Customs, Excise and Gold Tribunal - Tamil Nadu
Cce, Chennai vs M/S. Zeneca Ice Agro Chemicals Ltd. on 27 April, 2001
Equivalent citations: 2001(135)ELT813(TRI-CHENNAI)
ORDER
Shri V.K. Agrawal
1. The issue involved in these two appeals filed by the Revenue, is the determination of assessable value under Section 4 of the Central Excise Act for the purpose of levying excise duty on the pesticides manufactured by M/s. Zeneca ICI Agro Chemicals Limited.
2. Briefly stated the facts are that M/s. Zeneca ICI Argo Chemicals Ltd.Ennanore, Respondents, manufacture pesticides which his cleared by them in bulk form to their own packing units at Velachery and Ambattur for repacking into smaller packing such as 50 ml., 100 ml, 200 ml, 1 ltr. And 5 ltr. Under their own material transfer notes: that since the impugned goods were sold in small packings, two show cause notices dated 5.3.96 and 12.3.96 were issued to them for demanding duty for the period from 1.9.95 to 31.10.95 and 1.11.95 to 31.1.1996 respectively on the ground that the price at which small packages were sold by them from Depot should be adopted for the purpose of charging duty: that the Assistant Commissioner, under Adjudication Order No.21./96 dated 18.6.96, confirmed the demand of duty of excise amounting to Rs.51,24,716.90p., holding that the pesticides are generally sold in packings of 50 ml, 100 ml, 1 ltr. & 50 ltr and the cost of this packing is includible in the assessable value of the goods as per judgments of the Supreme Court in UOI Vs. Bombay Tyre International Ltd., 1983 (14) ELT 1896 (SC) and MRF Ltd., 1995 (77) ELT 433(SC); that a wholesale price at the depot is very much available; that the argument that the goods could be marketed in bulk is only theoretical as the goods are marketed only in small packs. He relied upon the decision in Hindustan Polymers Vs. CCE, 1989 (43) ELT 165 (SC). The Assistant Commissioner also rejected the contention of the Appellants that goods in bulk form were not the same those in small packs holding that by packing no new products emerge with a distinct name, character or use. He rallied upon the decision in the case of Bharat Packaging Corporation Vs. CCE, 1990 (47) ELT 102(T). The Assistant Collector, therefore, ascertained the assessable value adopting the depot prices under Section 4 (1) (b) of the Central Excise Act read with Rule 4 of the Central Excise (Valuation) Rules.
2.1 On appeal, however, the Commissioner (Appeals) set aside the Adjudication order, holding that the value shall be determined under Section 4(1) (a) of the Act. He relied upon the decision in the case of IOC Ltd. Vs. CCE, 1987 (37) ELT 482 (T) wherein it was held that since Section 4 of the Act requires the goods to be valued at the time and place of removal, it would not be correct to say that the duty of excise is leviable tat the time and place of actual sale of goods; that the goods have to be valued and assessed in the condition in which they are at the time and place of removal. He also gave his findings that the activity of the Appellants in packing at Velachery and Ambattur was not incidental or ancillary to the completion of the manufacturing of pesticides and that the Depot price could be adopted from 1996 only.
3. Shri Kannan, learned D.R. submitted that the impugned goods are sold only in small packs and that price is the only normal price available under Section 4 (1) (a) of the Act; that the goods in bulk are only cleared under stock transfer notes to their own repacking units; that the pesticides in bulk was originally cleared under Rule 57F(3) of the Central Excise Rules; that the goods were being returned to the factory at Ennanore; that the price for goods is available at the factory all the removals from the factory shall be at that price, is not correct as there is no sale at the factory gate whether in bulk or in retail; that the sales are made to the independent buyers only AT THE Depots in repacked condition: that the ratio of the decision in the case of IOC Ltd., supra, is not applicable inasmuch as in that case the price to independent buyers was available at the factory gate whereas in the instant case, no sale price at the factory gate is available for goods cleared in bulk at factory gate: that the cost of packing in which the article is contained and in which it is made marketable falls within Section 4 (4) (d) (i) of the Act as per the decision in CCE Vs. ponds India Ltd;, 1989 (44) ELT 185 (SC). Finally the learned D.R. relied upon the decision in Sidhartha Tubes Ltd. Vs. CCE, 2000 (115) ELT 32 (SC)s wherein it was held that "when the assessable value is to be calculated of the galvanised black pipe made by the appellants the element of the cost of galvanisation must form a part of thereof".
4. On the other hand, Shri R. Raghavan, learned Advocate, submitted that the pesticides are being marketed in bulk quantities and market exists in bulk quantities for pesticides: that repacking of pesticides does not amount to manufacture; that the repacked pesticides had not been brought back to the factory at Ennore and these had been sold from Velachery and Ambattur: that value has to be determined for the goods in the form in which they are cleared from the factory and as there is an admission that goods are cleared in bulk, the value has to be determined only for bulk goods: that as there is no sale of impugned goods at the factory gate, the determination of value under section 4 (1)(b) of the Act read with Rule 6 (b)(ii) and Rule 7 of the Valuation Rules is in order. The learned Advocate, further, mentioned that the issue involved in the present matters is squarely covered by the decision of the Tribunal in the case of Savita Chemicals Ltd. Vs. CCE, Mumbai VI, 1989 (34) ELT 573 (CEGAT). He mentioned that was held in that case that repacking or packing would not amount to a process of manufacture; before amendment made on 28.9.96 whereby clause (iii) was inserted in Section 4 (4) (b) of the Act, the factory gate was the place of removal for the determination of normal price. It was held by the Tribunal as under:-
"....that the goods which are defined to be sold from the depots would be livable to the duty at price charged at such depots when assessed at the factory gate. Where the goods so moved from the factory gate are the same which were sold at the depot gate, this judgment cannot be faulted.But in the present case what was removed from the factory gate was oil in bulk in tankers and what was sold at the depots was oil packed in tins".
5. The learned Advocate contended that goods cleared from the factory were in bulk whereas the goods sold from depots were in small packs and as such the goods were different goods and accordingly the value of the goods is to be determined under Rule 6 (b) (ii) of the Valuation Rules.
6. We have considered the submissions of both the sides. The Apex Court in the landmark decision in the case of Government of Indian Vs. Madras Rubber Factory Ltd., 1995 (77) ELT 433 (SC) held that "A reading of Section 4 lends to the following analysis:
Where the duty of excise is chargeable on excisable goods with reference to their value, the normal price at which such goods are sold shall be deemed to be the value of such goods subject to other provisions of Section 4.
"Normal Price" means 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.
.....
If the normal price of excisable goods is not ascertainable for the reason that the goods are not sold or for any other reason, the value of such excisable goods (i.e., the nearest ascertainable equivalent) shall be determined in the manner prescribed by rules (Valuation Rules).
7. The facts which are not in dispute in the present matter are that pesticides in bulk lis not sold at factory gate. Pesticides in 200 ltr containers is cleared to the Repacking units of the Appellants and after repacking in small packs, these are sold in wholesale. It is also not disputed fact that repacking into smaller packs does not amount to manufacture. In view of these facts it is apparent that there is no factory gate price available for pesticides either in 200 ltr packings or in smaller packings. Accordingly, the ratio of the decision in the case of Indian Oil Corporation Ltd., supra, is not applicable as in that case the goods were sold in bulk from factory and normal price was ascertainable at the factory gate which is not so in the present matter. Similar is the position in the case of Savita chemicals Ltd., supra s the automotive Oil manufactured by them were sold in bulk in tankers to buyers at the factory gate. The other differential factor in Savita Chemicals's case is that the bulk oil was sent to M/s. Unique Packers, a third party, and not to the Repacking units of the manufacturer as is the case in the present matter. In view of these facts the Tribunal held in Savita Chemicals that factory gate price, being available in respect of oil sold in bulk, has to be adopted. The goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade only in small packs. The Apex Court, in MRF case, held that "So far as depot sales are concerned, they are to a different class or classes of buyers and in respect of each of such class of buyers would be the normal price". The Supreme Court did not apply the price at which MRF sold the goods to the Government. Following the ratio of MRF decision, the value for the purpose of levying excise duty will be the price at which impugned goods are sold in smaller packs. The Appellate Tribunal also in the case of Adonia India Ltd. Vs. CCE, Meerut , 2000 (39) RLT 1035 (CEGAT) held that assessable value is to be determined on the basis of sale price of sole buyer to his dealers after allowing permissible deductions. In the present matter, the learned Advocate for the Respondents has claimed that value has to be determined under Rule 6 (b) (ii) of Valuation Rule. We are unable to agree with this submission as Rule 6 (b) comes into picture only when the excisable goods are not sole by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles. It nos in dispute that the Respondents have not used or consumed the impugned goods in the production or manufacture of other articles as the process of repacking does not amount to manufacture. the goods are merely stock transferred to their Repacking units. In Proctor & Gambel India Ltd. Vs. CCE,Inodore, 2000(120)ELT 548, the Appellants removed AMS in bulk (detergent poweder)for packing further in sachets of 20 gms. and 30 gms. to M/s. Industrial Enterprises and department sought to charge duty on the assessable value of 20 gms. and 30 gms. sachets supplies to Appellants' Depots. The Tribunal held that as the Appellants had not disclosed to the Department that the bulk clearance of the goods from their factory was a stock transfer of the goods and there was no transfer of ownership, extended period of limitation is applicable and duty demanded was confirmed. The learned Advocate for the respondent had raised the point that the goods in small packs are not the same goods. The goods cleared by them are pesticides and goods in small packs are also pesticides and nothing else. Neither the brand of goods nro capacity ofthe goods has changed. Accordingly we hold that the Respondents have to pay excise duty on the value of the goods at which these are sold in small packs. We, thus, set aside the impugned order and allow both the appeals filed by the Revenue. It has been mentioned by the Respondents in cross objection that demand is time barred without mentioning any basis for the same. We, however, find that show cause notices were issued on 5.3.96 and 12.3.96 demanding duty for the period 1.9.95 to 31.1.11996 which are which are within the period of six months specified in Section 11A?(1) of the Central Excise Act. Accordingly the cross objection filed by the Respondents in also rejected.
ORDER Shri S.L. Peeran, Hon'ble Member(J)
8. I have carefully considered the findings recorded by the Learned brother in this order. While agreeing with the proposition of law laid down by the Learned brother in his findings, we are required to examine the facts of the present case for application of the said proposition of law. Respondents although succeed before the Commissioner, however, were dissatisfied with the some of the findings recorded in the order on fact and have seriously challenged the same. The said challenged the same. The said challenge in cross appeal brings forth some material facts which are required to be considered before pronouncing our final order. In this regard, from the cross appeal, it is seen that respondents have stated that there is no dispute with regard to the following facts in appeal:-
(i) the appellants are manufacturers of Pesticides
(ii) The Pesticides fall under Chapter 38 of CETA'85
(iii) The pesticides are being marketed in bulk quantities; market exist in bulk quantities for pesticides; pesticides are being sold in bulk quantities.
(iv) Repacking of pesticides does not constitute manufacture either under Sec.2(f) of CESA'44 or deemed to be "manufacture" under Section notes or chapter notes of CETA'85
(v) The appellants were not selling pesticides in bulk at their site. Therefore, the appellants did not have factory gave wholesale price for the pesticides.
(vi) Necessary declaration under rule-173B and rule 173C of CER'44 had been filed by the appellants for clearance of pesticides in bulk.
(vii) The appellants claimed value for clearances in bulk in terms of Sec.4(1)(b) of CESA'44 read with Central Excise Valuation Rules, 1975. The value claimed for approval is not in dispute. The cost certificate filed with the declaration is not called in question. The bulk pesticides had been removed on payment of duty from their factory at Ennore based on the value declared.
(viii) The bulk pesticides removed from the factory had been received at Velachery/Ambattur for repacking into smaller containers. The repacked pesticides had not been brought back to the factory at Ennore. The repacked goods had been sold from Velachery/Ambattur.
(ix) If the value declared in terms of Cost Certificate for the bulk pesticides removed on payment of duty is accepted as the value for the goods, there will be no differential duty payable in respect of pesticides removed from the factory.
9. They contend that in the light of grounds (i) to (ix) above, AC's order is incorrect in holding that repacked pesticides were being brought back to the factory. They state that there is no evidence on record to substantiate the findings at they refer to the replies made to the SCN filed by them. They have further challenged the AC's findings that repacking would amount to manufacture and contend that question before the AC was not the one of inclusion or exclusion of packing charges in terms of Sec.4(4) (d) (i) of CESA'44 was correct or not. They submit that they had always included the cost of containers in which the bulk pesticides were being cleared indetermining the value for the said bulk quantities. They contend that there was nothing in the impugned order of AC to suggest that the cost of packing was not included in the value declared and there was no such allegation in the SCN. It is their case that repacking cannot constitute manufacture unless specifically deemed to be so in terms of CESA or CET Act with particular reference to the goods in question.They contend that they have evidence to show that the goods namely pesticides were marketed in bulk.When pesticides in bulk is a marketable commodity and being so marketed, they contend that is obligatory in terms of Sec.3 of CESA'44 read with rule 9 of CER'44 to determine value under Sec.4 (1) (b) of CESA'44 for the purpose of payment of duty when Pesticides are removed in bulk from their factory. Therefore, they challenged the AC's view that depot price has to be adopted as value for removals from the factory. They contend that this can be done only from the date of amendment of Sec.4 of CES'44 through Fiance Bill 1996, i.e. the period after 31.1.96 while the present case was pertaining to a period earlier to amendment i.e. for period from 1.9.95 to 31.1.96. Therefore, they stare that depot price cannot be the value and the value has to be determined in terms of Sec.4(1) (b) read with Central Excise Valuation Rules in the absence of Section (1) (a) normal price value for the subject goods. They have seriously disputed that price for repacked commodity available at the depot cannot be the basis for being adopted as value in respect of bulk goos removed from the factory. They state that AC as not justified in rejecting the Tribunal judgment rendered in IOCL case and the order of AC Madras II division in Brakes India case on the plea that in both the caes the manufacturer had wholesale price for the bulk quantities at the factory gate and therefore when the goods are repacked at a place other than the factory there was no need to pay duty on the basis of price charged for retail packing. They state that scheme of Section 4 is clear is as much as that if price for the goods is available at the factory then all removals from the factory shall be at the price and the said price will be "value" under Sec.4(1)(a).If however, price for the goods (under clearance) is not available at the factory gate and then value shall be determined based on Sec.4 (1) (b) and hence citation relied upon by them is totally applicable to the facts of the case. They strongly contend that Commissioner also did not see the point that assessee had cleared pesticides in bulk quantities from the factory on payment of duty and repacking was done at a place far away from the factory and the goods repacked never returned to the factory. Therefore, the Commissioner although decided the case in their factor but had not put these facts in his order for the purpose of proper appreciation and hence they have filed the cross objection against the findings given by the Commissioner.
10. As noted in the Learned Member(Technical)'s order, these points brought about by the assessee in their cross objection have not been discussed and the Learned brother has proceeded in para-7 of his order on the ground that facts which are not disputed in the present case are that pesticides in bulk ils not sold at the factory gate. On a perusal of the grounds of appeal made before the Commissioner annexed in cross appeal and grounds made in appeal, assessees have not disputed this fact and have stated that there is a factory gate sales for the bulk pesticides and repacked material did not come to the factory. If this be the position, then we are required to examine the case-law cited above and in case if this fact is available on record then we have to proceed on the valuation to be adopted at the value available at the factory gate. Incase if the same is not available then the contention of the respondents that Sec.4(I)(b) is required to be considered is also sustainable and thereafter in the absence of applicability of Sec.4(I)(b), we have to adopt the procedure laid down for valuation in terms of Valuation Rules and deductions have to be granted accordingly. We cannot go straightaway to adopt price, which, in my hubble opinion, is not correct, if in case respondents can show that there is a factory gate sale for the bulk material during the relevant period, as this pint had been seriously contested and the commissioner has also not adverted to this point in his impugned order and if respondents themselves are challenging it by way of cross appeal, then in my humble opinion, it is but proper that the impugned order is set aside and matter remanded to the original authority for verification of respondents claim that there was sale of bulk pesticides at the factory gate and if this evidence is available then case law as applicable to the question is required to be applied.In the absence of any such material available, the valuation has to be in terms of Sec.4 (1)(b) and if the same is not applicable then matter has to be proceeded in terms of Valuation Rules.
11. In that view of the matter, in my humble opinion, the case has to be remanded to the original authority for de novo consideration in the light of submission of the assessee that there was a factory gate sale of bulk material and in the absence of any such sale, then thereafter he shall proceed to adjudicate in terms of law down under Section 4(1)(b) and Valuation Rules. Therefore, I set abide the impugned order and remand the matter to original authority for de novo consideration.
12. In view of different of opinion between the Member, the matter is referred to the Third Member for considering the following questions:-
Whether Revenue appeals are required to be allowed in terms of findings given by the Learned Member (Technical) by rejecting the cross objections filed by the respondents?
Or Whether the impugned order is required to be set aside and matter remanded to the original authority for de novo consideration in terms of findings recorded by Member (Judicial)?
ORDER Shri S.S. Sekhon, Member(T).
13. The above matter referred to me for resolving the difference of opinion between the learned M(T) and the learned Member(J) was heard to day when Shri S.Kannan, learned DR for the Revenue appeared and reiterated the case of the Revenue and the order prepared by learned M(T).
14. Shri R.Raghavan, learned Counsel appeared for the respondents and submitted that the respondents' claim of assessment in the facts of this case under Rule 6(b)(ii) read with Rule 7 of the valuation rules is in order and submitted that the remand of the case in the order proposed by learned M(J) should be upheld. He also submitted that there were no sales at the factory gate.
15. After hearing both the sides and considering the matter, I find that:
(a) Facts of this case need not be repeated as they have been recorded in the two orders of the learned M(T) and learned M(J) which I had the privilege of having gone through. However, I find from learned M(J)'s order that he has come to a finding after considering the cross objection that there was sale at the factory gate bulk pack i.e. packing of 200 Kgs or above. The learned Counsel for the respondents also submitted that earlier i.e. for the period about a year or two, before the controversy in the present case arose, there was factory gate sale of pesticides in 200 KGs drums from the factory gate. He fairly conceded that the price available at the factory gate for the 200 KGs drums should not be applied in the facts of this case as provided for under Rule 4 of the Valuation rules since the nearest time cannot be taken to be two years retrospective.I also find that I cannot apply Rule 4, 5 and 6 (b)(I) of the Valuation Rules.I find that Rule 6(b)(ii) of the Valuation Rules reads as under:
"(b) Where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based-
(i) on the value of comparable goods produced or manufactured by the assessee or by any other assessee:
Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods.
(ii) if the value cannot be determined under sub-clause (i), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods"
(b) From the above, I find that in the present case excisable goods viz. Pesticides are used on behalf of the manufactures in production of other articles i.e. retain packs which at the relevant time were not exigible. However, I cannot find any reason to come to a conclusion that Rule 6(b)(ii) is restricted to captive use i.e. when such use is in the manufacture of only exigible goods, if that was the case, the words used should not have been `other articles' but `exigbile goods' and since the Legislature has used the words `other articles' it would mean that when exigible goods are consumed within the factory or after removal from the factory to result in unexigbile goods,valuation as per rule 6(b)(ii) would be applicable. Therefore, I do not find, any reasons to agree with the findings of learned M(T). As regards the decision in the case of Savitha Chemicals reported in 1999 (34) RLT 573 wherein the West Regional Bench of the Tribunal after considering the stock transferred to Depot for sale or to packers for re-packing had come to a finding that ex-factory sale by bulk oil has to be adopted and such re-packing do not amount to manufacture due to lack of article insertion of Chapter not in the relevant chapter of Central Excise Tariff Act, 1985. The present case to my mind is squarely covered by the decision in the case of Savitha Chemicals (supra). I respectfully follow the same that the assessment in the present case has to be resorted by reading rule 6(b)(ii) with rule 7 of the Valuation Rule and Section 4 (I)(b) as held by Member (J) in his findings, i.e. there was no factory gate sale price during the relevant time. Therefore, I agree with learned M(J) that the matter is required to be remanded to the lower authority for determining the factual position of existence of factory gate sale price to be existing during the relevant time and if the same is not established and/or found then the assessments are required to be done under Section 4(1)(b) read worth Rule 7 and 6(b)(ii) of the Valuation Rules, 1975.
(SIC) In view of the above, I am unable to agree with the Member (T) and would answer the reference accordingly.
16. The matter may be placed before the original Bench for further orders.
FINAL ORDER
17. In the light of majority view, the impugned order is set aside and matter remanded to the original authority for de novo consideration.
(Pronounced in the open court on 27.4.01)