Customs, Excise and Gold Tribunal - Delhi
Mutual Industries Ltd. vs Collector Of Central Excise on 16 March, 2000
Equivalent citations: 2000(117)ELT578(TRI-DEL)
ORDER
K. Sreedharan, J. (President)
1. This case has come up before this Larger Bench pursuant to an order of reference made by a Bench of two Members. According to that Bench there is an apparent conflict between the decisions rendered by two coordinate Benches of this Tribunal in Flex Industries Ltd. v. CCE, Meerut - 1997 (91) E.L.T. 120 and CCE, Aurangabad v. Marathwada Glass Co. Pvt. Ltd. -1999 (85) ECR 94. To resolve the apparent conflict in the above mentioned decisions the matter has come up before us.
2. Short facts necessary for understanding the issue raised in this appeal are as follows:
Appellants are engaged in the manufacture of moulded components of plastics. These moulded components of plastics manufactured by the appellants are used by the manufacturers of Automobiles, TV sets, photocopying machines etc. Till 1986, these articles of plastics were wholly exempted from excise duty. They became leviable to tax with effect from March, 1986. Buyers of goods manufactured by the appellant could avail of Modvat credit of the duty paid on these components. It is the case of the appellant that the plastic components manufactured by them are tailormade for end-users which are to be used as original equipment parts in their finished goods. Accordingly they have to be made in accordance with purchasers specifications and drawings. For manufacturing these moulded components, appellants required moulds and dies. Some of the moulds and dies manufactured by the appellant were sold to the customers on payment of duty. Sometimes customers supplied moulds free of charge to the appellant for manufacture of the components. By using those moulds supplied by the customers appellant manufactured components. Components so manufactured by using the moulds were sold to the buyers by filing price list under Part II . On 25-10-1991, a show cause notice was issued by the Commissioner of Central Excise stating that appellants had not included the amortised cost of moulds and dies in the assessable value of the components. On this basis demand of duty of Rs. 45,16,746 was raised for the period from 1-10-1986 to 31-8-1990. This show cause notice was contested before the Commissioner of Central Excise. But the adjudicating authority confirmed the demand made in the notice. Further, a penalty of Rs. 4 lacs was imposed on the appellants under Rule 173Q of the Central Excise Rules. Land, buildings, plant and machinery belonging to the appellants were confiscated under 173Q(2) of the Rules giving an option to redeem the same on payment of fine of Rs. 1,00,000. This order passed by the adjudicating authority is under challenge.
3. As stated earlier, appellant entered into contract with the customers for supply of plastic components manufactured by them utilising the moulds supplied free of charge by the customer. Value of the final product was fixed at Rs.160 per set. Cost of mould supplied by the customer was found to be Rs. 21,20,000 maximum number of components which could be manufactured by using the said mould was taken as 2.5 lacs pieces. On this data the value of each component part was found to be Rs. 160 plus total cost of mould divided by maximum capacity. This worked out to be Rs. 8.48 per unit. Thus percentage of cost includible in the value was found to be, namely, Rs. 8.48 divided by Rs.160 multiplied by 100. This worked out at 5.3%. This was rounded up to 6%. On this basis the differential duty demanded was confirmed. The issue is whether this action resorted to by the Department is sustainable.
4. In Flex Industries Ltd. v. CCE, Meerut - 1997 (91) E.L.T. 120 appellants were manufacturing Printed Polyester Films to make packing pouches. Printing of films was done through the medium of Gravure Printing Cylinder. These cylinders are manufactured to suit the needs of individual customers. The finished products were cleared on payment of duty on their value without taking into consideration the value of printed cylinders. Appellant was recovering from customers cost of cylinders used in the manufacture of pouches on debit notes. Department found that the appellants were splitting up single transaction of manufacture of finished products into two, namely, manufacture of cylinders and manufacture of finished products with a view to evade payment of duty. This stand of the Department was disputed. Overruling that objection differential duty was claimed. So the question whether price collected for cylinders can be included in the assessable value of the finished product came up before this Tribunal. This Tribunal referred to a Circular No. 17/4196-CX (sic), dated 23-1-1996, wherein the Central Board clarified the matter as under:
"The matter has been clarified and it is hereby clarified that the proportionate cost of pattern has to be included in the assessable value of the casting even in cases where such patterns are being supplied by the buyers of the casting or are got prepared/manufactured by the job worker at the cost of the buyer. In cases where there is difficulty in apportioning the cost of pattern, apportionment can be made depending on the expected life and capability of the pattern and the quantity of castings that can be manufactured from it and thus working the cost to be apportioned per unit. For this purpose, a certificate from a Cost Accountant may be accepted."
This Tribunal took the view that the principle contained in the above clarification would apply to apportionment of cost of cylinder used in the manufacture of printed pouches. The Tribunal gave the following illustration:
"To illustrate, we assume that a set of four cylinders of the value of Rs. X can be used in manufacture of ten lakh printed pouches. Hence it is reasonable to regard that Rs. X -:- 10 lakhs is the proportionate value of cylinder which is used in the manufacture of a single printed pouch and this fractional value has to be added to the value of printed pouch."
Thus it is seen that the Tribunal has categorically found that the principle of proportional value addition has to be done for finding out the actual value of the finished product.
5. In CCE, Aurangabad v. Marathwada Glass Co. Pvt. Ltd. -1999 (85) ECR 94, West Regional Bench of this Tribunal was called upon to consider whether the cost of moulds used in the manufacture of finished product was includible in the assessable value of the finished product. Without referring to the earlier decision of a coordinate Bench of this Tribunal in Flex Industries Ltd. case (supra) the West Regional Bench observed "If the customer supplies his own moulds to a bottle manufacturer for making a specific number of bottles and returned thereafter, there is no doubt that such cost of moulds would not have to be included". The West Zonal Bench, Mumbai in Creative Cartons v. CCE, Mumbai - 1999 (106) E.L.T. 79 came to identical conclusion that value of blocks supplied by customer does not get into the value of the finished goods. In coming to this conclusion it appears that West Zonal Bench relied on another decision in Velpack Industries Ltd. v. CCE, Mumbai in Appeal No. E/6222/92-A, wherein the Tribunal took the view that value of printed block cannot be added to the valuation of the printed cartons, the finished product, manufactured by the appellant before it.
6. Appellants before us are manufacturers of moulded components of plastic. For the manufacture of this moulded components moulds are essential. Without the help of moulds, components, the finished products manufactured by the appellant, cannot come into existence. These moulds or dies are given by the customers. Value of these moulds and dies are substantial. Customers invest substantial amount for getting the moulds prepared. Moulds so got prepared which satisfy their requirement are made available to the appellants for the manufacture of moulded components. Moulded components manufactured by the appellants are valued taking into consideration the availability of the mould as well. Had not these moulds been made available by the customers, the appellant could not have manufactured moulded components as required by the customer. So the value of the mould must go in in assessing the value of the finished product. It was only by taking into consideration the value of the mould, the value of the moulded components manufactured by the appellant was fixed. If the moulds were not supplied by the customers, the value of finished product would have been far greater than the amount fixed between the appellant and the customer.
7. Section 4 of the Central Excises and Salt Act, 1944 provides for finding out the value of excisable goods for purposes of charging of duty of excise. As per Section 4(1)(a) the value for charging of duty of excise should be the normal price, if the price is the sole consideration for the sale. Further, Rule 5 of Central Excise (Valuation) Rules, 1975 stipulates that where the price is not the sole consideration, the value of the goods shall be based on the aggregate of such price and the amount of the money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. In the instant case, the price of the finished goods has been fixed between the appellant and the customer. Can one say that the price so fixed is the sole consideration for the sale of the finished product when the mould was supplied by the customer. Without the mould supplied by the customer, which is having substantial value, the product could not have been manufactured. So it is crystal clear that the price of the finished goods was fixed by the appellant and the customer taking into consideration the supply of the mould by the customer. In other words, had the mould not been supplied by the customer, appellant could not have agreed to the price of the finished goods at the price as is evidenced by the contract entered into between them. So, the price of the finished goods fixed in the contract between the parties can safely be taken as not the sole consideration for the sale of the finished product. The other consideration is the value attributable to the use of the mould. In this view of the matter, we are not in a position to agree with the conclusions arrived at by West Zonal Bench, Mumbai in the three decisions referred to earlier. With respect we approve the decision rendered by this Tribunal in Flex Industries Ltd. case (supra).
8. Learned Counsel representing the appellant advanced a further argument in the following terms. According to him, the maximum number of times during which the mould could be used has been found to be 2,50,000. When the same mould is used for the manufacture of components above 2,50,000 no value on account of the user of the mould can be added to the value of the finished product. In other words, according to learned Counsel, once the mould is utilised in the manufacture of maximum number of units, the mould becomes valueless and cannot thereafter go in to increase the value of the produce for the assessment of excise duty. We are not in a position to agree with this contention of the learned Counsel. Even after manufacture of the maximum number of units estimated, the mould continues to be of value as far as manufacturer is concerned for the manufacture of his finished product. But for the use of the mould he cannot manufacture his product. So the value of the mould which has outlived its maximum capacity must certainly go in the production of finished product as far as the manufacturer is concerned. This means that so long as the mould is in use in the manufacture of the finished product, it contributes certain value to be added to the value of the finished product. That additional valve must necessarily go in assessing the duty payable on the finished product under the excise law.
9. Yet another argument that was advanced by the learned Counsel representing the appellant was mat in the accounting system capital goods must be given depreciation year after year. If the capital goods, namely, the mould is having a depreciation of 20% per year, after the fifth year its book value will become zero. Once the value thus becomes zero, it must be treated as valueless and it cannot go to increase the value of the finished product. This ingenious argument of learned Counsel cannot also be accepted. Where the mould is given by the customer it continues to be property of the customer. As far as he is concerned he may be getting benefit of the depreciation. By virtue of this benefit he may be getting other tax benefits, not under the excise law. Whatever be the benefit that is accruing to the customer who supplied the mould, free of cost, to the manufacturer is not of any consequence as far as the finished products manufactured by utilising mould are concerned. Even when the mould has no money value as far as the customer is concerned, it certainly continues to have money value as far as the manufacturer of the finished product is concerned. This is because the product cannot be manufactured without the use of the mould. By the use of mould some money value on account of its user is gained by the manufacturer. This money value so obtained by the manufacturer goes to suppress the value of the finished product. Thereby under the excise law money value that is contributed by the use of the mould should also be reckoned for finding out the duty payable on the finished product.
10. In view of what has been stated above, we uphold the action taken by the Department in imposing differential duty on the appellant on account of the benefit of money value obtained by them by the use of the mould supplied by the customer.
11. The conclusions reached by us as stated above do not go to support the order impugned in this appeal. As stated earlier, the period covered by the show cause notice was from 1-10-1986 to 31-8-1990. Show cause notice was issued on 25-10-1991. While issuing this notice extended period of five years was invoked. The question is whether the Department was justified in invoking the extended period. In the show cause notice it is admitted that the appellant company was filing classification list during the period from October 1986 to August 1990. It is also admitted that the manufacturer filed price list declaring selling price of the goods and determining the assessable value . for the purpose of levy. From this admission made in the show cause notice, it is evident that the manufacturer made available to the authorities under the excise law all details regarding transaction entered into between the manufacturer and the purchaser. This means that the terms and conditions of the contract under which the manufacturer was producing goods for the customer was made available to the Department. From the contract which was thus known to the Department they ought to have noticed that cost of mould which was also part of assessable value of the finished product was not being included in the value of the finished product. The show cause notice proceeds to state "It is, however, noticed subsequently that the assessee company did not include mould cost in the declared value of the manufactured moulded article of plastic...." Subsequent notice, stated therein, is no ground to invoke extended period of five years provided by the Act. When the entire document and materials were available with the Department, it was the duty of the Department to scrutinise the terms and conditions therein and to come to its conclusion. It cannot sleep over the matter and come forward with a statement that it was noticed only subsequently. Since the entire contract was with the Department, we hold that the manufacturer did not suppress or conceal any fact for the purpose of evading payment of duty. No transaction mentioned in the show cause notice falls within six months immediately preceding the date of notice. The period was from 1-10-1986 to 31-8-1990. The show cause notice was dated 25-10-1991 that is, more than one year after the period mentioned in the notice. The show cause notice is clearly barred by limitation. The demand made in the show cause notice is not legally sustainable. Therefore, we hold that the proceedings initiated against the appellant pursuant to show cause notice dated 25-10-1991 is clearly barred by limitation. Consequently the impugned order has to be set aside in its entirety. We do so.
12. Appeal is allowed in the above lines.