Custom, Excise & Service Tax Tribunal
M/S Blackstone Polymers vs Cce, Jaipur-Ii on 26 July, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
E/Appeal Nos. 711 and 712/2005
(Arising out of the both order in original No. 109/110/RM/CE/JPR-II/05 both dated 18.2.2005 passed by the Commissioner of Customs & Central Excise, Jaipur)
Date of Hearing : 29.2.2012
Date of Pronouncement: 26.07.2013
For Approval & Signature :
Honble Mrs. Archana Wadhwa, Member (Judicial)
Honble Mr. Mathew John, Member (Technical)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Whether their Lordships wish to see the fair copy of the order?
Seen
4.
Whether order is to be circulated to the Department Authorities?
Yes
1. M/s Blackstone Polymers Appellant
2. Shri Basant Dhoot, Partner
Vs
CCE, Jaipur-II Respondent
Appeared for the Appellant: Shri O.P. Agarwal, C.A. Appeared for the Respondent: Shri I. Beg, DR Coram: Hon'ble Mrs. Archana Wadhwa, Member(Judicial) Hon'ble Shri Mathew John, Member (Technical) MISC ORDER No. 685/2012/2013-EX(BR) FO 57430-57431/2013 Per Mathew John:
There are two appeals being considered in this proceeding. Both arise from the same impugned order. The main appellant is M/s. Black Stone Polymers and other is by Shri. Basant Dhoot, partner of M/s. Black Stone Polymers.
2. The matter relates to valuation of re-treading materials, for heavy earth moving machines, manufactured and cleared by the main appellant during the period 1996-97 and 1997-98.
3. The facts of the case are that the main appellant was manufacturing re-treading and supplying 97% to 98% of their production to M/s. Black Stone Rubber Industries Pvt. Ltd. (hereinafter referred to as the buyer). During 1996-97 the buyer paid an amount of Rs. 6,84,780/- as compensation to the appellants in addition to the declared price of the goods. During 1997-1998 the buyer paid Rs. 6,50,500/- in similar manner. The case of Revenue is that these amounts should have formed part of the assessable value of goods sold by the appellant to the buyer.
4. A Show Cause Notice issued in this regard has been confirmed demanding excise duty of Rs. 2,20,835/- along with interest. Further a penalty equal to the said amount is imposed on under section 11AC of the Act, a penalty of Rs. 25,000/- has been imposed under Rule 173Q of Central Excise Rules 1944 on the main appellant and a penalty of Rs. 25000/- has been imposed on the Sh. Basant Dhoot the partner of the firm under Rule 209A of the Central excise Rules, 1944. Aggrieved by the order the appellants filed an appeal with the Commissioner (Appeal) the Commissioner (Appeal) set aside the penalty of Rs. 25,000/- on the main appellant and reduced the penalty on the partner to Rs. 10,000/-. Aggrieved by the order of Commissioner (Appeal) the Appellants have filed this appeal before the Commissioner (Appeal).
5. The contention of the Appellants is that they had an arrangement with the buyer whereby the buyer agreed to provide interest free advance to the main appellant to help the appellant to set up the factory with an undertaking by the appellant that the appellant would supply at least 90% of their production to the buyer. As per the agreement they could either provide interest free advance or pay 90% of its interest cost borne by the appellants in securing the finances. The terms of the agreement are reproduced below for better understanding:
That the manufacturer undertakes to manufacture sufficient quantity of rethreading material to meet with the requirements of buyer and also undertakes to supply at least 90% of its production to the buyer at the agreed prices mentioned in this agreement. The condition to supply at least 90% material to the buyer shall be effective upto 31.3.1998. Therefore, this shall be reviewed on the basis of requirements of buyer and production capacities of manufacturer and shall be decided again. It has also been specifically agreed upon that the condition would not be an estopel against the buyer and the buyer shall be at liberty to purchase the re-treading material from other suppliers, if need be and if considered appropriate.
That the buyer under takes to provide a no-interest bearing deposit equivalent to at least 50% of the total cost of production which is being estimated at Rs. 50 lacs on the basis of desired production as per the ends of the buyer. The deposit shall be made available to the manufacturer in the following manner:-
First Rs. 10 lacs before 31st March, 1996 Next Rs. 10 lacs before 31st August, 1996 Balance Rs. 5 lacs before 31st October 1996.
The deposit shall be liable to be adjusted against supply of material not exceeding 50% amount of the invoice against each supply.
4 That in the event of failure of buyer to provide the non-interest bearing deposit as stipulated in clause No. 3 above, it undertakes to compensate the manufacturer by making reimbursement of 90% of its actual interest cost for the financial year 1996-97 and financial year 1997-98 inclusive of interest on the partners capital account. The buyer undertakes in such an event, to arrange the finance at minimum possible interest rate.
5 That the manufacturer undertakes to supply the material to the buyer at the following price specifically agreed to in this agreement:
First 45,000 kgs of Retreading material @ Rs. Rs. 40 per kg Next 20,000 kgs of Retreading material @ Rs. Rs. 42 per kg Next 10,000 kgs of Retreading material @ Rs. Rs. 46 per kg Next 25,000 kgs of Retreading material @ Rs. Rs. 50 per kg Next 55,000 kgs of Retreading material @ Rs. Rs. 55 per kg Next 45,000 kgs of Retreading material @ Rs. Rs. 60 per kg That aforesaid special prices have been specifically agreed to and they would prevail for the supplies to the buyer irrespective of prevailing market prices. It has also been agreed that after supply of 2,00,000 kgs of material on the prices mentioned here in above, the buyer and manufacturer shall enter into fresh agreement for the supply price.
That after supply of initial 2,00,000 kgs of material if the supply prices agreed to are more than Rs. 60 per kg, the manufacture shall provide credit period of one month to the buyer for making payment for the supplies made by the manufacturer.
6. The appellants argue that what they have done is to subsidize the interest cost of the appellant in setting up the factory. This was done only to ensure a regular supply of the finished goods for their business of re-treading and this did not affect the price of the goods sold by the appellants. They submit that the final products were sold at the same price to other buyers who have not provided such help. Since a normal price for the goods are available for sale of the goods to independent buyers it is evident that the price has not been vitiated because of the compensation paid. The appellants point out that the dispute is for the period when the principle of transaction value of each sale as assessable value for paying duty has not come into force and therefore there is no merit in the argument of the Revenue in view of the following decisions:
(a) CCE Vs. ISPL Industries Ltd 2003 (154) ELT 3 (SC)
(b) Indian Oxygen Ltd Vs. UOI 1988 (36) ELT 723 (SC)
(c) Geep Industrial Syndicate Ltd. Vs. CCE-2000 (120) ELT 405 (Tri.)
(d) Savita Chemicals Ltd. Vs. CCE- 2000 (119) ELT 394 (Tri) which has been affirmed by the Apex Court;
(e) Phillps India Ltd. Vs. CCe 1997 (91) ELT 540 (SC)
(f) BOC India 2005 (183) ELT 475 (Tri.)
(g) IOC Vs. CCE-2001 (43) RLT (156) (CEGAT-Del)
7. The Appellants also point out that Revenue has compared the prices at which dealers have sold the product to retailers to come to the conclusion that there was under valuation which is not legally maintainable. He points out that the other comparison made by Revenue was with the price of tread rubber of MRF Ltd which also is not an acceptable comparison because the product of that company has a better reputation and can command better price in the market. So he submits that the case made out by Revenue has no merits.
8. We have considered arguments on both sides.
9. In the first place we note that Revenue has not made any demand of duty based on price of goods produced by MRF Ltd. These are just mentioned by Revenue to argue that the goods were sold at artificially low prices. The demand is only om extra consideration received by the appellants from the buyers of excisable goods as compensation.
10. This is also not a case of interest free advance made available to the appellants by the buyer because no such advance was made available it is only a fiction created in the agreement. The buyers have paid extra money over and above the price paid. Now the question is whether this has to be kept out of the assessable value of the goods in view of the various decisions quoted.
11 We have scrutinished the decisions quoted. None of the decisions are on facts of the nature involved in this case. The case of ISPL Industries, the issue was whether notional interest on advances received by manufacturer is to be taken into account for determining assessable value of goods. In this case there is no advance paid at all. What is sought to be added is not notional interest but actual payments received from buyers over and above the price on which duty was paid. In the case of Indian Oxygen Ltd. in the case of Geep Industrial Syndicate Ltd. the case was Revenue wanted to charge duty on the price at the depot during the period when factory was considered as the place of removal which was not legally sustainable. That is not the situation in this case. In the case of Savitha Chemicals Revenue wanted to charge duty on bulk oil removed from the factory based on the price of oil packed and sold from depots. The case of Philips India was about the discount given to dealers who were doing advertising activity to promote the sale of the products. The other decisions quoted are much less similar to the facts of the present case. So noting relevant to the issue at hand turns out from decisions quoted.
12. Section 4 of Central Excise Act at the relevant time read as under:
Section 4. Valuation of excisable goods for purposes of charging of duty of excise, - (1) Where under this act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale.
Provided that
(i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers;
(ia) where the price at which such goods are ordinarily sold by the assessee is different for different places of removal, each such price shall, subject to the existence of other circumstances specified; in clause (a), be deemed to be the normal price of such goods in relation to each such place of removal;
(ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price of the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof;
(iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail;
(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.
13. The impugned sales in this case satisfies all ingredients of the main definition of normal price except that the price declared is not the sole consideration and some other consideration in also received from the buyers in the name of compensation.
14. Another contention raised is that since the appellants had declared the compensation in their balance sheets the information was not suppressed and hence extended period cannot be invoked. There is also an argument that on irregularity detected in audit notice cannot issued invoking extended period of time. The question whether declaration in balance sheet is sufficient to come out of the charge of suppression was examined by the Honorable Apex Court in the case of Usha Rectifier Corpn. (I) LTD. Vs. CCE-2011 (263) E.L.T. 655 (S.C.). In para 2 and 12 of the judgment the Hon'ble High Court. Apex Court observed as under:
2. The appellant herein is a manufacturer of electronic transformers, semi-conductor devices and other electrical and electronics equipments. During the course of such manufacture the appellant also manufactured machinery in the nature of testing equipments to test the final products of the assessee company costing Rs. 31,27,405/- as per Note 6 of the Schedule Q page 15 of the balance sheet for the year ending December, 1987. The aforesaid position was further reiterated in the Directors report appearing at page NO. 2 of the Annual Report for the year ending December, 1988. 12. Submission was also made regarding use of the extended period limitation contending inter alia that such extended period of limitation could not have been used by the respondent. The aforesaid contention is also found to be without any merit as the appellant has not obtained L-4 licence nor they had disclosed the fact of manufacturing of the aforesaid goods to the department. The aforesaid knowledge of manufacture came to be acquired by the department only subsequently and in view of non-disclosure of such information by the appellant and suppression of relevant facts, the extended period of limitation was rightly invoked by the department.
15. Thus suppression mentioned in section 11A of Central Excise Act is about suppression of information from the Central Excise department. Disclosure to shareholders or any other person cannot be defence against allegation regarding such suppression.
16. Further the issue whether there is any suppression or not on the part of an assessee is to be determined with reference to assessees actions and not with reference to how the department detected the suppressed information. So we do not find any merit in the argument that the suppressed information was detected by auditing the books of accounts and hence it cannot be considered as suppression.
17. For the above reason we are not in agreement with the arguments canvassed by the appellants. Since we do not see any merit in the argument of the appellants the appeal filed by the main appellant is dismissed.
18. The Hon Supreme Court in the case of Prakash Metal Works Vs. CCE-2007 (216) E.L.T. 660 (S.C.) has ruled that separate penalties can be imposed on the firm as well as the partner. The matter involved a case of clandestine removal where in the partner played specific role in the clandestine removal. In the facts of this case, the partners actions and t6he firms actions which form the basis of the case is the same and we are of the view that it is not necessary to impose a separate penalty on the partner. So penalty imposed on the partner is set aside and the appeal filed by Shri. Basant Dhoot, partner of M/s. Black Stone Polymers is set aside allowing the appeal filed.
19. Thus the appeal filed by M/s. Black Stone Polymers is rejected and the appeal filed by Shri Basant Dhoot is allowed.
(Pronounced on____________________) (Archana Wadhwa) Member (Judicial) (Mathew John) Member (Technical) MPS* Per : Ms. Archana Wadhwa
20. After going through the order proposed by my ld. Brother, I proceed to record a separate finding. As detailed factd already stands enumerated in the order recorded by Member (Technical), the same are not being repeated except wherever the need is felt.
21. The sole question required to be decided is as to whether the compensation given by the buyers of the tread rubber to the appellants which is basically a non-interest free loan to the appellant, is required to be added in the assessable value of the tread rubber supplied by the appellant to their buyers. From the impugned orders passed by the lower authorities, I find that the entire compensation of 6,84,780/- and the Rs. 6,50,500/- received by the appellant for the financial year 1996-97 and 1997-98, has been treated as part of the assessable value of the tread rubber cleared by the appellant to M/s. Blackstone Rubber Industry P. Ltd. (hereinafter referred to as BSRI) and the demand stands confirmed on the entire amount. On going through the appeal papers, it does not come out clearly as to whether the said compensation amount is the loan amount in lie of interest free financial support for setting up the plant for manufacture of tread rubber or the same is 90% reimbursement of the interest cost incurred by the appellant.
22. I have gone through the agreement dtd. 16.01.95 entered into between appellant and BSRI. As per the terms of the said agreement, the appellant has undertaken to set up a manufacturing unit for manufacture of high quality re-treading material. To meet requirement of setting up of a factory, the buyer has undertaken to provide a non-interest bearing deposit equivalent to 50% of the total cost of the project. In return the appellant had to supply 90% of its production to the buyer at the agreed price mentioned in the agreement itself. The said agreement is effective upto 31.03.98 and would be renewed on the basis of requirement of buyer and the production of manufacturer. It also stands mentioned in the said agreement that in the event of failure of the buyer to provide a non-interest free deposit, the manufacturer shall be compensated upto 90% of the actual interest cost for the two financial years, 1996-97 and 1997-98.
23. It is in this background that Revenue has treated the entire compensation given by the buyer for setting up of a factory as a part of the assessable value of the goods and has confirmed demand of duty by taking the entire compensation into consideration. On the other hand the appellants contention is that such compensation is for setting up of the factory so given by the buyer so as to ensure uninterrupted supply of the goods, i.e., tread rubber, which is an input for the buyer. The price fixed between the appellant and the buyer is a contracted price, which in uninfluenced with the fact of grant of compensation by the buyers. The same was fixed by taking into account the expected cost of production and prevailing market price of tread rubber. They have relied upon various decisions of the Tribunal laying down that once factory gate sale price is available the same becomes the normal assessable value in terms of the erstwhile provision of section 4 of Central Excise Act and has to be adopted in all cases. In as much as the appellant have been selling the tread rubber to other buyers at the same price, the normal assessable value in terms of 6the section 4 is available and the same price is required to be adopted in respect of sales to BSRI. They also contested the Revenues proposal to enhance price based upon the assessable value of comparable goods purchased by MRF Ltd. on the ground that their goods are not comparable. In support of their plea that the prices fixed in the agreement were on the basis of cost of production, they drew the attention to the profit & loss account of the financial year 1997-98. Against cost of production of Rs. 78,58 lakhs, the sales proceeds were Rs. 87.23 lakhs. It was their contention before the adjudicating authority that despite heavy depreciation cost involved in the total cost of production, they had earned cash profit without taking into account the compensation receipt. It stands vehemently argued that compensation was given to encourage them to set up a unit for manufacturing of tread rubber so that the buyer could procure the same regularly. The demand also stands challenged on the point of limitation by submitting that the Show Cause Notice (SCN) stands issued on 02.03.2000 for the period 1996-97 and 1997-98. They submit that there was no suppression on their part as the fact of receipt of compensation was duly reflected in the books of accounts as also in the audited balance sheet. Mere non-furnishing of the information to the department cannot attribute any malafide to them in the absence of any positive evidence to reflect on their intent to effect payment of duty.
24. On the other hand Revenues stand as reflected in the order of Asstt. Commissioner is that the assessable value of tread rubber stands suppressed on account of receipt of compensation from BSRI and as such the said compensation should be treated as entire consideration forming part of assessable value of the tread rubber.
25. After appreciating the submissions made by both the sides, I find that there is no dispute about the fact of entering into an agreement with BSRI for funding the appellant to the extent of 50% of their cost and setting up a new unit. As per the appellant such funding was with a view to obtain an uninterrupted supply of goods and not with a view to suppress the assessable value of the rubber. Shri Basant Dhoot, Partner of the appellant in his statement recorded during the course of investigation has deposed that agreement dtd. 16.01.95, which was not extendable beyond 31.03.95, was entered with a view to set up the appellants factory ensuring 90% of the goods supplied to BSRI. The appellant was free to dispose of the balance goods in the market to the other buyers.
26. The question required to be decided is as to whether the compensation amount received from BSRI on account of reimbursement of 90% of interest is to be included in the assessable value of their final product or not such addition of interest to the assessable value would be possible only if the Revenue establishes that the cost of the final product stands depressed on account of such interest free loan or reimbursement of the interest. The question required to be decided is as to whether such compensation given by the buyer was with a view to depress the value of their final product or was with a view to ensure continuous supply of tread rubber.
27. While dealing with the said question, I find that the appellants are not selling their entire 100% production to BSRI. The sales are also being effected by them to independent wholesale buyers. Such sales are also being effected by them to independent wholesale buyers. Such sales are at the same value. It stands recorded in the impugned order of original adjudicating authority that the sales to independent buyers during the period 1996-97 was to the tune of 2.33% and during the year 1997-98 was to the tune of 1.45% of the total sales. He has, however, observed that the sales of tread rubber to customers other than BSRI did not appear substantial enough to be taken as representative and comparable price of sale of tread rubber by the party.
28. During the relevant period, the erstwhile provisions of section 4 which stands reproduced in the other proposed by my ld. Brother, were to the effect that normal price would be the price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and price of removal and where the buyer is not a related person and the price is the sole consideration for the same. Admittedly, it is not the Revenues case that the buyer is a related person. As regards whether the price is sole consideration for sale or not, I find that the fact of receipt of compensation cannot be held to be a dominating factor in deciding that the price was not the sole consideration in as much as the said issue is required to be tested. What I mean to say is that the issue of availability of normal price in terms of said section 4 is required to be decided rather than to hold that as there was extra consideration, the price is not available in terms of the said section.
29. How to arrive at normal assessable value in terms of said section 4? A reading of the said section states that where normal price at the time of delivery and place of removal is available, the same has to be adopted as a normal assessable value. There is no dispute about the fact that the appellant was selling the product to the extent of 2.33% and 1.45%, to independent wholesale buyers who have not been alleged to be related person to the appellant or extending any benefits to them nor is there any cash back flow from the said persons to the appellants. As such by applying the provisions of section 4, it can be reasonably concluded that the normal assessable value in terms of the said section is available. If that be so, the same is required to be adopted for the purposes of assessment in respect of sales to BSRI. This has been the mandate of many decisions to which I shall be making reference in the subsequent paras.
30. Before I do that, I would like to deal with an observation made by the adjudicating authority. While dealing with the percentage of normal sales at the factory gate to independent wholesale buyers, it stands observed by the adjudicating authority that the appellant was manufacturing different qualities of tread rubber such as tread rubber supreme, tread rubber noble and tread rubber. The material supplied to buyers other than BSRI was meant for retreading of car/truck tyers whereas material supplied to BSRI was used for retreading and repair of tyres used in heavy earth moving machine. I must say that apart from making the above observation, there is no relevant material on record to substantiate the above fact. Neither the appellant has been put to notice to show that the tread rubber sold to other independent wholesale buyers, was different in quality than the one sold to BSRI, nor the adjudicating authority has himself referred to any evidence to that effect. In fact, I find that under the heading, discussion & Findings, the Addl. Commissioner is rejecting the appellants stand on the ground that clearances to other buyers was very nominal but even if it is accepted that the price charged by the appellant from BSRI and other buyers was the same, even than the price charged form BSRI cannot be accepted the same as it was not the sole consideration for the sale of the excise goods and there was additional consideration flowing from the BSRI as per the agreement. From the above, it can be seen that the adjudicating authority is proceeding on an accepted fact as if the compensation received from BSRI was additional consideration for the goods sold to them rather than to decide the question as to whether the said compensation was additional consideration or not?
31. It stands held in number of decisions that once factory gate sale is available in terms of erstwhile provisions of section 4 of the Central Excise Act, the same has to be adopted as the assessable value in respect of all the sales. similarly the lower percentage of ex-factory sales cannot be considered to be a factor to ignore the same. The leading decision on the said issue is Honble Supreme Courts judgement in the case of Indian Oxygen Ltd. reported in 1988(36)ELT723(SC). Though the said decision was in context of ex-factory sales viz-a-viz ex-depot sales but the law stands declared by the Honble Supreme Court when it was observed that when there is a clear finding that there was an ex-factory price which is ascertainable, that should be basis upon which the value is to be determined and that the correct position in law. The said decision stands followed in catena of judgements laying down that availability of ex-factory sales value is to be adopted as the normal price and the assessment has to be done on the same. In the case of Zeep Industries Ltd. reported in 2000(120)ELT405(Tri.), it was observed that even though the ex-factory sales constituted nearly 3% of the total sale, the same has to be considered as the normal price and assessment of duty has to be made on that basis. Quantum of goods sold at ex-factory is entirely irrelevant.
32. At this stage, I may refer to Honble Supreme Courts judgement in the case of ISPL Industries Ltd. reported in 2003(154) ELT3(SC). While dealing with the issue as to whether notional interest on the advances taken by an assessee from the buyers can be said to have influenced the assessable value of the goods, Honble Supreme Court observed that where there are two prices one for those who have made the advance and the other who have not, it would required no further proof of the lower price having been influenced by the interest free advance made by the buyer. Otherwise burden to proof that interest free advance has influenced the price would lie on the Revenue. No presumption can be drawn by mere facts of interest free advance by the buyer to the manufacturer. By applying the ratio of the above decision of Honble Supreme Court to the facts of the case, it is seen that the tread rubber is being sold to independent wholesale buyers as also to BSRI at the same price. This fact is sufficient to establish that the price in case of sale to BSRI is not influenced by the fact of compensation given by BSRI to set up the factory. It has to be held that such compensation stands given by BSRI for setting up of the factory for manufacture of tread rubber for ensuring continued supply of tread rubber to them, which fact is also beneficial to the buyer. This is normal business deal.
33. Similarly in the case of VST Industries Ltd. reported in 1998(2)SCC24, the court negated the case of Revenue for reloading the assessable value by adding notional interest on the amount of interest free advance deposited as security by some of the dealers on the ground that a uniform price was being charged by the manufacturer from all its dealers and there would be no occasion to content that price charged uniformly flow both sets of buyers would still not be a normal price. In the present case, I find that the demand is being confirmed by adding notional interest without first recording a finding that such interest has lowered the value.
34. I have also taken into consideration the appellants specific plea that if the amount of compensation received in two different financial years is added into the assessable value, the same would lead to frivolous results. To substantiate their plea that the amount of compensation received by them has no connection or link with the price of tread rubber, they have submitted that in the year 1996-97, the amount of compensation is Rs. 6,84,780/- and tread rubber supplied to the buyer is 60,880 kg. whereas in 1997-98 the same is Rs. 6,50,500/- and 1,39,440 kg. Therefore, on this basis, in 1996-97, per kg. compensation comes to Rs. 11/- whereas in 1997098, comes to just Rs. 5.50. It clearly shows that the amount of compensation was not linked with quantity of tread rubber to be supplied and price of tread rubber fixed in the agreement was not depressed on account of compensation. For example, if no tread rubber was supplied in 1996-97, even then compensation was to be received and in the absence of assessable value, the same would not have been includable. For this reasons, it was held by the Honble Tribunal in the case of Mysore Kirloskar Ltd. reported in 2002(49)RLT316(Tri.) that addition of developing/designing charges of machines paid separately by customers should have been done after establishing their nexus with negotiated price of machine.
Though the above plea was raised before the lower authorities, there is no rebuttal of the same. The above calculation placed before us clearly show that the compensation amount had no bearing on the price of the final product and was directly related to the quantum of the goods required to be supplied to BSRI. In fact, I find that by adding the compensation received by the appellant in the assessable value of their final product, the value per kg. becomes more that the factory gate price of the tread rubber cleared by MRF Ltd., Chennai. It stands disclosed in the appeal that the price of tread rubber charged by MRF Ltd. in the financial year 1997-98 was Rs. 50.93 per kg. whereas by including the compensation price, the price in the appellants goods for the said financial year 1997-98 would become Rs. 58.98 per kg. Admittedly the tread rubber being manufactured by MRF Ltd. being branded and better in quality would command more value than tread rubber manufactured by the assessee and as such by no stretch of imagination, the artificial value arrived at by the Revenue which is more than the value charged by MRF Ltd. can be said to be the correct value and upheld.
35. In view of the above discussion, I hold that the price of the tread rubber sold by the appellant to BSRI was not influenced by the fact of grant of compensation by BSRI.
36. Apart from holding in favour of appellant, I also find that the demand is hit by bar of limitation. Admittedly, the fact of receipt of compensation was reflected by the appellant in their account books and was part of the profit & loss account. If that be so, can it be said that the appellant suppressed or mis-stated any fact with intent to evade payment of duty? It has to be kept in mind that for invoking the extended period of limitation, the facts and circumstances mentioned in proviso to section 11A must be available. Admittedly all ingredients of the said provision have inbuilt malafide intent. As regards misstatement or suppression, the said phrases had been subject matter of various decisions of the Honble Supreme Court wherein it stands held that such suppression or misstatement has to be with an intent to evade payment of duty. As such malafide intent is one of the basic requirements to invoke extended period. How such intent has to be arrived at, is the question to be decided in the facts and circumstances of each and every case? When an assessee is disclosing the facts of receipt of compensation in their books of accounts as also in their balance sheet, can it be said that he suppressed or misstated any facts with a view to conceal the same from the Revenue and with an intention to evade payment of duty? Such non-disclosure to the revenue when there is disclosure of the factual position in the balance sheets cannot be held to be reflecting upon the malafide of assessee though there may be non-disclosure of that fact to the Revenue. It may be observed here that in mere non-disclosure of information to the Revenue by itself cannot be considered to be suppression or misstatement with intent to evade payment of duty. Reference in this regard can be made to the Tribunals decision in the case of DCM Textiles reported in 2012(26) STR 359 (Tri.-Del.). Further, Tribunal in the case of Hindalco Industries Ltd. reported in 2003 (161) ELT 346(Tri.) as also in the case of Martin & Harris Laboratories Ltd. reported in 2005 (185) ELT 421(Tri.) observed that balance sheet is a public document and once an information is available to the entire public, the charges of suppression cannot be upheld against the assessee. I do not feel the need to refer to various often quoted decisions of the Honble Supreme Court e.g. Cancer Drugs, Padmini Products etc. to hold that there should be some positive act on the part of the assessee to suppress or misstate a fact with an intention to evade duty. Adjudicating authority has invoked extended period by observing that the fact of receipt of additional consideration was not made known to the Revenue. I must observe that such a finding of adjudicating authority reflects upon only and only one fact that he is proceeding with fixed idea that the compensation received was a additional consideration and as if that is accepted fact. Whereas this was, in fact, the disputed issue required to be decided.
37. In view of foregoing discussion, I am of the view that the appeals are required to be allowed on merits as also on limitation and demand as well as penalties on both the appellants are required to be set aside.
38. As there is no difference of opinion in the appeal of Shri Basant Dhoot, his appeal is allowed.
(Archana Wadhwa) Member (Judicial) Difference of Opinion Whether the appeals of M/s. Black Stone Polymers is to be rejected as held by ld. Member (Technical) or the same has to be allowed on merits as also on limitation as held by ld. Member (Judicial).
(Archana Wadhwa) Member (Judicial) (Mathew John) Member (Technical) Per D.N. Panda:
39. The appellant was manufacturer of re-treading rubber in Mogra, Jodhpur to meet 90% requirement of M/s. Blackstone Rubber Industries Pvt. Ltd. for the period 1996-97 to 1997-98 in terms of an agreement dated 16.1.1995. The recital of agreement at page 27 of appeal folder demonstrate that the appellant manufacturer and above buyer had mutual interest to serve specific purpose as embodied in the agreement.
40. The buyer having faced difficulty of procuring quality raw material for use in processing of re-treading and repair of tyre during past 10 years invited the manufacturer appellant to set up a plant at the above mentioned place to serve purpose of each other. Agreement does not rule out mutuality of interest between both the parties by a long term arrangement agreed by them.
41. According to agreement buyer was to give advance to the manufacturer appellant in 3 instalments aggregating to 25 lakhs. In absence of such advance the buyer was to compensate to the manufacturer appellant to the extent of 90% of interest cost incurred by the later in terms of Para 3 & 4 of their agreement. This condition clearly projects that the understanding of parties was to protect each others interest. But unfortunately show cause-notice did not bring out categorically the allegation that the arrangement was to influence sale price. So also show-cause notice did not attempt to find out whether the buyer was anyway related to manufacturer to take undue advantage of deflating sale price in the guise of compensation. All these aspects were also essential consideration for Revenue. But no attempt was made from show-cause notice stage or at the adjudication stage to understand as to whether there was any intention behind the transaction to cause loss to Revenue. When specific allegation in the manner above does not surface it is difficult to discover a new case today.
42. The appellant pleaded before the authority below that despite the aforesaid terms in agreement the assessable value should be transaction value on the basis of page 50 of appeal folder exhibiting a bill of Jagdamba Traders showing sale price of similar goods as dealt by appellant compared with bill of Blackstone Polymers at page 95 of appeal folder as to how there was no deflation to sale price. Specific pleading was made in Para 8 of reply to show cause notice at page 58 of appeal folder stating that comparison of price of dealer of MRF reduced by necessary transportation cost and all other expenses to make the factory cleared goods reachable to the dealer, if well comparable with the price of the appellant and the appellants price is not less than MRF goods, appellant should not face adjudication proceeding to its detriment. Such specific pleading was brushed aside by all the authorities below without causing inquiry to test veracity of pleading so made. That gave a burial death to the Revenues proposition of under valuation and Revenue could not come up to prove its case when allegation of above nature made against appellant.
41. All the aforesaid facts and evidence are available in record. It was submitted on behalf of the appellant that when the appellant proved its case by comparison of the above two sale prices taking help of page 50, 95 read with page 58 of appeal folder, that proves that, there was no deflation to the sale price and assessable value need not be disturbed. It is also pleaded today that when all the facts were disclosed to the Revenue there cannot be a time barred adjudication.
42. On the other hand, Revenue pleads today that it is a case of under-valuation, such superficial plea fails to stand for no comparison of sale price of comparative case cited without any cogent evidence suggesting malafide of appellant. It is also unfortunate to note that at no stage cost of manufacture of goods by the appellant were called for testing. There is no possibility to send the matter back for re-examination in a reference by 3rd Member.
43. In view of the above, appellant should succeed in absence of under valuation and reference is answered accordingly in favour of the appellant.
44. Registry is directed to place the record before the appropriate Bench for passing majority order.
(Reference answered & dictated in the Open Court.) (D.N. PANDA) JUDICIAL MEMBER RK Final Order In view of the majority order the appeal in respect of Watch Batteries is rejected and in respect of the other items is allowed.
(Archana Wadhwa) Member (Judicial) (Mathew John) Member (Technical) Jyoti* ??
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26E/1711-1712/2005-Ex[DB]