9911796707
TMI Blog2000 (10) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... ned subsidiary of FIL as admitted by ihe appellants themselves to be related person of FIL. Therefore, valuation in their case would be in terms of the proviso (iii) to Section 4(1) of the Central Excise Act, 1944. Both these units are engaged in the manufacture of transmission belts commonly known as `V belts', which are finding various uses. The present appeals relate to valuation of V belts known and used in industrial application only. 2. FIL sell their product through a network of wholesale dealers who are thereafter re-selling the same to end-users/actual users and other dealers through factory gate and various depots maintained by them. Valuation of the product manufactured by FIL was the subject-matter of dispute from 1978 onwards and based on certain enquiries made which have been termed by the learned DR to be an audit kind of enquiries, show cause notice was issued to the appellants proposing to demand duty on the V belts sold from depots not on the basis of the factory gate sale prices but on the basis of certain formula adopted in that show cause notice and which after hearing the appellants, the Collector had confirmed to be the depot price, less for the specified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Mr. Arun Kumar Chajjer who was the accountant working in that office. This was alleged to be the office of Mr Raghupathi Singhania who was at the material time Vice-Chairman of the FIL. Based on the enquiries made the said diaries and also statements recorded under the provisions of the Central Excise Act, 1944 from various executives and dealers of the FIL, show cause notice dated 28-6-1996 was issued. This show cause notice was based on the following allegations : 1. The trade policy for V belts did not provide for ex-factory billing and for trade discounts other than 20%. 2. Depots of FIL were selling V belts in wholesale. Kumarappan and Vishal Jain, Depot Managers confirmed that all sales from their depots were in the nature of wholesale. 3. The proportion of price of V belts cleared from the factory to those sold from the depots was in the ratio of 65 : 100 4. FIL cleared from the factory direct to the following dealers : (a) PTC. - 11 bills for Rs. 1,40,268 during 31-8-1995 to 28-12-1995 while the total purchases from the depots was Rs. 408/- lakhs during 15-6-1991 to 31-12-1995. (b) SME - 17 bills for Rs. 6,06,746 during 27-3-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Swaminathan, RSM (South) and Chandrasekharan, VP Finance, confirmed this. 16. After 1-1-1996, Madan Sales Corp., Bombay; New Ball bearings, Pune and Bombay Trading Agencies. Madras started getting supplies from the factory for the first time and in the case of PTC, the supplies from factory were made more frequent, without their asking, thus exposing FIL's tacit admission of the absence of genuine gate sales in the earlier period (Annexures 24 and 35 to the SCN). 17. Credit Note No. 536, dated 30-12-1995 for Rs. 2,21,300/- towards Super Surprise Gift Scheme, covering the period 1/95 to 3/95 was credit in ledger account against 30-3-1996 by M/s. Ganguram Ramkishan, Delhi, apparently to show that the scheme has been implemented following the raid on 10-1-1996 and the visit by the Central Excise officers to his premises on 2-4-1996. (Annexure N to the SCN). 18. The denial of benefit under one such scheme to NKBJ and non- accountal of the credit note by Sajeja Industrial Corporation, Kanpur cast doubts on the genuineness of extending of the benefits of these special schemes. (Annexures O P to the SCN). 19. Perusal of the statement containing statistical deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oured buyers and the price on which duty was discharged did not appear to be the normal price under Section 4 of the Act. (b) It appeared that the difference between the factory price and depot price was recovered from SME through adjustment in credit notes. In respect of supplies made to NKBJ and PTC from the factory and in respect of all wholesalers who were supplied V belts ex-depots, the higher discounts allowed were not according to any clear and open policy. It therefore, appeared that there was no factory gate price in respect of V belts cleared by FIL during the period 15-6-1991 to 31-12-1995 and the price adopted ex-depots allowing 20% trade discount to dealers was the normal price under Section 4 of the Act. (c) FIL were filing price lists under Part I, prior to April, 1994 and annexures, from April, 1994 onwards, declaring therein the wholesale factory gate price for the V belts. In all these documents, FIL had, separately for each size and variety of V belts, declared the wholesale price from which cash discount of 3% for prompt payment and excise duty at the prevailing appropriate rates were deducted and the assessable value arrived at. The assessable va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutives in cash; that these schemes were circulated in advance but the quantum of benefit was left vague it was to be surprise. It appeared that the quantum were determined through verbal negotiations and credit notes issued accordingly. This contention appeared to be supported by the fact that in respect of distributors and wholesalers, there was no written trade policy specifying the criteria for determination of the targets and quantum of discount. The credit notes issued appeared to have no nexus with the targets achieved and were not uniform for all the distributors/wholesalers. The flow back appeared to be collected from the dealers by reducing the quantum of credit notes against their eligibility under the special sales promotion scheme. Special schemes for promotion of sales of V belts appeared to be arbitrary, not according to any fixed guidelines or criteria. (h) It, therefore, appeared that FIL contravened the provisions of Rules 9(1), 173C, 173F and 173G of CER, 1944 inasmuch as they misdeclared/suppressed the assessable values and cleared the goods without appropriate payment of duty. 6. The show cause notice further alleged that FIL : (i) Wilfully misde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the appellants came to a finding that : it can be seen from the above that : (i) only three dealers were supplied directly from the factory, which were in negligible quantities i.e. not even 1% of the total V belts sales; (ii) the sales made to even these three dealers were in sporadic short periods and not regular or throughout the year. There was no regular wholesale price at the time and place of removal viz. the factory gate. (iii) the factory gate sales were completely non-existent for three years i.e. 9/92 to 27-3-1995. and therefore, has come to the conclusion that there was no factory gate sales because they were not genuine or that they were not in the normal course of wholesale trade at arms length and he went on to determine the assessable value on that basis holding that the price at which the goods would be sold from FIL depots nearest to the factory would be relevant since the appellants were selling the goods in depot offering varying discounts and that there were seven dealers who are called as wholesalers to whom 35% discount + 3% cash discount has been given from the MRRP (Maximum Recommended Retail Price) while for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the duty demanded (para 56.3 reply to SCN). (ii) That as per their working if the average discount extended at the depots (roughly 25%), the percentage of branch expenses, interest on inventories and interest on debtors are included then the total discount extended would be more than 35% (as furnished in the reply to the SCN para 57.2). As regurds their first contention I observe that in the earlier O-in-O the duty liability was arrived at on the total sale value at depots after deducting depot expenses, interest on inventories, etc. Since the earlier O-in-O was set aside by the CEGAT, it is not warranted to adopt that basis. Further, the deductions made in the earlier O-in-O are not to be abated for the purpose of arriving at the assessable value as per Hon ble Supreme Court s judgment in the case of MRF [1995 (77) E.L.T. 433 (S.C.)] Hence their claim in this regard is not acceptable. 78.2 As regards the other working furnished by FIL in their reply to SCN (para 57.2), I find that FIL is clubbing along with the discount the unabatable expenses as held by the Hon'ble Supreme Court in the case of MRF like expenses incurred in maintenance and running of the depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected by the FIL had come to a very clear cut conclusion that sales at the factory gate could not be treated as ordinary wholesale trade and that the sales from the depot cannot be treated as retail sales and the sales ex-depot were in the nature of wholesale sales. This order of the Collector also ordained that the valuation in this case should be done, less duty and less transportation cost after deducting the branch expenses. This decision and the formula arrived at by the Collector was not challenged by the Revenue, even though FIL had challenged it, by taking it up to the Tribunal on the ground that genuine factory gate sale prices exist and are applicable. The Tribunal also came to the findings that the Collector's order regarding factory gate sales being nominal and also that the sales made to selected buyers was not based on acceptable evidence and therefore, the Tribunal concluded that factory gate sales were existing and should be applied. The Tribunal had also come to a conclusion that the Department was also raising the issue of valuation and the appellants were filing replies to the queries. Therefore, there was no question of suppression of facts by the appellants. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the clearances of the goods to the Depot. We are aware that the Tribunal in the case of Geep Industrial Syndicate Ltd. v. CCE as reported in 2000 (120) E.L.T. 405 (Tribunal) has held that even if 3% of the sales to be at the factory gate are genuine, the sales can be applied to be transfers to Depot. In the present case we find that the sales from the factory gate to be non-existent and/or of such meagre amounts that application of the same to the to depot cannot be applied, in spite of the settled inter party order of the Tribunal. The assessee had also during the hearing conceded by not insisting and foregoing the challenging of this issue of existence of factory gate sale price. We, therefore, find that in this case we are at the same position where the Commissioner was at the earlier period in the show cause notice upheld by the Tribunal in their decision in 1991 (52) E.L.T. 460. Since there are no factory gate sales, we would consider this case to be a fit case to determine the near equivalent price under Section 4(1)(b) by applying the valuation rules. Before we proceed to examine the Commissioner s order on application of the relevant rules to determine the near equival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is concerned. The provisions of Section 11A(1) could be invoked only if there was deliberate attempt to proceed in a direction which was not permissible with intent to pay less the required amount of duty with intent to evade the same. We find that in the earlier proceedings, the Collector had ordained and fixed, a formula, in absence of factory gate sale price, which has not been challenged by the Revenue. It was challenged by the appellants only inasmuch as they contend that there was existing factory gate price. The appellants have maintained their mental state of mind in contending that even if there was only one per cent factory gate price, that could be applied and if that is not so found, then the formula in the earlier case should be applied and any change in formula could be prospective in any case the larger period however is not invokable. We find force in the arguments of the appellants. We do not find any substance in the Department s reasoning for applying the longer period of limitation in terms of Section 11A(1) as argued across the Bench and also as determined by the Commissioner. The Commissioner has invoked the provisions of the Section 11A(1) only on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count. These discounts were named as Surprise Gift Scheme discount and have been recovered from the seven dealers only constituting 40% of the sales out of 450 dealers. These have been submitted by the appellants to be not claimed in any case as deduction by them. There is no finding by the Commissioner as to whether the recovery by the credit notes is hit by Section 4(4) (d)(ii) as regards recovery of this amount. Similarly as regards flow back of the amount, as indicated in the diary recovered by the IT Department, from the possession of Chajjer from the office of JK Industries, Delhi, quantification of the amount of flow back and the material evidence to indicate that this flow back amounted to recovery in some form or the other to FIL has not been arrived at. The Hon ble Delhi High Court in the case of Somany Pilkingtons Ltd. v. CCE as reported in 1995 (76) E.L.T. 281 (Delhi) has held that in the case of evidence indicating collection of amount by a person relatable to and termed as flow back as in the case before us is to be considered then if there was no material on record to suggest that such monies collected were paid to the company (assessee) or to any of its directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price list under part I. We find that this submission of the appellants are required to be reconsidered. Evidence in the form of diaries and credit notes is required to be reconsidered by the Commissioner before he can come to the conclusion that diaries and the credit notes indicated that there has been flow back equivalent to 15% or such other amounts have reached the assessee and thereafter determine the value and the duty as per law. We would therefore, consider that the matter needs be reconsidered by the Cornmissioner. Therefore, the matter is required to be remanded back to him for determination of the duty amount for a period of six months prior to the show cause notice as per law. (c) We have also considered the submissions of Shri S. Kannan, learned DR that from the depot there have been sales at the list price minus 20% and minus 35% is not genuine. Therefore, duty should be determined on the sales made at less than 20% and not at 35% as claimed. We find that the discount is not to be uniform as held in the case of Metal Box India Ltd. as reported in 1995 (75) E.L.T. 449 (S.C.). Discount as availed has to be granted to them if eligible as per section 4(4)(d)(ii). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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