Custom, Excise & Service Tax Tribunal
M/S. Good Year India Ltd vs Cce, Faridabad on 28 January, 2010
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
BENCH-DB
PRINCIPAL BENCH - COURT NO. I
Date of Hearing : 28.1.2010
Date of Decision:
Excise Appeal No. E/5350/2004
[Arising out of Order-in-Original No.15-18/RH/ADJ/2004 dated 30.07.2004 passed by the Commissioner of Central Excise, Delhi-IV].
For approval and signature:
Honble Mr. Justice R.M.S. Khandeparkar, President
Honble Mr.Rakesh Kumar, 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 Lordships wish to see the fair copy of the Order?
4 Whether Order is to be circulated to the Departmental authorities?
M/s. Good Year India Ltd. Appellant
Vs.
CCE, Faridabad Respondent
Present for the Appellant : Ms.Sonu Bhatnagar, Advocate
Present for the Respondent : Shri Anish Jain, SDR
Coram:Honble Mr.Justice R.M.S. Khandeparkar, President
Honble Mr. Rakesh Kumar, Member (Technical)
ORDER NO. _______________ DATED:28.01.2010
PER: RAKESH KUMAR
The Appellants are manufacturer of tyres and tubes chargeable to Central Excise Duty under Chapter 40 of the Central Excise Tariff. They sell their goods from factory premises in case of sales to Motor vehicle manufacturers and from their depots in other cases. The dispute is in respect of value of the goods sold from Depots to Dealers during the period from 1.7.2000 to 11.9.2000. The Appellant sell their goods from Depots at Net Billing rate (NBR) from which they claimed deductions of freight charge from Depots to dealers, premises trade discounts, interest on receivables, octroi etc. on average /equalized basis for which they filed declarations claiming these deductions from NBR to arrive at the assessable value. The dispute in this appeal is with regard to deduction of freight charges from Depot to dealers premises for determining the assessable value. The Department disallowed this deduction on the ground that the freight charges from Depot to customers premises are not separately mentioned in the invoices and hence, in term of Rule 5 of the Central Excise (Determination of value of Excisable goods) Rules, 2000 (CEVR, 2000), the deduction of freight expenses from Depot to the customers premises, can not be allowed. It is on this basis that the Commissioner by the impugned order in Original dated 30.7.2004 confirmed the duty demand of Rs.4,57,600/- against the Appellant, alongwith interest as per the provisions of section 11AB of the Central Excise Act, 1944 and besides this, imposed penalty of equal amount u/s. 11AC of the Central Excise Act. It is against this order of Commissioner that the present appeal has been filed.
2. Heard both the sides.
2.1 Ms. Sonu Bhatnagar, Advocate, the ld. Counsel for the Appellant made the following submissions:
(1) Rule 5, as it existed during the period of dispute is not applicable to this case, as in this case, the delivery does not take place at the time of removal, but at a time much later than the time of removal.
(2) The deduction on account of freight charges was being claimed on actual basis. The Appellant were claiming the deduction of freight charges on equalized basis. It is wrong to suggest that after coming of the concept of transaction value w.e.f. 1.7.2000, freight charges incurred on actual basis but claimed on average/equalized basis cannot be claimed as deduction for the purpose of computing the assessable value.
(3) Honble Supreme Court in the case of Prabhat Zarda Factory Ltd. vs. CCE reported in 2002 (146) ELT 477 (SC) has held that in respect of sale from depots, while freight and insurance charges upto Depots would be includible in the assessable value, the freight and insurance for delivery to the customers from the depot would not be so includible. Tribunal in the case of Kisan MouldingsLtd. & others vs. CCE Mumbai-IV reported in 2004 (62) RLT 712 (Cestat- Del.) has held that under new section 4, effective from 1.7.2000, deduction of actual cost of transportation is allowable even in case of Door Delivery, when the freight amount is included in the invoice price.
(4) The Appellant vide their letter dated 10.7.2000 to Asstt. Commissioner has clearly informed that in respect of sales from Depots, deduction of freight was being made on equalized basis. In view of this, there was no willful suppression and hence extended limitation period for recovery of duty is not applicable. The SCN dated 30.4.2002 for recovery of allegedly short paid duty during the period from 1.7.2000 to 11.9.2000 is time barred. In this regard, reliance is placed on Honble Supreme Courts judgements in cases of _ (a) Continental Foundation Jt. Venture vs. CCE, Chandigarh reported in 2007 (216) ELT 177 (SC) ; (b) CCE Vadodara vs. Pioneer Scientific Glass Works, reported in 2006 (167) ELT 308 (SC) and (c) Pushpam Pharmaceuticals Company vs. CCE, Bombay reported in 1995 (78) ELT 40 (SC).
(5) Since the duty demand is for the period prior to 11.5.2001, in terms of the provisions of subsection (2) of section 11AB, no interest is chargeable.
(6) Since there is no fraud, willful misstatement or suppression of facts is involved in this case, penalty u/s. 11AC is not called for.
2.2 Shri Amrish Jain, the leared DR, reiterating the Commissioners findings, emphasized that
(a) In this case, during the period of dispute, as per the provisions of Rule 5 of CEVR 2000 deduction of freight for computing the assessable values was permissible only if the cost of transportation is charged to the buyer in addition to the price for the goods and is shown separately in the invoice for such excisable goods while in this case, the freight amount is not shown in the invoice either on actual bais or on equalized basis; and
(b) The Appellant in their letter dated 10.07.2000 to the Assistant Commissioner, had not informed that the freight amount is not being shown in the invoices and since invoices are not enclosed alongwith the ER-1 returns, the Department came to know about the Appellants practice only when their records were checked and therefore, the appellants have suppressed a vital information from the Department and longer limitation period has been rightly invoked and penalty has been rightly imposed under Section 11 AC.
3. We have carefully considered the submissions from both the sides and perused the records. There is no dispute about the fact that during the period of dispute, the Appellant, in respect of sales from depots, were not showing the freight charged from depot to buyers premises separately on the invoices, either on actual basis or on equalised/averaged basis, and still they were claiming deduction of equalised freight expenses from Depot to Customers premises, as determined by them, from the Net Billing ratio.
3.1 Rule 5 of CEVR, 2000 during the period of dispute, was as under:-
when any excisable goods are sold in the circumstances specified in Clause (a) of sub-section (1) of Section 4 of the Act, except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the actual cost of transportation from the place of removal up to the place of delivery of such excisable goods, provided that the cost of transportation is charged to the buyer in addition to the price for the goods and shown separately in the invoices for such excisable goods 3.2 The main point of dispute is as to whether when the cost of transportation from depot to buyers premises is not shown separately in the invoices either on actual basis or on averaged/equalised basis, its deduction can be allowed for determining the assessable value.
4. Section 4 of the Central Excise Act, 1944, during the period of dispute was as under:-
when under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then on each removal of the goods, such value shall
(a) In a case when the goods are sold by the assessee; for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;
(b) In any other case, including the case when the goods are not sold, be the value determined in such manner, as may be prescribed
4.1 The place of removal, during the period of dispute, was defined under Section (3)( c ) as under:-
(i) a factory or any other place a premises of production or manufacture of the excisable goods;
(ii) a warehouse or any other place or premises where the excisable goods have been permitted to be deposited without payment of duty 4.1.1 The Depot ; premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearances from the factory was included in the definition of place of removal w.e.f. 14.05.2003.
4.2 In the case covered by clause (b) of subsection (1) of Section, for determining the assessable value, CEVR, 2000 were notified vide notification no.45/2000-CE (NT) dated 30.06.2000 issued under Section 37 of the Central Excise Act, 1944.
5. As mentioned above, Rule 5 of CEVR, 2000 provides for determination of assessable value in a case where the goods are sold for delivery at a place other than the place of removal and it provided for exclusion of the actual cost of freight from the place of removal to the buyers premises, subject to condition that the same is separately charged in addition to the price for the goods and is separately mentioned in the invoice. Rule 7 of CEVR, 2000, however, provided that when the goods are not sold at the time and place of removal i.e. at the factory gate, but are transferred to depot, consignment agents premises or any other place or premises, from where the same are sold, the assessable value of the goods, would be the normal transaction value of such goods sold from such place at or around the same time as the time of removal from the factory. A harmonious interpretation of the provisions of Rule 5 and 7 would be that in the case of sale of the goods from depot after their removal from the factory, while the freight expenses from the factory to depot would be includible in the assessable value, in case the price is for delivery at a place other than depot, say the customers premises the freight expenses from depot to place of delivery would have to be excluded as per the provisions of Rule 5. The question arises as to whether deduction of freight expenses from depot to the place of delivery/buyers premises are to be disallowed if the same are not separately mentioned in the invoice. In our view, in such a case, when the sale is from the depot but the price is for delivery at the buyers premises, it would not be correct to disallow the deduction of freight from the depot to buyers premises, just because the freight expenses have not been shown separately in the invoice, as doing so would amount to adopting the price at the customers premises as the assessable value which would be contrary to the provisions of Section 4 (1)(a). Honble Supreme Court, in case of M/s. Ispat Industries Ltd. Vs. Commissioner of Customs, Mumbai reported in 2006 TIOL 127 SC-CUS has held as under:-
In our opinion if there are two possible interpretation of a rule, one which subserves the object of a provision of the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act. In this connection, it may be mentioned that according to the theory of the eminent positivist jurist Kelsen (The Pure Theory of Law) in every legal system, there is a hierarchy of laws, and whenever there is a conflict between a norm in a higher layer in this hierarchy and a norm in a lower layer, the norm in the higher layer will prevail (see Kelsen The General Theory of Law and State).
In our country, this hierarchy is as follows:
* The constitution of India;
The statutory laws, which may be either Parliamentary laws or laws made by the State Legislature;
*Delegated a subordinate legislation, which may be in the form of rules made under the Act, regulations made under the Act, etc.; Administrative order or executive instructions without any statutory backing.
The Customs Act falls in the second layer in this hierarchy whereas the rules made under the Act fall in the third layer. Hence, if there is any conflict between the provisions of the Act and the provisions of the Rules, the former will prevail. However, every effect should be made to give an interpretation to the Rules to uphold its validity. This can only be possible if the rules can be interpreted in a manner as to be in confirmity with the provisions in the Act, which can be done by giving it an interpretation which may be different from the interpretation, which the Rule could have if it was construed independently of the provisions in the Act. 5.1 In view of the above, if any excisable goods after their removal from the factory are sold from the depot, but the price of the goods charged from the buyer is for delivery at the buyers premises, for determining the assessable value, the deduction of freight expenses from the depot to the buyers premises have to be allowed even if the freight expenses are not shown separately in the invoices as this deduction cannot be disallowed just because the freight expenses are not separately shown in the invoices. However, in such a case in accordance with the Tribunals judgment in case of CCE, Mumbai-III Vs. Supreme Petrochemical Ltd. reported in 2009 (240) ELT 38 (Tribunal-LB) the burden of proving that the freight expenses had been incurred for delivery of the goods at the buyers premises, which are included in the price charged from the buyer and what is the quantum of such expenses would be on the assessee claiming the deduction of such expenses.
6. In this case, as it is clear from para-17 of the impugned order, that the deduction of equalised/averaged freight from the depot to place of delivery has been disallowed only on the ground that the same was not charged separately in the invoices. This order of the Commissioner, as discussed above, is not correct.
7. In view of the above discussion, the impugned order is set aside and the matter is remanded to the Commissioner for de- novo adjudication in accordance with our observations in para 5.1 above.
(Pronounced in the open Court on _________) (JUSTICE R.M.S.KHANDEPARKAR) PRESIDENT (RAKESH KUMAR) MEMBER (TECHNICAL) Anita