Custom, Excise & Service Tax Tribunal
M/S Aaram Plastics (P) Ltd vs Cce, Jaipur on 5 May, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. I DATE OF HEARING/DECISION : 05/05/2014. Excise Stay Application No. 2637 of 2003 in Appeal No. 4144 of 2003 [Arising out of the Order-in-Original No. 12/2003 dated 30/04/2003 passed by The Commissioner, Central Excise, Jaipur] For Approval and signature : Honble Shri Justice G. Raghuram, President Honble Shri 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 would 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 : Department Authorities? M/s Aaram Plastics (P) Ltd. Appellant Versus CCE, Jaipur Respondent
Appearance S/Shri B.K. Singh and Vijay Kumar, Advocates for the appellant Shri Jayant Sahai, Authorized Representative (DR) for the Respondent.
CORAM : Honble Shri Justice G. Raghuram, President Honble Shri Rakesh Kumar, Member (Technical) Final Order No. 52395/2014 Dated : 05/05/2014 Per. Rakesh Kumar :-
The facts leading to filing of this appeal are, in brief, as under.
1.1 The appellant are engaged in manufacture of parts of Sprinkler Irrigation System covered under tariff sub-heading 8424.91 of the Central Excise Tariff and also the HDPE Pipes in coil form which was being classified by the appellant under sub-heading 391700 of the Central Excise Tariff. The HDPE pipes were being used captively from manufacturer of HDPE Couples pipes. The HDPE Coupled pipes falling under heading 84.24 are chargeable to nil rate of duty. The appellant were paying duty under protest on HDPE pipes manufactured by them and being cleared for captive consumption for use in the manufacture of HDPE Coupled pipes as HDPE Coupled pipes were chargeable to nil rate of duty and according to the Department for this reason, the HDPE pipes would not eligible for exemption under Notification No. 67/1995-CE. The period of dispute in this case is from 01/04/99 to 11/12/01 and during this period, the appellant were paying duty on the HDPE pipes cleared for captive consumption on the assessable value determined under Rule 6 (b) (ii) of the Central Excise Valuation Rules, 1975 during the period till 30th June 2000 and on the value determined under Rule 8 of the Central Excise Valuation Rules, 2000 i.e. 110%/115% of the cost of production during the period w.e.f. 01/07/2000. The departments allegation is that the cost of production during the respective period i.e. during period from 1999-2000, 2000-2001 and 2001-2002 (upto 11/12/01) has not been correctly determined which has resulted in short payment of duty. It is on this basis that a show cause notice dated 13/09/02 was issued to the appellant for recovery of allegedly short paid duty amounting to Rs. 23,18,305/- during the period from 01/04/99 to 11/12/2001 alongwith interest thereon under Section 11AB and also for imposition of penalty on the appellant under Section 11AC. The show cause notice was adjudicated by the Commissioner vide order-in-original dated 30th April 2003 by which the Commissioner holding that all the expenses have not been included in the cost of production, confirmed the above-mentioned duty demand alongwith interest under Section 11AB and beside this, imposed penalty of equal amount on the appellant under Section 11AC. In course of adjudication proceedings before the Commissioner, the appellant besides pleading that there is no under valuation and no mistake in determining the cost of production and assessable value, also pleaded that the HDPE pipes manufactured by them for captive consumption being specifically meant for use in the HDPE Couples pipes (parts of Sprinkler Irrigation System) are correctly classifiable under heading 8424 and not under sub-heading 391700 and accordingly the rate of duty in respect of the same is nil and hence no duty is chargeable and in this regard they cited the judgments of the Tribunal in the cases of Elgi Ultra Appliances vs. CCE reported in 1999 (35) R.L.T. 175 and EPC Irrigation Ltd. & Anr. Vs. CC & CE, Aurangabad reported in 2001 (47) R.L.T. 369 (CEGAT - Mumbai), but the Commissioner did not accept this plea on the ground that since the show cause notice has been issued only on the issue of valuation and no issue relating to classification of the goods has been raised in the show cause notice, the assessee cannot raise the issue relating to classification and accordingly this issue cannot be taken up for decision. The Commissioner accordingly decided the matter only on the basis of the allegation made in the show cause notice with regard to valuation. Against this order of the Commissioner, this appeal alongwith stay application has been filed. It appears that no decision was taken by the Tribunal in respect of appeal alongwith stay application filed by the appellant and for this reason, the appellant filed a civil writ petition No. 5090/2013 before the Jaipur Bench Honble Rajasthan High Court, which vide order dated 16th September 2013 directed the Tribunal to decide the appeal preferred by the petitioner or at least the stay application filed as early as possible, preferably within eight weeks from the date the parties appeared before it. Accordingly, this matter was heard for final disposal after waiving the requirement of pre-deposit.
2. Heard both the sides.
3. Shri B.K. Singh and Shri Vijay Kumar, Advocates, the learned Counsels for the appellant, pleaded that the appellant manufacture parts of Sprinkler Irrigation System HDPE Couples pipes which are classifiable under sub-heading 8424.91, where the rate of duty is nil, that the appellant also manufacture HDPE pipes which are cleared for captive consumption for use in the manufacture of HDPE Coupled pipes, that rate of duty on the parts of Sprinkler Irrigation System is nil, but the department, by classifying the HDPE pipes under sub-heading 391700 has demanded duty in respect of the same on the ground that the pipes cleared for captive consumption would not be eligible for exemption under Notification No. 67/1995-CE as the duty on the final product parts of Sprinkler Irrigation System is nil, that the appellant were paying duty on the clearances of HDPE pipes for captive consumption on the value determined under Rule 6 (b) (ii) of the Erstwhile Central Excise Valuation Rules, 1975 till 30th June 2000 and under Rule 8 of the Central Excise Valuation Rules, 2000 w.e.f. 01/07/2000, that during the period of dispute the assessable value was being determined on the basis of cost of production plus profit and during the period w.e.f. 01/07/2000, the assessable value had been adopted as 115%/110% of the cost of production, that this duty demand against the appellant has been raised on the basis of allegation that the cost of production has not been correctly determined in as much as financial expenses, administrative expenses, depreciation, handling and distribution expenses etc. have not been included, that in terms of Boards Circular No. 692/8/2003-CX dated 13/02/03, the cost of production is to be determined in accordance with CAS-4 Standard of ICWAI and accordingly the above expenses would not be includible in assessable value and in terms of Apex courts judgment in the case of CCE, Pune vs. Cadbury India Ltd. reported in 2006 (200) E.L.T. 353 (S.C.) even for the period prior to the date of the Boards Circular, the cost of production for the purpose of determining the assessable value in respect of the goods cleared for captive consumption has to be determined in accordance with CAS-4 Standard, that in view of this, the items of expenses which are sought to be added by the department for determining the cost of production are not includable in the cost of production and, hence, the impugned order is not sustainable, that in any case, since the HDPE pipes being manufactured by the appellant are specifically designed for use with Sprinkler Irrigation System, the same would be correctly classifiable under heading 8524 where the rate of duty is nil and not under heading 3917 and in this regard he relies upon the judgments of the Tribunal in the cases of CCE, Aurangabad vs. EPC Irrigation reported in 2002 (142) E.L.T. 630 (Tri. Mumbai), Flow Tech Power vs. CCE, Coimbatore reported in 2001 (130) E.L.T. 541 (Tri. Chennai) and CCE, Ghaziabad vs. Rungta Irrigation Ltd. reported in 2004 (167) E.L.T. 476 (Tri. Del.), that though this plea had been made by the appellant in their reply to the show cause notice and in the course of adjudication proceedings and the same has been recorded as the appellants defence in the impugned order-in-original, the Commissioner has wrongly not considered this plea on the ground that the issue of classification had not been raised in the show cause notice, as the show cause notice has been on the basis of valuation issue, that this view of the Commissioner is totally incorrect, that even if the show cause notice demanding differential duty had been issued on the basis of allegation that the assessable value of the goods based on the cost of production has not been correctly determined, no duty would be demandable if on the basis of correct classification of the goods, the rate of duty applicable is nil and that in view of the above submissions, the impugned order is not correct.
4. Shri Jayant Sahai, the learned DR, defended the impugned order by reiterating the findings of the Commissioner in it and emphasized that the financial cost, depreciation, and marketing expenses are also to be included in the cost of production, as in terms of the Apex courts judgment in the case of UOI & Ors. etc. etc. vs. Bombay Tyre International Ltd. etc. etc. reported in 1983 (14) E.L.T. 1986 (S.C.), all these expenses have to be included in the assessable value of the goods. He also pleaded that since the show cause notice has been issued only on the issue of valuation, the question of classification of the goods cannot be raised by the appellant and the Commissioner has correctly refused to go into the question of classification. He, therefore, pleaded that there is no infirmity in the impugned order.
5. We have considered the submissions from both the sides and perused the records.
6. The dispute adjudicated by the Commissioner in the impugned order is about valuation of the HDPE pipes cleared for captive consumption for use in the manufacture of parts of Sprinkler Irrigation System (HDPE Coupled pipes). While both the sides agree that the assessable value has to be determined on the basis of cost of production plus profit in accordance with Rule 6 (b) (ii) of Central Excise Valuation Rules, 1975 during the period prior to 01/07/2000 and on the basis of 115%/110% of the cost of production in terms of Rule 8 of the Central Excise Valuation Rules, 2000 during the period w.e.f. 01/07/2000, the dispute is about how to determine the cost of production. According to the department certain expenses like deprecation, marketing and sales organization expenses, and Finance charges have not been included for determining the cost of production, while according to the appellant these expenses which are sought to be included while determining cost of production, are not to be taken into account in terms of the principles of costing. In this regard another contention raised by the appellant before the Commissioner was that the HDPE pipes manufactured by them are specifically designed for use in Sprinkler Irrigation System and, hence, in accordance with the judgments of the Tribunal in the cases of CCE, Aurangabad vs. EPC Irrigation (supra), Flow Tech Power vs. CCE, Coimbatore (supra) and CCE, Ghaziabad vs. Rungta Irrigation Ltd. (supra), the same would be classifiable under heading 8424 where the rate of duty is nil and, therefore, the question of payment of duty does not arise, but this plea of the appellant was not considered by the Commissioner on the ground the show cause notice had been issued only on the valuation issue.
7. Coming to the second plea of the appellant, the Commissioner has not given any finding and has not even considered the question of classification on the ground that the same had not been raised in the show cause notice and the show cause notice was only on the basis of valuation issue and, therefore, the appellant cannot raise this issue at the time of adjudication. We are of the view that the Commissioners decision of not considering the classification issue is not correct, as show cause notice after all was for demand of duty though on the ground of under valuation, and if it is found that the goods themselves are not liable to duty for the reason that the same being classifiable under heading 8424 are chargeable to nil rate of duty, there would be no question of duty demand based on under valuation and, as such, the question of under valuation would be irrelevant. Therefore, the Commissioner should have considered the appellants plea with regard to classification and given a finding and only if the Commissioner was of the view that the appellants plea with regard to classification of the HDPE pipes under heading 8424 is not acceptable, only then the question of valuation would be relevant. Therefore, for this reason, this matter has to be remanded to Commissioner for considering the appellants plea with regard to classification.
8. As regards the valuation issue, as mentioned above, there is no dispute that the value of the goods is to be determined on the basis of cost of production under Rule 6 (b) (ii) of Central Excise Valuation Rules, 1975 during the period prior to 01/07/2000 and under Rule 8 of the Central Excise Valuation Rules, 2000 during the period w.e.f. 01/07/2000. The dispute is only over the method of determining the cost of production and which items of expenses are to be taken into account. In this regard, Board vide Circular No. 692/8/2003-CX dated 13/02/03 had directed the cost of production for the purpose of determining assessable value under Rule 8 of the Central Excise Valuation Rules, 2000 must be determined on the basis of CAS-4 Standard laid down by ICWAI and the Apex Court in the case of CCE, Pune vs. Cadbury India Ltd. (supra) has held that even for the period prior to 13/02/03 including the period prior to 01/07/2000, the cost of production must be determined on the basis of CAS-4 Standard only as the cost of production has to be determined in accordance with the principles of costing on the basis of which CAS-4 format for determining cost has been developed. Therefore, what the Adjudicating Authority was required to see was as to whether the cost adopted by the appellant was in accordance with CAS-4 Standard, but the Commissioner has not gone into this aspect. The Apex Courts judgment in case of UOI & Ors. etc. etc. vs. Bombay Tyre International Ltd. etc. etc. (supra) relied upon by the Department, is not applicable to this case, as this judgment was on the point as to what is the assessable value of the goods under Section 4 while the dispute here is what is the cost of production of the goods and how it is to be determined. The value of the goods for the purpose of assessment of duty and the cost of production are different. In this case, while the assessable value of the goods is cost of production plus manufacturers profit during period till 30/06/2000 and 115%/110% of the cost of production during period w.e.f. 01/07/2000, the cost of production is that which has to be determined in accordance with the principles of costing i.e. CAS-4 standard of ICWAI and for determining the cost of production, Apex Courts judgment in case of UOI & Ors. etc. etc. vs. Bombay Tyre International Ltd. etc. etc. (supra) has no application. In view of this, the Commissioners order with regard to the issue of valuation is also incorrect and the matter has to be remanded for denovo adjudication.
9. In view of the above discussion, the impugned order is set aside and the matter is remanded to Commissioner for denovo adjudication in terms of our directions in this order. In the denovo proceedings, the Commissioner must also consider the appellants plea with regard to classification of the goods under heading 8424 and whether the same are chargeable to nil rate of duty and thereafter should also give his specific finding on the issue of valuation whether the cost of production determined by the appellant is in accordance with the CAS-4 Standard laid down by the ICWAI. The appeal stands disposed of, as above.
(Operative part of the order pronounced in the open court.) (Justice G. Raghuram) President (Rakesh Kumar) Member (Technical) PK ??
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