Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Central Excise vs Godfrey Phillips India Ltd. on 2 January, 2007
Equivalent citations: 2007(117)ECC109, 2007ECR109(TRI.-MUMBAI)
ORDER
Jyoti Balasundaram, Vice President
1. The respondents herein who are manufacturers of cigarettes, introduced a scheme of taking interest-free security deposit from their wholesale dealers to the extent of 10% of their projected annual turnover w.e.f. 1.9.1980, to achieve twin objectives, namely (a) to guarantee assured supply to wholesale dealers, and (b) to ensure assured lilting of stocks by such dealers. The limit of 10% was raised to 15% w.e.f. 1.5.1982. The security deposit was completely optional and additional option was also available to such of those wholesale dealers who wished to buy cigarettes on credit, to give interest free security deposit. The price-lists filed were approved provisionally.
2. On the basis of information that cigarettes were being undervalued by the respondents on account of indirect consideration flowing from the aforesaid deposit scheme, necessary investigation was conducted and statements of officers of the respondents were recorded, and the statements revealed mainly that (i) The price charged from the wholesale dealers opting for the scheme and also from those who had not opted for the scheme during the entire period, remained the same, (ii) The amount of security deposit was utilised in the procurement of raw material etc., (iii) The pricing of cigarettes mainly depended on the competition being faced in the market, (iv) The scheme was introduced following the increased production capacity and it was intended that the scheme would meet the objectives of ensuring that the entire stock was lifted by the dealers and that the dealers were assured of regular supply during the currency of their agreements with the respondents, (v) Increase or decrease in prices mainly influenced by market conditions did not exclusively depend upon the costing, and (vi) Wholesale dealers who opted to remain outside the scheme hailed from the State of Madhya Pradesh. The assessable value declared by the respondents was on the basis of the price charged by them to their wholesale dealers financially connected with or related to them, that such value was not based on uniform price to independent wholesale dealer, that cigarettes were being sold on the basis of an agreement conferring certain commercial advantages, the prices for assessment did not represent transaction in the ordinary course of business, that the additional consideration was not disclosed and the equivalent money value of the additional consideration, which had flown directly or indirectly from the buyers to the assessee was, not added to the declared price and that notional interest earned on the security deposits from the wholesale dealers merited inclusion in the value of the goods. The department was of the view that by utilising buyers' money received in the form of security deposit without interest, the respondents earned huge profit which would have gone into the assessable value and evidence in the form of price list issued by "Bombay Bidi Tambaku Vyapari Sangh" for retail sale of cigarettes showing that the actual retail prices were higher by 15% to 20% as compared to the printed retail price of the cigarettes by the respondent company was relied upon. Investigation revealed that out of 20.64% commitment of the respondent company on account of expenses incurred on various counts, 13.66% was already collected from wholesale dealers as security deposit. For the year ending December 1980, and for the year ending December 1981, 12.87% out of the company's commitment of 21.26% on account of expenses incurred on various counts, was already collected from the wholesale dealers as security deposit, from which it appeared that the taking of the deposit had played an effective role in lowering the assessable value of the cigarettes.
3. On the basis of the above, two show cause notices dated 20.7.1983 proposing recovery of duty of Rs. 5,09,83,863/- by inclusion of notional interest in the value of cigarettes, and 3.7.1983 for recovery o/differential duty of Rs. 41,41,27,436.39, were issued. The first notice covered the months of January and February 1983 and the second notice covered the period from 1.9.1980 to 31.12.1982. The notices also proposed imposition of penalty. The Commissioner of Central Excise, Delhi, vide order No. 3/96 dated 15.7.1996 rejected the contention of the assessees that the notices were invalid on the ground that they had been issued prior to finalisation of provisional assessment and directed expeditious finalisation of provisional assessment. He clarified that this was only an interim direction in the course of adjudication proceedings in respect of the above two notices. The present impugned order has been passed in continuation of the order of 1996 and by this order the Commissioner has inter alia held that the show cause notices issued during the pendency of provisional assessment are maintainable, and ordered that the notional interest at the rate of 12% per annum should be adopted for working out the differential duty in both the show cause notices and arrived at a duty demand of Rs. 2,52,72,932/- but decided the issue on merits in favour of the assessees by applying the ratio of the apex court's judgment in VST Industries Ltd. v. CCE, Hyderabad reported in 1998 (97) ELT 395 (SC). Hence this appeal by the Revenue.
4. We have heard both sides.
5. It is an admitted position that the assessments were provisional, and this fact is specifically noted in the show cause notices. The provisional assessments were finalised on 10.11.1997. The submission of the respondents that the show cause notices are bad in law, as it is well settled that no show cause notice under Section 11A of the Central Excise Act can be issued before finalisation of assessments, has been rejected by the Commissioner on the ground that there is no categorical finding in the case of Serai kella Glass Works Pvt. Ltd. v. CCE, Patna relied upon by the assessees, that show cause notices issued during the pendency of provisional assessment are ab initio void and illegal. However, the legal position is well settled by the latest decision dated 3.10.2006 of the apex court in the case of CCE, Mumbai v. ITC Ltd. and Ors. in Civil Appeal No. 1669-1679 of 2005 wherein the Court held as under:
Whereas provisional duty is levied in terms of Sub-rule (1) of Rule 9B, final assessment is contemplated under Sub-rule (5) thereof by reason of which the duty provisionally assessed shall be adjusted against the duty finally assessed and in the event, the duty provisionally assessed falls short of or is in excess of the duty finally assessed, the assessee will pay the deficiency or will be entitled to a refund, as the case may be. Ultimately, thus, the liability of the assessee would depend upon the undertaking of exercises by the assessing officer to complete the assessment proceeding as contemplated under the Rules.
On a plain reading of the provisions of the Act and the Rules framed thereunder, we have no doubt in our mind that the Tribunal was correct in its finding that the impugned show cause notices were illegal.
6. The Supreme Court also specifically dealt with its earlier decision in the case of Serai Kella Glass Works Pvt. Ltd. cited supra and extracted the quotations from paragraphs 17 and 18 of that judgment, which read as under:
Section 11-A deals with recovery of duty not levied or not paid or short-levied or short-paid or erroneously refunded. Proceedings under Section 11-A have to be commenced with a show-cause notice issued within six months from the relevant date. "Relevant date" has been defined under Sub-section (3)(ii) to mean in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof.
After final assessment, a copy of the order on the return filed by the assessee has to be sent to him. Duty has to be paid by the assessee on the basis of the final assessment within ten days' time from the receipt of the return. No question of giving any notice under Section 11-A arises in such a case. It is only when even after final assessment and payment of duties, it is found that there has been a short-levy or non-levy of duty, the Excise Officer is empowered to take proceedings under Section 11-A within the period of limitation after issuing a show-cause notice. In such a case, limitation period will run from the date of the final assessment. The scope of Section 11-A and Rule 173-I are quite different. In this case, the provisional assessment earlier made by the proper officer has been quashed and pursuant to the direction of the High Court, the proper officer has made the final assessment. No question of failure of issuance of how-cause notice under Section 11-A arises in this case. Even otherwise, we do not find any infirmity in the order of the Tribunal.
7. It is significant to note that in the present case, the Commissioner has sought to distinguish Serai Kella Glass Works Pvt. Ltd. judgment in a similar manner and the Revenue's contention has been specifically rejected in the ITC case supra. In the light of the above, we agree with the assessees that the two show cause notices dated 20.7.1983 were bad in law and without jurisdiction. The submission of the learned DR that the finding of the Commissioner on the maintainability of the show cause notices has not been challenged either by way of appeal or by way of cross objections and therefore, cannot be permitted to be assailed in the Revenue's appeal, cannot be accepted. The right to file an appeal against an order arises only when a party is "aggrieved" by the impugned order. In the present case since total relief was granted to the respondents by dropping of the show cause notices, the respondents could not be treated as aggrieved persons. Therefore, the respondents had no locus standi to file an appeal against the Commissioner's order or to file cross objection which right arises only when the order, or part thereof, denies relief to an assessee. In an appeal, a respondent has a right to support the impugned order granting him complete relief, not only by supporting findings given in his favour but also by contending that the findings on any issue/issues decided against him in the impugned order be reversed in appeal, in the light of the apex court decision in Banarsi and Ors. v. Ram Phal . Paragraphs 7 to 9 of the judgment are directly on this issue and are reproduced herein below for ease of reference.
7. The first question is whether without cross objection by the respondent, could the Appellate Court have set aside the decree passed by the Trial Court and instead granted straightaway a decree for specific performance of contract? This would require reference to the principles underlying right to file an appeal and right to prefer cross objection or when does it become necessary to prefer cross objection without which decree under appeal cannot be altered or varied to the advantage of the respondent and/or to the disadvantage of the appellant.
8. Section 96 and 100 of the CPC make provision for an appeal being preferred from every original decree or from every decree passed in appeal respectively; none of the provisions enumerates the person who can file an appeal. However, it is settled by a long catena of decisions that to be entitled to file an appeal the person must be one aggrieved by the decree. Unless a person is prejudicially or adversely affected by the decree he is not entitled to file an appeal (See Phoolchand and Anr. v. Gopal Lal- Smt. Jatan Kanwar Golcha v. Golcha Properties (P) Ltd.; Smt. Ganga Bai v. Vijay Kumar and Ors. No appeal lies against a mere finding.
9. Any respondent though he may not have filed an appeal from any part of the decree may still support the decree to the extent to which it is already in his favour by laying challenge to a finding recorded in the impugned judgment against him. Where a plaintiff seeks a decree against the defendant on grounds (A) and (B), any one of the two grounds being enough to entitle the plaintiff to a decree and the Court has passed a decree on ground (A) deciding it for the plaintiff while ground (B) has been decided against the plaintiff, in an appeal preferred by the defendant, in spite of the finding on ground (A) being reversed the plaintiff as a respondent can still seek to support the decree by challenging finding on ground (B) and persuade the appellate court to form an opinion that in spite of the finding on ground (A) being reversed to the benefit of defendant-appellant the decree could still be sustained by reversing the finding on ground (B) though the plaintiff-respondent has neither preferred an appeal of his own nor taken any cross objection. A right to file cross objection is the exercise of right to appeal though in a different form. It was observed in Sahadu Gangaram Bhagade v. Special Deputy Collector, Ahmednagar and Anr. - that the right given to a respondent in an appeal to file cross objection is a right given to the same extent as is a right of appeal to lay challenge to the impugned decree if he can be said be aggrieved thereby. Taking any cross objection is the exercise of right of appeal and takes the place of cross-appeal though the form differs. Thus it is clear that just as an appeal is preferred by a person aggrieved by the decree so also a cross objection is preferred by one who can be said to be aggrieved by the decree. A party who has fully succeeded in the suit can and needs to neither prefer an appeal nor take any cross objection though certain finding may be against him....
The learned SDR draws the attention of the bench to an earlier order passed by the Commissioner of Central Excise, Delhi, in the same proceedings relating to the same two show cause notices, wherein it as noted that the show cause notices under Section 11A would continue even though the assessments were provisional and direction was also given that the provisional assessment should be finalised by the Assistant Commissioner, Mumbai. We note that this is only an interim direction in the course of adjudication proceedings. The issue of maintainability of the notices was finally considered by the Commissioner at the final hearing in the impugned order and the respondent is entitled to challenge this finding in this appeal, even in the absence of appeal or cross objections filed by them, as per the principles laid down by the apex court in the case of Smt. Sukhrani v. Hari Shankar holding that because the matter has been decided at an earlier stage by an interlocutory order and no appeal has been taken therefrom or no appeal did lie, a higher court is not precluded from considering the matter again at a later stage of the same litigation.
8. In this view of the matter, we hold that it is open to the assessees to agitate the issue of maintainability of the show cause notices and challenge in success in the light of the apex court's decision in CCE v. ITC and Ors. Following the ratio of the ITC judgment, we hold that the show cause notices issued to the respondents under Section 11A of the Central Excise Act are without jurisdiction as they were issued when the assessments were provisional.
9. On merits, the judgment of the apex court in VST Industries 1998 (97) ELT 395 (SC) squarely covers the present case. In the impugned order, the Commissioner has extensively dealt with the above decision in the case of respondent's competitor who also sells cigarettes and who had introduced a similar scheme offering an interest free security deposit to wholesale dealers who were given choice to opt for the security deposit scheme in the same manner as in the present case. The apex court relied upon the fact that the scheme was optional and the goods were sold at the same price to wholesale dealers who did not furnish any security deposit and those wholesale dealers who opted for the security deposit scheme. The sale price to wholesale dealers who did not give any security deposit, being a normal price under Section 4(1)(a), was adopted as the basis for determining assessable value and was applied for all clearances. The Commissioner has relied upon the same principle and held that when Section 4(1)(a) price was available, no other price is relevant. He has also noted that sales to dealers who did not opt for giving security deposit, ranged between 5% to 8% and noted the decision of the apex court in A.K. Roy v. Voltas Ltd. wherein it has been held that, for attracting the provisions of Section 4(1)(a), it is not necessary that there should be a large number of wholesale sales, the quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant and the mere fact that such sales may be few or scanty does not alter the true position (90 to 95% of the production was sold by Voltas other than at foe factory gate to wholesale dealers, i.e. only 5 to 10% of the sales were made to wholesale dealers at the factory gate). The principle that when the normal price is available under Section 4(1)(a), it is to be applied, has been followed by the Tribunal in the case of Indian Aluminium Cables v. CCE .
10. In paragraph 9.7 of the impugned order, the Commissioner has held that there is no evidence in the show cause notices to suggest that the sales made to the wholesale dealers who had not opted for the deposit scheme were not sales to independent buyers under Section 4(1)(a) and once it has been established that some sales had been made to wholesale dealers from whom no deposit has been taken, then as far as those sales were concerned, it cannot be said that the price to them did not represent the full consideration. He has held that in the absence of any evidence it cannot be held that any additional consideration, whether directly or indirectly, was received by the company from these wholesale dealers and such sales to these wholesale dealers would be sales under Section 4(1)(a). He has further held that the question of applying Rule 5 of the Valuation Rules for redetermining the assessable value of goods would not arise as recourse to Rule 5 is permissible only if the assessable value is determined under Section 4(1)(b) which will apply only when the normal price cannot be determined under Section 4(l)(a), in the light of the apex court's decision in UOI v. Bombay Tyres International Ltd. (1983) ELT J 1896 (SC).
11. In the present case, Section 4(1)(b) is clearly inapplicable as the price under Section 4(1)(a) is available. This aspect has been dealt with in the impugned order in paragraph 9.5, with reference to the decision of the apex court in Indian Oxygen . With regard to the price at which cigarettes were sold to those wholesale dealers who did not participate in the security deposit scheme, there is no material on record to establish that additional consideration was received directly or indirectly by the assessee from such wholesale dealers and therefore the question of adding any additional consideration does not arise.
12. The decisions in the case of CCE v. Hero Honda Motors Ltd. , Metal Box India Ltd. v. CCE and CCE v. Rural Engineering Company Pvt. Ltd. , relied upon by the Revenue, are clearly distinguishable. In the case of Metal Box India Ltd., there was a substantially lower price for sale by Metal Box to Ponds on account of heavy advance by Ponds to Metal Box, from whom the price was reduced by as much as 50%. Sales by Metal box to other buyers who had not given advances, carried higher prices. In the present case, sales in the case of VST, the price is the same for all customers.
In the sale of Hero Honda, no Section 4(1)(a) price was available. Large amounts were received as advances and the question arose as to whether such advances were used in the working capital to enable the manufacturers to reduce their price. In such a case, while considering whether the price should be treated as the normal price, it was held that it was necessary to consider whether on account of such advances, part of which may have been used in the working capital, the price of the motor cycles manufactured by Hero Honda was reduced. No normal price under Section 4(1)(a) was available in respect of sale of motor cycles to dealers who did not give any advance.
No principle of law emerges from the decision in Rural Engg. Co. which was disposed of on the basis of Metal Box decision. It was not a case where price under Section 4(1)(a) was available.
13. As regards the decision of the apex court in VST Industries supra, relied upon by the adjudicating authority, learned SDR attempts to distinguish it on the ground that in the present case the wholesale dealers to whom 5 to 6% of supplies were made and who did not participate in the security deposit scheme, hailed only from Madhya Pradesh and therefore it was a regional consideration. However, the wholesale dealers who did not participate in such scheme were from different regions, as illustrated by the respondents in their reply dated 30.7.1983 to the show cause notice. As such Section 4(1)(a) price was available in respect of sales to wholesale dealers. Another point of distinction sought to be made by the Revenue was on the basis that, in the VST Industries case 50 to 65% sales were on credit basis. However, there is nothing on record to substantiate these figures which are appearing for the first time in the memorandum of appeal. On the other hand, the Commissioner has referred to a comparative chart of the facts in the VST Industries case and the security deposit scheme of the respondents to hold that the two schemes are similar and the chart shows that the ratio between deposit holders and non-holders in both cases is similar.
14. Learned SDR referred to circular issued by the Mumbai Biri Tambakku Vyapar Sangh relating to prices effective from 22.5.1983. The period in the present appeal is upto 20.2.1983 and with effect from 1.3.1983, excise duty was levied on the basis of retail sale price, instead of Section 4(1)(a) price being a normal price at which goods were sold in wholesale at the factory gate. In the context of the changed excise structure, in certain areas like Mumbai, retailers were selling cigarettes at prices higher than the printed price. This aspect has no bearing in the present case, and has been dealt with by the Commissioner in paragraph 9.9 of the impugned order. Therefore, the reference to the circular is not relevant in this case.
15. In the light of the above discussion, we agree with the Commissioner that me sales to wholesale dealers who had not opted for interest free security deposit scheme were sales to independent buyers and represented sales for the purpose of Section 4(1)(a) of the Central Excise Act and such price would hold good for entire sales. Accordingly we uphold the impugned order and reject the appeal.
(Pronounced in Court on 2-1-07)