Customs, Excise and Gold Tribunal - Delhi
Collector Of C.E. vs United Glass on 30 January, 1989
Equivalent citations: 1989(22)ECR438(TRI.-DELHI), 1989(40)ELT488(TRI-DEL)
ORDER K.L. Rekhi, Member (T)
1. This is an appeal filed by the department. At the out-set, the respondents made a preliminary objection saying that the appeal was time-barred. They stated that they had received the impugned order-in-appeal at Bangalore on 29-4-1986. The Assistant Collector of Central Excise at Bangalore received it on 14-5-1986. How come the Collector of Central Excise at Bangalore received it as late as on 2-6-1986, asked the respondents. The Bench asked the learned representative of the department to produce the record of the Collector's office in order to verify the actual date of receipt of the impugned order-in-appeal by the Collector. At the resumed hearing, the learned representative of the department produced a photocopy of the impugned order-in-appeal as received by the Collector. The photo-copy bore a stamped inward entry number, Collector's dated stamp of receipt of 2-6-1986 and initials of a couple of officials dated 5-6-1986. There appeared to be no reason to doubt that the stamp and the initials were all in the normal course of office routine. The respondents then left the matter to the discretion of the Bench. The Bench found no reason to doubt the Collector's statement that his office had received the impugned order-in-appeal on 2-6-1986 only. His appeal filed on 26-8-1986, within the prescribed time limit of three months, was, threfore, held by us to be in time.
2. The respondents filed the aforesaid misc. application to bring on record certain additional evidence. The evidence appeared quite relevant to us and we took it on record.
3. Consideration of the appeal was then taken up and both sides were heard. The point of dispute in the appeal is determination of assessable values of glass bottles manufactured by the respondents and mainly used by various units within the same group of industry. The two price-lists involved in the controversy before us were filed on 24-10-79 and 10-9-81 and the period of dispute was stated to be 1-7-1979 to 30-6-1983.
4. Before starting the discussion, it is necessary to spell out the status of the respondent unit. They were not a separate legal entity themselves. They were a manufacturing unit within the Khoday group of industries. Within the group, M/s. Khoday Distilleries Ltd. (K.D.L.) were the holding company. Under the holding company was M/s. Khoday Brewing & Distilling Industries Pvt. Ltd. (K.B.D.I.). The present respondents, United Glass, were a Division of M/s. K.B.D.I. Within the Group was a partnership firm named Khoday R.C.A. also. Its partners were Khoday family members. M/s. K.D.L., M/s. K.B.D.I. and Khoday R.C.A. were all engaged in the business of manufacturing and bottling beer and alcoholic liquors.
5. The various units in the Group required glass bottles in which beer and whisky etc. was to be filled and marketed. Till 1978, they purchased the glass bottles from others, mainly from M/s. Alembic Glass Industries which were also situated nearby at Bangalore. In order to meet their requirements of glass bottles themselves, the Group set up the respondent unit in 1978. Besides supplying glass bottles to the other units in the Group, the respondents made some sales to 'others' also. According to the figures given to us by the respondents at the time of hearing, such sales to 'others' were as under :-
Year Percentage 1979-80 59.00 1980-81 2.87 1981-82 Nil 1982-83 4.91
6. The controversy regarding valuation of the glass bottles manufactured by the respondents and captively used within the Group arose during the earlier period also. It culminated in the order-in-review passed by the then Collector on 20-8-81 wherein he ordered that the values should be determined under Section 4(1) (a) of the Central Excises and Salt Act, 1944 on the basis of ex-factory prices charged to others. The respondents say that this order of the Collector became final as it was not taken up for further appeal or revision by the department.
7. During the material period of the present appeal, the respondents filed two sets of price-lists - one in Part I for sales to 'others' under Section 4(1)(a) of the Central Excises and Salt Act, 1944 and the second in Part VI for captive consumption under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975. However, in effect there was no difference in the two sets of prices. Both the price lists mentioned the same prices which were based on the sale prices of the respondents to 'others'. The department provisionally approved the prices in Part VI. On further scrutiny, the authorities noticed that the prices declared by the respondents were much below the cost of production and that the cost data furnished to them by the respondents was incomplete and vague. The respondents appeared to be unwilling to come out with the full cost data including the overheads and the margin of profit. The authorities thereupon issued two show cause notices to them on 8-2-1984 and 16-6-1984 wherein the authorities proposed to re-determine the values under Rule 7 (Best Judgment Assessment Rule) of the Central Excise (Valuation) Rules, 1975. The show cause notices contained the costing data which the authorities proposed to adopt. The source from which this cost data was obtained by the authorities was not spelt out in the show cause notices. The learned representative of the department stated that the authorities told the respondents orally that it had been obtained from M/s. Alembic Glass Industries. On adjudication, the Asstt. Collector confirmed the values as proposed in the show cause notices. In appeal, the Collector ( Appeals) ordered the authorities to adopt Section 4(1)(a) prices (Sales prices to 'others') as the basis of assessment as ordered by the then Collector in his order-in-review dated 20-8-1981 in respect of the earlier assessment period. The Collector (Appeals) directed the authorities to finalise the assessments accordingly under Rule 9-B of the Central Excise Rules, 1944. He held that the Asstt. Collector was not correct in having invoked Section 11A of the Act since, the earlier price approval being provisional, the prices had to be finalised under Rule 9-B and not under Section 11A. The department is in appeal before us against this order of the Collector (Appeals).
8. The learned representative of the department stated before us initially that the department's case was as under :-
(1) The order-in-review dated 20-8-81 passed by the then Collector in respect of the earlier assessment period itself was not final because it asked the authorities to re-determine the prices under 4(1)(a).
In any case, when a fresh price-list was filed subsequently by the respondents, fresh facts were brought on record and a different assessment period started, the authorities were entitled to have a fresh look at the matter.
(2) The glass bottles manufactured by the respondents were pre-dominantly supplied for captive consumption by the other units in the same Khoday Group and since such other units were 'related persons' of the respondents within the meaning of Section 4(4)(c) of the Act and they were not selling such glass bottles further but were using them themselves and since sales to 'others' were negligible or nil, resort had to be made to Rule 6 of the Central Excise (Valuation) Rules, 1975 for determining the assessable values of the glass bottles.
(3) The price approvals and assessments were provisional and they had to be finalised. But since the respondents were unwilling to disclose the true cost, this amounted to suppression of fact on their part and hence Section 11A was correctly invoked by the Assistant Collector.
(4) For the same reason of the respondents' unwillingness to disclose the full costs, the Asstt. Collector could not be faulted if he resorted to Best Judgment Assessment on the basis of whatever cost data he could get from another manufacturer of similiar goods at the same place.
9. During the hearing, the respondents initially took the position that their broad sale pattern as discussed in the order-in-review dated 20-8-81 passed by the earlier Collector remained the same in subsequent years. The percentage of sales to 'others', no doubt, dropped but the quantum of sale to independent dealers was of no consequence, maintained the respondents relying on 1977 ELT 177 (SC) -A.K. Roy and Anr. v. Voltas Ltd. The respondents, contended further that non-compliance with the department's directive to furnish full cost data did not amount to suppression on the part of the respondents.
10. The respondents also denied that the price approvals and assessments during the material period were provisional. However, their denial is not convincing because we find from page 261 of the consolidated paperbook furnished by the respondents that it was their own prayer, inter alia, to the Collector (Appeals) that necessary directives be "given to the Range Officer to finalise the provisional assessment made from 1-7-79 to 30-6-83 on the basis of these assessable values only". We hold that the assessments were provisional on the basis of the accepted facts and prayer of the respondents themselves.
11. Coming to the main issue now, there can be no quarrel in principle with the respondents' proposition that if normal prices were ascertainable under Section 4(1)(a), they should apply to all removals of similar goods for captive use also. The respondents relied on 1988 (36) ELT 723(SC) - Indian Oxygen Limited v. Collector of Central Excise for this proposition. But we find from paragraph 8 of the same judgment that in order to be acceptable under Section 4(1) (a), there should be real ex-factory prices (underlining supplied). During the hearing, we had a look at the prices declared by the respondents on the basis of sales to 'others'. We found prima facie that they did not fully cover even the bare cost of raw material, leave aside overheads and reasonable margin of profit. They were only a fraction of the sale prices of M/s. Alembic Glass Industries for similar glass bottles. The factory of M/s. Alembic was an older unit with lower capital costs. The capital costs of the respondent unit were comparatively higher. How could, therefore, the respondents' prices be only a fraction of those of M/s. Alembic? The respondents explained that during the initial period, the quality of the glass bottles manufactured by the respondents was not upto the mark and hence their prices were kept lower than those of Alembic bottles. The respondents stated that this situation continued till about 9-9-1981 and thereafter, as the quality of the respondents' bottles improved, their prices became comparable with those of Alembic, in some cases even higher. The explanation offered appeared to us to be too simplistic. It is quite understandable that when a new unit starts production, there may be comparatively larger quantity of second quality goods and rejects in its out-put. But it cannot be that for months and years together it should go on producing only second quality goods and rejects. We tested the respondents' explanation with the sale figures furnished by them and as re-produced in paragraph 5 above. The other units in the Khoday Group needed glass bottles for filling beer and whisky etc. For such sophisticated and costly packing, second quality bottles and rejects would hardly be acceptable. It is reasonable to infer from (1) the sale figures furnished by the respondents, (2) the very purpose behind setting up the respondent unit and (3) the type of use to which the glass bottles were to be put within the Khoday Group that good quality glass bottles were supplied for captive use for filling beer and liquor and the second quality bottles not acceptable for the Group were disposed of to 'others' in the open market. Thus during 1979-80, when there was a larger quantity of second quality bottles produced, sales to 'others' were as high as 59%. But later, when the quality improved, sales to others dropped to 2.87% in 1980-81, nil in 1981-82 and 4.91% in 1982-83. The Assistant Collector has stated in his impugned order-in-original that sales to 'others' were mostly to dealers in second hand bottles ('kabariwalas'). The respondents complained that there was no such allegation made in the show cause notice and that, therefore, the Asstt. Collector was not justified in making such a finding. The respondents are right, but only technically. Even if one ignores the Asstt. Collector's finding, it is not difficult to imagine as to whom beer bottles and whisky bottles, manufactured to a particular design of the Khoday Group of industries and which were found un-suitable for use by the Group, would have been disposed of.
12. When we observed in the Court that the prices declared by the respondents for the glass bottles removed for captive use in the Group did not appear to be bonafide, their stand took various twists and turns. They contended first that an assessee was entitled to sell his goods at a loss and that his sale price could not be rejected just for the reason that he was selling at a loss. We found this another simplistic and hypothetical explanation. No doubt, occasion may arise in business when, due to circumstances beyond his control, an assessee may be compelled to dispose of his goods at a loss. But such occasions are an exception. They cannot last for months and years together. It is simply unbelievable that the respondents went on selling good quality glass bottles year after year at prices which were only a fraction of the cost of manufacture. The very low prices charged from 'others' were either for the reason that the glass bottles sold to 'others' were of very inferior quality and not worth anything more than that or they were deliberately rigged prices to create a show of existence of ex-factory sales to independent dealers and thereby to take advantage of such low ex-factory prices, and consequently low taxes, for most of their output which was supplied to units within the Khoday Group.
13. The respondents then stated in the Court that in order to remove any doubt as to their bona fides, they were willing that till 9-9-81 assessable values approved for comparable glass bottles of M/s. Alembic may be adopted as the basis for assessment and from 10-9-1981 onwards wherever the respondents had paid duty on higher prices (as compared to those of M/s. Alembic), the respondents would not claim any refund. But soon thereafter, the respondents changed their stand and stated that if M/s. Alembic's assessable values were adopted, they should be adopted the whole hog throughout the material period of this appeal. Towards the end of their pleading, the respondents resiled even from this stand. They stated finally that the prices declared by them in Part I of the price list (for sales to 'others') should be adopted as the basis of assessment for all the removals.
14. We have given the matter our earnest consideration. It is our considered finding that the below-cost prices declared by the respondents in Part I price-list were either for inferior bottles and could not be applied to good quality bottles or they were manipulated prices and not bona fide and hence not acceptable. However, it does not follow from that that we should confirm whatever price (around Rs. 3,700 per M.T.) the Asstt. Collector fixed on the basis of costing. The respondents complained that the Asstt. Collector had taken inflated cost data and consequently arrived at a cost price which was higher even than M/s. Alembic's prices. The respondents have a point there. It is quite evident that in the case before us there was no genuine normal price ascertainable under Section 4(1)(a) and since bulk of the goods were captively used by Units within the same Khoday group, assessable values would have to be arrived at under Rule 6 of the Central Excise (Valuation) Rules, 1975. Rule 6 provides two methods for valuation. The first method under Rule 6(b)(i) is to adopt, after necessary adjustments, prices of comparable goods produced by another manufacturer. If this method is not available, only then resort can be had to the other method under Rule 6(b)(ii) - to work out the values on the basis of cost of manufacture of the assessee unit and add thereto a reasonable margin of profit. The respondents are right in saying that in this case prices of comparable goods produced by another manufacturer, i.e., M/s. Alembic Glass Industries, were available. As already stated M/s. Alembic were situated close to the respondent unit at Bangalore. The working condition in both factories could not, therefore, be much different. Both sides agreed before us that the size, weight and quality of the glass bottles manufactured by the respondents and M/s. Alembic were comparable. In fact, before the respondent unit started, the beer and liquor units in the Khoday Group were buying their glass bottles largely from M/s. Alembic only. We, therefore, agree that the first method of valuation provided for in Rule 6(b)(i) was available in this case. The respondents stated in the Court that the assessable values of M/s. Alembic had been finally approved by the department and there was no dispute about them. Being a new unit with higher capital cost, the cost of manufacture of the respondents could be higher than that of M/s. Alembic but not lower.
15. In the result, we set aside the impugned order-in-appeal and allow this appeal in terms that during the material period (1-7-79 to 30-6-83) wherever the prices declared by the respondents were lower than those of M/s. Alembic for the comparable bottles, the prices as approved for M/s. Alembic should be adopted as the basis of assessment for the glass bottles manufactured by the respondents and supplied to other units in the Khoday Group. The department would be entitled to finalise the assessments on this basis and make consequential recoveries of duties from the respondents. The respondents are directed to pay the differential duties so demanded forth-with.
16. The cross-objection was not pressed for by the respondents. We, therefore, dismiss it.