Indian Kanoon - Search engine for Indian Law

In its reply to the show-cause notice, the appellants denied that the IED, Kanpur was the extended arm of the appellants. According to the appellants, effective from January 1993, they had started clearing AMS in 25 kgs. bulk packs, on payment of duty to IED, Kanpur for repacking into 20 gms. and 30 gms. sachets; that, the repacking in sachets was undertaken by IED on job work basis; that, such repacking was not a manufacturing activity under the said Act and consequently, no duty was payable by IED on the repacking of AMS 25 kgs. packs into 20 gms. and 30 gms. sachets till 1.3.1994, when chapter note 6 was introduced in chapter 34 making such repacking activity a "manufacture" in terms of section 2(f) of the said Act. After 1.3.1994, IED had applied and obtained registration under the Act. They are since then paying duty on 20 gms. and 30 gms. sachets repacked by them. In their reply, the appellants further pointed out that prior to the period in question, IED used to manufacture AMS; and that, vide letter dated 26.11.1992, IED had informed the Assistant Collector, Kanpur that it had entered into a contract with the appellants for repacking AMS from bulk packing into sachets, hence, there was no suppression on the part of the appellants as alleged. By the said reply, IED further pleaded that "repacking did not amount to manufacture and, consequently, the department had erred in including the repacking charges into the assessable value. Similarly, by another letter dated 5.3.1994, IED had informed the department that it had stopped carrying out manufacturing operations and that it had surrendered L-4 license. Further, vide letter dated 11.11.1991, addressed by the Assistant Collector, Kanpur, clarification was given that "repacking" of the detergent powder did not amount to "manufacture". The appellants relied upon the aforestated circumstances in support of their contention that there was no wilful suppression on their part and, therefore, the department was not entitled to invoke the extended period of limitation, as was sought to be done vide the above show-cause notice. In reply to the show-cause notice, the appellants further submitted that the demand for differential duty was proposed by the department on the ground that the duty was payable on the price of the sachets, which were sold. In reply, the appellants contended that 25 kgs. bulk packs were cleared at their factory's gate at Mandideep, Bhopal; that, they were not sold; that, 25 kgs. bulk packs were sent by the appellants to IED for repacking in sachets and since such repacking did not constitute "manufacture", the department was not entitled to levy differential duty on the price of the sachets. According to the appellants, the demand for differential duty was not on the value of 25 kgs. bulk packs but on the price at which 20 gms. and 30 gms. sachets were sold. According to the appellants, at the relevant time, "repacking" did not amount to "manufacture" under section 2(f) of the said Act, and, therefore, the cost of repacking or the repacking charges were not includible in the assessable value of the bulk packs. According to the appellants, the clearance of 25 kgs. bulk packs on payment of duty was known to the department. They had filed a price list in which they had indicated such clearance. These bulk packs were not sold in the market. They were cleared for subsequent repacking into retail packs at IED Kanpur and, therefore, even assuming that IED was an extended arm of the appellants, the department was not entitled to demand differential duty because "repacking" did not constitute "manufacture" and since "repacking" did not amount to "manufacture" at the relevant time, the department had erred in demanding differential duty on the price of the sachets. According to the appellants, since the clearance at the factory gate at Mandideep was not by way of sale, the appellants were entitled to value the bulk packs on the basis of costing under rule 6(b) of the Valuation Rules, 1975. According to the appellants, the impugned demand was not legally sustainable because the department had demanded duty on the price at which the retail packs were sold. Lastly, they contended that the impugned show-cause notice has proceeded on the basis that the detergent powder cleared in bulk packs and subsequently repacked into sachets and sold at a higher price in wholesale resulted in loss of revenue. However, vide Finance Bill, 1994, which was not retrospective, note 6 was added in chapter 34 of the schedule to the 1985 Act, by which repacking amounted to "manufacture" and, therefore, there was no suppression on the part of the assessees, as alleged by the department. According to the appellants, the subsequent change in the law itself indicated that there was some confusion on the aforestated point which was clarified vide Finance Bill, 1994 and, therefore, under any circumstances, wilful suppression cannot be alleged against the appellants.

Briefly stated, Mr. V. Lakshmikumaran, learned counsel for the appellants submitted that the show-cause notice did not contain allegations regarding valuation of 25 kgs. bulk packs; and that, the said notice had worked out the demand only on the basis of the price of 20 gms. and 30 gms. sachets. Before us, the learned counsel did not challenge the concurrent finding of fact, namely, that the IED was the extended arm of the appellants. Learned counsel however submitted that even according to the department at the relevant time, repacking did not constitute "manufacture" and, therefore, the demand for differential duty only on the basis of the price of the sachets was untenable in law. Learned counsel also contended that the value of the 25 kgs. bulk packs was approved by the department as declared in the price list for captive consumption and, therefore, there was no question of suppression on the part of the appellants. Learned counsel further submitted that the price list filed by the appellants was prepared on the basis of costing because the clearance of 25 kgs. bulk packs was for captive consumption and not for sale and, consequently, the concept of "normal price" was not applicable in the present case. Learned counsel further submitted that repacking at the relevant time did not amount to "manufacture" in terms of section 2(f) of the said Act, and consequently, the repacking charges, in any event, were not includible in the assessable value of the AMS. Learned counsel further urged that the tribunal has not at all gone into the question of valuation, particularly, when the entire case related to the scope of section 4(4)(d)(i) of the said Act. Learned counsel also submitted that if repacking activity did not amount to "manufacture" at the relevant time then the cost of repacking cannot be included in the assessable value. Lastly, it was urged that repacking amounted to "manufacture" only after the Finance Act No.2 of 1994; that, after the said 1994 Act, IED had obtained the requisite registration, and that IED has since been paying excise duty on the manufacture of retail packs. Consequently, it was urged that there was no suppression on the part of the appellants. Learned counsel submitted that none of these facts have been considered by the tribunal.

Unfortunately, when the matter came before the tribunal in the appeal preferred by the assessees, the tribunal has not adverted to the valuation of the bulk packs cleared by the appellants at Mandideep, Bhopal. Before the tribunal, the appellants contended that the department had cleared the bulk packs on payment of duty by the appellants. According to the appellants, the activity of "repacking" did not amount to "manufacture" at the relevant time and if the said activity did not amount to manufacture, the department was not entitled to compute the assessable value of the bulk packs based on the retail price of 20 gms. and 30 gms. sachets. The appellants contended that even if IED was taken as an extended arm of the appellants, the department was not entitled to compute the assessable value based on the retail prices of the sachets, particularly, when the activity of "repacking" did not amount to "manufacture". The appellants also contended that they were not guilty of suppression because the activity of "repacking" amounted to "deemed manufacture" under section 2(f) only after introduction of note 6 in chapter 34 of the schedule to the Tariff Act vide Finance Bill, 1994.

The key question which was required to be decided by the tribunal in the present case was concerning determination of the "assessable value" of 25 kgs. bulk packs of AMS from the appellants' factory at Mandideep, Bhopal. If the activity of repacking did not amount to manufacture at the relevant time, was the commissioner justified in computing the assessable value of the bulk packs based on the retail price of 20 gms. and 30 gms. sachets sold through the depots of the appellants? This question has not been decided by the tribunal. Similarly, in the context of suppression and in the context of invocation of the extended period of limitation, the tribunal has not considered the argument of the appellants that they were not guilty of suppression as the law was amended vide Finance Bill, 1994, when the activity of "repacking" was treated as "manufacture" for the first time. In our view, these questions were required to be decided by the tribunal in the present case, particularly, in the light of the provisions of section 4(4)(d)(i) of the said Act. They have not been decided by the tribunal.