Customs, Excise and Gold Tribunal - Hyderabad
Fenner (India) Ltd. And Ors. vs Cce on 27 October, 2000
Equivalent citations: 2001(95)ECR566(TRI.-HYDERABAD)
ORDER S.S. Sekhon, Member (T)
1. All these appeals arising from the different orders are taken up together for disposal by this common order as the issue involved are inter-dependent for determination as to whether duty liability on Fenner India Limited, Madurai (hereinafter referred to as FIL) and M/s BMF Belting (hereinafter referred to as BMFB) as proposed in the show cause notice and confirmed in the order in original passed by the Commissioner of Central Excise, Madurai could be made out. As the appeal filed by BMFB against the order of the Commissioner of Central Excise, Hyderabad would be dependent on the outcome of the valuation in the case of FIL being impugned and disturbed since BMFB is a wholly owned subsidiary of FIL as admitted by the appellants themselves to be related person of FIL. Therefore, valuation in their case would be in terms of the proviso (iii) to Section 4(1) of the Central Excise Act, 1944. Both these units are engaged in the manufacture of transmission belts commonly known as 'V belts' which are finding various uses. The present appeals relate to valuation of V belts known and used in Industrial application only.
2. FIL sell their product through a net work of wholesale dealers who are thereafter re-selling the same to end-users/actual users and other dealers through factory gate and various depots maintained by them. Valuation of the product manufactured by FIL was the subject matter of dispute from 1978 onwards and based on certain enquiries made which have been termed by the teamed DR to be an audit kind of enquiries, show cause notice was issued to the appellants proposing to demand duty on the V belts sold from Depots not on the basis of the factory gate sale prices but on the basis of certain formula adopted in that show cause notice and which after hearing the appellants, the Collector had confirmed to be the Depot price, less for the specified branch expenses on branch and transportation. The determination of a formula for determining the value under Section 4 of the CE Act, 1944 in the case of FIL was taken in appeal to the Tribunal and by the assessee who claimed to have a factory gate sale price and the Tribunal vide their order set aside the order of the Collector on the following grounds:
(a) The Collector's order regarding factory gate sales were nominal and sold to selected buyers was not based on acceptable evidence.
(b) Whether the sales made by the depots of FIL were retail or wholesale was, really not relevant.
(c) That the above two factors indicated that the factory price could not be considered as artificial.
(d) That the difference in depot price and factory price according to the calculations of the department was admittedly 1.5% to 20% which appeared to be reasonable.
(e) That the department was raising the issue of valuation and the appellants were filing replies to the queries and therefore there cannot be any question of suppression by the appellant.
3. This decision of the CEGAT was accepted by the Revenue and therefore attained finality as observed by the Commissioner in the present order impugned before us. The appellants cleared the goods during the period impugned in the present show cause notice i.e. 1.6.1991 to 31.12.1995 on the basis of values determined based on certain price declared by them at the factory gate excepting that they took 35% of the such list price declared being the price charged to seven wholesale dealers. This list price was declared for sale Ex-Depot. The list price mentioned herein is declared by them at their Depot even though they had declared factory gate price. This list price was equivalent to the factory gate price which was declared by the appellants in their price list filed by them.
4. Some time in September 1995 the officers started investigation into the said valuation approved and the clearances made based on the information provided by the Chief Commissioner that factory gate prices were not genuine. During the enquiries the officers also received from the Income Tax department copies of certain diaries recovered by the Income Tax department in another case said to have been recovered from the premises of M/s JK Industries office at Delhi from the possession of one Mr. Arun Kumar Chajjer who was the accountant working in that office. This was alleged to be the office of Mr. Raghupathi Singhania who was at the material time Vice Chairman of the FIL. Based on the enquiries made the said diaries and also statements recorded under the provisions of the Central Excise Act, 1944 from various executives and dealers of the FIL, show cause notice dated 28.6.1996 was issued. This show cause notice was based on the following allegations:
1. The trade policy for V belts did not provide for ex-factory billing and for trade discounts other than 20%.
2. Depots of FIL were selling V belts in wholesale. Kumarappan and Vishal Jain, Depot Managers confirmed that all sales from their depots were in the nature of wholesale.
3. The proportion of price of V belts cleared from the factory to those sold from the depots was in the ratio of 65:100.
4. FIL cleared from the factory direct to the following dealers:
(a) PTC11 bills for Rs. 1,40,268 during 31.8.1995 to 28.12.1995 while the total purchases from the depots was Rs. 408/- lakhs during 15.6.1991 to 31.12.1995.
(b) SME17 bills for Rs. 6,06,746 during 27.3.1995 to 31.3.1995 while the-total purchases from the depots was Rs. 630 lakhs during 15.6.1991 to 31.12.1995.
(c) NKBJ24 bills for Rs. 5,95,675 during 15.6.1991 to 14.9.1992 while the total purchases from the depots was Rs. 815/- lakhs during 15.6.1991 to 31.12.1995 (Annexure 1 to the SCN).
5. FIL refused to supply goods ex-factory to SME and forced them to purchase from the depot. SME placed orders through the depot, in spite of their knowledge that prices on the invoices from the factory were less than the price on the invoices of the depot in spite of their knowledge that prices on the invoices from the factory were less than the price on the invoices of the depot.
6. Rajasekharan of 'Coimbatore confirmed that it was a policy of FIL to supply the goods only from the depot.
7. KK Naidu was aware that the orders on the depots were transferred to the factory under the instructions, of MHQ.
8. VK Sultania of PTC used to mention on the purchase orders the source of supply (Secunderabad branch, Madurai factory or Madurai depot) but the order would be handed over to the Secunderabad branch. This was not of his choice but as per the verbal directions of the Secunderabad depot personnel.
9. KT Reddy's claim that there was a circular for ex-factory supplies sent to the branches/depots could neither be substantiated nor corroborated.
10. The wholesaler or distributor status was given to very few dealers. SME Coimbatore whose, turnover was more than most of the wholesalers were never appointed as a wholesaler or distributor.
11. FIL refused to supply to SME from factory till 10.1.1996, the date on which raid on FIL took place. Evidence of SME is of considerable value as they handled voluminous business (Rs. 1.9 crores in 1995-96).
12. K. Bhattacharya of FIL, Bombay was aware that except V belts and fan belts, all products were sold and billed directly from the factory.
13. Benjamin Joseph of Madurai branch of FIL was not aware of despatches of V belts having been made from factory to SME any time.
14. Benjamin was aware that the trade policy, framed by the MHQ every year contained specific clause for ex-factory billing of all products except V belts.
15. Kumaravel of FIL Madurai confirmed that for SME, the deviations from normal practice of despatch of V belts through depots were taken on piece meal basis under the instructions of MHQ but without any written policy circular, Naidu, Manager (Sales Admn.) Swaminathan, RSM (South) & Chandrasekharan, VP Finance confirmed this.
16. After 1.1.1996, Madan Sales Corp., Bombay; New Ball bearings, Pune and Bombay Trading Agencies, Madras started getting supplies from the factory for the first time and in the case of PTC, the supplies from factory were made more frequent without their asking, thus exposing FIL's tacit admission of the absence of genuine gate sales in the earlier period (Annexures 24 & 35 to the SCN).
17. Credit note No. 536 dated 30.12.1995 for Rs. 2,21,300/- towards Super Surprise Gift Scheme, covering the period 1/95 to 3/95 was credit in ledger account against 30.3.1996 by M/s Ganguram Ramkrishan, Delhi, apparently to show that the scheme has been implemented following the raid on 10.1.1996 and the visit by the Central Excise officers to his premises on 2.4.1996 (Annexure N to the SCN).
18. The denial of benefit under one such scheme to NKBJ and non accountal of the credit note by Sajeja Industrial Corporation, Kanpur cast doubts on the genuineness of extending of the benefits of these special schemes. (Annexure O & P to the SCN).
19. Perusal of the statement containing statistical details of sales of all products (including the depots where 35% and 50% discounts are allowed) for the month of November 1995 (Annexure 40 to the SCN) reveals that the total % discount allowed is a constant, 26.5%. Against this, the 'discount allowed' column cover data which is variable. When asked to explain KT Reddy and Nagasubramaniam stated that the constant 26.5% was a weighted average of the discounts given at the depots. A weighted average for different depots cannot be a constant and it appears to be a norm fixed for for determination of 'discount provided' and 'discount to provide'. Further there was absence of levels of discounts: 35% and 50%. This appeared to indicate that the net discounts were arrived at in an arbitrary manner to create a smoke screen for the flow back.
20. The letter sent to Solanki by KT Reddy, regarding extending of wholesaler status and 35% discount is only a facade to provide higher discounts, as the wholesalers had admitted that they had not incurred any expenses towards sales promotion.
21. The flow back appeared to be manifested by the contents of the diary of AK Chajjer (Annexure A, B, and Al to the SCN).
22. Anandraj of SME was supplied with factory invoices between 27.3.1995 to 31.3.1995 even without his asking for a lower price. FIL had told him that the difference would be collected from him later and hence he was aware of his liability. On 28.5.1996 (Annexure 42 to SCN), he stated that while issuing the credit note No. 492, dated 30.12.1995 (Annexure 43 to the SCN. Swaminathan, RSM South had told him that the difference in price between the depot and factory in the supplies made from for the period January 1995 to 31st March 1995. Swaminathan in his statement dated 31.5.1995 corroborated this. This appeared to establish the creation of artificial factory gate sales and receipt of flow back.
5. The show cause also alleged that:
(a) It 'appeared that there were generally no factory gate sales for the industrial V belts and the miniscule number available appeared to have been manipulated. The 35 or 50% discounts were deliberately given to make it appear as if the net price to the wholesale/distributors were equal to or less than the factory gate price but in fact were designed to create a conduit for the flow back. Thus the wholesalers and distributors appeared to fall in the category of favoured buyers and the price on which duty was discharged did not appear to be the normal price under Section 4 of the Act.
(b) It appeared that the difference between the factory price and depot price was recovered from SME through adjustment in credit notes. In respect of supplies made to NKBJ and PTC from the factory and in respect of all wholesalers who were supplied V belts ex-depots, the higher discounts allowed were not according to any clear and open policy. It therefore, appeared that there was no factory gate price in respect of V belts cleared by FIL during the period 15.6.1991 to 31.12.1995 and the price adopted ex-depots allowing 20% trade discount to dealers was the 'normal price' under Section 4 of the Act.
(c) FIL were filing price lists under Part I, prior to April 1994 and annexures, from April, 1994 onwards, declaring therein the wholesale factory gate price for the V belts. In all these documents, FIL had, separately for each size and variety of V belts, declared the wholesale price from which cash discount of 3% for prompt payment and excise duty at the prevailing appropriate rates were deducted and the assessable value arrived at. The assessable value so arrived at was adopted for payment of Central Excise duty.
(d) It appeared that a negligible percentage of goods so assessed were cleared to a few dealers directly from the factory while major portion of the goods were cleared to their own branches situated at various places across the country; that the goods cleared to the branches of FIL were sold to the dealers with trade discount and at 35% or more trade discount to wholesalers/distributors that these discounts were made from Maximum Recommended Retail Price (MRRP) the MRRP being 50% to 60% more than the declared wholesale price.
(e) It thus appeared that FIL having obtained an order favourable to them from the Tribunal that for the purpose of the sales taking place from the depots, the gate sale should be the criteria for determining the assessable value prepared a plan by creating artificial gate sales for V belts. Prior to 1991, about 5 to 10% of the sales of V belts were taking place at the factory gate through the dealers; the remaining being sold through depots. Subsequently they directed the dealers verbally to make all the purchases through the depots; that the wholesalers were offered 35% discount on the MRP and the distributors 50%; that the cash in excess of normal 20% discount was to be paid to the senior Executives of FIL; finally the amount reaching the office of the Chairman, FIL at New Delhi (Annexure A, B, and Al to the SCN).
(f) The primary evidence to the support of the plan appeared to be the existence of the very few supplies being made from the factory. It appeared that FIL were deliberately prohibiting the dealers/distributors/wholesalers from placing orders on the factory. Instead, without assigning any reason they were forcing them to place orders on and take supplies from the depots. Existence of a very negligible number of invoices and too thrust upon the three dealers for supply from the factory appeared to show their manipulation and mala fides.
(g) The other method used for collecting the differential amounts appeared was to utilize the instrument of credit notes on account of special incentives schemes announced from time to time; that under these schemes, credit notes were offered as and when the set targets were achieved by the distributors and wholesalers; the amounts indicated in the credit notes or part of it being collected by the FIL executives in cash; that these schemes were circulated in advance but the quantum of benefit was left vagueit was to be a surprise. It appeared that the quantum were determined through verbal negotiations and credit notes issued accordingly. This contention appeared to be supported by the fact that in respect of distributors and wholesalers, there was no written trade policy specifying the criteria for determination of the targets and quantum of discount. The credit notes issued appeared to have no nexus with the targets achieved and were not uniform for all the distributors/wholesalers. The flow back appeared to be collected from the dealers by reducing the quantum of credit notes against their eligibility under the special sales promotion scheme. Special schemes for promotion of sales of V belts appeared to be arbitrary, not according to any fixed guidelines or criteria.
(h) It therefore, appeared that FIL contravened the provisions of Rule 9(1), 173(C), 173(F) and 173(G) of CER 1944 inasmuch as they misdeclared/suppressed the assessable values and cleared the goods without appropriate payment of duty.
6. The show cause notice further alleged that FIL:
(i) wilfully misdeclared that factory gate sales existed during the period 16.9.1992 to 26.3.1995 and 1.4.1995 to 30.8.1995 with intent to evade payment of appropriate duty.
(ii) Artificially created stray cases of factory gate sales during the period up to 14.9.1992 March, 1995 and August to December 1995 and adopted such artificial gate prices as the assessable value in respect of clearances made to the depot and thereby suppressed the actual assessable value, with intent to evade payment of duty.
(iii) Collected the differential amount between the factory and the depot prices fraudulently, through adjustments in the credit notes issued to SME in respect of the artificial factory gate sales made to them,
(iv) Wilfully misstated/mis-declared the invoices, raised from the depots, to be retail sales invoices so as to make the department believe that all depots sales were retail sales.
(v) Created certain dealers as wholesalers and distributors and on record extended them 35% and 50% discounts respectively, against the normal discount of 20% to the dealers, thereby making the department believe that the declared factory gate sale prices and the depot prices were equal in respect of 35% discount sale. They collected the differential amounts either by adjustments in the credit notes under various benefit schemes or by collecting them in cash, as reflected in the documents seized by the Income Tax.
7. The department therefore invoked the proviso to Section 11A(1) of the CE Act for demand of duty from the appellants for the extended period (1.6.1991 to 31.12.1995) and held them liable for penal action under Rule 173Q. It was held that Shri R.C. Gupta, Managing Director, being the Chief Executive of FIL and Shri K.T. Reddy, Executive Director being in charge of marketing operations of FIL were liable to penal action under Rule 173Q and 209A.
8. Show cause notice was also issued to R.C. Gupta, Managing Director, K.T. Reddy, Executive Director and others and certain employees of dealers proposing to demand duty of Rs. 5,90,19,010/- on FIL under Rule 9(2) read with Section 11A(1) of the CE Act, 1944 being the differential duty short paid during the period 1.6.1991 to 31.12.1995 and as to why penalty should not be imposed under Rule 173Q and/or 229A of the CE Rules.
9. The Commissioner after hearing the appellants and considering the submission made by the appellants came to a finding that:
it can be seen from the above that:
(i) only three dealers were supplied directly from the factory, which were in negligible quantities i.e. not even I % of the total V belts sales;
(ii) the sales made to even these three dealers were in sporadic short periods ttnd not regular or throughout the year. There was no regular wholesale price at the time and place of removal viz. the factory gate.
(iii) the factory gate sales were completely non-existent for three years i.e. 9/92 to 27.3.1995 and therefore, has come to the conclusion that there was no factory gate sales because they were not genuine or that they were not in the normal course of wholesale trade at arms length and he went on to determine the assessable value on that basis holding that the price at which the goods would be sold from FIL depots have been nearest to the factory would be relevant since the appellants were selling the goods in Depot offering varying discounts and that there were seven dealers who are called as 'wholesalers to whom 35% discount + 3% cash discount has been given from the MRRP (maximum recommended retail price) while for many other dealers a discount of 20% and cash discount of 3% has been given and therefore, he held that the earlier decision of CEGAT would not be available in the changed circumstances and gave a finding that sales at depots were not only in retail but were in the nature of wholesale. He held that there was a well defined Trade Policy for extending 20% discount from the Depot, which forms the majority of the sales made from the depot, but there is no such trade policy for extending the 35% discount of a selected few Wholesalers from the Depot. And there was no sound commercial consideration or valid grounds have been shown for extending 35% discount to these wholesalers as the said wholesalers were not performing any functions different from other dealers who were getting only 20% discount. He came to the conclusion that since the said 35% were not known to the wholesalers and/or given and in view of the seizure of diary being maintained by Chajjer from the office of the JK Industries as mentioned herein above, and perusal of the same indicated that there was flow back of large amounts of monies and also that certain scheme was introduced which was used as a tool or more for deducting the amount due from the dealers which was flown back. He concluded that it was only 20% plus 3% cash discount given in the course of wholesale trade from the Depot and assessable value will have to be arrived at from MMRP (list price mentioned herein-above) at which the goods were sold from the depot abating the above discount alone and since he came to the conclusion that declaration regarding valuation made about existence of wholesale factory gate sale price were found to be an artificially created one. He established metis rea on the part of FIL to evade payment of duty and found wilful misdeclaration and mis-statement of facts with intent to evade part of FIL to evade payment of duty and found wilful mis-declaration and mis-statement of facts with intent to evade payment of duty and held that the provisions of Section 11A(1) would be rightly invoked in the facts and circumstances of this case and thereafter proceeded to quantify the amount as follows vide para 78 of his order:
M/s FIL have contended that:
(i) If the basis of the working adopted in the earlier O-in-O is also adopted for present proceedings, then the duty discharged is on the higher side than the duty demanded (para 56.3 reply to SCN)
(ii) That as per their working if the average discount extended at the depots (roughly 25%), the percentage of branch expenses, interest on inventories and interest oh debtors are included then the total discount extended would be more than 35% (as furnished in the reply to the SCN para 57.2).
As regards their first contention 1 observe that in the earlier O-in-O the duty liability was arrived at on the total sale value at Depots after deducting depot expenses, interest on inventories etc. Since the earlier O-in-O was set aside by the CEGAT, it is not warranted to adopt that basis. Further the deductions made in the earlier O-in-O are not to be abated for the purpose of arriving at the assessable value as per Hon'ble Supreme Court judgement in the case of MRF . Hence their claim in this regard is not acceptable.
78.2. As regards the other working furnished by FIL in their reply to SCN (para 57.2), I find that FIL is clubbing along with the discount the unabatable expenses as held by the Hon'ble Supreme Court in the case of MRF like expenses incurred in maintenance & running of the Depots/Branches and interest on finished goods (inventories) p (paras 27 & 65 of 1995 ELT (77) 433 (SO : 1995 (58) ECR 385 (SC). Hence their claim on this regard also cannot be accepted. Though interest on receivables is an abatable element, according to the Supreme Court judgement, this element has not been claimed by FIL as part of their cost and hence abating this element does not arise.
78.3. Further the revised assessable value from the Wholesale Price available at the Depot, which is in other words referred to by FIL as Maximum Recommended Retail price (MRRP) is arrived at after giving the normal discount of 20%; Cash discount of 3% and allowing abatement of 0.6% towards freight and Insurance and after deducting the Excise duty. The difference between the revised assessable value and the assessable value on the basis of the so called factory gate sales, on which the duty has already been discharged works out to 23.1% (vide examples shown in the Annexure A to this order), which is in conformity with the demand already made in the worksheet to the SCN. Thus the duty liability set out in the SCN is in ORDER and correct He thereafter determined the culpability of the executives of FIL viz. R.C. Gupta, MD, K.T. Reddy, Executive Director, and confirmed the duty demand of Rs. 5,90,10,010/- under Rule 9(2) read with Section 11A(2) of the CE Act, 1944 and imposed penalty of Rs. 1,20,00,000/- on FIL and Rs. 2,00,000/- each on the other appellants herein under Rule 209A of the CE Rules, 1944.
10. We have heard Shri V. Sridharan, learned Counsel for the appellants and Shri S. Kannan, learned JDR assisted by S/Shri Harihara Subramaniam, Supdt. and Narikulam, Inspector for the Department and after considering their submissions made, we find that:
(a)(i) There is considerable force in the arguments advanced by the appellants before us that the demands of duty for the longer period in terms of Section 11A(1) cannot be sustained in the facts and circumstances of this case, since there exists an inter party order on the pattern of sale and valuation and the pattern which is being adopted by the appellants for selling their goods remains unchanged and was well within the knowledge of the department.
(ii) The order of the Tribunal in FIL's own case was against the order of the Collector who had after considering the pattern of sales being effected by the FIL had come to a very clear cut conclusion that sales at the factory gate could not be treated as ordinary wholesale trade and that the sales from the Depot cannot be treated as retail sales and the sales ex-Depot were in the nature of wholesale sales. This order of the Collector also ordained that the valuation in this case should be done, less duty and less transportation cost after deducting the branch expenses. This decision and the formula arrived at by the Collector was not challenged by the Revenue, even though FIL had challenged it, by taking it up to the Tribunal on the ground that genuine factory gate sale prices exist and are applicable. The Tribunal also came to the1 findings that the Collector's order regarding factory gate" sales being nominal and also that the sales made to selected buyers was not based on acceptable evidence and therefore, the Tribunal concluded that factory gate sales were existing and should be applied. The Tribunal had also come to a conclusion that the department was also raising the issue of valuation and the appellants were filing replies to the queries. Therefore there was no question of suppression of facts by the appellants.
(iii) The department, never, to our mind, accepted or showed acquiescence to the fact of a factory gate sales price to be genuine, at any time since 1978. It was mentioned before us that even though they had made known that the factory gate sales were genuine, further enquiry was conducted which the learned JDR submitted to be 'investigation' and not 'an audit type' enquiry which was conducted earlier. We fail to understand the difference in two kinds of enquiries available under the existing law, as is being made out by the learned JDR. To our mind, from the perusal of Central Excise Rules and the Act we do not find at y use of the word 'investigation' made anywhere. The power to the officers to enquire into a matter is derived from Section 14 of the Central Excise Act, along with the powers of search and seizures adopted from the Customs Act, 1962. We do not find any other method which give additional powers to be exercised in any/or subsequent inquiries of an investigation 'type' after an audit type of enquiry. It was submitted before us that no searches were made earlier and it was only on the basis of audit kind of enquiry that the show cause notice was issued in that case. In the present case, i.e. these subsequent enquiries, searches were said to have been conducted which has resulted in revelation of created sales at the factory gate to the dealers of Coimbatore, Secunderabad etc. Therefore, we find, when the officers and the department was fully aware of the factory gate prices to be not acceptable and/or genuine, the so called investigation revealed nothing that was not known.
(iv) We have considered these submissions and findings arrived at by the Commissioner in this case regarding nature of the so called factory gate price which was declared by the appellants and which had been found to be created and non-existent and/or sporadic. We find that the Commissioner has come to a very definite conclusion after analysing the material as given in Annexure Q to the show cause notice that it was only one percentage of the total V belts sold and in certain cases even less than to three dealers, which he termed as sporadic, in a short period and irregular and also that for the period of three years, they were clearly non-existent. This leads us to a findings that the factory gate price in the present case are non-existent to come to apply the same for the clearances of the goods to the Depot. We are aware that the Tribunal in the case of Geep Industrial Syndicate Ltd. v. CCE as has held that even if 3% of the sales to be at the factory gate are genuine, the sales can be applied to be transfers to Depot. In the present case we find that the sales from the factory gate to be non existent and/or of such meagre amounts that application of the same to the Depot cannot be applied, in spite of the settled inter party order of the Tribunal. The assessee had also during the hearing conceded by not insisting and forgoing the challenging of this issue of existence of factory gate sale price. We, therefore, find, that in this case we are at the same position where the Commissioner was at the earlier period in the show cause notice upheld by the Tribunal in their decision dated . Since there are no factory gate sales, we would consider this case to be a fit case to determine the near equivalent price under Section 4(l)(b) by applying the valuation Rules. Before we proceed to examine the Commissioner's order on application of the relevant Rules to determine the near equivalent under Rule 4(l)(b) we would like to observe that the Commissioner's earlier formula, if the veil of sales at the factory gate is not available, being non existent, would be removed and what is exposed and staring at the issue as a settled acceptable basis for assessment is the earlier formula ordained by the then Collector, as the Revenue did not find anything amiss having accepted it.
(v) The appellants have sought to pay the duty as per this 'formula' and they have discharged duty at the old formula as they have submitted to us. In fact the learned Counsel Shri V. Sridharan led by us to submission of the party and the party submitted to the Commissioner in the earlier proceedings that the quantum of discount worked was 35% in the facts of this case. In this case, they have claimed the deduction equivalent as shown in page 52, 53 and 54 of Volume I of the paper book which contains the replies dated 30.5.1997 to the show cause notice indicating that if the normal price is applied effectively, there would be no difference in the value at which they have paid duty and the value which they declared at the factory gate which has been found to be non-existent. No findings on this aspect has been arrived at by the Commissioner in his order impugned before us.
(vi) We find that the learned DR to have submitted that the formula of the earlier Collector is not relevant to the present issue and the present issue is to stand on its own legs and is based on material collected to disprove the declared ex-factory price to be non-existent and also the material evidence have been relied upon that there has been flow back of the amount as is evidenced from the diaries recovered from the possession of Chajjer and also credit notes of discount from seven dealers out of 450 dealers showing flow back to the assessee which constitutes about 40% of the sales and abatement was not permissible even if MRF decision of the SC 1995 (58) ECR 385 (SC) was not available. He relied upon the decision in the case of S.S. Miranda Ltd. v. UOI as to submit that it is their case that discount above 20% was not in fact eligible and this case was a separate case and therefore, provisions of Section 11A(1) has been correctly invoked. We have considered this submissions of the learned DR but are unable to agree as regards invocation of the proviso of Section 11A(1) is concerned. The provisions of Section 11A(1) could be invoked only if there was deliberate attempt to proceed in a direction which was not permissible, with intent to pay less the required amount of duty with intent to evade the same. We find that in the earlier proceedings, the Collector had ordained and fixed a formula, in absence of factory gate sale price, which has not been challenged by the Revenue. It was challenged by the appellants only inasmuch as they contend that there was existing factory gate price. The appellants have maintained their mental state of mind in contending that even if there was only one per cent factory gate price, that could be applied and if that is not so found, then the formula in the earlier case should be applied and any change in formula could be prospective in any case the larger period however is not invocable. We find force in the arguments of the appellants. We do not find any substance in the department's reasoning for applying the longer period of limitation in terms of Section 11A(1) as argued across the bench and also as determined by the Commissioner. The Commissioner has invoked the provisions of the Section TlA(l) only on the ground that factory gate price has been found to be non-existent and therefore not applicable. Thereafter, the Commissioner has changed the method of the valuation or assessment from his earlier formula arrived at when factory gate prices were not acceptable to them. If the Revenue wanted to change the method of calculation or assessment, they can do so, only prospectively and only for a period of six months and not five years retrospectively as they have proposed in the present case. Desire to change the formula for determining the valuation cannot be a ground for invoking the longer period, by coupling it with proving the declaration to be incorrect. Merely because the Chief Commissioner received certain information regarding the 'factory prices' not being genuine, the gate prices were always susceptible to the Department. They should have treaded cautiously in adapting the same. We, therefore, cannot hold invoking the demand for the larger period under the proviso to Section 11A(1) to be justified in the facts of this case.
(b) Now we proceed to consider the question of quantification of the demand and determination of the value for the period, the demand could be upheld. We find that the Revenue has submitted that the Commissioner has disallowed the discount in excess of 20% plus 3% for the reason that 35% discount being claimed was other than flow back in the form of credit notes recovered from the said dealers, seven in all constituting 40% of the sales out of 450 dealers. As regards 35% discount claimed it was clearly flow back as per the evidence recovered by the IT Department in the diaries recovered from the possession of one Chajjer, in the office of J.K. Industries, Delhi. This has to be considered in the light of Section 4(4)(d)(ii). Tins Section does not lay any limit regarding quantum of discount that would be eligible except that trade discount (not being refundable on any account whatsoever) in accordance with normal practice of the wholesale trade at the time of removal of such goods sold or contracted for sale are permissible). Therefore, we have to examine whether the discount of 35% or any amount in excess of 20% as pleaded by the Revenue has been refunded in some form or other. There is material evidence to indicate that certain amounts have been recovered through credit notes by the appellants company when the goods were cleared on 35% discount. These discounts were named as "Surprise Gift Scheme" discount and have been recovered from the seven dealers only constituting 40% of the sales out of 450 dealers. These have been submitted by the appellants to be not claimed in any case as deduction by them. There is no finding by the Commissioner as to whether the recovery by the credit notes is hit by Section 4(4)(d)(ii) as regards recovery of this amount. Similarly as regards flow back of the amount, as indicated in the diary recovered by the IT department, from the possession of Chajjer from the office of [K Industries, Delhi, quantification of the amount of flow back and the material evidence to indicate that this flow back amounted to recovery in some form or the other to FIL has not been arrived at. The Hon'ble Delhi High Court in the case of Somany Pilkington's Ltd. v. CCE as has held that in the case of evidence indicating collection of amount by a person relatable to and termed as flow back as in the case before us is to be considered then if there was no material on record to suggest that such monies collected were paid to the Company (assessee) or to any of its directors or was credited in the account of the appellants (assessee) and also such payment should be from the buyers to the assessee. We also find that Rule 5 of the Central Excise Valuation Rules also provides for monetary consideration which should be added for having flown from the buyer to the assessee, for the purpose of valuation. Therefore, it is a sine qua non to establish that flow back as alleged and appears in the said diary has actually flown back from the buyer to the assessee and accounted for by them. It has also to be established that it was out of consideration which could be added under the Central Excise Valuation Rules and/or consideration for the impugned price/value and discounts claimed under Section 4(4)(i). We have examined the material in this respect. It appears from the impugned order and findings that there is considerable force in the argument made by the counsel before us that the diaries not only indicate receipt of monies from the dealers and other executives of FIL but also payment given to them as payment received and mention the receipts from the raw materials suppliers. The diaries do not indicate that the payments indicated therein were in relation to only industrial belts being manufactured by FIL which is the subject matter of the proceedings before us or for other goods (i.e. belts other than industrial belts). The findings in the order do not help us in any fashion to indicate that the Commissioner has considered this aspect, in the material which has been relied upon, in the show cause notice. Terms of the ruling of the Delhi High Court & Rule 5 of the Central Excise Valuation Rules is required to be considered. In this view of the matter, we find that the Commissioner has been swayed by the recovery of diaries and also the department appears to be hunting and haunting the appellants, to fix and question their price. We cannot accept such orders to be passed following the principles of natural justice. All the evidence relied upon should be examined in the light of the law applicable in regard to the valuation and liability to duty and penalties. In the present case amount of duties have been confirmed, without giving any reasons as to hove the alleged flow back is linked to the clearances made, why payments are being received from raw material suppliers etc. The appellants have submitted that they have been filing price list under part I. We-find that this submission of the appellants are required to be reconsidered Evidence in the form of diaries and credit notes is required to be re-considered by the. Commissioner before he can come to the conclusion that diaries and the credit notes indicated that there has been flow back equivalent to 15% or such other amounts have reached the assessee and thereafter determine the value and the duty as per law. We would therefore, Consider that the matter needs be reconsidered by the Commissioner. Therefore, the matter is required to be remanded back to him for determination of the duty amount for a period of six months prior to the show cause notice as per law.
(c) We have also considered the submissions of Shri S. Kannan, Learned DR that from the Depot there have been sales at the list price minus 20% and minus 35% is not genuine. Therefore, duty should be determined on the sales made at less than 20% and not at 35% as claimed. We find that the discount is not to be. uniform as held in the case of Metal Box India Ltd. as . Discount as availed has to be granted to them if eligible as per Section 4(4)(d)(ii), Since the matter is being remanded to the Commissioner for re-determination of the quantum of duty demandable, we direct the Commissioner to keep in mind this submission in mind when he finalizes the demand de novo.
11. In view of our finding above we set aside the order of penalty and direct that the question of imposition of penalty and its quantum should be re-determined in the facts of this case. Hence we leave the question of penalty open including its leviability.
12. In view of our findings above, we remand the case back to the Commissioner to re-adjudicate the matter after offering personal hearing to the appellants and re-determine the quantum of duty and penalty.
13. In view of our (findings) above, the order on M/s BMF Beltings Ltd. is also set aside and remanded back to decide the issue afresh after the issue in the case of FIL is determined. The appeals are disposed of accordingly-.
(Dictated and pronounced in open Court).