Customs, Excise and Gold Tribunal - Delhi
Modi Alkalies And Chemicals Ltd. vs Cce on 24 May, 2002
Equivalent citations: 2002(82)ECC602, 2002(147)ELT1117(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. This appeal of M/s Modi Alkalies & Chemicals Ltd. is directed against order in original No. CCE (Adj.)/NM/23/98 dated 8.12.98 of the Commissioner of Central Excise (Adj.), New Delhi. The impugned order of adjudication was passed in regard to allegation that the appellant received part of the price of Liquid Chlorine sold by them in cash, outside the invoice price and books of accounts of the company. It had been alleged that from Chlorinated Paraffin Wax (sic) manufacturers, who purchased liquid chlorine from the appellant as their raw material, the appellant collected part of the price in cash. Such cash compoent of the price was over and above the price mentioned in the invoices covering the sales. As Central Excise duty was paid treating invoice price as assessable value, it had been alleged that Central Excise duty was evaded to the extent payable on the cash component of the price. The impugned order upheld the allegation as established from the appellant's own records and other evidence.
2. It has to be noted at the outset that the allegation of collecting part of the amount over and above the invoice price remains proved to the hilt. When the Central Excise Officers searched the appellant's office on 27.8.96 they recovered a register (Lotus register) in which the entries regarding cash collections for the months of July-August, 1996 had been entered. Even as the search was in progress, one of the buyer's turned up with cash for making part payment in cash. He and other buyers of the appellant also confirmed during the investigation that part of the price was being paid in cash Various officers of the company also confirmed that it was the company's practice to collect part of the price in cash. Thus, collection of part of the price in cash outside the books of accounts of the company remain fully established. The evidence on record has been fully and cogently discussed in the impugned order. Therefore, we are not repeating them. The Counsel appearing for the appellants also has noted this position and did not contest the finding regarding the practice of recovering part of the price in cash.
3. In the above facts and circumstances, the main grievances raised in this appeal are about the method of valuation adopted for the purpose of working out short levy of duty. With regard to the method of valuation, the grievance raised is that the adjudicating authority should not have worked out the assessable value of the liquid chlorine manufactured and cleared by the appellant based on the assessable value of M/s Punjab Alkalies & Chemicals Ltd. Appellants contend that it would have been more appropriate and reasonable to compare the appellant's sale price with the price of SIEL Food & Fertilizer, New Delhi (SFFI), a company nearer to the appellant's place of production than Punjab Alkalies. It is also pointed out that the sale prices of (SFFI) were lower than that of Punjab Alkalies. Another objection which is more basic and purely legal in nature is that the adjudicating authority should have determined the assessable value of the goods by adding the cash collection (additional consideration) to the invoice price and determined the short levy as provided by Rule 5 of Central Excise Valuation Rules rather than by taking the value of another manufacturer for comparison. A third error pointed out in regard to valuation is that while adopting comparable value, simple monthly average of highest and lowest prices of M/s Punjab Alkalies had been adopted as assessable value. It is pointed out that simple average does not give a correct picture and can yield a slanted result. Weighted average would have given a more reasonable value.
4. The appellants have also submitted that the adjudicating authority was in error in holding that there was additional cash realization throughout the period of demand i.e April, 1995 to August 1996. This contention is based on the submission that evidence is to the effect that only during the peak season, for three to four months a year, there was additional collection. In this context it has been submitted that chlorine is a hazardous material and the lower sale prices of the appellant is not wholly on account of additional cash collection but on account of the compulsion to dispose of stocks since the appellant had been permitted only a low storage capacity of 60 tonnes. During the hearing of the case it was emphasized that during peak season large quantities of liquid chlorine comes to be produced as by-product and the appellant has to dispose of those quantities by selling them at low prices on account of the storage capacity constraint.
5. The appellant has also challenged the demand for interest under Section 11-AB and imposition of penalty under Section 11AC of the Central Excise Act. The submission in this regard is that these legal provisions came into existence subsequent to the period covered by the demand in the impugned order and these legal provisions have no application to the appellant's case.
6. Learned SDR has very vigorously contested the objections raised by the appellant. It has been submitted that once the offence has been fully established by documentary and other evidence, the appellant's submission regarding compulsion to dispose of stock at available price etc. ceased to have any credibility With regard to the method adopted for valuation, he explained that it was not possible to work out the value by additing the extra cash collection to the invoice price, since rate of such collection varied from period to period. Further, full particulars about the amount of such collection was available only for the period July-August '95. However, it was clear from the evidence on record that cash collections took place for the entire period covered by the show cause notice. It was also contended on behalf of the revenue that, the assessable value adopted of Punjab Alkalies were fair and reasonable as they were adopted only after averaging. He also produced a chart in support of the contention that the assessable values adopted compared favourably with the assessable of SFFI. The learned DR submitted that valuation was in conformity with Rule 7 of Valuation Rules and cannot be faulted. With regard to penalty, he submitted that even though Section 11AC was not in force at the relevant time, imposition of penalty was legally in order as Rule 173 Q had been invoked in the show cause notice and that rule envisaged a higher penalty. He relied on the decision of the Apex Court in N.B. Sanjana case in support of this submissions .
7. There is hardly any dispute in this case that the fraud was committed by the appellant company in regard to realization of the price of the liquid chlorine manufactured and sold by it. Collection of part of the price in cash outside the books of accounts of the company remains documented and such payments by buyers and receipt of the same by Co. Officers remain admitted also. Such malpractice by the company's management led to Central Excise duty evasion, as payment of duty was not on the full price of the goods but only on that portion of the value which was entered in the invoices. Therefore, the impugned order is right in demanding duty short levied and short paid by invoking the longer period as per proviso to Section 11A of Central Excise Act.
8. Serious contest in the appeal proceedings has been raised only about the method of quantification. The appellant's contention that the duty should have been demanded on the excess/extra collection under Rule 5 of the Central Excise Rules is not workable in the facts of this case. Rate Per M.T. of cash collection varied (Rs. 1500-Rs. 3100 pmt) depending upon type of customer and other factor. Accounts about the cash collection are available only for part of the period, July-August 1996. Records for the earlier period had been destroyed by the officers of the Co. who perpetrated the fraud. In these circumstances, the revenue authorities were right in going by the comparable value of the goods. This is a method specifically laid down under Central Excise Valuation Rules. Adoption of that method is entirely justified in the facts of this case. Therefore, the method adopted was legal, proper and fair in the circumstances of the case. However, the appellant's grievance about taking the average of the highest and lowest prices and not taking the price of the nearer unit (SFFI) have some merit. Simple averages do yield misleading data. Particularly, when market prices fluctuate vastly. We find from the price data made available by both sides that the price of liquid chlorine was fluctuating vastly during the relevant period. Adopting the actual comparable value (as against simple average assesssable value) or weighted average would elimit or limit errors in computation. The short levy is required to be re-computed on such basis. Since the revenue authorities are also of the view that prices of SFFI and Punjab Alkalies are comparable, they should have no objection in adopting the prices of SFFI as suggested by the appellants. We are saying this particularly in view of the fact that charts produced before us by both sides do not give common prices for both the units. Thus, after considering the evidence on record and the submissions of both sides in detail, we are of the view that the short levy amount is required to be worked out afresh adopting the assessable value of SFFI as the basis. If by any chance, for a given period SFFI assessable values are not available, computation may be done based on the assessable value of Punjab Alkalies. In either case, computation should be on the basis of assessable value for corresponding date/period or in its absence on the basis of assessable value worked out on weighted average basis. We make it clear that we find no merit in the appellant's submission that the reassessment could not be for the entire period April, 1995 to August 1996 since evidence of some of the Co. officials was that cash collection was only for three to four months a year during the peak season. It is clear from the evidence on record that the company's management was indulging in this malpractice for a long period. Further, even if this grievance of the appellant is correct for some period, it would be eliminated by the method of valuation adopted. Adoption of comparable value for assessment would ensure that in case the appellant was not making cash collections during any particular period, there would be no demand for that period, as the sale prices of the appellant and SFFI should be comparable in such a situation.
9. We are not able to accept the appellant's submission that the imposition of penalty is bad in law. The charge against the appellant remains fully proved. Penalty had been correctly proposed in the show cause notice under Rule 173-Q. Therefore, imposition of penalty was warranted and legal. That the impugned order has invoked Section 11-AC, which had no application for the relevant period, does not make the penalty legally invalid in view of the decision of the Apex Court in the case of N.B. Sanjana. The adjudicating authority has imposed a penalty equivalent to the duty held as evaded. This ratio is also fully justified in view of the deliberate and planned nature of the fraud. There was no legal provision prior to coming into force of Section 11AB w.e.f. September, 1996 for demand of interest. Undisputedly the period of duty demand is prior to the coming into force of Section 11AB. The demand for interest, therefore, is without legal sanction. It is set aside.
10. In view of our findings above, the appeal is ordered as under:--
(i) The amount of short levy shall be re-computed by the adjudicating authority based on the assessable value of SFFI for liquid chlorine for the corresponding period. The appellant shall be heard on this score.
(ii) The duty so recomputed shall be adjusted from the deposit already made by the appellant. If the amount in deposit is found to be insufficient, the appellant shall pay the amount short immediately upon receipt of the order of re-computation. If the deposit already made is in excess of the duty worked out, the excess amount shall be returned to the appellant.
(iii) The appellant shall also pay a penalty equivalent to the amount of short levy worked out as indicated above.
(iv) The demand for interest is set aside.