty and interest and in the show cause notice while demanding the above said amounts, the petitioner included for the appropriation of the said amount apart from the proposed appropriation of Rs.2,42,888/- paid towards interest on the central excise duty. Further, penal action was proposed under Section 11-AC of the Central Excise Act,1944 and under Rule 25 of the Central Excise Rules apart from Rule 15(2) of the CENVAT Credit Rules, 2004.
(f) The first respondent, without replying to the show cause notice, has filed an application before the second respondent for a relief under Section 32 of the Central Excise Act,1944, for settlement of case as contemplated under Section 32E of the Act. According to the petitioner, the second respondent/Settlement Commission, instead of applying Section 4 of the Act, has applied Section 4-A of the Act. Under Section 4, the valuation of goods is to be made on the transaction value as per the contract between the parties while under Section 4A the value is arrived at on the basis of MRP declared on the packages. In addition to that, under Section 4A, the goods must be in conformity with the provisions of the Standards of Weights and Measures Act,1976.
(g) The goods in question, viz., Cookies were not having MRP declared on the packages and that is sufficient to say that the value has to be assessed under Section 4 of the Act, since MRP must be found on the packages in conformity with Section 4-A(1) of the Act. The petitioner has opposed the application for settlement filed by the first respondent stating that the decision of the Tribunal rendered in M/s.Ishaan Research Laboratories Pvt.Ltd., [2004 (172) ELT 484 (TRI) ] relied on by it is not relevant, since in that case it was held that the provisions of the Packaged Commodities Rules,1977 are not applicable, as no materials have been adduced by the Revenue to show that the marking on the package indicates in clear terms that it has been specially packed for any industry as a raw-material or for the purpose of servicing any industry, while in the instant case, the goods were supplied for servicing in the industries.
(h) It was also brought to the notice of the second respondent Commission that the first respondent has specifically stated that the institutional customers are not selling the Cookies, but are supplying the same to their customers for consumption and therefore, the decision of the Tribunal relied upon by the first respondent is not applicable, since the decision relates to the goods affixed with MRP while in the present case there was no affixture of MRP, but the package contains a word "specially packed for Jet Airways and not for sale", "date of manufacture", "product name", etc.
(i) It was also opposed by the petitioner that the first respondent ought to have waited till the adjudication proceedings regarding valuation is completed as to whether the same would fall under Section 4 or 4-A instead of approaching the Settlement Commission. It is also the case of the petitioner that the second respondent Commission has passed the admission-cum-final order, granting partial immunity from interest and full immunity from penalty and prosecution, having found that there was a clandestine removal of goods by the first respondent.
4. The impugned order of the second respondent is assailed by the petitioner on various legal grounds, including that the second respondent has no jurisdiction and it failed to consider the facts and circumstances of the case; that the second respondent has also failed to take into account that the first respondent has never indicated MRP on the packages and sold the goods in question on transaction value, which represents the wholesale contract value, which attracts Section 4 of the Act, and therefore, the consideration of the case by the second respondent under Section 4-A, which applies to cases where the value actually represents the MRP is not proper and therefore, the order is erroneous; that the second respondent Commission has exceeded its jurisdiction by virtually acting as an executing authority by granting leave to the first respondent to which it is not entitled especially in the confirmed case of clandestine removal; that the second respondent is not empowered to decide whether the goods would come under Section 4 or 4-A of the Act and the same is beyond its jurisdiction; that the power of the second respondent to grant immunity from fine or penalty or interest would arise only in cases where the assessees make full and true declaration of their liability for payment of the duty; that the second respondent is not entitled to consider the legality of the orders and by deciding the issue of assessment of clearings under Section 4-A, the second respondent has exceeded the jurisdiction; that the second respondent failed to consider Rule 34 of the Standards of Weights and Measures (Packaged Commodities) Rules,1977, and in view of the same it ought to have decided that the lability is under Section 4 of the Act; that the second respondent has failed to consider the clarification letter of the Central Board of Excise and Customs dated 28.02.2002, wherein in respect of goods which are not statutorily required to print/declare the retail sale price on the package under the provisions of Standards of Weights and Measures Act,1976 or the Rules, valuation should be done under Section 4 of the Act and that similar circular was issued on 31.07.1998, which requires to indicate MRP under Standards of Weights and Measures (Packaged Commodities) Rules,1977; that the decision in M/s.Ishaan Research Laboratories (P) Ltd., [2004 (172) ELT 484 (Tri.Delhi)] is not applicable and that the granting of immunity of penalty and prosecution is without jurisdiction and the second respondent ought to have taken into consideration various decisions of the Supreme Court.
5. The first respondent, who has filed affidavit in support of the petition to vacate stay granted by this Court has stated that the writ petition is not maintainable since the Settlement Commission has exercised its discretion under Section 32-K of the Act. It is also stated that the writ petition becomes infructuous by relying upon the judgement of the Supreme Court in Jayanthi Food Processing Pvt. Ltd. vs. Commissioner, Central Excise, Rajasthan [2007 (8) SCC 34 ]. It is the case of the first respondent that when any product has been notified under Section 4-A of the Act, it has to pay duty on bulk sales on the basis of MRP under Section 4-A of the Act.
5(a). It is the case of the first respondent that it manufactures Dough in its factory premises and it has no proper shelf life for storage purposes and they send the same in packed condition for storage at minus 20 degrees centigrade to M/s.Snowman Frozen Foods Ltd., situated at Sriperumbudur under a delivery challan. It is admitted by the first respondent that it was not aware of the change made in Central Excise Tariff Act,1985 by the amendment Act,2005 and therefore, it was under the bona- fide impression that the Dough made by it was not liable to duty, since it was not in a marketable condition.
5(b). On advice, the first respondent came to know that the liability for payment of duty for Dough arose from 01.03.2005 and approached the officer having jurisdiction and made enquiry about the payment of duty. Taking advantage of the said conduct of the first respondent, the petitioner officials have foisted a false case of clandestine removal, suppression etc., while it is admitted that at the relevant point of time the first respondent/assessee was not paying duty on Dough and cleared Dough without payment and at the time of inspection, the officials of the writ petitioner seized two computer systems along with certain records from the first respondent Company and certain documents were also taken away from the first respondent company at Spencer's Plaza, Mount Road, Chennai.
5(c). It is stated by the first respondent that it was not able to maintain proper documents for movement of Dough and the movement was made due to the reason that it was not having sufficient storage facility and therefore, without permission it was sent outside for cold storage since the same had to be kept in minus 20 degree centigrade and whenever necessary it was brought back to the factory for baking, etc. and thereafter for manufacturing Cookies.
5(d). It is also the case of the first respondent that the petitioner has also found on checking with M/s.Snowman Frozen Foods Ltd., that the Dough clearance has been made in accordance with the detailed working sheet as per which the first respondent manufactured and cleared a total quantity of 2,20,813 Kgs. of Dough valued at Rs.1,49,04,162/- during the period from March,2005 to December,2005 to its various franchises/outlets and the same was confirmed in its letters dated 20.01.2006 and 24.01.2006 and the first respondent has voluntarily paid an amount of Rs.21,89,237/- along with an interest to the tune of Rs.1,50,485/- and also paid an amount of Rs.2,43,122/- towards CENVAT credit and altogether, paid a sum of Rs.23,84,666/- towards total excise duty and Rs.47,693/- towards cess.
5(e). It is also the case of the first respondent that the Department noticed that it had cleared its final product viz., Cookies to hotel industry like Taj Group of Hotels, GRT Grand Hotel and airlines like Jet Airways etc. in bulk, based on specific contract with each one of the parties. The sale was effected on the basis of the purchase orders from the above said purchasers. It is admitted that the excise duty had been paid not on the contract price, but on the MRP based assessment. For the period from 01.02.2004 to 31.03.2005, the excise duty comes to Rs.4,88,200/- and the duty already paid works out to Rs.3,59,621/- and therefore, the difference in payment works out to Rs.1,28,579/-. Likewise, it is stated that for the period from 01.04.2005 to 30.04.2006, the duty works out to Rs.5,90,212/- and the above said amounts were paid by the first respondent during investigation.
5(f). It is the case of the first respondent that the second respondent Commission while giving benefit to the first respondent under Section 4-A of the Act, has not granted complete immunity from interest, but directed payment of interest at 10% from the date when the duty became due till the date of actual payment and the impugned order granting immunity has been passed in terms of Section 32-K(1) of the Act, after considering various aspects of the case. It is also reiterated that by virtue of the judgement of the Supreme Court in Jayanthi Food Processing Pvt.Ltd., the duty would be payable only under Section 4-A and not under Section 4 of the Act and therefore, the writ petition filed by the petitioner-Department is infructuous.
6. Mr.T.Sivagnanam, learned Senior Central Government standing counsel appearing for the petitioner would submit that the officials of the petitioner Department when visited the first respondent Company on 19.01.2006 and 21.06.2006, scrutinised its records and found that the Dough of 2,20,813 Kgs. having the value of Rs.1,49,04,162/- were removed during the period from 01.03.2005 to 31.12.2005 without payment of duty and without payment of an amount equal to duty as required under CENVAT Credit Rules, 2004 and Cookies were also removed to various customers, and it was a contractual sale not coming under MRP sale, and it was based on the said investigation, a show cause notice came to be issued on 31.07.2007.
6(a). According to the learned counsel, in normal circumstances, the first respondent ought to have replied to the show cause notice for adjudication, but the first respondent has resorted to remedy under Section 32-E of the Act and in spite of the fact that the petitioner Department has raised an objection about maintainability of such a petition under Section 32-E of the Act, the second respondent has granted partial immunity from interest and full immunity from penalty and prosecution. According to the learned counsel, the transaction value has to be taken as the basis for assessment without abatement, but the second respondent has given abatement of 40% by applying Section 4-A of the Act.
6(b). It is also his further submission that under the provisions of the Standards of Weights and Measures Act, 1976, which do not mandate disclosure of MRP, the valuing of goods under Section 4-A of the Act does not arise. In the absence of any requirement under the Standards of Weights and Measures Act,1976 to declare MRP and admittedly, when the first respondent has not declared MRP on the packing, the second respondent Commission ought not to have applied Section 4-A of the Act.
6(c). It is also submitted by him that Rule 2-A, which has been inserted to Standards of Weights and Measures (Packaged Commodities) Rules,1977, excludes the applicability of the rules to the institutional customers, including Airways, Railways, Hotels, etc. which has been given effect from 13.01.2007 and the said Rule makes it clear that the intention of the legislature is to exclude institutional customers from the purview of the Rules.
6(d). It is his further contention that even though the second respondent/Settlement Commission has called for a report as required under Section 32-F(1) of the Act, no investigation has been carried out, especially when the Department has raised a serious issue regarding the valuation, particularly when the MRP was not indicated on the packing and therefore, by applying the legal principles, Section 4 should have been made applicable. It is also his contention that the second respondent ought to have referred it for adjudication to the Commissioner of Central Excise.
6(e). Further, according to him, the judgement of the Supreme Court relied upon by the first respondent in Jayanthi Food Processing (P) Ltd., vs. Commissioner, Central Excise, Rajasthan (2007 (8) SCC 34) is applicable only to the facts of the case which relates to the Mineral Water Bottles, in respect of which MRP was declared on the package of 12 bottles, whereas in the present case, there was no declaration of MRP. It is his further submission that inasmuch as there is no adjudication, on the facts of the present case, the judgement relied upon by the first respondent has no application. It is also his submission that in the absence of any material that the goods were made for retail distribution, the Settlement Commission ought to have arrived at such a conclusion that there is no Dough made for retail distribution.
7. On the other hand, it is the contention of Mr.Arvind P.Datar, learned senior counsel appearing for the first respondent that it is true that the first respondent was not aware of the duty payable on Dough from 01.03.2005 and it was for the first time when the petitioner officials visited the factory on 19.01.2006, the same was revealed and accordingly, for the Dough cleared by the first respondent between 01.03.2005 and 31.12.2005 to the extent of Rs.23,84,000/-, the first respondent accepted the full liability and paid the entire duty. However, the dispute which is in existence is only in respect of liability to pay duty on whole sale price of Cookies supplied to Jet Airways, Taj Group of Hotels, GRT Grand Hotels, etc. which depends upon the question as to whether the duty has to be paid on whole sale price or retail price.
7(a). According to the learned senior counsel, the product is notified under Section 4-A of the Act and therefore, duty is payable only on MRP irrespective of the nature of customer and that was the point decided by the Supreme Court in Jayanthi Food Processing (P) Ltd., vs. Commissioner, Central Excise, Rajasthan (2007 (8) SCC 34). Therefore, according to the learned senior counsel, the decision of the second respondent-Settlement Commission arriving at the duty under Section 4-A of the Act, is perfectly in order. It is also his submission that the latest judgement of the Supreme Court in Jayanthi Food Processing (P) Ltd., is dated 22.08.2007, and the order of the Settlement Commission is dated 06.12.2006 and upto the date of the Supreme Court judgement, there has been divergent opinion among the members of the Tribunal.
7(b). He would also rely upon some of the orders of the Tribunals, viz.,
(i) Bharati Systel Ltd. vs. Commissioner [2002 (145) ELT 626];
(ii) Catrol India Ltd., vs. Commissioner [2003 (159) ELT 575];
(iii) Commissioner vs. Trishul Research Lab (P) Ltd. [2002 (144) ELT 204 (T)]; and
(iv) Commissioner vs. Kraftech Products Inc. [2004 (174) ELT 396 (T)], wherein the Tribunals have held that when the products were not sold in retail but in bulk or to institutional buyers, Section 4 would apply. On the other hand, in
(i) ITEL Industries Pvt.Ltd. vs. Commissioner [2004 (163) ELT 219 (T)];
(ii) Jayanthi Food Processing (P) Ltd., vs. CCE,Rajasthan (2002 (141) ELT 162 :2007 (8) SCC 34)];
(iii) Kwality Biscuits (P) Ltd. vs. CCE [2008 (226) ELT 382 (T)]; (iv) Eastern Safety vs. CCE [2007 (217) ELT 374 (T)]; and
(v) CCE vs. Liberty Shoes Ltd., [2007 (216) ELT 692 (T)], the Tribunals in similar circumstances have taken the stand that the duty is liable to be paid under Section 4-A of the Act. It was in those circumstances, while dealing with the mineral water bottles packed for Jet Airways, the Supreme Court held that it should be valued under Section 4-A and not under Section 4 of the Act, holding that the same was not meant for retail sale, but meant for supply to the passengers and according to the learned senior counsel, after the judgement rendered by the Supreme Court in Jayanthi Food Processing (P) Ltd., the issue is settled and therefore, there is absolutely no irregularity or illegality in the order of the Settlement Commission, which is impugned in this writ petition.
7(c). Therefore, according to the learned senior counsel for the first respondent, when the first issue, viz., the liability to pay duty on Dough does not survive since the amount has been paid in full and the second issue as to whether Section 4 or 4-A of the Act is applicable, by virtue of the judgement of the Supreme Court in Jayanthi Food Processing (P) Ltd., the matter has been settled and there is no illegality or infirmity in the impugned order of the second respondent. It is also his contention that the Settlement Commission, being the quasi-judicial authority, passed orders on appreciation of facts and interpretation of law and inasmuch as the proceedings before this Court is not an appeal, but a writ petition under Article 226 of the Constitution of India, even if the view of the Settlement Commission is not plausible, the same cannot be interfered under Article 226 of the Constitution of India by relying upon the judgement of the Supreme Court in Jyotendrasinghji vs. S.I.Tripathi [AIR 1993 SC 1991].
8. On a reference to the factual matrix in this case, it is found that the basic issue that is to be decided is twofold, viz.,
(i) the alleged conduct of the first respondent in clearing Dough without payment of duty during the period between 1.3.2005 and 31.12.2005; and
(ii) the levy of duty payable on the wholesale price of Cookies supplied by the the first respondent to Jet Airways, Taj Group of Hotels, G.R.T. Hotels, etc. is either under section 4 or 4-A of the Central Excise Act, 1944.
9. As far as the first issue is concerned, it is the case of the first respondent that it was under the bona fide belief that Dough made by it was not liable to duty since it was not in marketable condition and it was due to the mistake committed by the first respondent in not noticing the change made in the Central Excise Tariff Act, 1985 by virtue of amendment of the year 2005, and immediately after the first respondent was informed that Dough has become liable for duty, the first respondent paid the entire amount which is not in dispute. Therefore, the only point which remains to be decided is about the assessment of price of Cookies supplied as stated above.
10. In this regard, it is the case of the first respondent that the supply of Cookies was made by them to the hotels like, Taj Group of Hotels, etc. who as institutional customers are only supplying to their customers for consumption. The first respondent also relies upon the communication from its institutional customers like M/s.Taj Coromandel, M/s.Jet Airways, who have confirmed the words on the package, 'date of manufacture', 'best before 60 days', 'product name', 'batch number' and 'net weight' and in the case of Jet Airways it is stated specifically that it is packed for Jet Airways and not for retail sale, and therefore, according to the first respondent, the same cannot be assessed under section 4 on contractual price (transaction value) and the assessment falls only under section 4-A of the Act.
11. On the other hand, it is the contention of the Department, viz., the writ petitioner that the nature of clearance is in bulk and the despatches were made to the exclusive service industries like, Airlines, hotel industry, etc., and there is no statutory obligation on the part of the first respondent to declare the MRP on the package since there is no exemption under Rule 34 of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977. It is seen that the writ petitioner Department has issued a show-cause notice to the first respondent on 31.7.2006 stating that the first respondent has failed to pay duty in respect of Dough manufactured during the said period and also has not paid duty as per the contractual price in respect of bulk supply to the institutional customers and demanding an amount of Rs.33,82,246/- towards Central Excise Duty and education cess at 2% of Rs.67,645/- and for appropriating the said amount in addition to the appropriation of Rs.2,42,888/- paid towards interest on the Central Excise duty. That apart, in the show-cause notice it was proposed to impose penalty on the first respondent under section 11-AC of the Central Excise Act and Rule 25 of the Central Excise Rules,2002 and also Rule 15(2) of the CENVAT Credit Rules, 2004.
12. The show-cause notice issued by the petitioner to the first respondent dated 31.7.2006 is in accordance with section 11-A of the Central Excise Act, 1944 which enables the authority to issue such show-cause notice in cases where duty has not been levied or paid or has been short-levied or short-paid or refunded, whether or not such non-levy or non-payment, short-levy or short-payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods including the cases where any fraud, collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act has been made.
13. It is not in dispute that the show-cause notice issued is in accordance with the provisions of the Act. Therefore, by issuance of the said show-cause notice, the proceedings under the Central Excise Act have commenced and in normal circumstances, it is for the first respondent to offer its explanation and thereafter, for the authorities to adjudicate considering the entire circumstances and arrive at a conclusion regarding the recovery of duty.
14. It is true that under the Central Excise Act, when the proceedings have been initiated, it is open to an assessee to resort to the procedures under Chapter V of the Act which deals with settlement of cases, which is being done by the Customs and Central Excise Settlement Commission. Under section 31 of the Central Excise Act, 1944, clause (c) defines the term, 'case' which is as follows:
" 'case' means any proceeding under this Act or any other Act for the levy, assessment and collection of excise duty or any proceeding by way of appeal or revision in connection with such levy, assessment or collection, which may be pending before a Central Excise Officer or Central Government on the date on which an application under sub-section (1) of section 32-E is made".
15. Section 32-E of the Act speaks about the application for settlement of cases, which says that an assessee at any stage of a case can make an application to the Settlement Commission to have the case settled and after such application is made under section 32-E of the Act, the Settlement Commission calls for a report from the Commissioner of Central Excise having jurisdiction and on the basis of materials contained in such report, the Settlement Commission may either pass order allowing the application or rejecting the application.
16. The application for settlement of cases as well as the procedures to be followed are explained in Sections 32-E and 32-F of the Act, which are as follows:
" 32E. Application for settlement of cases:-
(1) An assessee may, at any stage of a case relating to him make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his duty or liability which has not been disclosed before the Central Excise Officer having jurisdiction, the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable by him and such other particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification or otherwise of such excisable goods, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided:
Provided that no such application shall be made unless,-
(a) the applicant has [filed returns] showing production, clearance and central excise duty paid in the prescribed manner;
(b) a show cause notice for recovery of duty issued by the Central Excise Officer has been received by the applicant; and
(c) the additional amount of duty accepted by the applicant in this application exceeds two lakh rupees:
Provided further that application shall be entertained by the Settlement Commission under this sub-section in cases which are pending with the Appellate Tribunal or any Court:
Provided also that no application under this sub-section shall be made for the interpretation of the classification of excisable goods under the Central Excise Tariff Act,1985 (5 of 1986).
(2) Where any excisable goods, books of account, other documents have been seized under the provisions of this Act or rules made thereunder, the assessee shall not be entitled to make an application under sub-section (1), before the expiry of one hundred and eighty days from the date of the seizure.
(3) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed.
(4) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant.
"32F. Procedure on receipt of an application under section 32E. -
(1) On receipt of an application under sub-section (1) of section 32-E, the Settlement Commission shall call for a report from the Commissioner of Central Excise having jurisdiction and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application:
Provided that an application shall not be rejected under this sub-section, unless an opportunity has been given to the applicant of being heard:
Provided further that the Commissioner of Central Excise shall furnish such report within a period of one month of the receipt of the communication from the Settlement Commission, failing which it shall be presumed that the Commissioner of Central Excise has no objection to such application; but he may raise objections at the time of hearing fixed by the Settlement Commission for admission of the application and the date of such hearing shall be communicated by the Settlement Commission to the applicant and the Commissioner of Central Excise within a period not exceeding two months from the date of receipt of such application, unless the presiding officer of the Bench extends the time, recording the reasons in writing.
(2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner of Central Excise having jurisdiction.
(3) Subject to the provisions of sub-section (4), the applicant shall within thirty days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the amount of additional duty admitted by him as payable and shall furnish proof of such payment to the Settlement Commission.
(4) If the Settlement Commission is satisfied, on an application made in this behalf by the assessee that he is unable for good and sufficient reasons to pay the amount referred to in sub-section (3), within the time specified in that sub-section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments, if the assessee furnishes adequate security for the payment thereof.
(5) Where the additional amount of duty referred to in sub-section (3) is not paid by the assessee within the time specified or extended period, as the case may be, the Settlement Commission may direct that the amount which remains unpaid, together with simple interest at the rate of eighteen percent per annum or at the rate notified by the Central Board of Excise and Customs from time to time on the amount remaining unpaid, be recovered, as the sum due to Central Government by the Central Excise Officer having jurisdiction over the assessee in accordance with the provisions of Section 11.
(6) Where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner of Central Excise having jurisdiction and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner (Investigation) to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.
(7) After examination of the records and the report of the Commissioner of Central Excise received under sub-section (1), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under sub-section (6), and after giving an opportunity to the applicant and to the Commissioner of Central Excise having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Central Excise and Commissioner (Investigation) under sub-section (1) or sub-section (6).
(8) Subject to the provisions of section 32-A, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under sub-section (7) and, in relation to the passing of such order, the provisions of section 32-D shall apply.
(9) Every order passed under sub-section (7) shall provide for the terms of settlement including any demand by way of duty, penalty or interest, the manner in which any sums due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud, or misrepresentation of facts.
(10) Where any duty payable in pursuance of an order under sub-section (7) is not paid by the assessee within thirty days of the receipt of a copy of the order by him, then, whether or not the Settlement Commission has extended the time for payment of such duty or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at the rate of eighteen per cent per annum or at such other rate as notified by the Central Board of Excise and Customs on the amount remaining unpaid from the date of expiry of the period of thirty days aforesaid.
(11) Where a settlement becomes void as provided under sub-section (9) the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the Central Excise Officer having jurisdiction may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the date of the receipt of communication that the settlement became void."
17. Under section 32-I of the Act, the Settlement Commission is also having additional powers which are vested in a Central Excise Officer under the Central Excise Act and during the time when the settlement application is made and the same is allowed to be proceeded with under section 32-F of the Act, the Commission has exclusive jurisdiction to exercise the powers of Central Excise Officer under the Act. Section 32-I of the Act reads as follows:
" 32-I. Powers and procedure of Settlement Commissions -
(1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in a Central Excise Officer under this Act or the rules made thereunder.
(2) Where an application made under section 32-E has been allowed to be proceeded with under section 32-F, the Settlement Commission shall, until an order is passed under sub-section (7) of section 32-F, have, subject to the provisions of sub-section (6) of that section, exclusive jurisdiction to exercise the powers and perform the functions of any Central Excise Officer, under this Act in relation to the case.
(3) In the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission.
(4) The Settlement Commission shall, subject to the provisions of this Chapter, have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers, or of the discharge of its functions, including the places at which the Benches shall hold their sittings."
18. Section 32-O of the Act bars a subsequent application for settlement in certain cases wherein a penalty order has been passed under section 32-F(7) on the ground of concealment of particulars of his duty liability and subsequently a conviction order has been passed against him, or in cases where the Settlement Commission sends back the matter to the Central Excise Officer for the purpose of adjudication in accordance with the Central Excise Act, such person shall not be entitled to apply again for settlement under section 32-E of the Act. Section 32-O of the Act is as follows:
" 32-O. Bar on subsequent application for settlement in certain cases Where
(i) an order of settlement passed under sub-section (7) of section 32-F provides for the imposition of a penalty on the person who made the application under section 32-E for settlement, on the ground of concealment of particulars of his duty liability; or
(ii) after the passing of an order of settlement under the said sub-section (7) in relation to a case, such person is convicted of any offence under this Act is relation to that case; or
(iii) the case of such person is sent back to the Central Excise Officer having jurisdiction by the Settlement Commission under section 32-L, then, he shall not be entitled to apply for settlement under section 32-E in relation to any other matter."
19. The Chapter dealing with the settlement of cases enables for the settlement of disputes in a summary manner wherein such settlement is possible without prolonging the adjudicatory system which is exercised by the Central Excise Officer. In cases where the issue involved relates to the complicated questions of fact which are to be ascertained on proper adjudication, the usual method of adjudication by Central Excise authority is the proper and appropriate method.
20. In the present case, after the receipt of show-cause notice issued by the petitioner, by which a case against the first respondent in the form of proceeding has been initiated as defined in section 31-C of the Act, the first respondent instead of replying to the petitioner by way of an answer to the show-cause notice, thereby proceeding with the adjudicatory mechanism, has resorted to settlement proceeding by making application to the second respondent under section 32-E of the Act.
21. It is true that the petitioner Department has forwarded the para-wise comments on the application filed by the first respondent dated 20.9.2006, the para-wise comments of the petitioner Department having been received on 30.10.2006. A reference to the impugned order of the second respondent, Settlement Commission makes it clear that the final order has been passed at the admission stage since the order itself is captioned as 'admission-cum-final order'. While admitting the case of the first respondent in respect of manufacture of Dough that there has been a clear misconception regarding the legal position and that subsequently the amount has been paid, the impugned order of the Commission proceeds that the levy of duty on the price of Cookies supplied to the institutional customers could be done under section 4-A of the Act instead of assessing on the contractual value under section 4 of the Act. It is relevant to point out that the first respondent itself has admitted as it is found in the impugned order by the second respondent, Settlement Commission that there was no indication of MRP, however, the second respondent, Settlement Commission has arrived at a categoric finding that there is no doubt that cookies were made for retail distribution.
22. Apart from the finding of the second respondent, Settlement Commission that creates a doubt about the correctness of the impugned proceedings, it is seen that there is no statutory requirement under the Standards of Weights and Measures Act, 1976 on the part of the first respondent to disclose the Maximum Retail Price. It is, in conformity with the said legal position only, the first respondent has not denoted the Maximum Retail Price on the package. In the absence of the said disclosure, it is not known as to how and on what basis the second respondent Settlement Commission has arrived at a conclusion that the packets were manufactured for retail distribution.
23. It is relevant in the context of the comments made by the petitioner Department before the Settlement Commission that the goods were supplied in bulk for servicing in hotel industry and airlines industry and the said institutional customers in their turn were selling the goods to their customers for consumption. In such circumstances, in order to ascertain the factual position and find out as to whether the manufacture was for retail distribution especially in the absence of indication of MRP, the contractual value should have been taken into consideration for assessment under section 4 of the Act or not, the second respondent Settlement Commission in fairness ought to have referred it to the Central Excise Officer for adjudication.
24. It is also relevant in the circumstances that while dealing with the first respondent's case regarding immunity from interest and penalty, the second respondent Settlement Commission in categoric terms has held that in fact there was intention on the part of the first respondent to evade duty in the following words, which are as follows:
" 7. ..... In view of the clandestine nature of clearances, we are not convinced about their argument that the applicants had no intention to evade duty. Accordingly, we are not inclined to extend complete immunity from interest."
25. On such categoric finding, it is not known as to how the second respondent Settlement Commission has directed payment of simple interest at the rate of 10% p.a. on differential duty apart from granting the benefit of assessment to the first respondent under section 4-A of the Act. While section 4 of the Act decides the value of excisable duty for charging excise duty as a transaction value, in respect of valuation of excise duty on retail sale price, section 4-A gives leniency to the assessee who is compelled under the provisions of the Standards of Weights and Measures Act,1976 and the Rules made thereunder to declare on the packets the retail sale price (M.R.P.) and in such circumstances, notwithstanding the provisions of section 4 of the Act wherein the transaction value has to be taken for excise, the declared price is taken as value under section 4-A of the Act. Sections 4 and 4-A of the Act are as follows:
" 4. Valuation of excisable goods for purposes of charging of duty of excise.-
(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall-
(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of goods are not related and the price is the sole consideration for the sale, be the transaction value;
(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
[Explanation.- For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.] (2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of section 3.
(3) For the purpose of this section, -
(a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;
(b) persons shall be deemed to be "related" if -
(i) they are inter-connected undertakings;
(ii) they are relatives;
(iii) amongst them the buyer is a relative and distributor of the assessee, or a sub-distributor of such distributor; or
(iv) they are so associated that they have interest, directly or indirectly, in the business of each other.
Explanation.- In this clause-
(i) "inter-connected undertakings" shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act,1969 (64 of 1969); and
(ii) "relative" shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act,1956 (1 of 1956);
(c) "place of removal" means-
(i) a factory or any other place or premises of production or manufacture of the excisable goods;
(ii) a warehouse or any other place on premises wherein the excisable goods have been permitted to be deposited without [payment of duty;] [(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory,] from where such goods are removed;
[(cc) "time of removal", in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory;]
(d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.] "[4-A. Valuation of excisable goods with reference to retail sale price.-
(1) The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Standards of Weights and Measures Act,1976 (60 of 1976) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply.
(2) Where the goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, then, notwithstanding anything contained in section 4, such value shall be deemed to be the retail sale price declared on such goods less such amount of abatement, if any, from such retail sale price as the Central Government may allow by notification in the Official Gazette.
(3) The Central Government may, for the purpose of allowing any abatement under sub-section (2), take into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods.
(4) Where any goods specified under sub-section (1) are excisable goods and the manufacturer-
(a) removes such goods from the place of manufacture, without declaring the retail sale price of such goods on the packages or declares a retail sale price which is not the retail sale price as required to be declared under the provisions of the Act, rules or other law as referred to in sub-section (1); or
(b) tampers with, obliterates or alters the retail sale price declared on the package of such goods after their removal from the place of manufacture, then, such goods shall be liable to confiscation and the retail sale price of such goods shall be ascertained in the prescribed manner and such price shall be deemed to be the retail sale price for the purposes of this section.
Explanation 1.- For the purposes of this section, "retail sale price" means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like and the price is the sole consideration for such sale:
Provided that in case the provisions of the Act, rules or other law as referred to in sub-section (1) require to declare on the package, the retail sale price excluding any taxes, local or otherwise, the retail sale price shall be construed accordingly.
Explanation 2. - For the purposes of this section, -
(a) where on the package of any excisable goods more than one retail sale price is declared, the maximum of such retail sale prices shall be deemed to be the retail sale price;
(b) where the retail sale price, declared on the package of any excisable goods at the time of its clearance from the place of manufacture is altered to increase the retail sale price, such altered retail sale price shall be deemed to be the retail sale price;
(c) where different retail sale prices are declared on different packages for the sale of any excisable goods in packaged form in different areas, each such retail sale price shall be the retail sale price for the purposes of valuation of the excisable goods intended to be sold in the area to which the retail sale price relates.]"
On a bare reading of sections 4 and 4-A of the Act, it is clear that section 4-A gives certain privileges and benefits to assesses who are compelled under the Standards of Weights and Measures Act, 1976 to declare on the package the retail sale price by assessing duty on the said declared price rather than the contractual price.
26. Applying the above said provisions of the Act to the factual matrix which has been enumerated even by the second respondent, Settlement Commission, in the absence of declaration of retail sale price on the packages by the first respondent in respect of Cookies manufactured by it and in the absence of any obligation on its part to make such declaration of retail sale price as per the Standards of Weights and Measures Act,1976 (Act 60/76), there is absolutely no reason for the second respondent Settlement Commission to show leniency by making assessment under section 4-A of the Act.
27. In any event, the M.R.P. not having been declared on the packages, when the first respondent has been selling the packages to the institutional customers for the purpose of consumption of their customers, the correctness or otherwise of the plea of the first respondent should have been verified, which can be possible only by adjudication or at least by the second respondent Settlement Commission taking the role of Central Excise Officer as per section 32-I(2) of the Act by conducting proper enquiry. In the absence of such procedure being followed, certainly the impugned order of the second respondent giving benefit to the first respondent under section 4-A of the Act in respect of bulk quantities of Cookies manufactured by it and supplied to the institutional customers is not proper and the same is against the provisions of the Central Excise Act,1944.
28. Even though many legal submissions have been made based on various decisions, the judgement of the Hon'ble Apex Court rendered in Jayanti Food Processing (P) Ltd., vs. Commissioner of Central Excise, Rajasthan [(2007) 8 SCC 34] settles the entire issue. The Supreme Court in categorical terms has held that in order to decide whether a particular item of goods is to be assessed under section 4-A of the Central Excise Act, the following factors must be present:
"(i) The goods should be excisable goods;
(ii) They should be such as are sold in a package;
(iii) There should be requirement in the Standards of Weights and Measures Act or the Rules made thereunder or any other law to declare the price of such goods relating to their retail price on the package;
(iv) The Central Government must have specified such goods by notification in the Official Gazette;
(v) The valuation of such goods would be as per the declared retail sale price on the packages less the amount of abatement.
If all the said factors are applicable to any goods, then alone the valuation of the goods and the assessment of duty would be under Section 4-A of the Act."
29.In the said paragraph the Hon'ble Supreme Court has made it very clear that only if all the above said five factors are applicable to any goods, the value of the goods and the assessment of duty would be possible under Section 4-A of the Act. Applying the said test of applicability of five factors to the facts of the present case, there is no obligation on the part of the first respondent to declare the maximum retail price as per the Standards of Weights and Measures Act,1976 and the Rules made thereunder, which is not in dispute and it is also not in dispute that in fact the first respondent has not declared such Maximum Retail Price in the packages and therefore, the third and fifth factors which are the mandatory requirements for applicability of Section 4-A of the Act are lacking on the face of the factual situation in this case and in spite of it, it is not known as to how the second respondent Settlement Commission has granted the benefit of Section 4-A to the first respondent.
30. The paragraphs 73, 74 and 75 of the judgement of the Supreme Court cited above on which reliance was placed by the learned senior counsel for the first respondent have no application to the facts of the present case. Those paragraphs relate to the mineral water bottles. On facts, it is clear as it is seen in paragraph 73 that the manufacturer used to pack twelve 200 ml. bottles in a single package and used to mention the Maximum Retail Price on the said package. It was, after finding that on the label, after disclosure of Maximum Retail Price, it was stated that 'specially packed for Jet Airways', the Supreme Court has applied Rule 2(x)(i) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 and held that after the first sale, the bottles went directly sent to the "ultimate customers". The said relevant paragraphs are as follows:
" 73. These appeals are in respect of mineral water bottles. The manufacturer used to pack 12 200ml bottles in a single package and used to mention the MRP on the said package. The assessee was paying the duty under Section 4-A(1) of the Act. The Tribunal, relying on the judgement in Jayanti Food Processing (P) Ltd. v. CCE held that the assessment was bound to be under Section 4-A(1) and not under Section 4 of the Act as the package amounted to a "retail package" in view of the provisions of Rule 2(p) of the SWM (PC) Rules. On that basis the Tribunal came to the conclusion that the valuation was bound to be under Section 4-A(1) and not under Section 4 of the Act. Aggrieved by that, the Department has come up before us in the present appeals.
74. Shri Subba Rao, learned counsel appearing on behalf of the appellant Revenue drew a parallel with Jayanti Food case and urged that the valuation is bound to be under Section 4 of the Act as the Tribunal had incorrectly held that the "package" would be a "retail package". Learned counsel relied on the definition of "wholesale package" under Rule 2(x) of the SWM (PC) Rules and pointed out that the "package" in question came within the definition of "wholesale package" as there are a number of retail packages in the form of mineral water bottles in that one package and further the said package is not intended for sale directly to a single consumer. These bottles which were of 200 ml capacity were not meant for sale directly to a single consumer. He, therefore, urges that this matter was identical with Jayanti Food case and, therefore, we should take a view that the valuation should be on the basis of Section 4 and not under Section 4-A of the Act as has been done by the Tribunal. Though the Tribunal has relied on the judgement passed by it in Jayanti Food, we find that there is no parallel in between Jayanti Food and the present case. In a way there is a conflict in these two cases in the sense that while Jayanti Food would want its valuation under Section 4, the present assessee would want it under Section 4-A of the Act.
75. The factual scenario is that though the MRP was declared on the package of 12 bottles, the bottles did not have any MRP, instead it was written: (a) not for resale; (b) specially packed for Jet Airways. No retail price was written on 200 ml bottle. There is further no dispute that the assessee had entered into a contract with Jet Airways dated 13-2-2002 and the contracted price of sale for the goods was Rs.2.61. It was the condition in the contract that each bottle to be supplied shall have a printed label "specially packed for Jet Airways". On the basis of these facts Shri Subba Rao urged that this case, if it was identical with Jayanti Food case then it was bound to be held that the MRP based assumption could not be the correct assessment and it should be under Section 4 of the Act. The contention is incorrect and as in fact the "package" cannot be viewed as a "wholesale package". It does not come within the definition of Rule 2(x)(i) as the "package" was not intended for sale, distribution or delivery to an intermediary. On the other hand it is sold directly to Jet Airways and Jet Airways supplied the said bottles to their passengers and thus there is no further sale by Jet Airways of these bottles. Therefore, it is obvious that after the first sale bottles go directly to the "ultimate consumers". There would be, therefore, no question of application of Rule 2(x)(i)."
31. On the facts of the said case, it is clear that the decision to assess under Section 4-A was taken by the Excise Authority on adjudication on factual assertion and not by Settlement Commission. It was after arriving at the finding on adjudication of the facts, viz., that the package of 12 bottles contained Maximum Retail Price even though each bottle did not have the MRP, the Hon'ble Apex court has held that the manufacturer is entitled for the benefit under Section 4-A of the Act.
32. In view of the categoric pronouncement made by the Supreme Court in the above said judgement, there is no necessity to go into various decisions of Tribunals, in which admittedly there were contradictory views being taken by the Tribunals on the question whether the products sold to institutional buyers would be covered under Section 4 or 4-A of the Act.
33. In the above said legal position, it is not possible to accept the reasoning given by the second respondent Settlement Commission for conferring benefits and privileges to the first respondent herein under Section 4-A of the Act. In view of the same, the writ petition stands allowed and the impugned admission-cum-final order of the second respondent dated 06.12.2006, is set aside. No costs. Connected miscellaneous petitions are closed.
kh To The Customs & Central Excise Settlement Commission, Additional Bench, II Floor, Narmada Block, Custom House, No.60 Rajaji Salai Chennai 600 001