2005 (4) TMI 65 - SC - Central Excise

Whether the appellants are liable to pay excise duty on the basis of the sale price of the buyer to its dealers in Uttar Pradesh and not based on the appellants sale price to independent dealers? Held that - The first proviso to Section 4(1)(a) of the Act was never invoked by the Department either in the show cause notice or in the impugned order and it was for the first time that the appellate Tribunal in the impugned order has sought to sustain the impugned order by invoking the first proviso to Section 4(1)(a) of the Act. It is thus seen that the Tribunal has gone totally beyond the show cause notice and the order of the Collector, which is impermissible. The appellate Tribunal cannot sustain the case of the Revenue against the appellants on a ground not raised by the Revenue either in the show cause notice or in the order. The impugned order of the Tribunal which had gone beyond the show cause notice and the order of the respondent-Collector is, therefore, liable to be set aside. The assessable value on which the duty has been paid by the appellants, in the present case, even in respect of transactions with Syndet in Uttar Pradesh is higher than the approved assessable value for Okhla factory of Syndet and this itself proves the bona fide of the appellant and the genuineness of the price particularly when the goods are only Fena brand sold practically to the same dealers. This issue, therefore, is no longer res integra and, therefore, the Collector could not have confirmed the demand under Section 4(1)(b) of the Act when there are significant sales at the factory gate to the independent buyers throughout India. It is not permissible on the part of the CEGAT to change the basis of the demand since the assessee was asked to show cause only in relation to applicability of Section 4(1)(b) of the Act. Thus the appellate Tribunal remanded the matter for quantification of duty demand.

Issues Involved:
1. Whether the appellate Tribunal went beyond the show cause notice and the order of the Collector.
2. Whether the wholesale price to independent dealers should be used for assessing sales to related persons.
3. Applicability of the first proviso to Section 4(1)(a) of the Central Excise and Salt Act, 1944.
4. Determination of assessable value for excise duty purposes.

Issue-wise Detailed Analysis:

Issue 1: Tribunal Exceeding Scope of Show Cause Notice
The appellate Tribunal upheld the Collector's order but on a different basis than presented in the show cause notice. The Tribunal invoked the first proviso to Section 4(1)(a) of the Act, which was not mentioned in the show cause notice or the Collector's order. This approach was impermissible as the Tribunal cannot sustain the case on grounds not raised by the Revenue. The Supreme Court cited the case of Reckitt & Colman of India Ltd. v. CCE, emphasizing that it is beyond the Tribunal's competence to make out a case not canvassed by the Revenue.

Issue 2: Using Wholesale Price to Independent Dealers for Related Persons
The appellants argued that since a normal price satisfying Section 4(1)(a) of the Act is available for sales to independent dealers, the same should be used for sales to related persons. The Supreme Court supported this argument, referencing Union of India v. Kantilal Chunilal & Ors., where it was held that the price to unrelated buyers should be adopted for related buyers if such a price is available. The Tribunal's failure to consider this well-established legal position was noted.

Issue 3: Applicability of First Proviso to Section 4(1)(a)
The Tribunal's decision was based on the first proviso to Section 4(1)(a), which states that different prices to different classes of buyers should be used if they satisfy the requirements of Section 4(1)(a). However, the Supreme Court found this proviso inapplicable as the sales to Syndet, a related person, do not satisfy the requirement of sales to unrelated buyers. The Court also highlighted the binding nature of CBEC Circulars, which stated that dealers in different regions cannot be considered different classes of buyers.

Issue 4: Determination of Assessable Value
The Supreme Court noted that the appellants had filed price lists for sales to independent dealers and to Syndet, and excise duty was paid based on these prices. The Tribunal and the Collector's orders were found to be inconsistent with the established legal framework and CBEC Circulars. The Court emphasized that a genuine sale price to independent dealers should be used for determining the assessable value for excise duty, even when sales are made to related persons.

Conclusion:
The Supreme Court set aside the appellate Tribunal's order, which had gone beyond the show cause notice and the Collector's order. The Court upheld the principle that the wholesale price to independent dealers should be used for assessing sales to related persons and found the first proviso to Section 4(1)(a) inapplicable in this case. The appeal was allowed, and the matter was remanded for quantification of duty demand based on the correct legal principles.

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