Customs, Excise and Gold Tribunal - Mumbai
Asoka Spintex Ltd., R.M. Gohel, Umesh K. ... vs Commissioner Of Central Excise And ... on 15 March, 2004
Equivalent citations: 2004(171)ELT59(TRI-MUMBAI)
ORDER Moheb Ali M., Member (T)
1. The appellants are engaged in manufacturing cotton yarn. The dispute revolves round determination of assessable value of cotton yarn manufactured by the appellant during the period 1.4.1994 to 31.3.1996. A show cause notice dt. 3.5.1998 was issued invoking the larger period of limitation demanding Central Excise duty ( BED + AED TTA) alleged by short paid during this period. The Commissioner while adjudicating the case held that the appellant suppressed certain facts from the Department, which resulted in the short levy and demanded the differential duty. He also imposed penalties on the company under Rule 173Q and imposed penalties on the employees of the company. He also confiscated the plant and machinery and allowed it to be redeemed on payment of fine. Hence the appeals.
2. In order to appreciate the facts it is important to devide the period 1.4.1994 to 31.3.1996 into two parts. The first period is April 1994 to 24. 7.95. During this period the appellant was known as M/s. Asoka Mills Ltd. having a separate entity of its own. It was registered under Central Excise Act in that name. During this period the raw materials were supplied by M/s. Arvind Mills Ltd. for manufacturing yarn on job work basis. The appellant was collecting job charges for the yarn manufactured by him. The assessable value of cotton yarn which was based on cost of raw material and the job charges. This is in accordance with the Supreme Court decision in the case of Ujagar Prints Ltd. [1998 (38) ELT 535] which has been further clarified by the Apex Court as reported [1989 (39) ELT 493]. This method of valuation was communicated to the department under a declaration dt.27.4.1994. The declaration is in prescribed form. The heading of column 3 of the form shows the cost of raw material i.e. cotton supplied by M/s. Arvind Mills Ltd. for 1 kg. of yarn. To this cost conversion charges were added to arrive at the assessable value. Along with this declaration a letter from M/s. Arvind Mills Ltd. dt. 27.4.94 was enclosed which clarified that the cotton cost was taken on the basis of average of February and March 1994. The appellant has also enclosed representative copies of invoices under Rule 52A issued by the appellant for the period prior to 25.7.95. The assessment was made by the department on this declaration. The basis of valuation as well as the method of cost calculations were before the department. We shall discuss the Commissioner's finding in this regard later on.
3. From 24.7.95 the appellant came to be known as M/s. Asoka Spintex Ltd. after it got amalgamated with M/s. Arvind Mills Ltd. Now that the appellant got merged with M/s. Arvind Mills Ltd. the question of doing any job work for the later did not arise. From then on the appellant was manufacturing cotton yarn for captive consumption in the mills. So the method of arriving at the assessable value underwent a change from this date. An intimation to the department informing the change in the status of the appellant consequent to amalgamation was sent on 24.7.95. The basis for arriving at the assessable value of the yarn captively consumed is in accordance with Central Excise Valuation Rule 6(b) (ii) . With the price declaration dt. 28.7.95, the appellant indicated the working of the cost of manufacture of yarn in column 4. He indicated that raw material cost was based on the average for period January to June 1995; indicated the method of calculating the margin of profit and the fact that the cost of yarn was worked out only upto spindle stage. The declaration mentioned above indicated that the manufacturing cost included cost of wages, stores, repairs, utilities, factory overheads and depreciation. The appellant was also making the audited accounts available to visiting officers during this period. These accounts clearly indicated that the company was incurring expenditure on bonus and gratuity given to the workers.
4. The Commissioner in the impugned order proceeded on the basis that the period 1.4.94 to 31.3.96 cannot be divided into two distinct periods as contended by the appellants. He observes that even though the appellant was manufacturing cotton yarn on job work basis for M/s. Arvind Mills Ltd. for the period 1.4.94 to 24.7.95 the basis for determining the value of cotton yarn should be on cost construction as indicated in the Central Excise Valuation Rules 6(b) (ii). His reasoning was that even though the actual amalgamation of the appellants' factory with M/s. Arvind Mills took place in July 1995, it was always understood that both the factories belonged to the same group. The proposal for amalgamation was under consideration for several years and the deeming provisions giving retrospective effect of amalgamation were inserted as per the request of M/s. Arvind Mills Ltd. He further observed that M/s. Arvind Mills Ltd. have agreed to take upon them various responsibilities belonging to the appellant and this was approved by the BIFR Committee. His conclusion therefore is that the transaction between M/s. Arvind Mills and the appellants have seized to be independent and they have become related persons, a fact which was not disclosed to the department. The department became aware of this situation only when a copy of the minutes was submitted but the appellant vide their letter dt. 22.12.2000. The Commissioner also considered the facts that M/s. AML leased out open end spinning machines to the appellant and the appellant was doing job work for M/s. AML only. He held that the conversion cost and the raw material cost indicated by the appellants were not independent once there was a proposal for amalgamation. He argued that the assessable value even during this period when the appellant was separate unit doing the job work for M/s. AML should be determined on the basis of cost of production plus margin of profit. Having come to this conclusion the Commissioner proceeded to examine whether the cost of cotton yarn was properly calculated by the appellant during the period 1.4.94 to 31.3.96. He held that the appellants failed to include the cost of bonus, gratuity certain administrative overheads, interest and margin of profit while calculating the cost of production of cotton yarn during the above said period. In regard to the applicability of extended period of limitation The Commissioner observed as follows:
"So far as limitation aspect is concerned in respect to inclusion of these elements, I have already stated above that there has been deliberate mis-declaration in the declarations certified by the Cost Accountant in as much as these elements which were required to be included in the Cost of production were not so included. The assessee's plea that once the declarations were filed with the dept. which were showing the elements, which were taken into account for the purpose of determining the cost of production, the dept. cannot take stand that it was not in the know as to what elements were included in the cost of production is also not acceptable. Though it is a fact that the assessee has in his declaration given the mixing cost per k.g. and the conversion cost and the footnote indicated that the conversion (manufacturing) cost includes wages, stores, repairs, utilities, factory overheads and deprecations, it has nowhere stated that they have not included bonus, gratuity, administrative overheads and interest. The assessee's assertions that once they have stated that the 'conversion cost includes wages, stores, it amounts to certifying that no other costs were included is totally erroneous and inclusive phrase never means that no other elements are included. On the other hand it means that besides other, it includes the specified elements also unless the word includes is qualified by the word only, Therefore, once bonus and gratuity forms part of the wages the deptl. Officers correctly presumed that these elements must have so been included, and similarly once administrative overheads and interest form part of the cost of production, the dept. Officers were fully justified in presuming that these elements must have been so included as they were certified by Cost Accountant who is the most competent authority in this field. It was only when the elements within the conversation cost were investigated into, by the dept. Cost Accountant that this mis-declaration came to notice. This plea, also, therefore, does not help the assessee and I therefore hold that the above elements were not included with intent to evade duty and therefore the extended period under Section 11A has been rightly invoked. Yet another plea that the officers of the dept. were in the full know of the process and their unit was audited by different audit parties, they could have pointed out the above suppression, is also of no support as firstly the Audit Officers have also not questioned the certificate of a Competent Authority like cost Accountant, and therefore if the Cost Accountant, has misstated the cost of production then the assessee cannot be absolved from the charge of mis-declaration/suppression of facts." .
5. On merits the Commissioner argues that according to the costing principles bonus and gratuity paid to the workers engaged in the production of cotton yarn are parts of wages and therefore that cost should go into the cost of manufacture. In regard to the administrative overheads he argues that administrative overheads comprise of all expenses pertaining to the administrative functions in the general running of the business. He says that factory cost plus administrative overheads equal to cost of production. Inasmuch as the appellant failed to include all administrative overheads while computing the cost of yarn the assessable value arrived at by the appellant is incorrect. In regard to interest he observes that financial cost is nothing but interest on fixed assets and working capital. He observes that the cost accountant of the company Shri B.R. Shah has also admitted that as per sound costing principles at least the interest on working capital should have been taken into consideration but this was not done. He found that interest and fixed assets also will have to form part of cost of production. In regard to margin of profit his finding is that the profit made by the company as a whole should be considered for apportionment to the cost of production of cotton yarn.
6. The appellants raised several grounds as to how the Commissioner erred in holding that there was a suppression on their part while computing the cost of production of cotton yarn captively consumed and on merits. In regard to bonus and gratuity it was contended that the production cost generally includes direct material, direct labour and other manufacturing expenses like stores, power, fuel, repairs and spares and manufacturing overheads. As per costing rules bonus to the employees other man incentive/production bonus and provision/payment of statutory gratuity are required to be shown in the cost of sales proforma of various products like yarn, fabric etc. The rules contemplate that such expenses do not become a part of manufacturing cost and these expenses will be absorbed only by the products sold during the period. Since the yarn captively consumed is not sold such expenses as mentioned above are not to be included. In regard to profit they contended that the department considered the profit of the company as a whole as reflected in the audited profit and loss account and balance sheet to the company this is incorrect. In regard to interest it was argued that interest is a financial charge and therefore this element would not be added to the cost of production under standard principles of costing.
7. Heard both sides.
8. We shall deal with the limitation aspect as that happens to be the core issue.
9. The demand for duty in this case is beyond the normal period of limitation under Section 11A(i) of the Central Excise Act, 1944. The allegation raised in the show cause notice for invoking the extended period of limitation against the assessee is that he suppressed/mis-declared facts with intent to evade payment of duty. The appellant submitted that they had filed price declarations under Rule 173C for the relevant period giving details of the assessable value on the basis of which duty was paid. The price was declared on the basis of their cost accountant's certificate. The price declarations were approved by the Central Excise authorities and no objection was raised as to the costing of the goods captively consumed. The RT 12 returns filed by the appellant from time to time were also duly assessed by the authorities. It has been argued that proforma C, F, & M under the Cost Accounting Records (Cotton Textile) Rules 1997 clearly indicated that bonus, gratuity and interest were not elements of cost of production. Annexures IV, VI, VII and IX to the said rules also excluded these items for cost of production of yarn. The argument therefore is that the appellant was justified in excluding bonus, gratuity and interest from the assessable value. We find that the Commissioner has found suppression/mis-declaration of facts with intent to evade duty against the assessee on the basis that the appellants cost accountant had not included certain elements in the cost of production. We are unable to accept the Commissioner's contention that the assessee can be fastened with the liability if the cost accountant had arrived at the value of the captively consumed goods according to his understanding. Any error, which might be found in such certificates, would not be a valid ground for any authority to proceed against his clients or employers. In the case before us admittedly the assessee had declared the assessable value of his goods on the basis of the cost accountant certificates. Even if we admit that the accountants certificate are erroneous such errors will not constitute mens-rea for the assesses unless it is establish that the errors were made use of by the assessee to evade payment of duty. No evidence of this sort has been brought by the department.
10. Yet another erroneous view recorded in the impugned order is that extended period of limitation can be invoked even when the assesses mis-declaration is know to the Department. The Commissioner has in this regard relied on the judgment of a Ld. Single Judge of the Madras High Court in the case of Limemaph Chemicals v. UOI [1993 (68) ELT 77]. Obviously, the Commissioner did not notice the fact that the said judgment had been set aside by a division bench of the High Court vide [1997 (95) ELT 195 Mad.]. Relying on rulings of the Supreme Court, the division bench held that where the department was aware of facts no suppression are mis-statement of facts with intent to evade payment of duty was attributable to the assessee so as to invoke the proviso to Section 11A(i) against the appellant.
11. In this case the demand for duty was raised on the basis of statutory records filed by the assessee. It has been consistently held by this Tribunal that in such situation the extended period of limitation cannot be invoked by the department vide DCM Engg. Products v. CCE {2002 (147) ELT 820, Pranave Vikas (India) Ltd. v. CCE (2002 (148) ELT 963 and BHEL v. CCE (1997 (18) RLT 573). Price declarations, RT 12 returns, Accountant Certificates and allied statutory documents submitted by the assessee from time to time explicitly or implicitly disclosed the relevant facts to the department at the appropriate stages. There was no suppression of facts on the appellants part. The larger period of limitation therefore cannot be invoked.
12. We are unable to agree with the Commissioner's observations in the para cited Supra giving out reasons as 10 why he alleges suppression on the part of the appellant. Nothing prevented the department from making an inquiry as to what elements were specifically included in the cost of production of yarn when the appellant disclosed that administrative overheads and salaries paid to the workers were taken into consideration while computing the cost of production. It is not open to the department at a later stage to say that the assessee did not indicate whether he included bonus, gratuity, interest and profit while computing the cost.
13. Once we observe that suppression cannot be attributed to the appellant, penalties under Rule 173Q or confiscation of plant and machinery or penalties under Rule 209A can be sustained.
14. The department seemed to have conducted thus whole exercise of conducting a cost audit after the receipt of CBEC Circular dt. 30.10.96. We have perused the contents of this circular and observed that the same find a mention in the show cause notice even though the circular itself is not quoted. This seem to have been done in order to claim that the method of calculation of cost of production was applicable even to the period prior to the issuance of the circular. During the relevant period the department as well as the appellant were under an honest impression that the method adopted by the appellant for computing the cost was correct. The department cannot therefore attribute suppression on the part of the appellant on the basis of wisdom dawned then them after the circular was issued. We are also unable to agree with the Commissioner's contention that the appellant was not engaged in job work for M/s. Arvind Mills Ltd. During the period 1.4.94 to 24.7.95. In fact he was producing yarn on job work basis, declared the assessable value in line with the Supreme Courts decision in Ujagar Prints Case. The appellant also declared the basis of the cost of production of yarn produced and cleared for captive consumption after 24.7.95. None of the declarations filed by the appellant was questioned.
15. We find that the demand is time barred and on that basis alone it has to be set aside along with the penalties and confiscation.
16. We do not find it necessary to give findings on the merits.
17. The appeals are allowed. The order of the Commissioner is set aside.
(Pronounced in Court)