2005 (11) TMI 73 - SC - Central Excise

Whether, on the facts and circumstances of this case, cost of repacking of detergent powder into 20 gms. and 30 gms. sachets, which did not amount to manufacture at the relevant time, was includible in the assessable value of ariel micro-system (AMS) cleared by Procter & Gamble ( assessees for short) in bulk packs of 25 kgs. at its factory gate at Mandideep, Bhopal? Held that - The key question which was required to be decided by the Tribunal in the present case was concerning determination of the assessable value of 25 kgs. bulk packs of AMS from the appellants factory at Mandideep, Bhopal. If the activity of repacking did not amount to manufacture at the relevant time, was the Commissioner justified in computing the assessable value of the bulk packs based on the retail price of 20 gms. and 30 gms. sachets sold through the depots of the appellants? This question has not been decided by the Tribunal. Similarly, in the context of suppression and in the context of invocation of the extended period of limitation, the Tribunal has not considered the argument of the appellants that they were not guilty of suppression as the law was amended vide Finance Bill, 1994, when the activity of repacking was treated as manufacture for the first time. In our view, these questions were required to be decided by the Tribunal in the present case, particularly, in the light of the provisions of Section 4(4)(d)(i) of the said Act. They have not been decided by the Tribunal. Civil appeal filed by the assessees is allowed, the impugned judgment of the Tribunal is set aside and the matter is remitted to the Tribunal for its fresh decision.

Issues Involved:
1. Whether the cost of repacking detergent powder into sachets was includible in the assessable value of bulk packs.
2. Whether there was suppression of facts by the assessees justifying the invocation of the extended period of limitation.
3. Whether the valuation of the bulk packs should be based on the retail price of the sachets.

Issue-Wise Detailed Analysis:

1. Cost of Repacking and Assessable Value:
The primary issue was whether the cost of repacking detergent powder into 20 gms. and 30 gms. sachets should be included in the assessable value of "ariel micro-system" (AMS) cleared in bulk packs of 25 kgs. at the factory gate. The appellants contended that repacking did not amount to manufacture under the Central Excise Act, 1944, until the introduction of Chapter Note 6 in Chapter 34 via the Finance Bill, 1994. They argued that since repacking was not considered manufacture at the relevant time, the cost of repacking should not be included in the assessable value of the bulk packs.

2. Suppression of Facts and Extended Period of Limitation:
The department issued a show cause notice alleging that the appellants had suppressed the true price of AMS by not disclosing the agreement with IED for repacking and by declaring only the cost of 25 kgs. bulk packs for payment of excise duty. The appellants countered that there was no suppression as they had informed the department about the repacking arrangement and that repacking did not amount to manufacture before the 1994 amendment. The Tribunal, however, upheld the department's view, stating that the appellants had deliberately suppressed the details of repacking, justifying the invocation of the extended period of limitation under the proviso to Section 11A(1) of the Act.

3. Valuation Based on Retail Price:
The Tribunal and the Commissioner of Central Excise held that the valuation of the 25 kgs. bulk packs should be based on the retail price of the sachets sold through the appellants' depots. The appellants argued that the bulk packs were cleared for captive consumption and not for sale, and hence, the valuation should be based on the cost method under Rule 6(b) of the Valuation Rules, 1975. They contended that the retail price of the sachets should not be used for valuation as repacking did not constitute manufacture at the relevant time.

Tribunal's Oversight:
The Supreme Court noted that the Tribunal had not addressed the key issue of determining the assessable value of the 25 kgs. bulk packs. The Tribunal failed to consider whether the Commissioner was justified in using the retail price of the sachets for valuation, especially when repacking did not amount to manufacture at the relevant time. Additionally, the Tribunal did not examine the appellants' argument regarding suppression and the invocation of the extended period of limitation in light of the 1994 amendment.

Conclusion and Remand:
The Supreme Court allowed the appeal, set aside the Tribunal's judgment, and remitted the matter back to the Tribunal for fresh consideration. The Tribunal was directed to decide on the assessable value of the bulk packs and the issue of suppression, taking into account the principles discussed by the Court, particularly in the context of Section 4(4)(d)(i) of the Central Excise Act, 1944. There was no order as to costs.

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