1987 (2) TMI 517 - AT - Central Excise

Issues Involved:

1. Determination of assessable value of ships under the Central Excise Act or Valuation Rules, 1975.
2. Inclusion of payments under escalation clauses in the assessable value.
3. Applicability of the larger period of limitation under Section 11A of the Act.
4. Legality and jurisdiction of the claim for additional duty.
5. Appellant's right to raise jurisdiction and limitation issues in the second appeal.

Issue-wise Detailed Analysis:

1. Determination of Assessable Value of Ships:

The Tribunal examined how the assessable value of ships constructed and delivered under a contract should be determined. It was noted that under Section 4(1)(a) of the Central Excises and Salt Act, 1944, the assessable value for levy of duty ad valorem is the normal price at which goods are ordinarily sold by the assessee in the course of wholesale trade. However, ships are constructed as per specific contracts and are not sold in the wholesale market. Therefore, the normal price is not ascertainable, and the value must be determined under Section 4(1)(b) using the Valuation Rules, 1975. Rule 7 was deemed applicable, allowing the proper officer to determine the value based on the best judgment, ensuring it is not arbitrary but has a nexus with discovered facts.

2. Inclusion of Payments under Escalation Clauses:

The Tribunal addressed whether payments made under escalation clauses in the contract form part of the assessable value. The contract stipulated that the price was subject to escalation for steel, labor, and customs duty. The Tribunal held that these escalations are part of the money consideration under Section 2(10) of the Sale of Goods Act, 1930, and thus, part of the price. Consequently, the amounts paid towards escalation are part of the assessable value for duty.

3. Applicability of Larger Period of Limitation:

The Tribunal considered whether the notice to show cause dated 19-2-1981 could invoke the larger period of limitation under the proviso to Section 11A of the Act. The appellant argued that without allegations of fraud, collusion, or wilful misstatement, the larger period could not be invoked. The Tribunal found that the notice did not make such allegations, and thus, the larger period of limitation was not applicable.

4. Legality and Jurisdiction of the Claim for Additional Duty:

The Tribunal examined whether the claim for additional duty was illegal, without jurisdiction, or barred by limitation. It was held that the demand for additional duty was premature as the escalated amounts were still under arbitration and not realized. Therefore, the show cause notice was set aside as premature.

5. Appellant's Right to Raise Jurisdiction and Limitation Issues:

The Tribunal considered whether the appellant was precluded from raising jurisdiction and limitation issues in the second appeal. The Tribunal concluded that since the notice was premature, the bar of limitation and jurisdiction issues did not arise for consideration.

Conclusion:

The appeal was allowed, and the demand made in the notice to show cause dated 17-12-1980 was set aside as premature. The respondent was given liberty to issue demands/notices to show cause in respect of such amounts in escalation as may be awarded in the arbitration proceedings pending between the appellant and the buyers of the ships. The appeal was allowed subject to this condition.

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