Customs, Excise and Gold Tribunal - Delhi
Shree Krishna Pharmaceuticals Ltd. vs Collector Of Central Excise on 22 February, 1988
Equivalent citations: 1988(36)ELT190(TRI-DEL)
ORDER D.C. Mandal, Member (T)
1. During the hearing of the appeal before us Shri D.N. Kohli, learned Consultant argued for the appellants and Shri L.C. Chakraborty, learned J.D.R. argued for the respondent-Collector. After conclusion of the hearing, the case was closed for order. Four days after the hearing was over, Shri Kohli, in his letter dated 21-9-1987, made a request to refer the matter to Special Bench A of this Tribunal. The contents of his letter are reproduced below :
"This is to submit that during the hearing a question arose that M/s.' Shri Krishna Pharmaceuticals Ltd. were manufacturing chemicals on labour charges. It was thought that the transanction could not be termed as a sale within the meaning of Section 4(1)(i) as read with Section 4(4)(e) which permits different values for Government customers.
It is submitted that the Section 4 has inbuilt provisions for dealing with situations e.g. a "best judgment' valuation under valuation Rule 7. In view of this the only way to determine the value in an 'arm length' transaction with a public undertakings is to apply the principles of Section 4(1)(i) and 4(4)(e) and compute the value under Rule 7 of the Valuation Rules. There is also a Tribunal decision which covers an indentical job work case, namely : 1987 (29) ELT 697 (Tribunal) in Re : CCE Patna v. Asian Electric in which the Tribunal has held that the assessable value would be material costs plus job charges :
There is yet another decision 1987 (12) ECR 421 in Re: Manibhai Brothers (Sleepers) v. Assistant Collector of Central Excise, Baroda which even says that the value of finished product cannot include cost free inputs received from the Railways which is also about the same case in the above appeal. This citation also relates to a case in which there was no sale to Government.
In view of the above decisions as read with the Special provisions in Section 4(i) and 4(4)(e), the Hon'ble Bench may like to refer the matter to Special Bench A who may have taken other decisions on valuation which are not yet reported, so that there may be a uniformity of approach."
2. Two issues are involved in the appeal, viz. (i) admissibility of the exemption under Notification No. 105/80-C.E., 'dated 19-6-1980 in respect of the Diamino Diphenyl Sulphone manufactured by the appellants and (ii) valuation of the goods. In terms of provision of Para 4 of the Customs, Excise and Gold (Control) Appellate Tribunal Order No. 3 of 1982, dated, 18-10-1982 Special Bench 'C' of this Tribunal has got the jurisdiction and competence to hear and decide this appeal. We, therefore, reject the request of Shri Kohli and proceed to decide the appeal by this order.
3. The facts of the case are that the appellants manufactured 3-3' Diamino Diphenyl Sulphone (hereinafter referred to as DADS) from out of Dinitro Diphenyl sulphone (hereinafter referred to as DNDS) supplied by M/s. Hindustan Organic Chemicals Ltd. (hereinafter referred to as HOC). The appellants entered into an agreement with HOC for conversion of DNDS into DADS. According to the agreement, conversion charges were to be paid by HOC to the appellants. 93% of the DADS manufactured by them were supplied to HOC and the balance 7% of the DADS were sold by them in the market. For DADS supplied to HOC, the appellants adopted assessable value of Rs. 30.48 per Kg. and for the DADS sold by them in the market they adopted assessable value of Rs. 63.00 per Kg. On the basis of the above valuation they determined the value of their total clearances during 1981-82 as Rs. 19,48,207.60 (which was less than Rs. 24 lakhs). For the year 1982-83 (upto 9-11-1982) they computed the value of clearances as Rs. 9,21,060.00. They claimed exemption of central excise duty for both the years under Notification No. 105/80-C.E., dated 19-6-1980, and did not apply for central excise licence under Rule 174 of the Central Excise Rules, 1944.
4. Besides DADS, the appellants were also manufacturing paracetamol I.P. during the Financial Years 1981-82 and 1982-83. Both the products fell under Tariff Item 68 of the Central Excise Tariff. Paracetamol I.P. was fully exempted from duty by Notification No. 58/75-C.E. upto 28-2-1982 and under Notification No. 104/82-C.E. with effect from 1-3-1982.
5. The Superintendent of Central Excise issued a show cause notice on 7-11-1982 to the appellants alleging that they had not adopted correct value for the DADS supplied to HOC and that the correct assessable value of the same should be Rs. 63/- per Kg. as in the case of DADS sold in the market. On the basis of this value, the total value of clearances of DADS during 1981-82 came to Rs. 31,75,030/- which exceeded Rs. 30 lakhs. As a result, it was alleged, they were not entitled to exemption under Notification No. 105/80-C.E., dated 19-6-1980 in respect of value of clearances to the extent of Rs. 1,75,030.00, being the excess clearance over the limit of Rs. 30 lakhs during 1981-82 and also from the very first clearance during 1982-83. Superintendent, therefore, asked the appellants to explain why duty amounting to Rs. 87,687.20, being 8% on the value of clearances Rs. 10,96,090.00 (i.e. Rs. 1,75,030.00 during 1981-82 and Rs. 9,21,060.00 during 1982-83), should not be recovered from them under Section 11A(1) of the Central Excises and Salt Act, 1944 as they had suppressed facts and made wilful mis-statement of the value of clearances during 1981-82. It was alleged in the show cause notice that they had committed breach of Rules 174, 9, 49, 52A, 173B and 173G for which they were punishable under Rule 173Q(1) of the Central Excise Rules, 1944.
6. The Assistant Collector of Central Excise dropped the charges after adjudicating the case. He held that HOC were the manufacturers in respect of DADS supplied to them and as the goods supplied to HOC were not for home consumption, but were meant for export, the same should not be included in the value of clearances for the purpose of Notification No. 105/80-C.E. and on that basis the appellants were eligible for exemption under that notification.
7. Against the decision of the Assistant Collector, an application was filed before the Collector of Central Excise (Appeals) under Section 35E(4) of the Central Excises and Salt Act, 1944 and the same was disposed of by the Collector (Appeals) as an appeal by the impugned order. He held that in respect of the DADS supplied to HOC, the appellants were the manufacturers in terms of Section 2(f) of the Central Excises and Salt Act and the duty liability was to be discharged by them. Hence, the value of goods supplied to HOC was to be taken into account in determining their eligibility for exemption under Notification No. 105/80-C.E. Regarding valuation, he held that it should be determined under Section 4 of the Act ibid and the value of the goods supplied to HOC should be the same, i.e. Rs. 63.00 per Kg., as adopted in respect of the DADS sold in the market. He also held that the value of the goods supplied to HOC should not be excluded while computing the value of total clearances as the said goods were not cleared from the appellants' factory for direct export. The Collector (Appeals) further held that the appellants suppressed the relevant facts and filed wrong declaration regarding clearances effected during 1981-82, and longer time limit of 5 years under proviso to Section 11A(1) of the Act was applicable in demanding duty. He accordingly set aside the order of the Assistant Collector and confirmed the demand for duty of Rs. 87,687.20.
8. Arguing for the appellants Shri Kohli stated that the entire goods which were supplied to HOC were exported and those goods should not be included in the computation of value of clearances for the purpose of Notification No. 105/80-C.E. If the value of those goods, viz. Rs. 29,61,630.00, was excluded, then the value of clearances for home consumption during 1981-82 would come to Rs. 2,13,400/- only. Regarding" valuation, Shri Kohli argued that the value for the goods supplied to HOC should be the price received from them by the appellants as provided in the Notification No. 120/75-C.E. and this would be Rs. 31,000/- per M. Ton including the conversion charges. M/s. HOC and the other buyers to whom 7% of products were sold are two separate classes of buyers and the valuation of those two separate classes of buyers should _be governed by the first Proviso to Section 4(1)(a) of the Central Excises and Salt Act. In support of his argument that the supplies made to HOC should be excluded from the computation, the same being exported by them, Shri Kohli relied on the Tribunal's decision reported in 1983 ELT 2367 (Tribunal) in the case of International Minelmech P. Ltd. v. Collector of Central Excise, Meerut.
9. Shri Chakraborty, for the respondent argued that there was no sale by the appellants to HOC in the ordinary course. So, the price at Rs. 63/- per Kg. relating to direct sales to customers should be applied to the goods supplied to HOC. He also argued that the exemption under Notification No. 105/80-C.E. could be admissible in this case if the goods were cleared from the factory for direct export. The goods- supplied to HOC were not cleared for export direct from the appellants' factory and, therefore, the same should be included in the computation of value of clearances for home consumption.
10. We have considered the arguments and the records of the case. Notification No. 105/80-C.E., dated 19-6-1980 exempted the goods falling under Item 68 of the Central Excise Tariff in respect of the first clearances for home consumption by or on behalf of the manufacturer from one or more factories up to a value not exceeding Rs. 30 lacs, cleared on or after 1st April in any Financial Year, from the whole of the excise duty leviable thereon. In terms of this Notification, the clearances made for home consumption are to be taken into account for computation of the value of clearances for the purpose of exemption. Consequently, the goods which are cleared for export should not be included in the value of clearances for the purpose of this notification. The facts of the case show that the goods supplied to HOC were meant for export. It also appears from the impugned order that the appellants submitted necessary documents showing proof of export of the goods by M/s. HOC, to Collector (Appeals), but he did not go into those documents on the ground that the goods were not exported directly from the factory of the appellants. The learned Consultant for the appellants has relied on a decision of this Tribunal in the case of International Minelmech P. Ltd. v. Collector of Central Excise, Meerut, reported in 1983 ELT 2367 (Tribunal) in support of his contention that the goods meant for export should not be included in the computation of clearance value for the purpose"' of Notification No. 105/80-C.E. and that it is not necessary that the goods should be exported direct from the factory of production. We observe from the said decision of the Tribunal that in similar circumstances it was held by the Tribunal in that case that there need not be actual export of goods by the assessee, but it is sufficient if the goods are cleared for export and are exported. It was further observed by the Tribunal that the goods so cleared for export and actually exported out of India could not be considered as goods cleared for home consumption and as a consequence, the value of such goods could not be taken into consideration for computation of the value of clearances for the purpose of Notification No. 105/80-C.E. We do not find any reason to disagree with the view already taken by another Bench of this Tribunal. Respectfully following the said decision, we also hold that for the purpose of benefit of exemption under Notification No. 105/80-C.E. the value of the goods exported out of India should not be included in the computation of the value of clearances and it is not necessary that the goods should be cleared from the factory for direct export by the assessee. We, therefore, hold that the benefit of exemption Notification should be extended to the appellants if they are in a position to establish on the basis of necessary documentary evidence that the goods supplied by them to M/s. HOC were actually exported by the latter out of India. The appellants have not produced before us any evidence in this respect, but they have raised this ground. In the circumstances, this aspect is required to be re-examined by the lower authority and for this purpose the case will have to be remanded to the concerned Assistant Collector of Central Excise.
11. In respect of the goods supplied to H.O.C., the appellants are the manufacturers within the meaning of Section 2(f) of the Central Excises and Salt Act. They are to discharge the duty liability in respect of those goods. For discharging that liability, they are to determine the value of the goods under Section 4 of the Act ibid. 7% of the goods produced by i them were sold to the customers in the market and for those goods they adopted value of Rs. 63.00 per Kg. The balance 93% of the production were not sold in the market. Those 93% goods were supplied to HOC under an agreement and conversion charges were recovered. Those goods were not sold to HOC. HOC cannot, therefore, be said to be a class of buyers. Value of the goods supplied to them cannot, therefore, be determined, under the first proviso to Section 4(1)(a). Similar goods were manufactured and sold by the appellants to customers in the market at Rs. 63/- per Kg. As there was no other class of buyers in respect of 93% goods, the assessable value determined for the 7% goods sold in the market to independent buyers should be applied to the goods supplied to HOC. The value determined by the Collector (Appeals) is, therefore, correct and the same does not require any interference by us.
12. Shri Kohli referred to 2 decisions in his letter dated 21-9-1987 in support of his contention that the goods supplied to HOC should be valued on the basis of the value of raw materials and conversion charges. As those decisions were not relied upon during the hearing., and thus the respondent could not get an opportunity to rebut them, we could ignore the same. But nevertheless we would like to discuss the same. One of those decisions is reported in 1987 (29) ELT 167 (Tribunal). The facts of that case were not similar to the case before us. In the said case, there was no independent sale to customers at the factory gate, whereas in the present case 7% of the goods were sold to independent customers for which value under Section 4(1 )(a) was determined by the appellants. Thus the facts not being similar, the ratio of that decision can not be applied to this case. The other decision is reported in 1987 (12) ECR 421 (App. Collector). The said order was passed by the Collector of Central Excise (Appeals), Bombay. Tribunal is not bound by decision of the Collector (Appeals). Secondly, the facts of that case are not similar to those of the present case before us. In' the said case, no manufacturing process was carried on the McI inserts supplied by the Railways. The goods were sold by the manufacturer to the Railways and the manufacturer opted for invoice value as envisaged under Notification No. 120/75-C.E., dated 30-4-1975. The facts are not similar in the present case. The said decision has no force in the present case.
13. Shri Kohli has argued that the invoice value should be adopted to the goods supplied to HOC, under Notification No. 120/75-C.E., dated 30-4-1975. This contention is also not acceptable as there was no sale to HOC in respect of 93% goods supplied to them. The Notification No. 120/75-C.E. granted partial exemption of Central Excise duty on goods falling under Item No. 68 of the Central excise Tariff, cleared from the factory of manufacture on "sale". In order to be eligible for exemption under that Notification, the following conditions were also to be fulfilled :-
"(i) the manufacturer files with the Superintendent of Central Excise having jurisdiction a written declaration to the effect that he opts to avail of the said exemption;
(ii) the manufacturer avails of the said exemption uniformly in respect of all goods, sold by him, which fall under the Item aforesaid;
(iii) the manufacturer certifies that the price referred to in the invoice represents the price actually charged by him for the relevant sale and that the price is the sole consideration for the sale;
(iv) the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods;
(v) no part of the proceeds of the subsequent sale, or disposal of such goods accrues either directly or indirectly to or for the benefit of the manufacturer or any person associated in business with him."
As the main criterion of "sale" was not fulfilled in respect of the supplies made to M/s. HOC, the benefit of partial exemption under that Notification was not available. As regards the conditions set out above, no arguments have been advanced or no materials have been placed before us to establish as to whether the aforesaid conditions were fulfilled or not by the appellants. However, since the main criterion of "sale" was not fulfilled in respect of the goods supplied to M/s. HOC and the benefit of Notification No. 120/75-C.E. was not admissible on that ground itself, it is not necessary to examine the question of fulfilment of the other conditions of the notification.
14. In ground No. 2 of the grounds of appeal, the appellants have contended that they never suppressed any facts, and, therefore, the proviso to Sub-section (1) of Section 11A was not applicable and the time-limit of six months in raising the demand for duty should apply. In paragraph 4 of the show cause notice dated 17-11-1982, it was alleged that on 3-6-1982 the appellants filed a declaration giving particulars of clearances for the Calender Year 1981 and declared a value of Rs. 9.96 lacs as the aggregate value of the clearances of the goods. However, the value of Rs. 9.96 lacs did not highlight the combination of conversion charges in respect of supply made to M/s. HOC Ltd. and the value of the said goods to independent buyers and thereby they misdeclared the particulars. It is also alleged in the said paragraph that later on, when the inquiry was made, the appellants filed another declaration on 31-8-1982 giving particulars of the Financial Year 1981-82 and exhibited the value separately as conversion charges and value for which sales were made by them to independent buyers. It was alleged in the show cause notice that the appellants had Suppressed the facts and made wilful mis-statement of the value of the goods cleared during 1981-82 and also committed breach of Rule 174 of the Central Excise Rules by not taking a Central Excise Licence when they had crossed 80% of the exemption limit of Rs. 30 lacs value of clearances. The Collector (Appeals), in paragraph 10 of the impugned Order, has held that the appellants had suppressed relevant facts, and that invoking the extended period of 5 years under proviso to Sub-section (1) of Section 11A of the Central Excises and Salt Act, was justified. From the copy of declaration No. F-19:MD:775, dated 3-6-1982, addressed to the Superintendent of Central Excise, MOR-II-Uppal, Hyderabad-Ill, Division, filed by the appellants, we observe' that against Item No. 5 of the Schedule to the declaration they showed that Rs. 10.10 lacs of 3-3' Diamino diphenyl sulphone was manufactured by them during the preceding Financial Year 1981. Against Item No. 6 of the said Schedule, they showed Rs. 9,96 lacs to be the value of the said goods cleared during the preceding Financial Year 1981. They did not declare the fact that for the goods sold to the customers in the market they had adopted the value of Rs. 63/- per kilogram and for the goods supplied to M/s. HOC Ltd. they adopted a value of Rs. 30.48 per kilogram. This amounted to suppression of facts warranting application of longer time-limit of 5 years under proviso to Section 11A(1) of the Act. The demand for duty if any is not, therefore, hit by limitation.
15. In the light of the above discussions, we uphold the order of the i Collector (Appeals) relating to valuation of the goods and his findings on the question of limitation. We, however, remand the case to the Assistant Collector of Central Excise for re-determination of the value of clearances after excluding the value of the goods supplied to M/s. HOC Ltd. and actually exported by the latter to the extent the appellants, by producing documentary evidence, can establish that the goods supplied by them were actually exported. For this limited purpose, the appellants should be allowed necessary opportunity to produce evidence and they should also be given the opportunity of personal hearing before the Assistant Collector re-determines the value of clearances.