Full Judgment Text
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CASE NO.:
Appeal (civil) 894 of 2000
PETITIONER:
The Commissioner of Central Excise, Meerut
RESPONDENT:
M/s Universal Glass Ltd.,Sahibabad (Ghaziabad)
DATE OF JUDGMENT: 11/03/2005
BENCH:
S.N.VARIAVA, Dr.AR.LAKSHMANAN & S.H.KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
The issue involved in this civil appeal filed by the
department under section 35L(b) of the Central Excise Act,
1944 is \026 whether M/s Universal Glass Ltd. (assessee herein)
was right in valuing the bottles manufactured and supplied by
them to M/s Jagatjit Industries Ltd., Kapurthala (for short
"JIL") by relying upon the prices charged by the assessee to
companies, like Dabur, Hamdard, Maaza, Kissan etc.
(hereinafter referred to as the "other buyers") under rule 6(b)(i)
of the Central Excise (Valuation) Rules, 1975 (hereinafter
referred to as "the 1975 Rules").
The assessee herein is a division of JIL. It is in the
business of manufacturing glass bottles and jars at its factory in
Meerut. During the relevant period, 50% of its total production
was captively consumed by JIL (holding company) and the
remaining was sold to industrial consumers, namely, Dabur,
Hamdard, Maaza, Kissan etc. JIL are in the business of
manufacturing liquor and food products.
By show-cause notice dated 30.12.1994, differential duty
of Rs.4.33 crores (approximately) for the period December
1989 till March 1994 was demanded mainly on the ground that
the assessee had, with the intention to evade duty, wilfully and
deliberately filed incorrect price declarations during the
aforestated period; that a deliberate attempt was made to show
that an independent market existed in respect of the said bottles
by filing price lists in part-I and part-II, when in fact there
existed no such market; that the sales under parts I & II were
not on principal to principal basis; and that the assessee had
filed price lists in the case of supplies to JIL for captive
consumption by relying upon the prices charged by the assessee
to others, namely, Dabur, Hamdard, Maaza, Kissan etc.
knowing fully well that there was a difference between the
variety of bottles supplied to JIL and the bottles supplied to
Dabur, Hamdard, Maaza, Kissan etc. in terms of shape and size.
The assessee was called upon to show-cause, under the
aforestated circumstances, as to why the department should not
invoke rule 6(b)(ii) of the 1975 Rules and determine the
assessable value afresh on the costing method, particularly
when comparable prices were not available.
By the impugned order dated 27.3.1997, the
Commissioner rejected the contention of the assessee that the
prices of the bottles supplied to JIL for captive consumption
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were comparable to the prices of the bottles supplied to the said
"other buyers" for the following reasons. According to the
Commissioner, M/s Ashoka Sales Agency (for short "M/s
ASA") was a buyer set up by the assessee to create an artificial
gate price for jars and jugs of "Maltova" and "Viva". That, the
so called "franchisees" were not independent buyers, who were
put up to create an artificial market. In this connection, it was
found that the packing costs were borne by the JIL, which
circumstance, indicated complete control of JIL. That, sale
prices of the bottles supplied to JIL were not revised though
there were periodic revisions for bottles supplied to "other
buyers". During 1992-93, 24 types of bottles were supplied to
JIL out of which there were no sales for 19 types. During
1993-94, there were no sales for 16 types out of 19 types of
bottles. That, in most of the cases, price lists were filed by the
assessee either in part-I or in part-II without sales in fact taking
place and yet such price lists were relied upon by the assessee
for clearances of bottles to JIL. The Commissioner further
found that there were no comparable manufacturers of the
bottles in the vicinity in terms of capital investments, shape and
size of the bottles etc. That, the assessee had sold Maltova and
Viva jars to M/s ASA and placed reliance on price lists in part-
II which the assessee could not have done as the bottles sold to
M/s ASA were re-sold to JIL. In the circumstances, the
Commissioner came to the conclusion that the entire exercise
undertaken by the assessee was with the intention to defraud the
department by under-invoicing the prices of the bottles supplied
to JIL. According to the Commissioner, it was not possible to
determine the nearest ascertainable value of the bottles
manufactured by the assessee under rule 6(b)(i) and, therefore,
the department was right in invoking rule 6(b)(ii) of the 1975
Rules.
The Commissioner found that the buyers namely, Dabur,
Hamdard, Maaza, Kissan etc. were independent buyers and,
therefore, the prices realized under such sales could form the
basis of ascertainable value and, therefore, for this category, the
Commissioner held that the rule 6(b)(ii) was not invokable.
Accordingly, applying rule 6(b)(ii), the duty demanded
under the show-cause notice stood reduced and confined to
sales by the assessee to JIL, their franchisees and to M/s ASA,
amounting to Rs.1,00,33,321.73 by applying rule 6(b)(ii).
Aggrieved by the decision of the Commissioner, the
matter was carried in appeal to the Customs, Excise and Gold
(Control) Appellate Tribunal, New Delhi (hereinafter referred
to as "the tribunal").
By impugned decision dated 13.8.1999, the tribunal held
that since comparable goods were available, the department was
not entitled to invoke rule 6(b)(ii). According to the tribunal,
there could not have been the intention to evade duty on the part
of the assessee as the assessee was entitled to exemption vide
notification no.217/86 and as the goods were modvatable.
Consequently, the assessee’s appeal was allowed by the
tribunal. Hence, this civil appeal.
Mr. K. Swamy, learned counsel appearing on behalf of
the department, made the following submissions. According to
the learned counsel, no sales were made against the prices
declared in part-I. That, the prices declared by the assessee in
part VI(a) could not be compared with the prices mentioned in
part-I. That, part VI (a) prices were not comparable with part-II
prices under contracts with the franchisees of JIL as these prices
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were not genuine. That, the tribunal had failed to appreciate
that although the agreements entered into were between JIL and
their franchisees and though the bottles were physically
dispatched to the franchisees, the packing costs were borne by
JIL. Hence, the prices of the bottles directly supplied to JIL
could not be compared with the prices of the bottles supplied to
the franchisees. Learned counsel further submitted that out of
24 types of glass bottles and jars supplied to JIL during 1992-
93, 19 types of bottles were supplied without any sales
contracts; that sales to M/s ASA were no sales as bottles meant
to be supplied to M/s ASA were dispatched to JIL. Hence,
according to the learned counsel, the prices at which the bottles
were supplied to M/s ASA could not form the basis for
assessment of the bottles supplied to JIL. Learned counsel
further submitted that the bottles covered by sales to JIL, M/s
ASA and franchisee holders could not be compared with the
sales to "other buyers" like Dabur, Hamdard, Maaza, Kissan
etc. It was contended that no comparable goods were available
at the material time. That, in some cases, bottles were sold at
the prices below their costs and, therefore, such prices could not
have formed the basis for assessment. It was urged that the
Commissioner had examined the matter from each and every
angle including costing and, therefore, interference by the
tribunal was uncalled for.
Shri R. Parthasarthy, learned advocate for the assessee
submitted that there were four categories of buyers, namely,
JIL, their franchisees, M/s ASA and "other buyers" like Dabur,
Hamdard, Maaza, Kissan etc.; that 50% of the total production
was supplied to JIL; that in respect of bottles supplied to JIL,
the assessee was right in filing the price list under part VI(a) by
comparing the prices with the price lists in respect of sales
made by the assessee in favour of independent buyers like
Ganganagar Sugar Mills Ltd., HPSIDC as well as Dabur,
Hamdard, Maaza, Kissan etc.; that the prices charged and the
comparable prices listed in part VI(a) represented the correct
value of the bottles and, therefore, the valuation in respect of
bottles supplied to JIL for captive consumption was correctly
done under rule 6(b)(i). According to the learned counsel, the
department was wrong in coming to the conclusion that the
franchisee agreements were dictated; that the terms and
conditions of the agreements were not unusual but they were
normal in the trade; that the franchisees were independent
buyers and the prices charged to them were similar to prices
charged to the other independent buyers; that the franchisee
agreements between the JIL and the franchisees were in respect
of liquor and not for bottles; that M/s ASA was an independent
dealer and, therefore, the prices charged for jugs and jars to JIL
were comparable with the prices charged from M/s ASA; that
JIL had bought jars and jugs from other manufacturers also and,
therefore, the prices charged from M/s ASA were comparable
with the prices charged by the assessee from JIL in respect of
such jars and jugs; that M/s ASA was not a small trader; that
the duty paid on such jars and jugs was modvatable and,
therefore, there could not have been any intention to evade
duty; that in any event, the department had failed to take into
account the prices of bottles made by other manufacturers; that
the prices for jars and jugs to JIL were the same as the prices
charged to M/s ASA; that the prices of bottles sold to the
Dabur, Hamdard, Maaza, Kissan etc. represented the correct
value and, therefore, the comparable sale instances were
available in the present case and consequently, the department
had erred in invoking rule 6(b)(ii).
The basic controversy in this civil appeal is \026 whether the
price lists of bottles sold by the assessee to JIL for captive
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consumption were comparable with the prices of the bottles
sold to "other buyers" namely, Dabur, Hamdard, Maaza, Kissan
etc.; and whether the bottles made by the assessee were
comparable with the bottles made by other manufacturers.
The concept of "value" in the 1944 Act, as it then stood,
was related to the price at which goods were capable of being
sold. The said value was not restricted to the manufacturing
costs plus net-profits but it covered various expenses on
components which contributed to the increase in the market
price, that is to say, expenses on components which contributed
to "value addition". For determination of the value, where the
normal price was not ascertainable for the reasons that such
goods were not sold in the market or for any other reason, the
nearest ascertainable equivalent thereto was required to be
taken into account, in the manner prescribed, and accordingly in
the case of captive consumption, the "value" for assessment of
duties had to be equivalent to "the normal price" as defined
under section 4(1)(a) of the Act. Accordingly, the 1975 Rules
had to be applied for computing the value of the bottles
manufactured by the assessee and consumed by JIL.
Under rule 6(b) of the said 1975 Rules, applicable to this
case, the first option was to value the goods on the normal price
of comparable goods and if that was not possible, then, alone in
the alternative, rule 6(b)(ii) had to be applied in order to
compute the normal price and consequently, all expenses like
selling and organizational expenses, bill discounting expenses
etc. which formed an integrated part of the sale invoice, in
respect of sales on principal to principal basis, formed the part
of the assessable value of such goods.
In the present case, the dispute was regarding the correct
price declaration. There was no dispute of classification.
Therefore, the reliance placed by the tribunal on the exemption
notification no.217/86-CE as also on the product being
modvatable was totally ill-founded.
Moreover, the impugned judgment of the tribunal is
perfunctory. It has not given any reason whatsoever for setting
aside the detailed order passed by the Commissioner. There is
no discussion on any of the aspects like difference in the variety
of bottles supplied to JIL vis-‘-vis bottles supplied to other
buyers like Dabur, Hamdard, Maaza, Kissan etc. There is no
discussion on the nature of franchisee agreements. In passing
the tribunal says that the goods were comparable. There is no
discussion with regard to the shape and size of the bottles
supplied to JIL. There is no discussion as to how the bottles
supplied to JIL were comparable to the bottles supplied to the
"other buyers", like Dabur, Hamdard, Maaza, Kissan etc. The
tribunal has not even considered the resale of bottles by M/s
ASA to JIL. The tribunal has not even examined the aspect of
under invoicing of sale prices. As stated above, there were
instances of sale price charged to JIL being lower than the cost
price which have not been discussed. In the circumstances, the
tribunal had erred in interfering with the adjudication done by
the commissioner.
Valuation and the prices get revised from time to time
even within the unit. They are the factors which are known
only to the management. These factors cannot be ascertained
by site inspection by the department. Comparable goods under
rule 6(b) should be, as far as possible, identical goods. Simply
because two goods are known by the same name or by the same
genre, does not mean that they are comparable goods. Even if
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they are assumed to be comparable, all relevant differences as
far as possible should be recognized. In the present case, even
if the capacities of the bottles supplied to JIL on one hand and
bottles supplied to "other buyers" on the other hand are the
same, still the size and the shape of the bottles would make the
relevant difference. JIL is a liquor manufacturer whereas
Kissan, Dabur, Hamdard etc. are manufacturers of food and
medicinal preparations. Therefore, the shape and size of the
bottles supplied to JIL cannot be compared with the shape and
size of the bottles supplied to Kissan, Dabur, Hamdard etc.
Even the thickness of the glass of the bottles supplied to a
liquor manufacturer would be different from the thickness of
the glass of the bottles supplied to a manufacturer of drugs/food
products. Rule 6(b)(i) casts a duty on the department to
approve the assessable value and it is for the department to find
out whether there are goods comparable to the assessee’s
goods. However, the proforma of the price list in part VI(a)
under the heading "comparable goods, if known to the
assessee" indicates that the particulars of comparable prices
have to be given by the assessee. In terms of rule 6(b)(i), such
value has to be of comparable goods manufactured by the other
assessee.
In the present case, the department has found that there
were no other manufacturers of similar bottles. Moreover, in
the present case, the department found price manipulation.
Prices of bottles sold to JIL were lower than the prices of
bottles sold to other buyers like Dabur, Hamdard, Maaza,
Kissan etc. Further, the department found that the price
increase of bottles sold by the assessee to JIL was in the range
of 30 to 48% whereas the price increase of bottles sold by the
assessee to other buyers like Dabur, Hamdard, Maaza, Kissan
etc. was in the range of 50 to 92%. Further, even the costing
data supplied by the assessee to the department indicated that
the bottles supplied to JIL and their franchisees were under-
priced as the selling and organizational expenses and bill
discounting expenses were not included in the assessable value
of the goods and, therefore, such prices were not comparable
with prices of the bottles sold to Dabur, Hamdard, Maaza,
Kissan etc. The costing done by the assessee itself indicates the
price differential and consequently, prices of the bottles sold by
the assessee to companies like Dabur, Hamdard, Maaza, Kissan
etc. were not comparable with the prices of the bottles captively
consumed by the JIL. Further, as found by the Commissioner,
the price lists filed by the assessee under part VI(a) were
illusory as they were based on sales which did not exist or
which were meager. Further, as found by the Commissioner,
the price lists under part VI(a) filed by the assessee during
1991-92 had no comparable price lists. Further, all supplies
shown under gate passes/invoices in favour of M/s ASA were
actually destined for JIL. Further, as found by the
Commissioner, the franchisee agreements between JIL and the
franchisee holders were not on principal to principal basis,
particularly when the cost of packing was to be borne by JIL.
The commissioner was right in holding that the assessee was
guilty of creating artificial buyers. Further, the commissioner
found that the bottles sold to "other buyers" like Dabur,
Hamdard, Maaza, Kissan etc. were different from the bottles
supplied to JIL; that although the capacity of a few bottles were
common, they were different in terms of shape and size; they
were also different in terms of cost of production; that there
were no other manufacturers of similar bottles in terms of
technology and in terms of capital investment and thus the
prices of similar goods were not available. Under the above
circumstances, the tribunal should not have interfered with the
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well reasoned order of the adjudication passed by the
commissioner.
Before concluding, we may refer to one of the arguments
advanced on behalf of the assessee. It was urged that the
costing method adopted by the commissioner was faulty
inasmuch as the assessable value calculated by him was inter
alia based on the profits of JIL and not on the profits of the
assessee. It was urged that the assessee was a division of JIL.
That, the assessee had submitted its profit and loss account with
its written submission on 22.10.1996 which accounts have been
brushed aside by the commissioner stating that they were
prepared after the earlier round of litigation and, therefore,
reliance cannot be placed on such accounts.
As stated above, in the present case, since there were no
comparable prices available for determining the normal price
under rule 6(b)(i), the only alternative was to decide the value
under rule 6(b)(ii) by adopting the best judgment principle
based on the cost of production and the profits which the
assessee would have earned. In the circumstances, when the
assessee submitted before the commissioner its profit and loss
account on 22.10.1996, due weightage ought to have been
given to such accounts. It was not open to the Commissioner to
do the costing on the profits of JIL, particularly, when the
figures relating to profits of the assessee were available. Only
to this extent, we remit the matter to the Commissioner of
Central Excise, Meerut, who is directed to decide this limited
issue in accordance with law. However, this exercise of
recalculating the profits shall be limited to under-priced bottles
and not to the bottles which have been found to be correctly
valued in the impugned order of the Commissioner [See:
United Glass v. Collector of Central Excise reported in [1995
(75) ELT 209].
Subject to above, the appellant succeeds, the impugned
judgment of the tribunal dated 13.8.1999 passed in Appeal
No.E/1251/97-A is set aside, with no order as to costs.