Full Judgment Text
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CASE NO.:
Appeal (civil) 735-744 of 2002
PETITIONER:
Commissioner of Central Excise, Jaipur
RESPONDENT:
M/s.Rajasthan Spg. & Wvg. Mills Ltd.,Etc. Etc.
DATE OF JUDGMENT: 28/11/2007
BENCH:
S.H. KAPADIA & B. SUDERSHAN REDDY
JUDGMENT:
JUDGMENT
O R D E R
CIVIL APPEAL NOS. 735-744 OF 2002
with Civil Appeal Nos.8671-8672/2002 and 2624 of 2003.
This batch of civil appeals filed by the Department is directed against
the judgment and order dated 4th April, 2001 passed by CEGAT, New Delhi
in appeal No.E/489-498/2000-A.
The main issue which arose for determination before the tribunal was
whether Rajasthan Spinning and Weaving Mills Ltd. (RSWML) was the real
manufacturer who carried out textile processing from its process house at
Mordi and if so whether the Department was right in invoking best judgment
assessment in terms of Rule 7 of Central Excise (Valuation) Rules, 1975
(1975 Rules for short).
RSWML are the manufacturers of yarn and fabric. It had set up a
process house at Mordi in 1994-95. The process house was set up for
processing their fabric. The woven fabrics manufactured at their weaving
unit was processed on job work basis by Mordi processing house. This was
with effect from 29th March, 1995. On 16th June, 1995 the said process
house was let out by RSWML to Bhilwara Spinners Limited (BSL). Later
on the lease agreement between RSWML and BSL stood terminated and the
process house was leased out to Purvi Fabrics & Textures (PFTL).
The above arrangement was doubted by the Department. Therefore,
the Department issued show cause notice dated 22nd September, 1998
claiming differential duty from RSWML for the period from 16th June, 1995
to February 20, 1996 principally on the ground that the real manufacturer
was RSWML and that the above arrangement of lease was a sham as it was
arrived at to change the basis of valuation/assessment of fabrics processed
from "comparable goods basis/method" to "cost method".
On factual analysis the tribunal came to the conclusion that the lease
agreement referred to above was genuine and, therefore, RSWML was right
in invoking the cost method under Rule 6(b)(ii) of the said 1975 Rules.
According to the tribunal the present case stood covered by the judgment of
this Court in the case of Ujagar Prints & Ors. Vs. Union of India & Ors.
[(1989) 3 SCC 531].
At the outset we may point out that the question of valuation was not
examined by the tribunal. Even if we are to proceed on the assumption that
the tribunal had erred, we are still not inclined to interfere in this matter for
the reasons given hereinafter mentioned. We are, therefore, proceeding on
the basis that RSWML is the real manufacturer and that the lease was a
sham.
The question which would still arise, whether even if one is required
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to proceed on the basis of "comparable goods method" is there a case of
undervaluation. Is the matter revenue neutral? In this connection, we may
point out that the "comparable goods method" is contemplated by Rule
6(b)(i) whereas the "cost method" is contemplated by Rule 6(b)(ii). In this
case even if we are to proceed under Rule 6(b)(i), as contended by the
Department, we find from the facts that RSWML used to receive unsorted
fabrics from its process house, RSWML thereafter used to carry out the
work of sorting and thereafter the goods were cleared through their Depot.
Under Section 4(1)(a) of the Central Excise Act as it stood at the relevant
time, in case of valuation falling under Section 4(1), the normal price
constituted the basis of assessable value. We quote hereinbelow Section
4(1)(a):
"4. Valuation of excisable goods for purposes of
charging of duty of excise.\027(1) Where under this Act,
the duty of excise is chargeable on any excisable goods
with reference to value, such value, shall, subject to the
other provisions of this section, be deemed to be \026
(a) the normal price thereof, that is to say, the price at
which such goods are ordinarily sold by the assessee
to a buyer in the course of wholesale trade for
delivery at the time and place of removal, where the
buyer is not a related person and the price is the sole
consideration for the sale :"
In the present case we are proceeding on the basis that ex-factory
price was ascertainable. Even then, the underlined words indicate that if sale
price of sorted goods at the Depot of RSWML is to be taken into account the
value of such goods (sorted goods) cleared at the depot would be different
from the value of unsorted goods (semi-finished goods) cleared at the
factory gate. According to the Department ex-factory price was required to
be taken into account. However, the Department has lost sight of the fact
that there was dissimilarity of the goods cleared at the factory gate, being
unsorted goods, on the one hand and the goods cleared at the Sales Depot of
RSWML being sorted goods. If this difference is kept in mind then there
was what is called as "value addition". That value addition has not been
taken into account by the Department. For that value addition abatement
was claimed by the assessee. There is no discussion on this aspect of the
case in the order passed by the Commissioner. In that connection we quote
hereinbelow a complete table submitted by RSWML before the
Commissioner which reads as under:
"Even if the value is determined on comparable goods basis,
there would be no differential duty liability at all. This is evident
from the following:
Qty (mtrs)
Value (Rs.)
Assessable value as per 52A Invoices
from process house for the period
16.6.95 to 20.2.98
17004521
105,53,29,128
Add: excise duty paid
16,20,17,071
Total cum duty value
17004521
121,73,46,199
Add 40% towards value addition
between lump and graded fabric
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48,69,38,480
Expected sale price of processed
fabrics - graded
17004521
170,42,84,679
Proportionate actual realization on
sale of graded fabrics as per
commercial invoices
17004521
167,35,65,236"
If one analysis the above table it is clear that if one has to work out the
assessable value on "comparable goods method" under Rule 6(b)(i), there
has been, according to the assessee, value addition between lump fabric and
graded fabric. If that value addition is taken into account then the
proportionate actual realization on sale of graded fabrics would come to
Rs.167,35,65,236 crores which is the value which is more than what is
calculated by the Department. In other words the assessee claimed 40%
abatement. The Commissioner has given discounts but not abatement. The
two concepts are different. The concept of abatement arises on account of
the condition of the goods cleared at the factory gate which is materially
different from the condition of the goods cleared from the Sales Depot.
This matter was adjourned by this Court on 31st October, 2007.
Adequate time was given to the Commissioner to ascertain whether
RSWML was entitled to abatement of 40% on account of value addition.
This has not been done. Moreover, as stated above, the question of
abatement was raised before the Commissioner by the assessee. That
question was never decided. In the circumstances, we see no reason to
interfere with the impugned judgment of the tribunal.
Before concluding, we may state that valuation is not an exact
science. Some amount of guess work exists in valuation. Therefore,
different methods are prescribed by Valuation Rules. These rules are
prescribed in order to find out the actual realization which realization
constitutes the basis of assessable value. At the same time one must keep in
mind that different methods prescribed have to converge to a common
valuation. For example, as stated above, Rule 6(b)(i) prescribes
"comparable goods method", Rule 6(b)(ii) prescribes "cost method" and
Rule 7 which contemplates best judgment assessment states that the
Assessing Officer is free to apply any of the methods prescribed by Rules 1
to 6 of 1975 Rules. We would like to, therefore, emphasize the aspect of
convergence. It is not possible to accept wide variation in the result. The
Department may apply different methods of valuation, but it has to
ultimately ascertain by applying rule of convergence the estimated ad
valorem value which would constitute the basis of assessable value.
For aforestated reasons, we see no merit in these civil appeals filed by
the Department and the same are accordingly dismissed with no order as to
costs.