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TMI Blog2002 (11) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... production of Oxygen/Nitrogen/Argon in gaseous form to M/s. JVSL. The remaining 5% of the incidental production of liquid products are either cleared to M/s. Praxair Pacific Ltd., Mauritius or used as back up stock for supply to JVSL. M/s. JPOCL is alleged to be a dedicated plant for JVSL. Chronological events regarding operation of JPOCL are given below :- (i) 27-1-1995 Praxair Inc., USA JVSL entered into MOU for setting up of joint venture company for the manufacture of oxygen and nitrogen. (ii) 27-9-1995 Date of incorporation of JPOCL. (iii) April, 1998 Installation of project was completed (iv) May, 1998 Trail production was started (v) August, 1998 Plant was ready for production of gases required for use in corex furnace of M/s. JVSL. (vi) October, 1998 Corex plant of JVSL commissioned for a month. (vii) November, 1998 Corex plant of JVSL was stopped due to technical snag. (viii) December, 1998 JPOCL plant was also shutdown. (ix) May, 1999 to June, 1999 Second startup of JPOCL (x) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r all liquid Oxygen and liquid Nitrogen - Rs. 2.30/NM3 (iii) Article 8.3 of PISA provided for revision of prices of gaseous Oxygen and liquid nitrogen (gaseous products only and not for liquid products) on account of project cost variation. Further Article 8.6 of PISA envisages revision of prices of liquid and gaseous products (oxygen and nitrogen) for the variation on account of the following factors : (1) Cost of power (2) Wholesale price index; and (3) Exchange rate (currency factor). (iv) From the Gas price calculations submitted by the assessee during the Course of investigation, it is apparent that the base price of gases and liquid Oxygen and Nitrogen is worked out by taking into consideration the following values 1. Project cost 144.94 Cr 2. Wholesale price Index 296.10 296.10 3. Currency Rs/USD 31.50 31.50 4. Power cost Rs/kwh 2.40 2.40 (v) While in view of certain variations in the above four factors which have bearing on the price of the products (as considered by the assessee) the assessable value of gaseous and liquid Oxyg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 1-9-99, same cost as on 1-7-99 has been considered. (2) Assessee reduced 8.5 crores on account of capital goods credit utilised during 1999. From the above table it appears that even though actual cost of project was Rs. 283.12 crores for the period with effect from 1-7-99, they have considered only Rs. 227.32 crores as project costs, resulting in lowering of gas price calculations. (vi) It also appeared that besides the project cost escalations not considered additional consideration in the form of free/undervalued power received from TPCL during the period May, 99 to February, 2000 and additional consideration in the form of minimum take or pay charges. (MTOPC) paid by JVCL from October, 99 to February, 2000 were also required to be considered for payment of duty and demand were issued on that basis. After hearing the charges, the Commissioner confirmed the demands and imposed penalties. 4. We have heard the learned Advocates and the DR and considered the material and find - (a) The allegations are that the assessable values declared are wrong and consequently short payments of duties have been effected. The notice was issued and confirmed under following thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 crores In this context it is noteworthy that the price was a contract price, derived from an agreement. It has been held in the case of Bombay Latex and Dispersions P. Ltd. v. Collector reported in 1985 (19) E.L.T. 527, that for the purposes of Central excise, an agreement that is enforceable in law is a contract. Any change in this price, to be acceptable as assessable value, should flow from the contract itself, in terms of the decision of the Tribunal in the case of CCE, Rayaguda v. IMFA Ltd., reported in 2000 (123) E.L.T. 988. (ii) It was argued on behalf of the appellant that JVSL would surely not invest in the appellant-company and thereby make so much outflow of funds merely to save on excise. However JVSL is a major shareholder in the appellant-company, and investment therein yields returns to itself, unlike payment of taxes. It is also well known that groups of interconnected companies make global planning of taxation, to minimize taxation and maximize returns in the group as a whole. (iii) It was also argued on behalf of the appellants that funding by the equity route cannot be taken into consideration under article 8.3 of PISA. However, examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of JVSL, was funded by JVSL, by way of Facility Fees of Rs. 22.42 crores and Rs. 14.95 crores of preferential share capital and the Rs. 5.53 cost attributable to Praxair was funded by it through loans and preference share capital. None of these amounted to payment of additional consideration by the buyer JVSL for or in connection with the product purchase. (ii) The project cost to be taken into account as per PSA was the project cost of the plant until completion of its construction, which was in 1998, this was about Rs. 227.32 crores, as established by the work sheets available with the department and the certification of an independent Chartered Accountant on record in these proceedings. The Commissioner erred in ignoring the said and other evidence in this respect. (iii) The Commissioner ought to have accepted, that it was never intended, that such items as interest costs, on borrowed funds accrued during the unforeseen shut down period should be taken into account as part of the project cost for price escalation purposes. (iv) Parties could choose how to fund the project and any cost increases. The funding of a part of the increased expenditure by way of share c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eplace with the following : 8.3 The base price for Gaseous Oxygen and Gaseous Nitrogen as specified in Article 8.1 for Quantity - Block 1 shall be adjusted as of First Delivery to reflect variations in the total project cost of the production facility from a base of Rs. 144.994 crores, either upwards or downwards. [The cost (excluding taxes and duties) for imported content supplied by Praxair, Inc, is fixed at US $ 20.19 million and for indigenous content supplied by Praxair Pacific Ltd., is fixed at Rupees 30.72 crores]. For each Rs. 2.4 crores of variation, the base Gaseous Oxygen and the base Gaseous Nitrogen price will be correspondingly adjusted by Rs. 0.01/Nm3. This adjustment will be prorated for the actual amount of variation. The exchange rate applicable for adjustments under Quantity Block 1 is Rs. 31.5/1 USD . The base price for Gaseous Oxygen and Gaseous Nitrogen as specified in Article 8.1 for Quantity - Block 2 shall be adjusted as of Expansion First Delivery to reflect variations in the total project cost of the Production Facility Expansion from a base of Rs. 175.1 crores, either upwards or downwards. [The cost (excluding taxes and duties) for imported content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /or actual savings in implementations. Deletion of Articles 8.10 and 8.11 of PISA were made with other amendments. This was signed on 1-7-99. Therefore, the effect of these amendments on Article 8.3 and consequent working of duty demands, based on Project Costs has to be considered. Provisions of the Indian Contract Act stipulate that a contract can be discharged by a new Agreement, provided the same is valid and operative. A new contract, in consistent with the original, impliedly discharges the latter without any express provision to that effect. The new terms agreed upon by implication waive the original, which are inconsistent with them and a new contract results consisting of new terms and the unchanged or consistent terms of the original contract. That would be the mandate of the Indian Contract Act, which cannot be wished away, on the case law relied by the learned DR there is no cause/case not to read the amended/substituted article 8.3. Therefore, we find no case or cause for the Commissioner to have taken up the Project cost on basis of his enquiries and apply the formula of Article 8.3 of PISA dt. 6-12-1995; until a finding is arrived at that the amendments/substitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the learned Commissioner and the Commissioner should come to a positive finding after hearing the appellants and considering the material. (c)(i) As regards duty demand of Rs. 86,04,68,553 on ground of adopting of notional KEB rate and addition of the cost of the power in view of our findings hereinabove we would direct the Commissioner to hear the appellants again on this aspect and consider the material submitted by them as regards duty demands of Rs. 76,34,887/- computed on the MTOP charges paid by JVSL, the learned DR has submitted as follows : The records show that the initial offer price of gases was Rs. 1.31 per cubic NM. This was lowered to Rs. 1.20 after negotiations. (It was later raised to Rs. 1.22 due to incremental investment in the oxygen plant). The statements of senior personnel of the appellant-company (S/Shri Raaj Kumar, Indrajit Mukherjee, B.K. Srivatsa and VS Kumar) reveal that the gas price was fixed keeping in mind the MTOP charges. This indicates that the lowering of price was linked to MTOP charges. The following points are also notable: (1) Article 8.2 of the PISA provides for MTOP charges. (2) These are payable per calend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e redetermined and we leave the issues open for both sides to urge before the lower authority. 6. Since the material case is being remanded back for redetermination of duty the question of limitation and penalty if any will have to be reconsidered in those proceedings. Appeals allowed as remand. Sd/- (S.S. Sekhon) Member (T) 7. [Order per : G.A. Brahma Deva, Member (J)]. - While concurring with the conclusions arrived at by ld. Brother Shri S.S. Sekhon in remanding the matter, I would like to add further as follows : 8. Show Cause Notice has been issued for the period May, 1999 to February, 2000 demanding the differential duty and same has been confirmed by the Commissioner as per impugned order under three broad heads :- (i) Price re-computation based upon: (a) Project cost escalation, and (b) Power cost escalation (ii) Valuation of power supplied at KEB rate (iii) Duty on MTOP payments Accordingly, total duty demanded is Rs. 14,63,51,143/- and imposing equivalent penalty under Section 11AC of the Act apart from imposing penalty of Rs. 1 crore by way of penalty under Rule 173Q on the appellants Jindal Praxair Oxygen Co. Pvt. Ltd. In addition pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price will increase by Rs. 0.01/Cubic NM for each increase of Rs. 2.4 crores in the project cost (and pro rata accordingly for actual amount of variation). The project cost thus increased to Rs. 283.12 crores w.e.f. July, 1999. However, the appellant and their buyer JVSL came to an understanding that the project cost would be treated as 227.32 crores. The difference between Rs. 283.12 crores and Rs. 227.32 crores was treated thus : Claim lodged with Siemens (not paid to date) Rs. 12.90 crores Equity capital provided by JVSL Rs. 14.95 crores Facility charges paid by JVSL Rs. 22.42 crores Equity capital provided by Praxair Rs. 2.21 crores Debt by Praxair Rs. 3.32 crores It was argued by the DR that the above difference figures with reference to the escalation of project cost is to be taken into consideration while determining the contract price. She said that the price is a contract price deriving from an agreement. It has been held in the case of Bombay Latex and Dispersions reported in 1985 (19) E.L.T. 527 that for the purpose of Central Excise, an agreement that is enforceable in law is a contract. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of this principle that the original contract must be subsisting and unbroken. When once they enter into a new contract with varied terms and conditions, which is called novation, automatically old contracts disappears and new contract emerges in its place. In the instant case, Clause was amended with reference to the determination of price and both the parties mutually agreed that project cost of Rs. 227.32 crores fixed for, applying price escalation formula. As long as contract is valid it is only for the parties to enforce their rights and obligations under the respective contract. 14. In the case of Standard Electric Appliances (supra), Madras High Court has held that though in law the purchaser who agreed to purchase a particular quantity and gets a concession in the price of the goods may not be entitled to have the concession if the agreed quantity of goods is not purchased by him during the stipulated period, but where a manufacturer permits such a purchaser to have the advantage of a concessional price even though he had not cleared the full quantity of the goods within the stipulated period, or permits him to clear the goods beyond the time, the respondents cannot s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter in between them and it is not open to a stranger let alone tax collector to question the validity of the contract. It was also argued on behalf of the Revenue that price is a contract price deriving from an agreement. Any change in the price to be acceptable as assessable value flow from the contract itself. Accordingly, whether any price has been escalated from the terms of the contract is to be determined first by the adjudicating authority. Any change in the price to be acceptable as assessable value should flow from the contract itself in terms of the decision of the Tribunal in the case of CCE, Rayaguda v. IMFA Ltd. (supra) referred to and relied upon by the DR. Further more, it is for the adjudicating authority/taxing authority to find out any additional consideration has been flown in terms of contract or otherwise and subject to clear finding and on that transaction, additional consideration, if any, to that extent is to be added to the price proportionately and not to revise the value of project cost for determination of the assessable value, in our view. We are in total agreement with the arguments advanced on behalf of the parties that in ignoring the second a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods under Section 4 of the Central Excise Act and Rule 5 of the Central Excise (Valuation) Rules. Amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee and that the consideration which can be reckoned for levy of CED is the consideration flowing from the buyer of the goods and not from third parties to the assessees. In the instant case, since the appellant is not paying directly the power charges to the supplier and same was paid for by JVSL and reimbursed by the appellant to JVSL and in view of the submissions made by the Departmental Representative, the cost price was fixed taking into account the fact that the buyer was going to pay a fixed charges to the recovery of the cost production and cost price does not reflect the full cost of the goods as raised on the buyer. In view of the intra-transactions among the appellants, buyer and supplier of power in respect of supply of power and if the appellants are benefited and additional consideration has been passed on though not directly but indirectly from the buyer to the assessee same is to be added to that extent as per Rule 5 of the Valuation Rules. We are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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