Customs, Excise and Gold Tribunal - Delhi
Incab Industries Ltd. vs Collector Of Central Excise on 29 April, 1994
Equivalent citations: 1995(75)ELT131(TRI-DEL)
ORDER
Harish Chander, President
1. Incab Industries Ltd. 9, Hare Street, Calcutta has filed an appeal being aggrieved from the order passed by the Collector of Central Excise (Appeals), Allahabad. Dr. D. Pal, the learned Senior Advocate with Shri N. Mukherjee, Advocate and Ms. Priya Hingorani, Advocate and Shri D.B. Desai, Chartered Accountant has appeared on behalf of the appellant. The learned Senior Advocate pleaded that the appellant is manufacturer of electrical wires and cables of different varieties, specifications and types and it markets its products through its depot/branch to the dealers certain general items of its production, major portion of its manufacture is according to the specific requirement of its customers for which it enters into contracts with such customers. Its customers are mainly Government Departments, like Railway, Public Undertakings and other industrial consumers to whom the goods are sold on the basis of contract price. Price lists in part II are submitted for contract sales whereas for sale in open market, it submits price list in part I. The learned Senior Advocate further pleaded that inputs and raw materials are purchased which are duty paid and the Modvat credit taken by the appellant is reduced from the price in the invoice and the price which is charged from the customers is the invoice price. He referrred to the provisions of Section 4 of the Central Excises and Salt Act, 1944. He pleaded that most of the sales are to BHEL and Railways and price lists in part II are submitted and invoice price is the price. He pleaded that earlier the matter had come up before the Tribunal and the Tribunal had remanded the matter and on remand a fresh adjudication order was passed. The appellant being not satisfied filed an appeal before the Collector and being not satisfied with the order passed by the Collector, the appellant is before the Tribunal. Dr. Pal, the learned Senior Advocate drew the attention of the Bench to para 16 of the earlier order passed by the Tribunal which appears on page 82 of the paper book and a perusal of para 16 shows that "Modvat is a scheme under which the manufacturer is allowed to utilise the duty paid on inputs, by deducting the same from the duty payable on the final product subject to following the procedure under the rules. It is only a benefit available to the manufacturer to utilise the duty paid on the inputs for payment of duty on the final product subject to following the procedure under the rules. It does not directly affect or reduce the assessable value automatically. It is no doubt true that it will result in reduction in the cost of final product to the extent of the credit, but it does not auomatically reduce the assessable value which is to be determined in accordance with Section 4. The assessable value has to be determined in accordance with Section 4 of the Act and Section 4 only and Modvat credit has no direct impact on the assessable value." Dr. Pal also referred to the Modvat scheme. He referred to a judgment in the case of Collector of Central Excise v. Atic Industries Ltd. reported in 1992 (62) E.L.T. 321 (Tribunal) and laid special emphasis on para No. 5 where the issue was whether the Modvat credit availed by the respondents on the raw materials used as inputs would form a part of the assessable value of their final products and the Tribunal relying on the earlier decision in the appellant's own case in the case of Collector of Central Excise v. Incab Industries -1990 (45) E.L.T. 342 wherein it was held that Modvat credit results in reduction in the cost of the final product to the extent of the credit but it does not automatically reduce the assessable value which is to be determined in accordance with Section 4 of the Act. Dr. Pal, the learned Senior Advocate referred to pages 54 and 55 of the paper book which is order passed by the Collector (Appeals) and the Collector (Appeals), Shri Goverdhan S. Tampi vide order dated 29th February, 1988 had held that deducation claimed by the appellants on account of Modvat credit was allowed. He laid special emphasis on para No. 2 of the Collector (Appeals) order. Dr. Pal, the learned Senior Advocate pleaded that Modvat has no direct connection with the price and there is no deduction of price retrospectively. The sales are at arm's length. The parties are not related persons. He pleaded that Rule 57 relates to Modvat. The appellant is paying the excise duty in accordance with law and is not claiming any deduction on account of the same. He also referred to the appellant's own case reported in 1990 (45) E.L.T. 342, Collector of Central Excise v. Incab Industries. He further pleaded that price list was in part II. He referred to page 34 of the paper book No. II. It is the rate contract No. 7163078 with BHEL. He further argued that besides other sales, sales are to BHEL and Crompton Greaves Ltd. He referred to page 95 of the paper book No. II which is annexure to the quotation No. 09/bc/37 and on page 95 there is mention : "You shall pass on a relief of Rs. 3.30 per kg. in all your invoices against this order." Dr. Pal, the learned Senior Advocate referred to the price list which appears on page 100 of the paper book and argud that there is mention of the Modvat relief in column No. 11 of the price list. The learned Senior Advocate referred to the following judgments :
(1) 1989 (43) E.L.T. 165 (SC) - Hindustan Polymers v. Collector of C. Excise.
(2) 1991 (52) E.L.T. 59 (Tribunal) - Collector of Central Excise v. VST Industries.
(3) 1992 (62) E.L.T. 321 (Tribunal) - Collector of Central Excise v. Atic Industries Ltd.
Dr. Pal, the learned Senior Advocate pleaded that earlier remand by the Tribunal was only for Railways and there is no written agreement with the Railways and there is only purchase order which appears on pages 32,40, 43, 46, 51 and 182 of the paper book No. II and page 182 there is a letter of the Railways dated 16th January, 1987 in which there is a mention that "For despatches from 16-1-1987 the selling price for each contract will be reduced by the suppliers by 8% (eight per cent) by way of MODVAT relief and Excise Duty paid at 25% on the reduced selling price." Dr. Pal, the learned Senior Advocate referred to the Hon'ble Finance Minister's speech in Parliament in paras 113 and 114 reported in 158 ITR 16. Dr. Pal, the learned Senior Advocate also pleaded that the contract with the Government cannot be challenged. In support of his argument, he referred to the decision in the case of Mineral and Metals Trading Corporation of India Ltd. v. Collector of Customs, Bombay reported in 1984 (15) E.L.T. 148 (Tribunal). He has pleaded for the acceptance of the appeal.
2. Mrs. C.G. Lal, the learned SDR is present on behalf of the respondent. She has referred to the earlier order of the Tribunal which appears on page 74 of the paper book No. I. She also referred to the earlier order passed by the Collector (Appeals). She referred to para No. 9 internal page 4 of the CEGAT's earlier order and also referred to page 10 of the earlier order. She relies on the later order passed by the Collector (Appeals) as well as by the Assistant Collector. She referred to the price list which appears on page 30 of the paper book No. I and referred to the price list effectice from 16th September, 1986. She referred to page 32 of the paper book No. I which is the price list, dated 25th June, 1986. She referred to the invoice which appears on page 31 of the paper book No. I and the invoice is dated 14th March, 1987. She referred to page 24 of the paper book No. II. She referred to page 35 of the paper book No. II. which is the rate contract. She laid emphasis on the note where it is mentioned "With the above increase the final prices are worked out and shown in the annexure. These rates are only process charges/fabrication charges. Final prices will be worked out/computed at MMTC copper rate plus CST as prevailing on the last date of the month prior to the scheduled delivery month." She referred to the price list which appears on page 41 of the paper book No. n effective from 21st August, 1987 and also the invoice in favour of M/s. BHEL which appears on page 43 of the paper book No.11. She relied on the following decisions :-
(1) 1988 (38) E.L.T. 535 (SC) - Ujagar Prints, etc. v. Union of India and Ors.
(2) 1989 (39) E.L.T. 493 (SC) - Ujagar Printer etc. v. Union of India and Ors.
(3) 1985 (20) E.L.T. 179 (SC) - Empire Industries Ltd. and Ors. v. Union of India and Ors..
She argued that the selling price is the assessable value. In support of her argument, she cited the following decisions : -
(1) 1987 (29) E.L.T. 644 (Tribunal) - Shree Srinivasan Foundry and Ors. v. Collector of Central Excise (2) 1986 (26) E.L.T. 321 (Tribunal) - Collector of Central Excise, Calcutta v. Khaitan Fans (P) Ltd.
She also argued that the Collector (Appeals) has not discussed the earlier order passed by the Collector (Appeals). She argued that the appellant cannot reduce the selling price. She pleaded for the rejection of the appeal.
3. In reply, Shri D.R. Desai, Chartered Accountant pleaded that it is .wrong to say that the earlier order of the Collector (Appeals) has not been commented by the Collector (Appeals). He referred to the invoice which appears on page 43 of the paper book No. II. He referred to the contract which appears on page 35 of the paper book and laid special emphasis on Clause 4 of the contract. He also referred to page 36 of the paper book II. Clause (i) relates to CST 4% against 'C' form will be payble extra, (ii) "excise duty is payable extra as applicable at the time of despatch against gate pass as per the Mod vat scheme only. However, you must continue to give benefit of Rs. 3.30 per kg. towards CVD in your invoices." He referred to page 84 of the paper book I which is the CEGAT's order. He argued that the revision of contract is with effect from 16th January, 1987. For valuation aspect, the learned Chartered Accountant argued that for any reason the price can be reduced. He agrees for the inclusion of the value of the raw materials. Dr. D. Pal, the learned Senior Advocate in reply also stated that no deduction is claimed from the assessable value. He again referred to the Hon'ble Finance Minister's speech reported in 158 ITR page 16 para 113. He also referred to page 31 of the paper book which is the invoice of the Controller of Stores, Chitranjan Locomotive Works. He pleaded for the acceptance of the appeal.
4. We have heard both the sides and have gone through the facts and circumstances of the case. Earlier the matter was remanded by the Tribunal. Paras No. 16 to 20 from the said judgment are reproduced below :-
"16. From a perusal of the rules referred to above it is clear that Modvat is a scheme under which the manufacturer is allowed to utilise the duty paid on inputs, by deducting the same from the duty payable on the final product subject to following the procedure under the rules. It is only a benefit available to the manufacturer to utilise the duty paid on the inputs for payment of duty on the final product subject to following the procedure under the rules. It does not directly affect or reduce the assessable value automatically. It is no doubt true that it will result in reduction in the cost of final product to the extent of the credit, but it does not automatically reduce the assessable value which is to be determined in accordance with Section 4. The assessable value is to be determined in accordence with Section 4 of the Act and Section 4 only and Modvat credit has no direct impact on the assessable value.
17. As stated in the earlier paragraphs the benefit under Modvat is given to avail the credit of duty paid on the inputs while paying duty on the final product. It has and it cannot have any effect on the assessable value which is to be determined in accordance with Section 4 of the Act. Further, the assessable value is to be determined in accordance with the provisions of the Act, and the Modvat credit is provided by the rules and the rules cannot have any overriding effect on the provisions of the Act.
18. It may be that in a given case the manufacturer may revise the contract price at which the goods are sold as a result of reduction in the cost of final product on account of obtaining Modvat credit. However, in the event of a revision in the contract price, the manufacturer has to follow the procedure under the Central Excise Rules, before the price revised/modified is accepted as the assessable value. In this context it is relevant to refer to Rule 173C of the Central Excise Rules which reads as follows :-
"Rule 173C. Assessee to file price-list of goods assessable ad valorem.
- (1) Every assessee who produces, manufacatures or warehouses goods which are chargeable with duty at a rate dependent on the value of the goods, shall file with the proper officer a price-list, in such form and in such manner and at such intervals as the Collector may require showing the price of each of such goods and the trade discount, if any, allowed in respect thereof to the buyers along with such particulars as the Central Board of Excise and Customs or the Collector may specify.
(2) Prior approval by the proper officer of the price-list filed by an assessee under Sub-rule (1) shall be necessary only where the assessee -
...
(vi) submits a fresh price-list or an amendment of the price-list already filed with the pioper officer and which has the effect of lowering the existing value of the goods.
(3) On receipt of price-list under Sub-rule (2), the proper officer may approve the price-list after making such modifications as he may consider necessary so as to bring the value shown in the said price-list to the correct value for the purpose of assessment as provided in Section 4 of the Act. He shall, thereafter, return one copy of the list approved by him to the assessee who shall unless otherwise directed by the proper officer, determine the duty payable on the goods intended to be removed in accordance with such list."
A persual of Rule 173C shows that every assessee shall file with proper officer a price list in such form and such manner and at such intervals, showing the prices of each of such goods.
Further, if the assesses submits a fresh price list or an amendment of the price list already filed with the proper officer and which has the effect of lowering the existing value of the goods, the prior approval by the proper officer shall be necessary, needless to say that any modification or revision of the price list relate only to prospective period.
Therefore, the manufacturer cannot automatically ask for reduction in the assessable value of the product as a result of obtaining Modvat credit, as under the rules, the benefit under Modvat is available only to deduct the duty paid on the inputs while paying duty on the final product, by following the procedure prescribed under the rules.
Secondly, the modification, revision, reduction in the price as a result of revision of contract price requires the prior approval of the proper officer under Rule 173C(2)(vi) and in the absence of which it cannot be the assessable value.
19. From the foregoing discussion it follows that the assessable value cannot be reduced automatically as a result of obtaining Modvat credit by the manufacturer.
20. The respondents contended that the reduction in the assessable value mentioned in the price-list is based on a letter of Railways under which the price of the product is revised. We are unable to accept this contention, as neither before us nor before the lower authorities, the original contracts entered into between the respondents and the Railways is placed. We do not know what are the terms of the contract. We do not know whether the terms of the contract can be altered specifically with reference to rate during the operation of the contract. If so, in what manner can the terms be altered. Should it be by entering into a fresh contract or by merely issuing a letter. We do not also know whether the price once entered can be altered with retrospective effect. In the absence of these particulars which can be decided after examining the contract, it is difficult to accept the contention of the respondents.
Hon'ble Supreme Court in the case of Hindustan Polymers v. Collector of Central Excise reported in 1989 (43) E.L.T. 165 (SC) had held as under :-
"12. The Scheme of the old Section 4 is indisputedly to determine the assessable value of the goods on the basis of the price charged by the assessee, less certain abatements. There was no question of making any additions to the price charged by the assessee. The essential basis of the "assessable value" of old Section 4 was the wholesale cash price charged by the asessee. To construe now Section 4 as now suggested would amount to departing from this concept and replacing it with the concept of a notional value comprising of the wholesale cash price plus certain notional charges. This would be a radical departure from old Section 4 and cannot be said to be on the same basis. It has to be borne in mind that the measure of excise duty is price and not value. It has been so held by this Court in Bombay Tyrl international's case (supra). See in this connection, the observations of this Court in Bombay Tyres case at pages 368, 377, 382 and 383, where this Court emphasised that in both the old Section 4 and the new Section 4, the price charged by the manufacturer on a sale by him represents the measure. Price and sale are related concepts and price has a definite connotation. Therefore, it was held that the "value" of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4. This Court rejected the contention on behalf of the assessee in that case, that Section 4 also levied excise on the basis of a conceptual value which must exclude post - manufacturing expenses and post - manufacturing profit by observing that the contention proceeded on the assumption that a conceptual value governed the assessment of the levy. It was reiterated that the old Section 4 and the new Section 4 determine the value on the basis of price charged or chargeable by the particular assessee. See in this connection, the observations of this court at page 388 F & G of the report."
The Tribunal in a later decision in the case of ITC Ltd. v. Collector of Central Excise, New Delhi -1994 (72) E.L.T. 315 (Tribunal) vide Final Order No. 61 to 65/94-A, dated 18th March, 1994 on pages 22,23,24,25 and 36 had held as under :-
" There is an interesting judgment of the Tribunal in Collector of Central Excise, Hyderabad v. VST Industries, Hyderabad and 2 Ors. 1990 (16) ETR 539. The following line of thinking lends support to the view taken by me. After extracting a passage from the Bombay Tyre case 1983 ECR 1627D (SC) and Hindustan Polymers 1989 (43) E.L.T. 165, the Tribunal says :-
"The language of Section 4 and the extract of the Supreme Court's judgment reproduced above show that the interpretation as given by the Supreme Court alone is the correct one. Rule 5 of Valuation Rules and Section 4 of the Act have to be read together. A harmonious construction can lead only to one conclusion that extra accrual should be added to the wholesale price and the assessable value worked back after allowing admissible deductions. Addition of such extra accruals to the assessable value would distort the meaning of the section because there is no way in which abatement of excise duty which is permitted by Section 4 can be given if the extra accrual is directly added to the assessable value."
In view of the above observations of Madras High Court, it will be reasonable to apply the ratio of the Tribunal decision in VST Industries to the facts of this case and to hold that the freight administrative charges as additional consideration in this case flowing back to the appellant are to be added to the price and not to the assessable value. For the same reason, it is not possible to accept the plea that decision of the Tribunal needs to be considered. It may also be relevant in the case of Bombay Tyre International Ltd. In para 15 thereof the Supreme Court observed that in both the old Section 4 and the new Section 4, the price charged by the manufacturer on a sale by him represents the measures of assessing the levy. Price and sale are related concepts and the price have a definite connotation. The value of excisable articles, the Court observed has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4.
6. In respect of the penalty imposed on the appellants under Rule 209, it is seen that this Rule was not on the statute book at the material time when the offence alleged had taken place. It is, however, seen that the Finance Ministry in its Circular No. 5/86 dated 18-2-1986 have clarified that the Rule 209 is to be invoked only for offences committed on or after 30-1-1986. This was on the basis that Article 20(1) of the Constitution lays down that no person can be subjected to penalty for an offence greater than that which might have been inflicted under the law in force at the time of commission of the offence. In such a context of the Department's own understanding while introducing the Rules, a penalty on the appellants under Rule 209 is not sustainable at the time when the Rule was non-existent. However, the penalty has also been imposed under Rule 9(2). It is well settled by the decision of the Tribunal in M/s. Agam & Gem Laboratories v Collector of Central Excise, Baroda, reported in 1988 (18) ECR 567 (CEGAT SB-C) that when complete particulars are not disclosed, the penalty under Rule 9(2) is justified and it was observed therein by the Tribunal that in furnishing the full particulars if the assessee had any doubt, he should get it clarified by the Department. In this context, it may be seen that in the present case the appellants herein had totally failed to disclose the amountrecovered by way of freight administrative charges in their price lists which was only subsequently found by the Department. In this context, the decision of the Supreme Court in the case of Jaishri Engineering Co. (P) Ltd. v. Collector of Central Excise, reported in 1989 (40) E.L.T. 214 (SC) may also be borne in mind wherein the Supreme Court held that even the plea that the Departmental Officers visited the assessees' factory and should have been aware of the processes and production of the goods will be of no avail to the assessee and will not be a reason for the assessee not to truly and properly describe the goods. It is further seen that even where an assessee indicated certain elements of costs in their sale invoice but had not shown them in their price list, assuming those to be deductible, the Tribunal in the case of Kerala State Detergents & Chemicals Ltd. v. Collector of Central Excise, Cochin, reported in 1987 (11) ECR 58 (CEGAT SB-A) held that it is for the appropriate officer to determine the assessable value on materials placed before him by the assessee and that assessee cannot deduct whatever he presumed deductible and expect the officer to accept it without demur. The assessee, the Tribunal held, has to declare the actual price and furnish detailed particulars of the elements of which he claims exclusion. In the present case, the appellants herein have not at all indicated the freight administrative charges in their price list and as has been found by the Tribunal, the assessee cannot hold back any particulars relating to the elements which go into the price while presenting the price list. It is also seen from the records that the appellants were realising additional consideration which is in dispute only through freight debit notes and were not showing it even in Trading Invoices. It is also observed that the practice of recovery of freight administrative charges continued in the case of smoking mixture even after the judgment of the Supreme Court in Bombay Tyre International Ltd. etc. case. In such circumstances, imposition of penalty under Rule 9(2) read with Section 11A of the Central Excises and Salt Act, 1944 is sustainable.
15. In view of the majority opinion, we hold that the freight administrative charges recovered by the appellants are not relatable to the cost of transportation but are in the nature of additional consideration. The assessable value, therefore, has to be arrived at under Section 4(1)(b) by applying Rule 5 of the Central Excise Valuation Rules, 1975. The amount of such additional consideration following back to the appellants has to be added to the wholesale price and assessable value worked back after allowing admissible deductions. The penalty on the appellants is reduced from Rs. 50 lakhs (Rupees fifty lakhs) to Rs. 15 lakhs ( rupees fifteen lakhs). Accordingly, the appeals are partly allowed."
In view of the legal position discussed above, we are of the view that Modvat credit reduction given to the purchaser has to be deducted from the price.
5. Now coming to the question whether the appellant has shown as a deduction of the price. The facts have to be seen. Rule 57 of the Central Excise Rules provides that the input credit can be utilised towards the payment of duty on the final product. It provides that the said credit can be utilised for reducing the assessable value. The assessable value has to be determined in terms of provisions of Section 4 of the Central Excises and Salt Act, 1944. In view of the above observations, we remand the matter to the Assistant Collector having jurisdiction and to calculate the excise duty payable in the light of the Tribunal's decision dated 18th March, 1994 in the case of ITC Ltd. v. Collector of Central Excise, New Delhi, Order No. 61 to 65/94-A 1994 (72) E.L.T. 315 (Tri.).
6. In the result, the appeal is allowed by way of remand.