Custom, Excise & Service Tax Tribunal
M/S Coromandel Paints Ltd vs Cce & Cc, Visakhapatnam on 18 May, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Division Bench Court I Appeal No. E/788/2007 & 789/2007 (Arising out of Order-in-Appeal No. 94/2007(V-I) CE dt.08.08.2007 & Order-in-Appeal No. 96/2007(V-I) CE dt.09.08.2007 passed by CCE&C (Appeals), Visakhapatnam) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member (Judicial) Honble Sh. Madhu Mohan Damodhar, Member(Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s Coromandel Paints Ltd., ..Appellant(s) Vs. CCE & CC, Visakhapatnam ..Respondent(s)
Appearance Ms. A.S.K. Swetha, Advocate for the Appellant.
Sh H.M. Dixit, Assistant Commissioner (AR) for the Respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member (Judicial) Honble Sh. Madhu Mohan Damodhar, Member(Technical) Date of Hearing: 18.05.2016 Date of Decision: 18.05.2016 FINAL ORDER No._______________________ [Order per: Madhu Mohan Damodhar] These two appeals involve identical issue.
2. The facts in brief are that the appellant manufacture paints and enamels falling under Chapter headings 27, 32, 38 and 39 of the Central Excise Tariff Act, 1985. The appellant was undertaking job work of painting by engaging various contractors on Supply and Apply contracts and effected clearances thereof by adopting value in terms of Section 4 of the Central Excise Act, 1944 by resorting to Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The Department took the view that since the goods were cleared to the work sites where the appellant had undertaken the Supply and Apply contracts, there is no sale involved in these clearances, therefore the valuations adopted should have been under Rule 11 of the said Valuation Rules. Hence the value could be arrived by deducting the expenses incurred on application of paints (labour charges) from the contract price. The Department put the appellants on notice demanding differential duty on paints cleared under Supply and Apply Contract during the periods from 4/2003 to 3/2004, amount is Rs. 2,08,176/- (relating to Appeal E/788/2007) and from 4/2004 to 3/2005, amounting to Rs. 4,53,231/- (relating to Appeal No. E/789/2007). On adjudication, the demands were confirmed along with imposition of interest and penalty. On first appeal, the lower appellate authority/Commissioner (Appeals) upheld the adjudication orders. Aggrieved by the impugned orders, the appellant herein has filed these appeals.
3. It is the contention of the appellant that the goods are not offered for sale but are consumed by them for execution of supply and apply contract. Since all other rules in Valuation Rules deal with sale, the proper method of valuation would be by cost analysis method as prescribed in Rule 8 ibid and not by any other method. They rely upon Boards Circular No. 643/34/2002-CX dated 01.07.2002, to wit clarification 13 thereof. Appellant further contends that department has made demand of duty on the basis of total contract price less labour charges. They contend that profit element was also included in the total contract price which should never form part of the assessable value. As the paints were consumed by them even though not used for production or manufacture of articles, Rule 8 only is appropriate.
4. We find that the crux of the dispute is whether Rule 8 or Rule 11 of the said Valuation Rules is to be followed for arriving at assessable value and discharge of central excise duty. The said Rules are reproduced below:
Rule 8: Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be [one hundred and ten per cent] of the cost of production or manufacture of such goods. Rule 11: If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act.
5. From the facts on record we do not find that paints cleared by the appellant are used for any captive consumption by him or on his behalf, for production/manufacture of other articles. The excisable goods sought to be cleared out of the factory by the appellant are paints only and not any other article produced or manufactured thereof. In our view, from the facts on record, the Supply part of the Supply and Apply contract would involve clearance only of paints outside the factory and they have to be necessarily considered sale of the goods at the appropriate assessable value. On the other hand, the Apply part of the contract would involve only labour charges. The reliance placed by the appellant on Clarification 13 of Boards Circular dated 01.07.2002 will not help them, since the situation covered therein is that of samples (of excisable goods) distributed free and there is no sale involved. The case laws relied upon by the appellant are also fairly distinguishable from the facts of the case under appeal. In the case of Indias Home Pipe Company Ltd., Vs CCE, Trichy [2015 (321) ELT 460 (Tri-Chennai)], the appellants therein had been awarded turnkey projects by Tamilnadu Water and Drainage Board, for supply of water and were not only required to lay PSC pipes but also maintain them for one year. However, this is certainly not the situation in the appeals before us.
6. So also, the case of CCE, Nagpur Vs Diffusion Engineering Ltd., [2014 (300) ELT 145 (Tri-Mumbai)], the goods were only removed from one unit for use in another unit for rebuilding/reconditioning of old/used machinery and did not involve sale of the goods.
7. In the case of CCE, Nagpur Vs P.C. Pole Factory [2006(198) ELT 865 (Tri-Mumbai)], the issue involved was valuation of P.C. Poles manufactured by the respondents and used in the transmission of electricity by the respondents themselves.
8. In the light of discussions herein above, we therefore find ourselves in agreement with the stand of the Department that the value adopted by the appellants under Rule 8 of the Central Excise (Determination of price of Excisable goods) Rules, 2000 was not in order and that since the application of paint contains labour costs, the assessable value is to be determined under Rule 11 only after deduction of the value of labour component from the total value for supply and apply. With regard to the appellants other contention that there is a profit component for the apply portion, for reasons discussed supra, we uphold the lower authoritys conclusion that since the sale of product viz- paint is linked to the application part of the paint at the customers site, the application is in relation to the goods and therefore, except the value of the labour component for application no other component can be deductible from the sale value for arriving at assessable value.
9. We therefore do not interfere with the demands of duty and interest liability thereof confirmed by the lower authorities, in both the appeals before us.
10. However, on the issue of penalties imposed under section 11 AC of the Central Excise Act, 1944 we find that the matter involves an interpretational dispute between the department and the appellant on the manner and method of arriving at assessable value; there is also no allegation that the appellants had suppressed the methodology adopted by them, albeit incorrect, from the department through their periodical returns or otherwise. This being so, we set aside the penalties imposed on the appellants in both the appeals before us.
11. Appeals E/788/2007 & E/789/2007 are partly allowed, as above.
(Operative part of this order was pronounced in court
on conclusion of the hearing)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.)
MEMBER(TECHNICAL) MEMBER(JUDICIAL)
Jaya.
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