Full Judgment Text
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CASE NO.:
Appeal (civil) 3844 of 2000
PETITIONER:
Procter & Gamble Hygiene & Health Care Ltd.
RESPONDENT:
Commissioner of Central Excise,Bhopal.
DATE OF JUDGMENT: 28/11/2005
BENCH:
ASHOK BHAN & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
This is a statutory appeal under section 35-L (b) of the
Central Excise Act, 1944 (hereinafter referred to as "the said
Act") against the judgment and order dated 19.6.2000 passed by
the Customs, Excise & Gold (Control) Appellate Tribunal, New
Delhi ("tribunal" for short).
A short question which arises for determination in this
civil appeal is \026 whether, on the facts and circumstances of this
case, cost of repacking of detergent powder into 20 gms. and 30
gms. sachets, which did not amount to manufacture at the
relevant time, was includible in the assessable value of "ariel
micro-system" (AMS) cleared by Procter & Gamble
("assessees" for short") in bulk packs of 25 kgs. at its factory
gate at Mandideep, Bhopal.
Assessees \026 appellants are engaged in the manufacture of
detergent powder (AMS) falling under chapter 34 of the
schedule to the Central Excise Tariff Act, 1985 (for short "the
1985 Act") at their factory at Mandideep, Bhopal within the
jurisdiction of the Commissioner of Central Excise, Indore. On
8/10.6.1994, a show-cause notice was issued by the collector in
which it was alleged that during the period December, 1992 to
December, 1993, the appellants had removed AMS in bulk
packs of 25 kgs. for further repacking in 20 gms. and 30 gms.
sachets by M/s Industrial Enterprises (Detergent), Kanpur
("IED" for short); that, the said IED was an extended arm of
appellants; that, the appellants had cleared 25 kgs. bulk packs
of AMS on pricing, based on the cost method, and thereby did
not pay the appropriate amount of duty on AMS in the
condition in which it emerged after repacking by IED, Kanpur;
that, the appellants did not pay duty on the prices of the sachets;
that, the appellants had failed to disclose to the department the
particulars of the agreement with IED for the repacking of the
detergent powder (AMS); that, the appellants had removed the
AMS in 25 kgs. packs with the sole intention of getting it
packed in 20 gms. and 30 gms. sachets by IED Kanpur; that,
the entire modus operandi on the part of the appellants was to
deliberately declare only the cost of 25 kgs. bulk packs for
payment of excise duty; and, consequently, there was
suppression of the true price of AMS in the condition in which
it was removed after packing in the sachets of the above
dimensions. In the show-cause notice, it was further alleged
that the appellants had wilfully suppressed the facts; that the 20
gms. sachets in blue and green colours were sold through the
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depots of the appellants at a price of Rs.2.50 and Rs.2.00 per
piece. That the said sachets were supplied by IED to the
appellants, who in turn sold the same through their depots.
Consequently, the department issued the above show-cause
notice as to why differential duty of Rs.1,10,40,613/- should not
be levied on the appellants. By the said show-cause notice, the
department invoked the extended period of limitation in terms
of the proviso to section 11A(1) of the said Act.
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
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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.
By the adjudication order dated 10.12.1997, passed by
the Commissioner, Indore, it was held that IED was an
extended arm of the appellants; that, under the contract
between the appellants and the IED, activity of IED was not
disclosed by the appellants; that, the appellants had removed
the AMS in 25 kgs. packs with the sole intention of getting it
packed in 20 gms. and 30 gms. sachets by IED, Kanpur; that,
the appellants had deliberately declared only the cost of 25 kgs.
bulk packs for payment of excise duty; and, that, the appellants
had suppressed the true price of AMS in the condition in which
the said AMS was removed after repacking in 20 gms. and 30
gms. sachets on which the appellants failed to pay duty and,
consequently, the demand raised by the department was legal
and justifiable. Consequently, the commissioner confirmed the
show-cause notice.
Being aggrieved by the order of the commissioner dated
10.12.1997, the assessees carried the matter in appeal to the
tribunal. By the impugned judgment, the tribunal came to the
conclusion that the IED was an extended arm of the appellants;
that, the entire dispute was about under-valuation of the 25 kgs.
bulk packs cleared from Mandideep and, therefore, the
commissioner of central excise at Indore had jurisdiction to
decide the issue of valuation. According to the tribunal, the
appellants had cleared the AMS in 25 kgs. by bulk packs at
Mandideep. They had valued the clearance at Mandideep on
cost basis. According to the tribunal, every assessee was
required to give reasons as to why "normal price" was not
ascertainable under section 4(1)(a) of the Act or the Valuation
Rules, 1975. According to the tribunal, although, the appellants
were fully aware that 25 kgs. bulk packs were cleared in order
to be repacked by IED into sachets, the details of repacking
were deliberately suppressed by the appellants and, therefore,
the department was right in invoking the extended period of
limitation. In the circumstances, the tribunal dismissed the
appeal filed by the assessee. Hence, this civil appeal.
Briefly stated, Mr. V. Lakshmikumaran, learned counsel
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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.
Shri Mohan Parasaran, learned Additional Solicitor
General submitted on behalf of the appellants that during the
relevant period, AMS was manufactured by the appellants and
not by the IED and, therefore, the department was right in
demanding the differential duty on the price of the sachets. He
submitted that the appellants removed the detergent powder in
25 kgs. bulk packs from the factory gate at Mandideep, Bhopal
with the sole intention of getting it packed into sachets of the
aforestated dimensions by IED, Kanpur. He contended that the
appellants had deliberately declared only the cost of 25 kgs.
bulk packs and they had suppressed the price of AMS in the
condition in which the powder was removed after packing in 20
gms. and 30 gms. sachets. Learned counsel urged that in the
entire proceedings before the adjudicating authority, the
appellants contended that the IED was an independent job
worker and that the IED was not an extended arm of the
appellants, whereas the finding of the commissioner that IED
was an extended arm of the appellants is not challenged. In this
connection, learned counsel submitted that the retail packs were
in fact cleared through the depots of the appellants and in the
circumstances, the commissioner was right in coming to the
conclusion that there was a wilful suppression on the part of the
appellants under the proviso to section 11A(1). Learned
counsel submitted that in the present case, the commissioner
has categorically recorded a finding of fact to the effect that the
appellants had suppressed the true price of AMS in the
condition it was removed after packing in sachets. He
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submitted that even on valuation, the commissioner has
recorded a finding that the appellants were required to pay duty
on the assessable value of 20 gms. and 30 gms. sachets supplied
by the IED to the depots of the appellants. Learned counsel
submitted that this finding on valuation has been accepted by
the tribunal and, therefore, no interference was called for in the
present case.
This case relates to valuation. At the outset, we would
like to clarify certain concepts under the Excise Law. The levy
of excise duty is on the "manufacture" of goods. The excisable
event is the manufacture. The levy is on the manufacture. The
measure or the yardstick for computing the levy is the "normal
price" under section 4(1)(a) of the Act. The concept of
"excisability" is different from the concept of "valuation". In
the present case, as stated above, we are concerned with
valuation and not with excisability. In the present case, there is
no dispute that AMS came under sub-heading 3402.90 of the
Tariff. There is no dispute in the present case that AMS was
dutiable under section 3 of the Act. In the case of Union of
India & others etc. v. Bombay India International Ltd. etc.
reported in AIR 1984 SC 420, this Court observed that the
measure of levy did not conclusively determine the nature of
the levy. It was held that the fundamental criterion for
computing the value of an excisable article was the price at
which the excisable article was sold or was capable of being
sold by the manufacturer. It was further held that the price of
an article was related to its value and in that value, we have
several components, including those components which
enhance the commercial value of the article and which give to
the article its marketability in the trade. Therefore, the
expenses incurred on such factors inter alia have to be included
in the assessable value of the article up to the date of the sale,
which was the date of delivery.
In the case of Sidhartha Tubes Ltd. v. Collector of
Central Excise reported in 2000 (115) ELT 32, this court held
that the process of galvanization, though did not amount to
"manufacture", resulted in value addition and, therefore, the
galvanization charges were includible in the assessable value of
the M.S. black pipe.
The concepts of "manufacture" and "valuation" are two
different and distinct concepts. In the present case, we are
concerned with valuation. Value is the function of price under
section 4(1)(a) of the said Act. In the present case, the taxable
event took place when detergent powder was manufactured by
the appellants. The said powder was packed into bulk packs of
25 kgs. They were cleared from the factory of the appellants at
Mandideep, Bhopal on payment of excise duty. The appellants
followed self-removal procedure. These bulk packs were sent
to IED, Kanpur. The appellants contended that IED, Kanpur
was their job-worker. The commissioner found on facts that
IED, Kanpur was the extended arm of the appellants. The
commissioner found price manipulation. According to the
commissioner, the appellants had removed AMS in bulk packs
from its factory gate at Mandideep, Bhopal with the sole
intention of getting AMS packed in the sachets of 20 gms. and
30 gms. by IED, Kanpur from where the sachets were taken to
the depots of the appellants and cleared at the price list
indicated in the show-cause notice. According to the
commissioner, the appellants had suppressed the true price of
AMS in the condition in which it was removed after packing in
20 gms. and 30 gms. sachets. Therefore, the commissioner
took the price of the sachets at the depots of the appellants as
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the basis for computing the assessable value of AMS cleared by
the appellants in 25 kgs. bulk packs at Mandideep, Bhopal.
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.
In the circumstances, this civil appeal filed by the
assessees is allowed, the impugned judgment of the tribunal is
set aside and the matter is remitted to the tribunal for its fresh
decision in accordance with the principles enunciated
hereinabove. There will be no order as to costs.