Custom, Excise & Service Tax Tribunal
Industrial Tubes Manuf. P. Ltd. vs Cce Thane I on 14 March, 2019
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT No. I
APPEAL Nos. E/569-572,582/2011
(Arising out of Order-in-Original No. 53/BR-53/TH-I/2010 dated
31.12.2010 passed by Commissioner of Central Excise, Thane-I)
Industrial Tubes Manufacturers Pvt. Ltd. Appellant
T.U. Shenava
T.V. Shetty
Vasanth Nadar
Commissioner of Central Excise, Thane-I
Vs.
Commissioner of Central Excise, Thane-I Respondent
Industrial Tubes Manufacturers Pvt. Ltd. Appearance:
Shri Prasannan S. Namboodiri, Advocate, for appellant-assessees Shri A.B. Kulgod, Assistant Commissioner (AR), for Revenue CORAM:
Hon'ble Mr. S.K. Mohanty, Member (Judicial) Hon'ble Mr. Sanjiv Srivastava, Member (Technical) Date of Hearing: 13.12.2018 Date of Decision: 14.03.2019 ORDER No. A/85480-85484/2019 Per: Sanjiv Srivastava These appeals are directed against order in original 53/BR-53/Th-1/2010 dated 31.12.2010 of Commissioner Central Excise Thane- 1. By the said order Commissioner has held as follows:
"1) I hereby drop demand of Rs 66,42,033/- (Rupees Sixty Six Lakhs Forty Two Thousand thirty three only) as
2 E/569-572,582/2011 detailed in Annexure A to the SCN dated 21.05.2010 out of total demand of Rs 75,56,958/-.
2) I hereby confirm the demand of Rs 9,14,925/- (Rupees Nine Lakhs Fourteen Thousand Nine Hundred and Twenty Five only) as detailed in Annexure B to the SCN and order its recovery from the assessee under proviso to Section 11A of the Central Excise Act, 1944.
3) I order recovery of interest at appropriate rate on the confirmed demand of Rs 9,14,925/- (Rupees Nine Lakhs Fourteen Thousand Nine Hundred and Twenty Five only) from the assessee under the provisions of Section 11AB of the Central excise Act, 1944.
4) I impose a penalty of Rs 9,14,925/- (Rupees Nine Lakhs Fourteen Thousand Nine Hundred and Twenty Five only) from the assessee under the provisions of Section 11AC of the Central Excise Act, 1944.
5) I impose a penalty of Rs 3,00,000/- (Rupees Three Lakhs only) on Shri T U Shenava, Managing Director of M/s ITMPL under Rule 26 of the Central Excise Rules, 2002.
6) I impose a penalty of Rs 1,00,000/- (Rupees One Lakh only) on Shri T V Shetty, Marketing Manager of M/s ITMPL under Rule 26 of the Central Excise Rules, 2002.
7) I impose a penalty of Rs 20,000/- (Rupees Twenty Thousand only) on Shri Vasant Nadar, Authorized signatory and Factory Incharge of M/s ITMPL under Rule 26 of the Central Excise Rules, 2002.
8) If M/s Industrial Tubes Manufacturing P Ltd pay the Central Excise duty as confirmed against Sr No (2) above along with the interest as ordered at Sr No (3) above within 30 day7s from the date of communication of this order, the amount of penalty liable to be paid by them shall be 25% of (twenty five percent) of the demand 3 E/569-572,582/2011 confirmed against at Sr No (2) above. The benefit of reduced penalty under the first proviso to Section 11AC of the Central Excise Act, 1944 shall be available only if the amount of penalty so determined is also paid within the period of 30 (thirty) days from the date of communication of this order."
1.2 Details of the Appeals filed are as listed in table 1.
Table 1: Details of Appeals Filed
Appellant Appeal No Appeal
directed
No Name against
Para
1 Industrial Tubes E/569/11- 2,3,& 4
Manufacturing P Ltd Mum
2 Shri T U Shenava E/570/11- 5
Mum
3 Shri T V Shetty E/571/11- 6
Mum
4 Shri Vasant Nadar E/572/11- 7
Mum
5 Commissioner Central E/582/11- 1
Excise Thane- 1 Mum
2.1 Appellant 1 is engaged in manufacture of Copper/
Copper Alloy tubes falling under Chapter 78 of the First Schedule to Central Excise Tariff Act, 1985. On receipt of intelligence to the effect that they were indulging in duty evasion by resorting to undervaluation of goods their premises was visited by the officers of Central Excise on 23.05.2008.
2.2 On scrutiny of records and documents and after taking further investigations, Central excise officers found that the Appellant 1 has evaded Central excise duty on their final products namely 90/10 New Cupro 4 E/569-572,582/2011 Nickel Tubes in respect of goods covered by the following orders:
i. Award letter No 031/C&M-R&M/C-0154 dated 04.03.2006 of M/s NTPC Singrauli, Shakti Nagar, UP; and ii. Purchase order No 610789 dated 19.10.2006 of M/s Gujarat Industrial Power Corporation Limited (GIPCL).
2.3 Thus a show cause notice dated 09.02.2010 was issued to the Appellant 1 demanding duty short paid by them to the tune of Rs 75,56,958/- by invoking the extended period of limitation as provided for as per proviso to Section 11A(1), interest on duty short paid under section 11AB and for imposition of penalty under Section 11AC of the Central Excise Act, 1944. 2.4 Show Cause Notice was also issued to Appellant 2, 3 & 4 for imposition of penalty under Rule 26 of the Central Excise Rules, 2002.
2.5 After considering the submissions made by the Appellants 1 to 4, Commissioner adjudicated the show cause notices as per his order referred in para 1, supra. 2.6 Aggrieved by order of Commissioner Appellants 1 to 4 have filed this appeal before tribunal.
5 E/569-572,582/2011 2.7 Aggrieved by the order of Commissioner to the effect of dropping demand of Rs 66,42,033/- revenue has also filed the appeal.
3.1 Appellant 1, has in the appeal filed assailed the order of Commissioner, stating that- i. They have cleared the finished goods after undertaking the job work on the material supplied by the M/s NTPC or M/s GIPCL. They have valued the goods as per the decision of Apex Court in case of Ujjagar Prints [1989 (39) ELT 493 (SC)]. ii. The value of the material supplied by the said client was taken as declared by the said customers. They added the job charges to the value material declared and arrived at assessable value for determination of the Central Excise duty payable and paid accordingly. iii. They have no control over the value declared by the said clients.
iv. The assessable value in case of job work, has to be determined on the basis of the principles laid down by the Apex Court in case of Ujjagar Prints and subsequent decisions, it cannot be on the basis of the transaction value, in respect of actual sale of similar or comparable goods. {Sundaram Industries [2000 (123) ELT 712 (T), Ashkin Fabs [2001 (135) ELT 1009 (T)], Kandivali Metal Works 6 E/569-572,582/2011 {1997 (90) ELT 187 (T)], Laxmi Plastic Industries Pvt Limited [2000 (121) ELT 181 (T)] v. Rule 8 and Rule 11 are not applicable to the facts of their case.
vi. Commissioner has in his order accepted the price of the raw material supplied by the M/s NTPC but has not accepted the price of raw material supplied by the M/s GICPL. This only reflects inconsistency in the approach of Commissioner. vii. Commissioner has without assigning any justifiable reason accepted the alleged assessable value of Rs 349.02/- per kg.
viii. Commissioner has erroneously accepted the departmental; preposition that the MCX rates on average basis nearest to the date of receipt of the raw material by the appellant should be taken as the average cost of raw material. The only basis on which the cost of raw material in case of job work can be determined is on the basis as certified by the supplier of the raw material.
ix. They have done identical job work for M/s NTPC and M/s GIPCL. While Commissioner has dropped the demand made in respect of the job work done for M/s NTPC he has confirmed the demand raised in respect of the job work done for M/s GIPCL.
7 E/569-572,582/2011 x. While doing the job work he has to accept the value of raw material as declared by the supplier rather than to investigate in the correctness of the same.
xi. Extended period of limitation could not have been invoked in the present case in view of the decision of Apex Court in case of Chemphar Drugs and Liniments [1989 (40) ELT 276 (SC)]. They had been filing the RT-12 returns with the department regularly and hence suppression could not have been alleged.
xii. Commissioner failed to appreciate that the cost of raw material supplied by M/s NTPC and M/s GIPCL was known to the department. Any investigation on the account of the correctness of the said prices declared by them could not be made by them. Hence there was no reason for invoking extended period of limitation. xiii. No penalty could have been imposed on them unless it is proved that they have acted in deliberate defiance of law.
xiv. Commissioner has failed to appreciate that they had been following this practice and the practice was subjected to scrutiny also. They had acted under bonafide belief that what was being done is in consonance with the law laid down. In such a 8 E/569-572,582/2011 case no penalty could have been imposed on them in view of the decisions in case of a. Cement Marketing [1980 (6) ELT 295 (SC)] b. Grasim [2005 (183) ELT 123 (SC)] c. Hero Cycles Ltd [2005 (191) ELT 938 (T)] d. G T Auto Industry [2005 (190) ELT 203 (T)] e. Krishna Mohan Beverage [2004 (167) ELT 460 (T)] 3.2 Appellant 2, 3 & 4 have more or less adopted the arguments made by the Appellant 1. They have stated the proceedings for imposition of personal penalties on the individuals are in nature of quasi criminal in nature and the burden to prove the alleged offence against the individual is on revenue. If such a burden is not discharged the guilt of persons concerned cannot be said to have been established.
3.3 In their appeal Appellant 5, revenue has assailed the order of Commissioner stating -
i. Price of Rs 224.40 per kg was not actual price obtained in transaction. It was the bid price quoted in a sale proposal which however did not culminate in sale and translate into sale price. ii. In absence of any other price ascertainable, the method of calculating the cost of material by examining the metal content in the raw material 9 E/569-572,582/2011 and working out on the basis of prices of copper scrap and nickel as obtained from metal market for the relevant period was proper and fair. iii. Cot of inward transportation of the raw material was to be considered by the adjudicating authority.
iv. Adjudicating authority has failed to appreciate that the there were additional consideration over and above job charges, in form of retaining the excess raw material. Such additional consideration should have been the part of the assessable value determined.
v. Adjudicating authority has failed to give any plausible logical and legally justifiable reason consistent with the provisions of Act or rules for accepting the assessable value as declared by the Appellant in case of material supplied to NTPC. 4.1 We have heard Shri Prasannan S Namboodiri Advocate for the Appellant 1, 2, 3 & 4 and Shri A B Kulgod, Assistant Commissioner, Authorized Representative for the revenue.
4.2 Arguing for the Appellant learned advocate submitted-
i. The assessable value in the present case needs to be determined on the basis Rule 11 read with Rule 10 E/569-572,582/2011 6 of Valuation Rules as per the decision of Ujjagar Prints & Pawan Biscuits [Para 3 of Circular No 619/10/2002-CX dated 19th February 2002. ii. The price of raw material in case of supplies made to NTPC was suggested by M/s NTPC on the basis of e-auction through MSTC Ltd (Government of India Enterprise).
iii. The value of raw material in case of NTPC has been taken the basis of certificate dad10.01.007 a in a of GIPCL on the basis of certificate dated 20.12.2006 and letter dated 07.08.2008. iv. Cost of conversion has been taken as per the award letter dated 04.03.2006 of NTPC (Rs 60 per Kg) and in case of GIPCL as per purchase order dated 19.10.2006 (Rs 65/- per kg) v. Purchase orders dated 20.02.2007 and 10.01.2007 were for supply of manufactured goods and not for job work. Price variation clauses in the said PO were inserted in direct purchase PO so that they received the price for goods as per the prevailing market rates of raw material. Price variation clause is only in respect of manufactured goods and not job work.
vi. Minutes of meeting with GIPCL can at best be considered as exploring possibility of billing testing charges directly to GIPCL . Inspection 11 E/569-572,582/2011 charges and cost of transportation charges of scrap were added to the assessable value for calculation of duty liability.
vii. Penal recovery in case of short receipt kept on higher side so that the vendors refrain from defaulting. Hence this price does not have any bearing on the assessable value of job work material.
viii. Prices in MCX Index are only an indicative price and not actual price obtained in a transaction. ix. The contemporaneous prices from MCX Commodity Index obtained is of Heavy Scrap of Copper, Nickel Plates and Brass Sheet Cuttings and not of ordinary copper, nickel and brass scrap received in the form of used and worn condenser tubes of NTPC and GIPCL.
x. Inward transportation charges have been included in the conversion cost in case of NTPC. In case of GIPCL the inward transportation and testing charges included in the assessable value. xi. The contracts with NTPC and GIPCL allowed fixed percentage of burning loss. If the burning loss is less than that allowed in contracts, excess scrap, if any, retained was cleared on payment of duty on transaction value by the appellants. Hence, to include the value of excess scrap, if any, in the 12 E/569-572,582/2011 value of goods cleared to NTPC/ GIPCL would amount to double taxation.
xii. There is no legal requirement for the Appellants to have determined or investigate into the correctness of the value declared by the supplier of raw material. Extended period of limitation and imposition of penalty not justifiable. {Lajya Dying & Bleaching Works [2008 (224) ELT 345 (SC)]. Jalan Dying [2009 (240) ELT 424 (T-Bom)] xiii. Job worker who relied upon the information provided by the raw material supplier cannot be held guilty for suppression. Alok Industries Ltd [2009 (240) ELT 552 (T-Bom)], Vishnu Dying & Printing Works [2008 (221) ELT 369 (T-Bom)]. xiv. In case of Tecumseh Products India Ltd [2005 (180) ELT 54 (T-Bang)] it has been held that due allowance should be given for the depreciation of used items.
xv. No penalty could have been imposed on any of the appellants.
4.3 Arguing for the revenue, learned Authorized Representative reiterated the submissions made in the appeal filed by the revenue and also in the order of Commissioner. He submitted that there is no dispute about the fact that value in the present case has to be determined as per the decision of the Apex Court in case 13 E/569-572,582/2011 of Ujjagar Prints & Pawan Biscuits. However the issue is in respect correct determination of assessable value by applying the principles laid down therein. One of the factor in such determination is the value of raw material supplied by the person getting job work done. The value of the raw material so supplied cannot be any value, but needs to be the correct value. In his view in the present case the value of raw material as adopted for determination of assessable value is not correct and hence assessable value as determined cannot be correct. He stated that in show cause notice sufficient number of evidences have been put forth for determination of the correct value of raw material and for rejection of the value of raw material as adopted by the appellants. In his view Commissioner should have determined the correct value of raw material on the basis of the evidences collected during the investigation and determined the assessable value both in respect of the job work done for M/s NTPC and M/s GIPCL. He also stated that the prices on MCX Index fairly represent the price of metals on the particular day of transaction and they provide a reasonable basis for determination of the correct value of metal/ metal scrap at any period of time. By mis-declaring the price of raw material Appellants have deliberately suppressed the assessable value of the finished goods cleared by them 14 E/569-572,582/2011 with intention to evade/ short pay the duty, thus extended period of limitation as per proviso to Section 11A(1) has been rightly invoked. For the same reason he submits that penalty under section 11AC on Appellant 1 is justified and also the penalties under Rule 26 on Appellants 2, 3 & 4.
5.1 We have considered the submissions made in the appeals and during the course of arguments. 5.2 Following issues are framed for our consideration in this case.
i. What would be principles of valuation of the goods under consideration?
ii. What should be the value of raw material in the case?
iii. Whether extended period of limitation as proviso to Section 11A(1) of Central Excise Act, 1944 can be invoked in the facts and circumstances of this case?
iv. Whether penalty under Section 11AC justifiable in the facts of the present case?
v. Whether penalty under Rule 26 of Central Excise Rules, 1944 justifiable on the officers of the Company in the present case?
5.3 What would be principles of valuation of the goods under consideration?
15 E/569-572,582/2011 There is no dispute that in the present case the finished goods namely 90/10 New Cupro Nickel Tubes, have been manufactured and supplied by the Appellant 1 to M/s NTPC and M/s GIPCL from the raw material supplied to them by the said customers. Since these goods have been processed and manufactured out of the raw material supplied by the customers appellants have claimed that valuation of the goods should be done treating the activities undertaken by them as job work, and by applying the principles laid down by the Apex Court in case of Ujjagar Prints.
Revenue do not dispute the said position on the contrary as per Circular No 619/10/2002-CX dated 19th February 2002 it has been clarified stating- "2. The matter has been examined by the Board. It is observed that the system of getting goods manufactured on job-work basis is not new. Under the provisions of the earlier section 4 and the Rules made thereunder the matter has been finally decided by the Apex Court in the case of Ujagar Prints Ltd [1989(039)ELT0493(SC)] and the case of Pawan Biscuits Co. Pvt Ltd [2000(120)ELT0024(SC)]. It was clearly held that in respect of goods manufactured on job-work basis, assessable value would be the job charges (including the profit of the job-worker if not already included in the job- charges) plus the cost of the materials used in the manufacture of the item (including the cost of the materials supplied free of cost to the job-worker). The assessable value in such cases will not include the 16 E/569-572,582/2011 profit or the expenses (like advertisement and publicity, overheads etc ) incurred by the buyer (or the supplier of the raw materials), where the dealing between the two are on principal to principal basis . The mere fact that the buyer is supplying some raw materials free of cost to the job- worker, will not be sufficient ground to contend that the dealings between the two are not at arms length. Goods manufactured on job-work were earlier assessed under the residuary Rule 7 of the erstwhile valuation Rules of 1975 read with rule 6(b) read with the Apex Court decisions referred to above.
3. Under the new valuation provisions, introduced with effect from 1.7.2000, there is no departure from the principles laid down by the Apex Court in the above two decisions, in respect of goods manufactured on job-work basis. In other words goods manufactured on job-work basis after 1.7.2000 will continue to be valued in the same manner as they were being valued before 1.7.2000. In other words, after 1.7.2000, in respect of goods manufactured on job-work basis, valuation would be governed by Rule 11 of the new valuation Rules of 2000 read with rule 6 read with the above two decisions of the Apex Court."
Since the facts are not in dispute we are of the view that in the present case the valuation of the finished goods has to be determined in manner as clarified by the Board in terms of the above circular.
5.4 What should be the value of raw material in the case?
17 E/569-572,582/2011 In case of Ujagar Prints and Others v. Union of India and Others [1988 (38) E.L.T. 535 (S.C.)], Hon'ble Supreme Court has held as follows:
"26. Re : Contention (e) This concerns the question of the correctness of the determination of the assessable-value. The processors say that they have filed classification lists under Rule 173B of the Central Excises and Salt Rules, 1944 as they had no other choice and that if the proper principles of determination of the assessable-value do not legally justify the consequence flowing from the classification, it is open to them to contend against the validity of the determination and they are not estopped from doing so.
Duties of excise are imposed on the production or manufacture of goods and are levied upon the manufacturer or the producer in respect of the commodity taxed. The question whether the producer or the manufacturer is or is not the owner of the goods is not determinative of the liability. The essential and conceptual nature of the tax is to be kept clearly distinguished from both the extent of the power to impose and the stage at which the tax is imposed. Though the levy is on the production or manufacture of the goods, the imposition of the duty could be at the stage which the law considers most convenient to impose as long as a rational relationship with the nature of the tax is maintained.
27. The processors contend that, the assessable-value could only be the job-work charges received by them for the processing of 'Grey-fabric' and cannot be the selling- price at which the customer who entrusts the Grey-fabric for processing ultimately sells ft in the market. Such a
18 E/569-572,582/2011 sale-price, it is said, would, quite plainly, include the value of the Grey-fabric, the processing-charges and also the selling-profits of the customer. Even in regard to the price of the Grey-fabric itself which comes to the processing-houses in fully manufactured condition would again depend upon how many hands it has changed before reaching the particular customer who brings them for processing. The determination of assessable-value at the actual or hypothetical selling-price of goods of like nature and quality in the wholesale market would include the post-manufacturing profits of the trader which cannot legitimately be regarded as part of the assessable-value.
28. This contention was considered in detail in Empire Industries case [1985 (1) Supp. SCR 293 at 327] wherein it was held:
"When the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent processes, whether on their own account or on job charges basis, the value of the purposes of assessment under Section 4 of the Central Excise Act will not be the processing charges alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of Section 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the processing. However, excise duty, if any, paid on the grey fabrics will be given proforma credit to the independent processors to be utilised for the payment on the processed fabrics in accordance with the Rules 56A or 96 D of the Central Excise Rules, as the case may be."
Even the Referring Bench did not doubt the correctness of the inclusion in the assessable-value the cost of the Grey-
19 E/569-572,582/2011 fabric and the processing charges. The Referring Bench held:
"We cannot accept the contention of the learned counsel on behalf of the petitioners and the appellants that the value of the grey cloth which is processed by the processor should not be included in the assessable value of the processed fabric...."
29. In the argument, as presented, that the assessable- value would include what is referred to as the "post- manufacturing profits", there is an obvious fallacy. In Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Others [1975 (3) SCR p. 563] Bhagwati J. speaking for the Court said:
'The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post- manufacturing cost or profit arising from post- manufacturing operation...."
".....It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions. In fact the more common and less expensive the goods, there would be greater possibility of more than one tier of whosesale transactions...."
".....If excise were levied on the basis of second of subsequent wholesale price, it would load the price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly county to the true nature of excise as explained in the Voltas' case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise...."
20 E/569-572,582/2011 "There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise...." Explaining what really is the idea of "post-manufacturing profit" referred to in Atic's case this court in Union of India & Others etc. etc. v. Bombay Tyre International Ltd. etc. etc. [1984 (1) SCR, p. 347 at 375] said:
".....When it refers to post-manufacturing expenses and post-manufacturing profit arising from post- manufacturing operations, it clearly intends to refer not to the expenses and profits pertaining to the sale transactions effected by the manufacturer but to those pertaining to the subsequent sale transactions effected by the wholesale buyers in favour of other dealers."
(Emphasis Supplied) The principles for the determination of assessable- value are laid down under Section 4 of the Act. Section 4 of the 'Central Excise Act' envisages that the value of an article for the purposes of duty shall be deemed to be; (a) The wholesale cash price for which an article of the like kind and quality was sold or was capable of being sold at the time of removal of the article from the factory or premises of manufacture for delivery at the place of manufacture or; (b) Where such price was not ascertainable, the price at which an article of the like kind and quality was sold or capable of being sold at the time of removal of the article chargeable with duty.
21 E/569-572,582/2011 The nature of the excise duty is not to be confused with, or tested with reference to, the measure by which the tax is assessed. The standard adopted as the measure of assessment may throw light on the nature of the levy but is not determinative of it. When a statutory measure for assessment of the tax is contemplated, it "need not contour along the lines which spell out the levy itself.", and "a broader based standard of reference may be adopted for the purposes of determining the measure of the levy." Any statutory standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the tax.
30. In the case of processing-houses, they become liable to pay excise duty not because they are the owners of the goods but because they cause the 'manufacture' of the goods. The dimensions of the Section 4(1) (a) and (b) are fully explored in a number of decisions of this Court. Reference may be made to the case of Bombay Tyres International.
Consistent with the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975, framed under Section 37 of the Act, it cannot be said that the assessable-value of the processed fabric should comprise only of the processing-charges. This extreme contention if accepted, would lead to and create more problems than it is supposed to solve; and produce situations which could only be characterised as anomolous. The incidence of the levy should be uniform, uniformed by fortuitous considerations. The method of determination of the assessable value suggested by the processors would lead as to the untenable position that while in one 22 E/569-572,582/2011 class of Grey-fabric processed by the same processor on bailment, the assessable-value would have to be determined differently dependent upon the consideration that the processing-house had carried out the processing operations on job-work basis, in the other class of cases, as it not unoften happens, the goods would have to be valued differently only for the reason the same processing- house has itself purchased the Grey-fabric and carried out the processing operations on its own. It is to solve the problem arising out of the circumstance that goods owned by one person are "manufactured" by another that at a certain stage under Rule 174A, a notification was issued by the Central Government exempting from the operation of the Rule 174A "...... every manufacturer who gets his goods manufactured on his account from any other person, subject to the conditions that the said manufacturer authorises the person, who actually manufactures or fabricates the said goods to comply with all procedural formalities under the Central Excises and Salt Act, 1944 (1 of 1944) and the rules made thereunder, in respect of the goods manufactured on behalf of the said manufacturer and, in order to enable the determination of value of the said goods under Section 4 of the said Act, to furnish information relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all liabilities under the said Act and the rules made thereunder.""
A subsequent clarification was issued by the Apex Court, to the above referred decision as reported in [1989 (39) ELT 493 (SC)] stating as follows:
23 E/569-572,582/2011 "In respect of the civil miscellaneous petition for clarification of this Court's judgment dated 4th November, 1988, it is made clear that the assessable value of the processed fabric would be the value of the grey-cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses whatever these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabric. The factory gate here means the 'deemed' factory gate as if the processed fabric was sold by the processor. In order to explain the position it is made clear by the following illustration: if the value of the grey-cloth in the hands of the processor is Rs. 20/- and the value of the job work done is Rs. 5/- and the manufacturing profit and expenses for the processing be Rs. 75/-, then in such a case the value would be Rs. 30, being the value of the grey-cloth plus the value of the job work done plus manufacturing profit and expenses. That would be the correct assessable-value.
2. If the trader, who entrusts cotton or man-made fabric to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable-value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is 24 E/569-572,582/2011 required relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey-cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor's expenses, costs and charges plus profit, but it is not necessary to include the trader's profits who gets the fabrics processed, because those would be post- manufacturing profits."
In case of Pawan Biscuits [2000 (120) ELT 24 (SC)] Hon'ble Supreme Court reiterated the views expressed in the case of Ujjagar Prints and observed as follows:
"9. After hearing the learned counsel for the parties, we are of the opinion that the point in issue is no longer res integra. This Court has time and again held that for the purpose of ascertaining assessable value post- manufacturing expenses have not to be taken into consideration. This Court in M/s. Ujagar Prints and Others (II) v. Union of India and Others [1988 (38) E.L.T. 535 (S.C.) = (1989) 3 SCC 488] was concerned with a number of issues raised by the appellant. The appellant was a processing house which inter alia processed the grey fabrics. Amongst other issues which were raised, one of the contentions urged on behalf of the appellant there in was that the grey fabric which was given for processing continued to belong to the customer and the processing house was only entitled to charge the processing charges. It was the case of the appellant therein that the price of the grey cloth, of which the
25 E/569-572,582/2011 processing house had never become the owner, could never be taken into consideration in arriving at the assessable value.
10. Repelling this contentions, this Court noticed that according to Section 4 of the Central Excise Act, the value of an article for the purposes of duty shall be deemed to be the wholesale cash price for which an article of the like kind and quality was sold or was capable of being sold at the time of removal of the article from the factory or premises of manufacture. It was then observed that in the case of processing houses they became liable to pay excise duty not because they were the owners of the goods but because they caused the manufacture of the goods.
11. It was held that it could not be contended, keeping in view the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975 that the assessable value of the processed fabric should comprise only of the processing charges disregarding the value of the grey cloth.
12. Justice Mukharji, in a separate but concurring judgment observed that the assessable value of the goods manufactured would include the value of the grey cloth in the hands of the processor plus the value of the job work done plus manufacturing profits and manufacturing expenses. The correct assessable value was to be the value of the fabric at the factory gate at the time when the manufactured goods leave the factory and enter the mainstream.
13. After the aforesaid judgment in Ujagar Prints' case was delivered on 4-11-1988, a civil miscellaneous application for clarification was filed.
14. The Constitution Bench in a two paragraph order dated 27-1-1989 reported in [1989 (39) E.L.T. 493 (S.C.) = 26 E/569-572,582/2011 (1989) 3 SCC 531], M/s. Ujagar Prints and Others (II) v. Union of India and Others, clarified that the assessable value of the processed fabric would be the value of the grey cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses whatever they pay. The factory gate was to mean the "deemed" factory gate as if the processed fabric was sold by the processor. To make the position clear this Court gave the following example :-
"If the value of the grey cloth in the hands of the processor is Rs. 20/- and the value of the job work done is Rs. 5/-, then in such a case the value would be Rs. 30/-, being the value of the grey cloth plus the value of the job work done plus manufacturing profit and expenses. That would be the correct assessable value."
15. It was further observed that the brand at which the processing house sells the goods "must be the value of the grey cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit expenses. It is necessary to include the processor's expenses, costs and charges plus profit, but it is not necessary to include the trader's profits who gets the fabrics processed, because those would be post- manufacturing profits"."
From the plain reading of the above decisions it is quite evident that in case of job work, done on the behalf of raw material supplier, the assessable value has to be determined taking into account all the expenses including the manufacturing/ processing profits incurred upto the point of clearance from the premises of job worker. Further the said decisions make it clear 27 E/569-572,582/2011 that value of the goods cleared by a job worker/ processor will be intrinsic value of the same/ similar or like goods cleared from the premises of the job worker. It was following the said principle that Apex Court has rejected the contention of the petitioner/ appellants therein to the effect that assessable value should be the processing charges only. The said decision of the Apex Court do not allow the supplier of raw material or the processor (job worker) to declare imaginary or unsustainable values of the raw material supplied specifically in a case where the supplier of raw material or the person getting the job work done is not entitled to CENVAT Credit of duty paid on finished/ processed goods.
Examining from the above premises, we examine the facts of present case. In case of the goods processed on the behalf of-
a. M/s NTPC, the landed price of the raw material i.e. old condenser tube removed from condenser while retubing has been declared as Rs 224.40 per kg and the processing charges as Rs 60 per kg, thus the assessable value as per the principles laid down by the Apex Court in above referred decisions was determined as Rs 284.40/-. In this case the award letter itself states that processing charges were inclusive of the "collection, 28 E/569-572,582/2011 transportation & transit insurance of the said goods from NTPC premises to the premises of processor. Appellant 1 had discharged the duty by taking this value as the assessable value. b. M/s GCPTL, the landed cost of the raw material namely Admirality brass plain tube has been declared as Rs 160 per kg and the processing charges have been declared as Rs 65 per kg. Further the contract also provided that the transportation charges for transportation of the raw material from the premises of M/s GIPCL shall be borne by GIPCL and inspection charges of Rs 4000/- per MT shall be there. Thus making the intrinsic value of the processed goods at the hand of job worker to be Rs 230.499/- (Rs 230.50/- per kg). Appellant 1 had discharged the duty by taking this value as the assessable value.
c. Revenue has in Show Cause Notice disputed the assessable so determined, not on the basis of the principles of valuation to be adopted, but has disputed the declared landed cost of the raw materials provided by M/s NTPC and M/s GICPL. The grounds for disputing the landed cost of raw material as alleged in the show cause notice are enumerated below:
29 E/569-572,582/2011 The landed cost as Rs 224/- was declared by the M/s NTPC on the basis of bid price received in respect of the similar goods, in an e-auction conducted through M/s MSTC Limited (Auction Ref No MSTC/NRO/NTPC- Singrauli/B/distt Sonebhadra, UP/05-
06/1688: Auction Period;2006-01- 11::1430;00---2006-01-12::18:47:52). The value declared on the basis of the bid
received in the auction could not be accepted to the true landed cost of the goods, because the goods were not sold by M/s NTPC themselves at this price to the bidder. In case of M/s GICPL, as per supplier of raw material, the value of the raw material supplied has been determined on the basis of the said brass tubes at time of their first purchase in the year 1990-91. In reply to certain queries raised by them M/s BHEL had informed them that the price of fresh tubes at that time i.e. in the year 1990-91 was Rs 1,60,000/- per MT. They had thus declared the same as the price of the raw material being supplied by them for job work. The price declared on the basis of purchase price of the brass tubes in the year 30 E/569-572,582/2011 1990-91 cannot be the price of the same brass tubes in the year 2006-07. Even M/s GICPL has admitted that the price of the raw material supplied by them as per the offer documents was Rs 388/- per kg.
The actual price of the same goods if determined on the basis of average prices of the said goods prevailing as per MCX Index was much higher. Appellants in the case of goods manufactured by them on their own account paid duty on assessable value arrived at on the basis of the rate published & declared by MCX.
Appellant 1 was retaining the excess raw material supplied by the said customers free of cost and the value of the excess raw material retained by them was an additional consideration flowing to the appellant 1, hence the monetary value of such additional consideration was to be included in the value of finished goods.
The same goods being cleared by the Appellant-1 when manufactured and sold by themselves, were being sold at much higher value as is depicted in the table below:
31 E/569-572,582/2011
Invoice Name Description Assessable
of of Goods value
Number Date Party Rs/kg
42 06.09.2007 M/s 90/10 284.40
NTPC Cupro
43 07.09.2007 M/s Nickel Tube 675.00
Voltas
d. Commissioner has while adjudicating the case accepted the value declared by M/s NTPC for the raw material supplied stating as follows in para 46 of his order:
"46. It is noticed in case of job work of M/s NTPC, the assessee i.e. M/s ITMPL are not the owners of the raw material. The ownership of the said raw material lied with M/s NTPC. Since the raw material was scrap, no value was available in the market and hence they have made e-auction through M/s MSTC Ltd (A Government of India Enterprise) to know the correct value of old and worn out Cupro Nickel Tubes wherein the price of Rs 224.40/- per Kg was arrived. M/s NTPC have fixed the job charges of Rs 60 per kg. considering the cost of raw material plus job charges, the assessee i.e. M/s ITMPL have correctly arrived at the assessable value of Rs 284.40/- per kg on which they have paid the Central Excise duty. Thus the demand in respect of goods manufactured on job work basis for M/s NTPC is liable to be dropped. Consequently the provisions of penalty and interest also failed."
e. This finding of Commissioner has been challenged by the revenue in its appeal. We are in agreement with contention of the revenue, because no reasonable basis for arriving at the said declared value of the raw material is coming forth. The so 32 E/569-572,582/2011 called auction deed not resulted in the actual sale of goods by M/s NTPC themselves. Commissioner should have investigated if this price was declared price of the goods supplied for the job work then why M/s NTPC have not accepted the bid received in auction and cleared the said goods to the bidder. There can be number of reasons for not acceptance of the bid including that the bid price was much below the reserve price kept by M/s NTPC. The auction which did not resulted in actual sale of the goods cannot be said to be a reasonable basis for determining the value of the same goods when supplied for job work. Hence we do not find any merits in the findings of Commissioner in para 46 of his order referred above.
f. Commissioner has in para 47, 48 and 49 of his order recorded as follows:
"47. As regards the job work for M/s. GIPCL, the issue is regarding value of Rs.225/- per kg as claimed by ITMPL for Rs.349.02 per kg as alleged in the SCN. M/s. ITMPL vide their technical bid dated 20.07.06 had quoted rate of Rs.386.02 per kg for conversion of scrap brass tubes into brass tubes. Shri T.V. Shetty, Marketing Manager of M/s. ITMPL vide his statement dated 21.07.08 stated that on the basis of prevailing market price at that time, they arrived at the material cost @ Rs.388/- per kg of Central Excise purpose.
33 E/569-572,582/2011 However, M/s. GIPCL has declared the landed cost of old brass tubes at Rs.160/- per kg.
48. On being asked by the investigation for the basis for arriving at Rs.160/- per kg. M/s. GIPCL had replied that the said rate has been arrived at the on the basis of the value of tubes purchased by them M/s. BHEL in 1990-91 and they did not ascertain the cost of raw material at the relevant time. They also stated that they have never sold any such goods at any point of time. In addition to this, the minutes of the meeting held between M/s. GIPCL & M/s. ITMPL wherein it was decided to explore the possibility of billing the testing charges directly to assesses to avoid Central Excise burden. This proves the modus operandi of M/s. ITMPL & M/s. GIPCL to evade Central Excise duty. Thus, the cost of brass scrap as arrived at by the department at Rs.349.02 per kg is correct. Accordingly, the provisions of Section 11AB of the Central Excise Act, 1944 are attracted to charge interest on the duty demanded as also the penal action is also warranted under Section 11AC of the Central Excise Act, 1944.
49. The assessee vide technical bid dated 20.07.06 had quoted rate of Rs.386.02 per kg for conversion of scrap of brass tube into brass tubes. It also mentioned the price of copper wire bar as Rs.410/- per kg based on Economic Times dated 18.7.06 & price of Zinc as Rs.192.10 per kg as declared by M/s. Hindustan Zinc Ltd. on 15.07.06. Therefore the price of scrap cannot be RS.160/-. Despite this, M/s. ITMPL has considered the cost of raw material as Rs.160/- per kg and Rs.65/- as job charges and paid duty on Rs.225/- per kg instead of Rs.349.02. In addition, in the meeting held between them they have devised a modus operandi for avoiding the Central Excise duty and accordingly they have mis- declared and suppressed the facts with the department and the proviso to Section 11(A) is correctly invokable 34 E/569-572,582/2011 and the penal provision under Section 11AB and Section 11AC are correctly leviable on them." g. From the above findings as recorded by the Commissioner in his order, we find that he has in the similar circumstances agreed to the allegation in the show cause notice, for misdeclaration of the value of the raw material by M/s GICPL. Indeed the value as declared by M/s GICPL is based on certain value which they came across in respect of the brass tubes supplied to them by M/s BHEL in the year 1990-91. How the declaration made on the basis of the value of the fresh tubes in 1990- 91, be relevant for declaring the value of the used and junked brass tubes in 2006-07. Further it should be acknowledge that scrap in case of metal has been defined as per Section Note 8 to Section XV as "metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons." Hon'ble Supreme Court has in case of LML Ltd [1997 (94) ELT 273 (SC)] held "10. It is quite evident that those portions of cut sheets which are used in the manufacture of ancillary items cannot be regarded as waste and scrap. As per the aforesaid definition it is only that `waste and scrap' 35 E/569-572,582/2011 of iron or steel which is fit only for the recovery of metal or for use in manufacture of chemicals which could fall under that category." From the above it is quite evident that the value of the raw material which was supplied should have been determined on the basis of the metal recovery from the said scrapped tubes. The metal content read with the available price of the metal as per MCX would have been the best proxy for determination of the value of the scarp supplied.
h. In our view Commissioner should have rejected the declared value of raw material supplied by M/s NTPC and M/s GICPL and determined the value of same by applying the principles consistent with the norm of metal recovery from the waste tubes supplied for reprocessing. In our view matter for redetermination of the value of raw material needs to be reconsidered by the Commissioner and proper value arrived at on the basis of evidences available on records. 5.5 Whether extended period of limitation as proviso to Section 11A(1) of Central Excise Act, 1944 can be invoked in the facts and circumstances of this case? i. In the present case there is misdeclaration of value by the appellant.
36 E/569-572,582/2011 j. In case of GICPL commissioner has given a finding that the said misdeclaration has been deliberate and was devised modus operandi between the Appellant 1 and M/s GICPL in a meeting held between the two. Further by adopting this modus operandi the assessable value declared by the Appellant-1 is lower than the value quoted by the Appellant 1 themselves in the technical bid. Since Appellant-1 have in association with M/s GICPL devised this modus operandi for evading the duty, extended period of limitation as per proviso to Section 11A(1) is applicable in the present case. k. The decision of Apex Court relied upon by the Appellant 1 in case of Lajya Dyeing and Bleaching Works and that of Tribunal in case Alok Industries Ltd, would not be applicable to the present case as in the present case the finding recorded is that appellant-1 was fully aware and party to modus operandi adopted for mis declaration of the value of raw material and hence the assessable value of finished goods.
l. In case of M/s NTPC, Commissioner has not recorded any finding for invoking or not invoking the extended period of limitation. Hence we remand the matter to Commissioner for recording 37 E/569-572,582/2011 a specific finding in this respect after considering all the evidences as available on record. 5.6 Whether penalty under Section 11AC justifiable in the facts of the present case?
It is now settled principle in law that penalty under Section 11AC is justified in case where the provision of extended period of limitation as per proviso to section 11A(1) is held to be invokable. Reference is made to the decision of Apex Court in case of Dharmendra Textile Processors [2008 (231) ELT 3 (SC)] & Rajasthan Spinning and Weaving Mills [2009 (238) ELT 3 (SC)]holdings as follows:
"23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides."
Hence we hold that penalty under Section 11AC is imposable in the present case. Since for determination of value and limitation issues in respect of supplies made to M/s NTPC is being remanded to the Commissioner, we are of the view that Commissioner should determine this aspect after rendering a finding 38 E/569-572,582/2011 on the other two issues. Thus matter in this respect is remanded back to the Commissioner for re- determination of quantum of penalty under Section 11AC.
5.7 Whether penalty under Rule 26 of Central Excise Rules, 1944 justifiable on the officers of the Company in the present case?
Commissioner has in para 50 and 51 of his order recorded his findings in this regard and has held that the officers working in the company are liable to penalty under Rule 26 of the Central Excise Rules, 2002. Tribunal has in case of Goyal Ispat [2017 (6) GSTL 210 (T-Chennai)] held as follows:
"15.Appeal No. E/790/2007 has been filed by Shri Ghisulal Kothari, Director of GIL against imposition of penalty of Rs. 10 lakhs on him in the impugned order under Rule 26 of the Central Excise Rules, 2002. The appellant herein has contended that Rule 26 presupposes the existence of ingredients of confiscation under the Central Excise Act or the Rules therein. As there is no allegation in the SCN that goods are held liable for confiscation, the imposition of penalty on him under Rule 26 is illegal and improper. Appellant also contends that he was not directly connected/concerned/involved with the payment of Central Excise duty or Central Excise procedures to be followed in the manufacture of clearances of impugned goods by GIL. To understand the contention of the 39 E/569-572,582/2011 appellant, it would be worthwhile to reproduce Rule 26 ibid as it existed at the relevant time :
RULE 26 .Penalty for certain offence. - Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or rupees ten thousand, whichever is greater.
A plain reading of Rule 26 will indicate that imposition of the penalty therein is not tied to a conditionality that excisable goods have to be placed under confiscation under the Act/Rules. On the other hand, what the rule propounds is that a person who is involved either directly or indirectly, by way of possession, or transporting, removing, depositing etc. or in any other manner dealing with excisable goods and who has the knowledge that consequence of such said acts or omissions on his part could result in the impugned goods becoming liable for confiscation under the Act/Rules is then exposed to imposition of penalty under this rule. Only, the person implicated/concerned should have the knowledge of "possible confiscation" of the impugned goods. From the facts on record, the appellant Shri Ghisulal Kothari has emerged as the mastermind of the entire modus operandi designed to evade payment of Central Excise duty liability. The appellant has planned/monitored and executed such duty evasion not only by undervaluation of their end product but also by unaccounted/clandestine removals of their job-worked goods. This being the case, his acts and omissions surely fall within the ambit of Rule 26 and will get exposed to penalty therein.
40 E/569-572,582/2011 Considering that the appellant was the fulcrum of the Actio illicita in causa by GIL, resulting in short payment of differential duty of Rs. 1,81,76,436/-, the penalty of Rs. 10,00,000/- (Rupees Ten lakhs only) under the said Rule 26 on this appellant is very much proportionate to his acts and role and justified, hence there shall be no interference in the matter. Appeal filed by the appellant Shri Ghisulal Kothari will therefore have to be dismissed.
We order accordingly.
16.In Appeal No. E/791/2007, filed by Shri J. Balaji, Excise Manager of GIL, the same contentions with regard to non-imposability of penalty under Rule 26 ibid raised by the other appellant Shri Ghisulal Kothari (Appeal E/790/2007) has been reiterated which, as already discussed supra, is a misconceived argument. On the other hand, the appellant as Excise Manager, cannot claim that he was unaware of the modus operandi and affairs of GIL which resulted in such large scale evasion of duty. This being so, relatively low penalty of Rs. 10,000/- (Rupees Ten thousand only) imposed on him by the adjudicating authority cannot be faulted with. Appeal filed on this count will merit dismissal. We order accordingly."
However since the issue in respect of determination of the assessable value and period of limitation in respect of supplies made to M/s NTPC is being remanded back to the adjudicating authority, and in case of supplies made to M/s GIPCL for redetermination of assessable value, the penalties on these officers are set aside and matter remanded for redetermination of penalties on the said three officers namely Shri T U Shenava Managing 41 E/569-572,582/2011 Director, Shri T V Shetty, Marketing Manager and Shri Vasant Nadar, Authorized Signatory & Factory incharge of M/s ITMPL.
5.8 Since interest is associated with the short payment of duty on the due date we have no hesitation in sustaining the demand of interest under Section 11AB.
6.1 In view of discussions as above we set aside the order of Commissioner to the extent indicated in para 5.4, 5.5, 5.6 & 5.7 and remand the matter to the adjudicating authority for redetermination of the issues as indicated in the said paras. All the five appeals are allowed and matter remanded to the adjudicating authority.
(Pronounced in court on 14.03.2019)
(S.K. Mohanty) (Sanjiv Srivastava)
Member (Judicial) Member (Technical)
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