2006 (1) TMI 414 - AT - Central Excise

Issues Involved:
1. Waiver of pre-deposit of duty and penalties.
2. Whether the mixing of flavours and essences amounts to manufacture.
3. Inclusion of royalty, service, and commission charges in the assessable value.
4. Compliance with remand order and whether the Commissioner's orders are speaking orders.
5. Timeliness and validity of the Show Cause Notices (SCNs).
6. Financial hardship and undue hardship considerations for pre-deposit.

Detailed Analysis:

1. Waiver of Pre-deposit of Duty and Penalties:
The appellants sought a waiver of the pre-deposit of Rs. 35.45 crores in duty and equivalent penalties. The Tribunal initially directed a pre-deposit of Rs. 25 crores. The appellants argued that they had a prima facie case and cited various judgments indicating that full dispensation from pre-deposit should be granted when undue hardship is demonstrated. The Tribunal considered these arguments and agreed to modify the stay order, allowing the appeals to be heard out of turn.

2. Whether the Mixing of Flavours and Essences Amounts to Manufacture:
The appellants contended that the mixing of duty-paid flavours and essences, which were cleared to franchisees, did not amount to manufacture. They referenced the Commissioner of Central Excise, Hyderabad's decision in a similar case (Shaw Wallace & Company Limited) and various judgments and Board's Circulars indicating that such activities do not constitute manufacture. The Tribunal allowed this additional ground to be raised in the appeal.

3. Inclusion of Royalty, Service, and Commission Charges in the Assessable Value:
The appellants argued that the royalty, service, and commission charges collected were for the use of their trademark by franchisees and not for the sale of food flavours. They presented invoices and agreements to support that the charges had no intrinsic connection with the food flavours' sale. The Revenue, however, contended that these charges should be included in the assessable value, referencing the Supreme Court judgment in Pepsi Foods Ltd. The Tribunal noted this issue required detailed consideration during the final hearing.

4. Compliance with Remand Order and Whether the Commissioner's Orders are Speaking Orders:
The appellants argued that the Commissioner had not complied with the Tribunal's remand order and had issued non-speaking orders. They highlighted that the Commissioner did not address their detailed submissions and evidence. The Tribunal noted these contentions and indicated that the Commissioner's orders had several infirmities.

5. Timeliness and Validity of the Show Cause Notices (SCNs):
The appellants argued that the SCNs were barred by time, as the department was aware of the relevant facts since 2001, and the SCNs were issued in 2002 and 2004. They contended that the demands were not sustainable for the entire period covered. The Tribunal considered these arguments and noted that the issue of time-bar would be examined in detail during the final hearing.

6. Financial Hardship and Undue Hardship Considerations for Pre-deposit:
The appellants claimed severe financial difficulties if required to pre-deposit the entire amount. They cited judgments indicating that undue hardship should be considered even if the case on merits is not strong. The Tribunal, after detailed consideration and consultation with both parties, directed the appellants to pre-deposit Rs. 7 crores within one month, with the appeal to be heard out of turn upon compliance.

Conclusion:
The Tribunal, after considering all arguments and evidence, directed the appellants to pre-deposit Rs. 7 crores within one month. The appeal was scheduled for an out-of-turn hearing on March 6, 2006. The Tribunal did not express any final opinion on the merits of the case but acknowledged several infirmities in the Commissioner's orders and the need to safeguard revenue interests. The decision balanced the appellants' financial hardship claims with the statutory requirements under Section 35F of the Act.

← Previous Next →