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TMI Blog1996 (3) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for sets of value exceeding Rs. 5,000/- was increased from Rs. 1,750/- to Rs. 2,000/- per set. Appellant had paid during the period at the rate of Rs. 1,500/- per set on the footing that the value did not exceed Rs. 5,000/- per set based on the prices shown in the classification list which were Rs. 14,900/- for model Plus E and 209J and for model perfect Rs.14,650/-. Show cause notice dated 8-5-1991 was issued to the appellant invoking the enlarged period of limitation under proviso to Section 11A of the Central Excises and Salt Act, 1944 (for short, the Act) stating that the assessable value under Section 4(1) of the Act of these sets exceeded Rs. 5,000/- per set and demanding differential duty of Rs. 250/- per set sold till 28-2-1988 and of Rs. 525/- (Basic Excise plus Special Excise duty) for sets sold from 1-3-1988 to 28-3-1989. The show cause notice was resisted by the appellant but confirmed by the Collector who also imposed penalty of Rs. 25 lakhs on the assessee and Rs. 5 lakhs on the Director incharge. The Company and the Director have filed these appeals. We have heard Shri V. Sridharan appearing for the appellants and Shri A.K. Singhal, JDR. 2. The contracted sale p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or invoice till the date of payment. As security for payment of the prices for goods sold from time to time, Arvind shall deposit Rs. 30 lakhs within one year from the date of the agreement and the deposit shall not carry any interest. The deposit shall be maintained always. The manufacturer shall be entitled to deduct from the deposit all money due from Arvind. All the products shall be resold by Arvind in their original packing. The agreement shall be in force till 31-12-1988. The agreement relates to T.V. sets and components. 4. The terms and conditions of the agreement dated 1-9-1988 as substantially similar to the above terms. Additionally the agreement obliges the manufacturer to supply free of charges components/parts for replacement in fulfilment of warranty given by Arvind and security deposit amount shall carry interest at 15%. All the products to be purchased by Arvind shall be packed by the manufacturer in a manner specified by Arvind. Arvind s Trade mark `PYRAMID or any other trade mark will be affixed to the products by the manufacturer as instructed by Arvind. 5. According to the impugned order, there was flow of additional consideration for the sales by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rums brought by the buyers and sold to them. The drums were durable in nature but not returnable by the buyers since they belonged to the buyers themselves. The Tribunal held that the value of these drums should be included in the assessable value of the goods packed in the goods. Sabyasachi Mukerjee J (as he then was) agreeing with the decision of the High Court of Bombay in Govind Pay Oxygen Ltd. v. Assistant Collector, Central Excise - 1986 (23) E.L.T. 394 and of the Karnataka High Court in Alemblc Glass Industries Ltd. case 1986 (24) E.L.T. 23, held that expression cost in relation to packing in Section 4(4)(d)(i) of the Act has a definite connotation and has been used in contradistinction of the expression value and the clear implication of the expression cost is that only packing cost of which is incurred by the assessee i.e. the seller is to be included. Ranganathan J in the concurring judgment held that cost of packing referred to Section 4(4)(d)(i) of the Act is the cost of packing incurred by manufacturer and recovered by him from the purchaser whether as part of the sale price or separately and cost of packing supplied free of cost by the buyer cannot notionally be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons, the manufacturer agreed before the Tribunal that the charges for advertisement and after sales service during the warranty period incurred by the sole distributor on behalf of the manufacturer may be treated as additional consideration and money value thereof may be added to the assessable value. It may thus be seen that the Tribunal did not have occasion to consider the question of rendering its decision, the decision was a concession by the appellant. In CCE v. M.G.Shahani Co. - 1995 (80) E.L.T. 905 (Tribunal), the respondent was manufacturing shampoos with the brand name belonging to the buyer and selling the same to the brand name owner. There was no relationship between them other than as seller and buyer and the transactions between them were not influenced by any special relationship. Under the agreement, the buyer was not obliged to incur any expenditure on advertisement at the instance of the seller. Manufacture was to be done as per specifications of the buyer who had right to reject goods not upto the specifications. The transactions were on principal to principal basis. It was held that agreed sale price could be accepted as basis of valuation and the price at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of T.V. sets for replacement in fulfilment of warranty given by Arvind. Inevitably Arvind was meeting the service cost of replacing parts during the warranty period. According to the Collector the transactions were not on principal to principal basis and the price declared did not include the service cost of replacing parts and therefore the declared price was not the normal price. Both sides rely on certain decisions. In A.K. Roy and Another v. Voltas Limited - 1977 (1) E.L.T. (J 177) the Supreme Court held that if a manufacturer enters into an agreement with dealers for wholesale sales of the manufactured articles on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the wholesale cash price for the purpose of Section 4(a) of the Act. If the agreements are made at arm s length and in the usual course of business. A sole distributor might or might not be a favoured buyer according as terms of the agreement with him are fair and reasonable and were arrived at on purely commercial basis. The decision in Bombay Tyre International Ltd. case 1983 (14) E.L.T. 1896 (S.C) discusses the general principles underlining valuation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perspective, the manufacturer, instead of finding out a large number of wholesale dealers, found one wholesaler who was prepared to lift 90% of the production and if under these circumstances, a lower price was charged to the wholesaler, it would not be correct to hold that the price was not a commercial price. The fact that the wholesaler was advertising the product and giving after sales service and complying with the normal warranties would not render the wholesaler a favoured buyer. When a consumer purchases an article from the dealer, in the case of service facilities, he looks to the dealer but not to the manufacturer. It was also observed that in the case of defective parts also he will look to the dealer from whom he has purchased and notwithstanding the fact that the wholesaler may ultimately have the parts replaced by them reimbursed from the manufacturer, the service facilities would be provided by the wholesaler with a view to earn goodwill and attract customers. Advertising a product by wholesaler is one of the well-known methods by which the wholesaler attracts a customer and, as a result of increase of business, the demand for the product of the manufacturer also inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of interest given by the wholesale buyer should be reloaded in the price so as to reflect the correct price of the goods since a favoured treatment was given to the wholesaler who had advanced large amounts free of interest. Since the notional interest was added to the price, that aspect according to Supreme Court had to be kept out of the picture in considering the claim for discount of 50%. The Supreme Court held that the net picture which emerges is that here was a wholesale buyer claiming discount because it avoided the botheration of appellant by way of advertisement cost for marketing as 90% of the products were lifted by the wholesaler and for such buyer if a concession by way of trade discount is given, may be to the extent of 50% though in fact it will be much less as reloading of contract price by the notional value of interest has been permitted, such a trade discount cannot be said to be in any way uncalled for or a special treatment contrary to trade practice. A substantial amount of Rs. 60 lakhs was deposited with the appellant as security and the deposit was maintained through out the period. Under one agreement no interest was payable and in another agreement 50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceive the invoice price less discounting charges and the Bank, in due course, would collect the full invoice price. Though the show cause notice refers to this aspect, there is no conclusion in this regard in the impugned order. There is nothing stated in the appeal memorandum in this regard. Hence we are not required to consider if the Bank discount charges should be added to arrive at the assessable value. 18 Learned counsel has commented on the method adopted by the Collector to arrive at the assessable value for the purpose of verifying whether it exceeds Rs. 5,000/- so as to attract the higher rate of duty. According to him, since the duty fixed on T.V. sets of value not exceeding Rs. 5,000/- is Rs. 1500/-, the cum-duty price for the lower slab should not exceed Rs. 6,500/- (i.e. Rs. 5,000/- plus Rs. 1500/-) and only if the cum-duty price exceeds Rs. 6,750/- (Rs. 5,000/- plus Rs. 1750/-), the higher duty of Rs. 1750/- is attracted. It is contended that in case of cum-duty value ranging from Rs. 6,500/- to Rs. 6,750/-, duty element of Rs. 1,750/- has to be deducted to see if assessable value exceeds Rs. 5,000/- or not and if the value is below Rs. 5,000/- duty can be levied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of determining the assessable value. The assessable value would not include the duty element as is clear from Section 4(4)(d)(ii) of the Act. The Supreme Court observed as follows : On a careful reading of the Notification dated July 24, 1967, it also becomes clear that the effect of the Notification is to render the chargeability or otherwise to duty of excise of footwear falling under Item 36 of the First Schedule is made wholly dependent upon the `value of the article of footwear; in case such value exceeds Rs. 5 per pair......It is precisely to such a situation that the provision of Section 4 gets attracted because as expressly stated in the opening part of the said section the mode of determination of `value specified in the section will be applicable to all cases where any article is chargeable with duty at a rate dependent upon the value of the article. In she case of total exemption, the rate will be `nil . Thus, Entry 36 read along with the Notification dated July 24, 1967 clearly shows that the chargeability to duty in respect of any article of footwear is made dependent upon its value in the sense that the chargeability to duty of excise will arise only if the `valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also Notification No. 122/88, that the appellant filed wrong classification lists of the products and cleared goods involving differential duty. The fraudulent misdeclaration of the real value was stated to be the reason for invoking enlarged period of limitation. On the various factors we have discussed already, it is clear that there was wilful suppression of material facts affecting certain aspects of valuation and, therefore, enlarged period of limitation was available. Imposition of penalty on the assessee and the Director 23. The imposition of penalty of Rs. 5,00,000.00 on one of the Directors of the company under Rules 209A of the Rules is also challenged. We do not think we need express any opinion on this aspect, since in the light of our findings on various aspects in controversy, the Collector has to re-assess the value for the purpose of finding whether any differential duty is to be demanded or not. It may be that no differential duty requires to be paid on such re-assessment. If that be so, the question of imposition of penalty does not arise. Even if differential duty is to be demanded, the question of imposition of penalty on the company as well as the Director ..... X X X X Extracts X X X X X X X X Extracts X X X X
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