Customs, Excise and Gold Tribunal - Delhi
I.T.C. Ltd. vs Collector Of Central Excise on 18 March, 1994
Equivalent citations: 1994(72)ELT315(TRI-DEL)
ORDER Harish Chander, President and K.S. Venkataramani, Member (T)
1. These appeals have been filed against the order dated 29-11-1991 passed by the Collector of Central Excise, Delhi. The brief facts are that M/s. I.T.C. Ltd., the appellants herein have their factories at Munger, Bangalore, Bombay, Saharanpur and Kidderpore (Calcutta) engaged in the manufacture of cigarettes and smoking mixtures in the unit at Munger and cigarettes in the remaining four units. The Department's case is that intelligene was collected by the Assistant Collector of Patna that the units of the appellants were collecting administrative charges on freight from their wholesale dealers through Debit notes in respect of these goods. On a visit to the Unit at Munger in response to the queries from the Department in its letter dated 13-8-1986, it was informed that administrative charges were being realised. By a letter dated 29-8-1986, the appellants informed that for making necessary arrangements for transportation, they had to deploy men, material and stationery and also assets of substantial value like computer system. They have also to incur expenses on account of freight payable by the Company's customers and that, therefore, such activities resulted in additional cost to the appellants. It was contended that the totality of these costs represented the administrative expenses and that the appellants recovered such expenses from the customers on a pro rata basis in addition to the actual freight paid by the company to the transporters as a necessary incidence of the cost of transport. It was the appellants' contention, the administrative charges are to be treated as part and parcel of the cost of transportation.
The Patna Collectorate obtained a statement from the Commercial Manager of Munger Unit and Shri S.P. Singh, Proprietor of M/s. Patliputra Tobacco Company, Patna said that the administrative charges are not normally shown in the trading invoices of the smoking mixture but are being realised from them and that Debit is raised by the Company by Freight Debit Notes on monthly basis. It was found that the monthly statement issued by M/s. I.T.C. Ltd. to M/s. Patliputra Tobacco Company during April, 1985 to January, 1986 showed that the collection on account of administrative charges have not been indicated therein. It was further found that the appellants had collected freight administrative charges on cigarettes from 1-11-1979 to 28-2-1983 only whereas such collection continued in respect of smoking mixture beyond that date. On the basis of action taken by the Patna Collectorate and show cause notice issued the other Collectorates concerned at Bombay, Bangalore, Meerut and Calcutta issued similar show cause notices and also proposed to add the additional amount by way of administrative charges to the assessable value of cigarettes and smoking mixture and various amounts of demand were raised. The differential excise duty for cigarettes demanded under Section 11A of the Central Excises and Salt Act, 1944 amounts to Rs. 4,88,50,078.68. There was also proposal to impose penalty on the appellants for the contravention. The appellants contended in the reply mainly that freight administrative charges were part and parcel of transportation cost which was not includable in the assessable value. The appellants further contended that even assuming that the charges were to be included, then they have to be added to the cum-duty price and not to the assessable value. They also resisted the proposal to impose penalty on various grounds. The Collector of Central Excise after considering their reply and hearing them in the matter held that the sums collected as administrative charges on freight were not relatable to the cost of transportation. These were additional consideration and, therefore, were to be treated within the provisions of Section 4(1 )(b) read with Rule 5 of the Valuation Rules, 1975 and he further held that for the purposes of determining the assessable value under Rule 5 of the Valuation Rules, the amounts collected as administrative charges on freight have to be added to the assessable value. He also held that the appellants were liable for penalty under Rules 173Q and 209 of Central Excise Rules. He confirmed the demand for differential duty in respect of Bombay and Bangalore Units of the Company and gave direction to the concerned Assistant Collectors at Saharanpur, Patna and Calcutta to finalise the demand on the basis of his findings in the order: A penalty of Rs. 50/- lakhs was imposed on the appellants. The present appeals arise out of the above order of the Collector of Central Excise, Delhi.
2. Shri Anil B. Divan, Sr. Counsel appeared alongwith the learned Counsel Shri Ravinder Narain, Shri Sashidharan, Shri Ashok Sagar and Ms. Punita Singh for the appellants. Shri M. Chandrasekharan, Senior Counsel alongwith the learned Counsel Ms. Savita Sharma represented the Department. Shri Anil Divan referred to the background to the demand and submitted the question is whether Freight Administrative Charges can be held to be additional consideration and if so whether it is to be added to the original price and worked back or whether it is to be added to the assessable value as held by the Collector. The learned Counsel submitted that even assuming without admitting that the freight administrative charges were to be treated as additional consideration, the method adopted by the Department for arriving at the revised assessable value is wrong and is not in accordance with provisions of Section 4 of the Central Excises and Salt Act, 1944. It was contended that under Rule 5 of the Valuation Rules the proper method to be followed is to aggregate the additional consideration with the price, which is a cum-duty price, to arrive at the nearest equivalent of normal price, and, therefrom determine the revised assessable value by working backward. In this context, the reliance was placed on the Tribunal decision in the case of Collector of Central Excise v. VST Industries, reported in 1991 (52) E.L.T. 59 (Tribunal), which according to the appellants is the only decision of the Tribunal wherein Rule 5 of the Valuation Rules has been interpreted after considering previous decisions where reference has been made to Rule 5. In this decision the Tribunal had based its finding on the judgment of the Supreme Court in the case of Hindustan Polymers v. Collector of Central Excise, reported in 1989 (43) E.L.T. 165 (SC) to hold that the additional consideration determined must be added to the declared wholesale price for arriving at the assessable value of the goods. It was submitted that the Collector as an adjudicating authority was bound by the decision of the Tribunal. The learned Senior Counsel submitted that the reliance placed by the Collector in his order on the decision of the Tribunal in the case of Collector of Central Excise, Bangalore v. R. Gac Electrodes (P) Ltd., Bangalore, reported in 1988 (33) E.L.T. 485 (Tribunal) and not in the case of VST Industries was erroneous because the Collector failed to appreciate that the Tribunal in the R. Gac Electrodes decision had not gone into and interpreted Rule 5 of the Valuation Rules whereas in the VST Industries decision, the Tribunal had done this exercise in the light of the Supreme Court judgment and further the Tribunal have given its findings in VST Industries case after noting R. Gac Electrodes decision. The learned Senior Counsel further relied upon the decision of the Tribunal in the case of Jindal Alumnium Ltd. v. Collector of Central Excise, Madras in its Order No. 1253/90-A, dated 24-7-1990 which is earlier to VST Industries decision in which also the Tribunal held that the price under Section 4(1)(a) has to be construed as a total consideration or the gross realisation collected by the manufacturer from the buyer from the sale of the goods and that by virtue of Section 4(4)(d)(ii) of the Act, the element of duty imposed be taken out to arrive at the value in terms of Section 4.
The learned Senior Counsel further referred to the decision of the Tribunal in the case of Eddy Current Controls (India) Ltd. v. Collector of Central Excise, Cochin, reported in 1989 (39) E.L.T. 147 (Tribunal) where also after noting the citation of R. Gac Electrodes (P) Ltd., Bangalore, the Tribunal held that the money value of the additional consideration has to be ascertained and added to the sale price for determining assessable value of the goods. This direction was given by the Tribunal in this case after referring to the provisions of Rule 5 of the Valuation Rules. The learned Senior Counsel urged that in the R. Gac Electrodes (P) Ltd., Bangalore case there was no discussion about the method of adding the additional consideration whether to the wholesale price or to the assessable value. This was not in fact a question which came up for determination before the Tribunal in that case. The learned Senior Counsel further relied upon the Departmental Instructions of Rule 5 of the Valuation Rules issued in August 1975 wherein it has been instructed that the additional consideration is to be added to the price to determine the normal price under that Rule which will then be the nearest ascertainable equivalent to the normal price under Section 4. Further, the Senior Counsel cited the Tribunal decision in the case of Collector of C. Ex. v. Metal Box India Ltd., reported in 1989 (39) E.L.T. 79 (Tri.) where also with reference to Rule 5 of Valuation Rules additional consideration has been interpreted and it has been held that additional consideration quantified in terms of money value flowing from the buyer has to be added to the declared price for determining normal price. Reliance was also placed upon the decision of the Tribunal in the case of Consolidated Hoists (P) Limited, Pune v. Collector of Central Excise, Pune, reported in 1993 (22) E.T.R. 327. There also it was held that the additional consideration will have to be added to the price declared for the purposes of assessment under Rule 5 of Valuation Rules. The Tribunal in that decision had followed the VST Industries decision and not the R. Gac Electrodes (P) Ltd., Bangalore case, although that was also cited before it. The learned Senior Counsel then cited the Supreme Court decision in the case of Hindustan Polymers case . In para 12, there is a clear observation that the measure of excise duty is price and not value. It was further observed that Section 4, both old and new lays down the price charged by the manufacturer on a sale by him represented the measure of the duty. It was held that the value of excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4. Similarly, the learned Senior Counsel pointed out that paras 18 and 21 of the Supreme Court decision give clear indication that additional consideration is to be added to the sale price. The learned Senior Counsel emphasised that the understanding of the Department is also of the same line urged that it is well settled that the Administrative Instructions given by the Department is a very useful and relevant guide to the interpretation of the provisions of statute. It is an important aid though not binding on the Court.
The learned Senior Counsel also contended that a freight administrative charges are relatable to transport cost and contended that in terms of Para 49 of the Supreme Court decision in the case of Union of India and Ors. Etc., Etc. v. Bombay Tyre International Ltd., reported in 1983 (14) E.L.T. 1896 (S.C.) wherein it has been laid down that cost of transport will include the cost of insurance on the freight for transportation and on the same analogy the freight administrative charges have to be considered as part of transportation cost for deduction of assessable value. As regards the personal penalty, the learned Senior Counsel pleaded that the controversy relates to the period upto the end of February, 1983 which was prior to the period when the several assessments relating to valuation under Section 4 of Central Excises and Salt Act, 1944 came to be settled by the Supreme Court in its decision in the case of Union of India and Ors. v. Bombay Tyres International Ltd. Etc., Etc., reported in 1983 (14) E.L.T. 1896 (SC). The law at that time was in favour of not including freight charges as given by the High Court in the case of appellants themselves. Their conduct, therefore, was in accordance with law as it was understood at the material time. The learned Senior Counsel also argued that Rule 173Q for imposing penalty was inapplicable to their Unit because cigarettes and smoking mixture from 1979 were under physical control of the Department. Rule 173Q applies only to Units under Self-removal procedure. The learned Senior Counsel also pleaded that the Rule 209 was not at all applicable because it was not at the Statute Book till 1986. They had stopped collection of freight administrative charges from September, 1986. There could also be no penalty under Rule 9(2) because it is not a case of any clandestine removal. The goods were all removed on AR-I Form. Reliance was placed on AIR 1971 S.C. 2039 -N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Ors. v. The Elphinstone Spinning and Weaving Mills Co. Ltd. The learned Senior Counsel in this respect also relied upon the following case laws :
(i) 1990 (45) E.L.T. 285 (Tribunal) - Bi-metal Bearings Ltd. v. Collector of Central Excise
(ii) 1989 (40) E.L.T. 74 (Tribunal) - Pushpam Pharmaceutical v, C.C.E., Bombay
(iii) 1991 (53) E.L.T. 392 (Tribunal) - Indian Motor Works v. Addl. Collector of Central Excise Therefore, it was pleaded that the penalty on the appellants was also not justified and should be set aside.
3. The learned Senior Counsel Shri M. Chandrasekharan appeared for the Department. It was submitted by the learned Senior Counsel that the freight administrative charges collected by the appellants herein is clearly an additional consideration and even a perusal of their reply to show cause notice at Paras 2 and 5 would show that these are additional cost apart from the freight charges. The learned Senior Counsel also pointed out that the Tribunal in the case of Collector of Central Excise, Bangalore v. R. Gac Elecrodes (P) Ltd., Bangalore (supra) had categorically held that additional consideration has to be added to the assessable value. The Tribunal in its decision in the case of VST Industries, according to the Department had not considered the Supreme Court decision in the case of Hindustan Polymers (supra) in the correct perspective. In that case the Supreme Court was concerned with the addition of notional value of the drums to be added to the assessable value whereas here in the present case no such notional value is to be considered because the freight administrative charges were all actuals. The learned Senior Counsel further urged that where there is Cum-duty price, the assessable value has to be worked backwards from the price. In the present case this is not the exercise called for because the appellants have charged the actual freight administrative charges without any element of duty. It was further submitted in this context that the examples taken in Para 25 of the VST Industries Ltd. case (Supra) by the Tribunal, is not appropriate as it is always possible for an assessee knowing his tax liabilities to cover it in the price charged. This decision of the Tribunal according to the Department has erred in following the ratio of Hindustan Polymers case of the Supreme Court because in the case considered by the Supreme Court, there is nothing in it to say that to include the additional consideration which does not have element of duty in it even in such a case the ratio should be followed. For similar reasons, the Tribunal decision in M/s. Jindal Aluminium Ltd. case is also distinguishable wherein the appellants had included branch, overhead charges having an element of duty and the CEGAT had found in that case that the element of duty is to be taken out. The Department's case here is that there is price but also there is an additional consideration in which aspect the present case would be different from the Supreme Court's decision in the Hindustan Polymers (supra). The price which is considered by the Supreme Court in that decision is one which had an element of duty.
The further question was whether to it the cost of drum should be added. The question whether the additional consideration was to be added to the price or to the assessable value was not one which came up for consideration before the Supreme Court in that case. Therefore, the Tribunal ought not to have discarded the case law cited by the Department before it in the VST Industries Ltd. case. The learned Senior Counsel relied in this context on the Supreme Court decision in the case of Pioneer Rubber Plantation v. State of Kerala (1992) 4 Supreme Court cases 175. In the further decision of the Tribunal Eddy Current Controls (India) Ltd. (Supra) in Para 3 thereof it is recorded that the additional consideration is to be added to the assessable value. It is a position taken by both the parties therein. The learned Senior Counsel further submitted that the Departmental instructions under Rule 5 of the Valuation Rules introduced the concepts of determination of money value of additional consideration which is not properly within the scope of Rule 5. Section 4(b) of the Central Excises and Salt Act, 1944 requires the ascertaining of nearest ascertainable equivalent of normal price. The learned Senior Counsel further referred to Section 37 of the Central Excises and Salt Act, 1944 giving powers to Central Government to make Rules is only to provide for determining under Section 4 that nearest ascertainable equivalent of normal price. It does not lay down powers to indicate as to where the elements of cost ought to be added.
The learned Senior Counsel referred to Para 49 of the Supreme Court in Bombay Tyre International Ltd. case reported in 1983 (14) E.L.T. 1896 (S.C.) and contended that the exclusion from the assessable value is specific for transport cost and also covers insurance. It cannot be interpreted to mean analogous charges are also to be excluded on that basis. The learned Senior Counsel referred to the High Court decision cited and relied upon by the appellants and urged that none of the High Court decisions are specific on freight administrative charges. Regarding the penalty on the appellants, the learned Senior Counsel argued that the appellants cannot say that they did not include freight administrative charges relying upon the then existing judicial pronouncement under Section 4 prior to Supreme Court decision on Bombay Tyre International case. No decisions existed specifically even at that period on freight administrative charges. In the same context, the physical control of clearances would only mean that clearances were granted by the officers on AR-I presented by the appellants. The learned Senior Counsel also submitted that though Rule 209 of Central Excise Rules for imposing penalty was not in existence at the time of offence, yet it was in force at the time of issue of show cause notice and the law applicable at that time can be invoked. The learned Senior Counsel relied upon the Larger Bench decision in the case of Atma Steels Pvt. Ltd. and Ors. v. Collector of Central Excise, Chandigarh and Ors. reported in 1984 (17) E.L.T. 331 (Tribunal). He also relied upon AIR 1953 Sup. Court 221 - M/s. Hoosein Kasam Dada (India) Ltd v. The State of Madhya Pradesh and Ors. that law applicable at the time of when the offence arises is be one to be applied. The learned Senior Counsel also contended that invoking Rule 9(2) of Central Excise Rules has to be seen in the background of the facts set forth in the show cause notice and as long as there was evasion of duty, the Rule can be invoked notwithstanding physical control over the Unit by the Department. The Supreme Court decision in the case of N.B. Sanjana, Assistant Collector of Central Excise, Bomaby and Ors. v. The Elphinstone Spinning and Weaving Mills Co. Ltd., reported in AIR 1971 S.C. 2039 is not applicable because the present case is not one of erroneous classification of the goods and clearances thereof on that basis after assessment. On the other hand, the present case is one of non-disclosure by the appellants of the flew back of the amount of freight administrative charges through Debit Notes. The penalty on the appellants is hence in order, it was pleaded.
4. The submissions made by both the sides have been carefully considered. The question is whether the freight administrative charges recovered by the appellants herein should form part of the value for assessment under Section 4 and if so whether it should be added to the price or to the assesssble value. The Department relies inter alia a letter dated 15-10-1986 of the Commercial Manager of the Munger Unit confirming that freight administrative charges were being collected. It is also on record that the object of collecting these charges is to ensure prompt and adequate supply of the different brands of cigarettes so as to avoid complaints of non-availability in the various markets of the Company. The charges also covered the cost of deploying men and material in the form of various kinds of stationery and also assets like computer system. However, the records show that the appellants were unable to substantiate before the adjudicating authority with break-up expenses as to how much of the expenses on these services incurred before and after delivery of goods. The records also show that the freight administrative charges were not disclosed in the price lists by the appellants. In this regard, the observation of the Supreme Court in the Bombay Tyre International (supra) is relevant wherein the Court held that the price of an article is related to its value and into that value several components are poured including those which have enriched its value and given to the article its marketability. Therefore, the expenses incurred on several factors which have contributed to its value upto the date of sale which would be the date of delivery are to be included in the value of the goods. We further find that in their reply to show cause notice also, there is an indication that its administrative charges are additional costs incurred by the appellants. In the circumstances discussed above in the facts of the case, it is held that the Collector has come to a reasonable conclusion that the price declared was not the sole consideration in this case for the sale of the goods and the freight administrative charges were in the nature of additional consideration. The nature and purpose of these charges from the records would also show that they cannot be treated as transport charges simpliciter for being deducted and criteria laid down by the Supreme Court in the Bomaby Tyre International Ltd. (Supra) case for exclusion of such charges are not attracted in the facts of this case to the freight administrative charges collected by the appellants herein for the cigarettes and smoking mixture cleared during the relevant period.
5. The next question which has to be dealt with, is whether the freight administrative charges as an additional consideration is to be added to the price, or to the assessable value. In this context, the very same question, we find, has been considered and dealt with by the Tribunal in the VST Industries case. There the Tribunal considered the notional interest on Security Deposits taken by the assessee to get working capital. The Tribunal held that these interest charges had to be considered while arriving at the assessable value. It also held that it should be added to the wholesale price and not to the assessable value. The Para 24 and part of Para 25 which are relevant, are reproduced below :-
* * * * * * We further find that the Tribunal in giving this decision had not followed the Tribunal decision in R. Gac Electrodes case. We also find that more recently in the case of Consolidated Hoists (Pvt.) Limited, Pune v. Collector of Central Excise, Pune, reported in 1993 (22) E.T.R. 327, the Tribunal had chosen to follow VST Industries' decision in preference to the R. Gac Electrodes judgment. Para-14 of this decision is reproduced below :-
* * * * * * There is further indication in the Tribunal decision in the case of Metal Box India Ltd. (supra) wherein the Tribunal has held that if the price in a particular transaction is not the sole consideration and there is some additional consideration flowing directly or indirectly from the buyer to the assessee, the additional consideration is to be added to the price declared by the assessee. The Departmental clarifications which were issued at the time when the Valuation Rules were notified are also on the same lines. It is well settled that in construing a statute much weight can be given to the interpretation put upon it by those whose duty has been to construe, execute and apply the enactment -Collector of C. Ex., Guntur v. Andhra Sugar, reported in 1988 (38) E.L.T. 564. Clarification under Rule 5 of the Valuation Rules is as follows :
"Rule 5. (a) Rule 5 applies where all factors of the 'normal price' are present except that the price is not the sole consideration for the sale of the goods and there is some additional consideration may be in cash or in any other form. It may be separately ascertainable or it may be part of some payment made or to be made by the buyer to the assessee.
(b) Where the additional consideration is not in the form of money, but is in kind or in the form of services, the money value of the additional consideration will have to be determined and added to the price to determine the 'normal price' under this rule.
(c) As stated earlier, the additional consideration need not be a direct payment from the buyer to the assessee. It may be a payment to some other person who receives it on behalf of the assessee or the additional consideration may reach the assessee through an intermediary. In all such cases, the additional consideration can be added to the price declared by the assessee for determining the 'normal price' of the goods."
The decision of the Tribunal in the R. Gac Electrodes (P) Ltd. case did not address itself to a detailed interpretation of Section 4 of the Central Excises and Salt Act read with Rule 5 in the manner dealt with by VST Industries decision nor did the question of the point of addition of the additional consideration arise before the Tribunal in the R. Gac Electrodes (P) Ltd. case as it arose in the VST Industries case. Further in the VST Industries case as well as in the subsequent decision in Consolidated Hoists (Pvt.) Limited, Pune, the Tribunal had not chosen to follow the R. Gac Electrodes (P) Ltd. ratio. Above all, it is further noted that the Tribunal decision in the case of VST Industries (Supra) had been quoted with approval by the Madras High Court in the case of Lakshmi Machine Work Ltd. v. Union of India and Ors., reported in 1992 (57) E.L.T. 211 (Mad.). Paras 8 to 10 of the Madras High Court decision are reproduced below :-
* * * * * * There is an interesting judgment of the Tribunal in Collector of Central Excise, Hyderabad v. VST Industries, Hyderabad and 2 Ors. 1990 (16) E.T.R. 539. The following line of thinking lands support to the view taken by me. After extracting a passage from the Bombay Tyre case 1983 (14) E.L.T. 1896 (SC) and Hindustan Polymers 1989 (43) E.L.T. 165, the Tribunal Says -
"The language of Section 4 and the exract of the Supreme Court's judgment reproduced above show that the interpretation as given by the Supreme Court alone is the correct one. Rule 5 of Valuation Rules and Section 4 of the Act have to be read together. A harmonious construction can lead only to one conclusion that extra accrual should be added to the wholesale price and the assessable value worked back after allowing admissible deductions. Addition of such extra accruals to the assessable value would distort the meaning of the section because there is no way in which abatement of excise duty which is permitted by Section 4 can be given if the extra accrual is directly added to the assessable value."
In view of the above observations of Madras High Court, it will be reasonable to apply the ratio of the Tribunal decision in VST Industries to the facts of this case and to hold that the freight administrative charges as additional consideration in this case flowing back to the appellants has/are to be added to the price and not to the assessable value. For the same reason, it is not possible to accept the plea that that decision of the Tribunal needs to be reconsidered. It may also be relevant in this context to refer to the Supreme Court decision in the case of Bombay Tyre International Ltd. In Para 15 thereof the Supreme Court observed that in both the Old Section 4 and the New Section 4, the price charged by the manufacturer on a sale by him represents the measures of assessing the levy. Price and sale are related concepts and the price has a definite connotation. The value of excisable articles, the Court observed has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4.
6. In respect of the penalty imposed on the appellants under Rule 209, it is seen that this Rule was not on the Statute Book at the material time when the offence alleged had taken place. It is however, seen that the Finance Ministry in its Circular No. 5/86, dated 18-2-1986 have clarified that the Rule 209 is to be invoked only for offences committed on or after 30-1-1986. This was on the basis that Article 20(1) of the Constitution lays down that no person can be subjected to penalty for an offence greater than that which might have been inflicted under the law in force at the time of commission of the offence. In such a context of the Department's own understanding while introducing the Rules, a penalty on the appellants under Rule 209 is not sustainable at the time when the Rule was non-existent. However, the penalty has also been imposed under Rule 9(2). It is well settled by the decision of the Tribunal in M/s. Agam & Gem Laboratories v. Collector of Central Excise, Baroda, reported in 1988 (38) E.L.T. 479 (Tri.) that when complete particulars are not disclosed, the penalty under Rule 9(2) is justified and it was observed therein by the Tribunal that in furnishing the full particulars if the assessee had any doubt, he should get it clarified by the Department. In this context, it may be seen that in the present case the appellants herein had totally failed to disclose the amount recovered by way of freight administrative charges in their price lists which was only subsequently found by the Department. In this context, the decision of the Supreme Court in the case of Jaishri Engineering Co. (P) Ltd. v. Collector of Central Excise, reported in 1989 (40) E.L.T. 214 (S.C.) may also be borne in mind wherein the Supreme Court held that even the plea that the Departmental Officers visited the assessees' factory and should have been aware of the processes and production of the goods will be of no avail to the assessee and will not be a reason for the assessee not to truly and properly to describe the goods. It is further seen that even where an assessee indicated certain element of costs in their sale invoice but had not shown them in their price list, assuming those to be deductible, the Tribunal in the case of Kerala State Detergents & Chemicals Ltd. v. Collector of Central Excise, Cochin, reported in 1987 (27) E.L.T. 312 (Tri.) held that it is for the appropriate officer to determine the assessable value on materials placed before him by the assessee and that assessee cannot deduct whatever he presumed deductible and expect the officer to accept it without demur. The assessee, the Tribunal held has to declare the actual price and furnish detailed particulars of the elements of which he claims exclusion. In the present case, the appellants herein have not at all indicated the freight administrative charges in their price list and as has been found by the Tribunal, the assessee cannot hold back any particulars relating to the elements which go into the price while presenting the price list. It is also seen from the records that the appellants were realising additional consideration which is in dispute only through freight debit notes and were not showing it even in Trading Invoices. It is also observed that the practice of recovery of freight administrative charges continued in the case of smoking mixture even after the judgment of the Supreme Court in Bombay Tyre International Ltd. etc., etc. case. In such circumstances, imposition of penalty under Rule 9(2) read with Section 11A of the Central Excises and Salt Act, 1944, is sustainable.
It is further seen that the cigarettes are not covered by self-removal procedure but under physical control procedure. Assessment under Rule 52 of Central Excise Rules was followed with the modification that the requirement of price list was continued even under Rule 52. Accordingly, there is need for Department to enquire into the correctness or otherwise of the measure of duty with reference to actual transactions in the course of assessment for the purposes of levying duty. Therefore, the penalty under Rule 9(2) becomes imposable for each transaction under that Rule with reference to each Gate Pass and clearances. Therefore, when it is found that goods have been cleared on prices which did not include the additional consideration by way of freight administrative charges, each transaction and clearances will attract penal provisions under Rule 9(2). In this case the transactions and clearances are spread over the period of November, 1979 to February, 1983 in the case of cigarettes upto September, 1986 in the case of smoking mixture. Part of the period covered by these appeals does relate to the time beyond 30-1-1986 when penalty under Rule 209 would be in order. These aspects will have relevance to the quantum of penalty under Rules 9(2) and 209. However, it is felt at the same time that there will be a case for some relief in the quantum of penalty in this case in view of the fact that the appellants' claim that their situation is covered by the Tribunal decision in VST Industries case, has been found to be sustainable in the present order which should substantially reduce their duty liability. The conduct of the appellants who have made a voluntary payment even during the adjudication proceeding will also be relevant factor in this regard. Hon'ble Supreme Court in Arvind Mohan Sinha v. Amulya Kumar Biswas and Ors., reported in AIR 1974 S.C. 1818 in Para 10 has held as under :
* * * * * * Keeping in view that while imposing penalty the broad principle that punishment must be proportioned to the offence is or ought to be of universal application save where the statute bars the exercise of judicial discretion either in awarding punishment or in releasing an offender on probation in lieu of sentencing him forthwith.
7. Keeping in view of the facts and circumstances of the case, we are of the view that the ends of justice would be met if the penalty imposed by the adjudicating authority as Rs. 50 lakh is reduced to Rs. 15 lakh (Rupees fifteen lakh only).
8. The appeals are, therefore, disposed of by holding the freight administrative charges recovered by the appellants are not relatable to the cost of transportation but are in the nature of additional consideration. The assessable value, therefore, has to be arrived at under Section 4(1)(b) by applying Rule 5 of the Valuation Rules, 1975. The amount of such additional consideration flowing back to the appellants has to be added to the wholesale price and assessable value worked back after allowing admissible deductions. The penalty on the appellants though sustainable is, however, reduced for the reasons cited above. The appeals are disposed of in the above terms and are partly allowed.
Sd/- Sd/-
(K.S. Venkataramani) (Harish Chander)
Dated: Member (T) President
P.C. Jain, Member (T)
9. I have carefully gone through the order proposed by my learned brother, Shri K.S. Venkataramani, Technical Member and concurred in by the Hon'ble President of the Tribunal. I would, however, like to add as follows :-
9.1 I agree with the findings of the learned brother that so-called 'freight administrative charges' (FAC) do not pertain to the transportation charges of cigarettes and smoking mixture recovered by the appellants, in the absence of any adequate evidence furnished by them, as held by the adjudicating authority. Accordingly, FAC collected by the appellants would have to be treated as additional consideration received by the appellants.
9.2 I also agree with the findings of my learned brother, Shri Venkataramani, in view of the elaborate discussion in his order, that the aforesaid FAC would have to be added to the price of the cigarettes and the smoking mixture for determining the assessable value therefrom in terms of Section 4 of the Central Excises and Salt Act, 1944; FAC cannot be directly added to the assessable value already determined de hors the FAC.
9.3 I also agree, as proposed in the learned brother's order that provisons of Rule 209 cannot be invoked in respect of removal of excisable goods (cigarettes and smoking mixture) without payment of due duty before 30-1-1986 because Rule 209 was not on the rule-book before that date. So far as cigarettes are concerned, it is admitted to the Revenue, the collection of FAC was stopped by the appellants after 1-3-1983. Therefore no penalty can be imposed on the appellants under Rule 209 so far as collection of FAC on cigarettes is concerned. It is not denied by the Revenue, as contended by the appellants, that the total realisation on account of FAC on sale of smoking mixtures was about Rs. 4000/- per month on all-India basis (Para 14 of the Statement of Facts in Appeal No. E/1508/92). It comes to about Rs. 35000/- during the period after enforcement of Rule 209. Collection of FAC on smoking mixture is also reported to have been stopped around September-October, 1986. A maximum penalty of Rs. 100000/- (Rupees one lack only) may be leviable on this account, assuming that imposition of penalty is justified on the appellants.
10. Now remain the questions of justification for imposition of penalty and the quantum of penalty under Rule 9 (2) -
(a) Appellants' learned counsel has urged that it has been been repeatedly stressed by Courts right from the time of Supreme Court's judgment in N.B. Sanjana v. Elphinston Spg. & Wvg. Mills that penalty under Rule 9(2) is attracted only in the cases of clandestine removal of excisable goods. In their case, there is no question of clandestine removal. Goods being under physical control, all removals during the relevant period were made under the svipervision and signatures of Central Excise Officers on A.RJs. This plea of the appellant does not impress me. As rightly pointed out by the learned counsel for the Revenue, Supreme Court's observation was in the context of grant of exemption to certain goods. Character of the goods for the purpose of exemption could be known by examining the goods and other declared particulars in A.R. 1 and it is in that context that the Apex Court held that there being no clandestine removal, Rule 9(2) could not be attracted. Position in the present case is, however, different. Here, it is a question of correct declaration of price -its various elements as charged by the appellant from its customers. We have already held that FAC forms an additional consideration collected by the appellants. Non-declaration of collection of FAC by the appellants either in A.R. 1 or in quarterly price-lists required to be submitted by them under physical control under departmental practice would ex facie attract the mischief of Rule 9(2).
(b) At this stage learned counsel for the appellants has urged that they had no mens rea in not declaring FAC. They were under a bonafide belief on the authority of various Courts' judgments, in their own cases, that post-manufacturing expenses or non-manufacturing expenses did not form part of the assessable value. In this connection, appellants rely on the following case laws :-
(i) 1979 (4) E.L.T. (J 483) (Kar.), (ii) 1979 (4) E.L.T. (J 476) (Bom.), (iii) 1978 (2) E.L.T. (J 137), (iv) 1977 (1) E.L.T. (J 29).
It has been also submitted that Supreme Court's judgment in Bombay Tyre International Ltd. regarding inclusion of post-manufacturing expenses was delivered only in May 1983 in operative form followed by a detailed judgment in October 1983. In this background, no mala fides could be attributed to them, according to the learned counsel Shri Anil Divan for the appellants. There is, therefore, no justification for imposition of penalty. Supreme Court judgment in the case of Hindustan Steel is relied upon.
(c) Learned counsel, Shri M. Chandrasekharan for the Revenue, on the other hand, has submitted that plea of lack of mens rea is without substance. None of the judgments relied upon referred to FAC.
(d) I have given my most careful consideration to the pleas from both sides. I have already held that there is lack of evidence regarding the nature of expenses as held out by the appellants - except a bald assertion that expenses were incurred by them on men and material employed by them for administering the freight/transportation of the goods to their dealers throughout the country. In the absence of any evidence in support of their assertion, their plea that FAC were post-manufacturing or non-manufacturing expenses cannot be accepted. Once this is held, the appellants' shelter under various Courts' judgments crashes upon them. I, therefore, uphold that penalty under Rule 9(2) is liable to be imposed upon the appellants.
11.1 Now I would examine the question of quantum of penalty that can be imposed upon the appellants.
11.2 Learned counsel for the appellants has urged that the maximum penalty under Rule 9(2) is Rs. 2000/-. Rule 173Q could not be invoked because during the relevant period, the goods were not covered under the Self Removal Procedure i.e. under Chapter VILA, of Central Excise Rules wherein Rule 173Q finds a place. Rule 209 was introduced only w.e.f. 30-1-1986.
11.3 During the course of arguments before the Bench, a question was raised whether Rule 9(2) envisaged a penalty of Rs. 2000/- for each removal of excisable goods without payment of duty. Learned counsel for the appellants urged that this is not even the allegation of the Revenue in the show-cause notice, nor a finding to that effect by the adjudicating authority. No factual details have been set out in the show cause notice regarding the number of removals made by the appellants. Case of the Revenue for penalty on the appellants rests solely on Rule 209 on the ground that the provisions as they exist on the date of issue of show cause notice would be applicable. No new case can be made at this stage.
11.4 I observe that the learned counsel for the Revenue also did not react to the question from the Bench. He has only supported the findings of the adjudicating authority on the basis of applicability of Rule 209 of the Central Excise Rules, 1944. I also find that the show cause notice does not make any such allegation on such an interpretation of Rule 9(2) nor does it set out any material for imposition of penalty on the basis of each removal of the excisable goods. In the aforesaid facts and circumstances, I am of the view that it would not be correct to support the level of penalty arrived at by the adjudication authority or reached by the learned Brother on grounds other than set out in the show cause notice or held by the adjudicating authority.
12.1 I am also doubtful whether on a proper interpretation of Rule 9 (2), penalty could be imposed for each removal, I would take the analogy of prosecution under Section 9 of the Central Excises and Salt Act. Clause (bb) of Sub-section (1) of that Section 9 makes 'removal of any excisable goods in contravention of any provisions of this Act or any rule made thereunder ... 'van offence punishable with a maximum of seven years imprisonment in case of excisable goods involving duty liability thereon exceeding Rupees one lakh or a maximum imprisonment of three years in other cases. Does it mean that a manufacturer of excisable goods could be sentenced to seven hundred years or three hundred years, had one hundred removals been detected over a period on scrutiny of his records at one time for a single act of suppression of information. I am of the opinion that there is a clear bar on punishment for each such act under Section 71 of the IPC which prescribes as follows : -
"Where anything which is an offence is made up of parts, any of which part is itself an offence, the offender shall not be punished with the punishment of more than one of such of his offences, unless it be so separately provided"
...
...
Illustrations
(a) A gives Z fifty strokes with a stick. Here A may have committed the offence of voluntarily causing hurt to Z by the whole beating and also by each of the blows which make up the whole beating if A were also liable to punishment for every blow, he might be imprisoned for 50 years, one for each blow. But he is liable only to one punishment for the whole beating.
(b) But if, while A is beating Z, Y interferes and A intentionally strikes Y, here as the blow given to Y is no part of the act whereby A voluntarily causes hurt to Z, A is liable to one punishment for voluntarily causing hurt to Z, and to another for the blow given to Y. 12.2 On the object of this section, I quote from Dr. Hari Singh Gaur's Penal Law of India' - 9th Edition :-
"The object of the section is to confine punishment within reasonable limits. It is based on the rule that where the intention was to commit an offence, the commission of which involves the perpetration of acts, by themselves punishable, the offender shall not be punished for them separately, as his object was to commit one crime and not many. Moreover, if in such a case, every criminal act, however, subservient to the main design, were penal there would be no end to punishment..."
12.3 It is also observed by the learned author that the two sections (Sections 31 & 220) of the Criminal Procedure Code do not profess to modify any part of this Section (S. 71 I.P.C.) 12.4 Applying the above principle to the factual position in this case, it is observed that the appellants could be imputed with the suppression of collection of additional consideration so as to lower the price of the excisable goods and thereby causing evasion of duty on each occasion. The commission of the main offence is suppression of the collection of additional consideration. It is perpetrated at the time of each removal of excisable goods. Taking illustrations given under Section 71, each of the 50 blows separately could be termed an offence and punished, but the person is liable to punishment for one beating as a whole for all the 50 blows. Similarly, in the instant case, each removal of excisable goods could be punishable with the maximum punishment, but it has to be limited to one punishment for all the removals. Although Section 71 is applicable to offences under the Indian Penal Code, to me, it appears to be a general principle of criminal jurisprudence in this country for grant of punishments because even Criminal Procedure Code also does not modify it. Criminal Procedure Code rather recognises it. On the same principle in my view, a manufacturer could not be punished for more than 7 years or 3 years, as the case may be, for all the removals detected over a period as a result of the same design or purpose, under Section 9 of the Central Excises and Salt Act, 1944.
12.5 What applies to Section 9 of the Central Excises and Salt Act, should equally apply to Rule 9(2) because of similarity in language of the two provisions and the essential nature of the two provisions i.e. penal in character, being the same.
12.6 In the criminal law, there is a concept of 'continuing' offence. But wherever it is so, it is specifically mentioned in law. There is nothing in the language of Rule 9(2) which makes 'removal' a 'continuing' or a repetitive offence :-
13. In view of the aforesaid discussion, I hold that not more than Rupees two thousand could be imposed as penalty on all the removals mentioned in a show cause notice in respect of each factory (licence) as a result of non-declaration of collection of the additional consideration during the period 1979 to 29-1-1986. There are five separate factories of the appellants each holding a separate manufacturing licence. At the most, therefore, Rs. 10000/-(Rupees Ten Thousand only) could be imposed as penalty on the appellant under Rule 9(2).
14. In view of the aforesaid discussion, a maximum penalty of Rs. 1,10,000/- (Rupees one lakh and ten thousand only) would be imposable. I, therefore reduce the penalty on the appellant to the Rupees One lakh and ten thousand only.
Sd/-
(P.C. Jain)
Dated : 15-3-1994 Member (T)
FINAL ORDER
15. In view of the majority opinion, we hold that the freight administrative charges recoverd by the appellants are not relatable to the cost of transportation but are in the nature of additional consideration. The assessable value, therefore, has to be arrived at under Section 4(1)(b) by applying Rule 5 of the Central Excise Valuation Rules, 1975. The amount of such additional consideration flowing back to the appellants has to be added to the wholesale price and assessable value worked back after allowing admissible deductions. The penalty on the appellants is reduced from Rs. 50 lakhs (rupees fifty lacs) to Rs. 15 lakhs (rupees fifteen lakhs). Accordingly, the appeals are partly allowed.