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TMI Blog2010 (8) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the trade discounts given to the customers and their quantum, taxes paid, quantum of outward freight from the premises of PKD/CKD/RSPL to the customers’ premises and rental/repair & maintenance expenses PMX machines and correctness of the PMX machine rentals has to be produced by the appellants for claiming their deduction from the sale price of PKD/CKD/RSPL. X X X X Extracts X X X X X X X X Extracts X X X X ..... hillaur (hereinafter referred to as DKD) with Shri Hari Singh as its proprietor. W.e.f. 1-4-94 it was shown to have been taken over by PKD. (v) Payments made to Shri Sudhir Agarwal, Shri Om Prakash and Shri Surinder Passi, employees of PKD were reflected in the petty cash book/cash book of DKDBL. Payments have been made by PKD to Shri Sachinder Kumar Goyal, Manager, (Accounts) of DKDBL, Shri Surjeet Goyal of DKDBL and Shri Ravi Lakhanpal, G.M. (Sales) of DKDBL, which are reflected in the expense ledger of PKD. (vi) Leave Application of Shri Pravinder Jit Singh and Shri Om Prakash, both employees of PKD, had been sanctioned by Shri S. Goyal of DKDBL which indicated that the employees of PKD and CKD were working under the control of DKDBL. (vii) DKDBL had collected agency security of Rs. 1,85,500/- and empty security of Rs. 1,85,000/- and empty deposit of Rs. 14,35,168/- directly from the agencies of PKD, which indicated the overall control of DKDBL over the market of PKD. (viii) Payments had been made by PKD directly to the Sundry Creditors of DKDBL. (ix) The last column of production & clearance register being maintained by DKDBL showed the areas where PKD, CKD and RSPL had d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4.1 SCNs dated 1-4-97, 30-5-97, 1-9-97 and 29-5-99 were issued for the period from September, 96 to October, 96, November, 96 to January, 97; February, 97 to March, 97 and from May, 94 to August, 96 periods respectively to DKDBL and PKD and CKD for - (a) demand of allegedly short paid duty amounting to Rs. 7,19,143/-, Rs. 13,47,850/-, Rs. 18,97,819/- and Rs. 7,98,27,724/- respectively in respect of clearances of aerated water and BIBs from DKDBL alongwith interest on the duty under Section 11AB of the Central Excise Act, 1944; (b) imposition of penalty on DKDBL under Section 11AC of the Excise Act and Rule 173Q(1) of the Central Excise Rules, 1944; (c) imposition of penalty on PKD and CKD under Rule 209A of the Central Excise Rules, 1944; and (d) Confiscation of land, building, plant and machinery of DKDBL under Rule 173Q(2) of Central Excise Rules, 1944. In all these SCNs, it had been clearly alleged that all the sales of DKDBL of aerated waters and BIBs were through the dummy units CKD and PKD. Total duty demanded under these four SCNs was Rs. 8,37,92,536/-. 1.4.2 In respect of clearances of DKDBL to RSPL, SCNs dated 4-6-99, 16-7-99, 20-10-99, 31-1-01, 19-6-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, on an appeal being flied by the Department to Hon'ble Punjab & Haryana High Court against the Tribunal's order under Section 35G of the Central Excise Act, 1944, Hon'ble Punjab & Haryana High Court, vide order dated 4-10-07 sent the matter back to CCE (Appeals) for decision in accordance with law. The CCE (Appeals) decided the matter in accordance with Hon'ble High Court's directions and vide order-in-appeal No. 180/CE/APPL/JAL/07 dated 15-4-08 accepted the contention that DKDBL are eligible for deduction from depot price in respect of - (i) rental on PMX machine supplied by DKDBL to customers; and (ii) Sales tax, octroi, cash & quantity discount, salary and wages towards distribution and freight and cartage. The Commissioner (Appeals) also set aside the order of penalty and directed the jurisdictional Assistant Commissioner re-quantify the duty as per directions in the appellate order. Against this order of Commissioner (Appeals), the Department has filed appeal No. E/1509/2006-EX before the Tribunal challenging the deductions on account of - (i) freight expenses (upto 28-2-03), (ii) PMX machine rental charges and (iii) Salary and wages towards distribution. 1.5.1 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lary and wages towards distribution of BIBs, cash & quantity discount and rental and repair and maintenance charges of PMX machine installed by DKDBL at the premises of vendors must be deducted for determining the assessable value. 1.5.2.1 Though in the SCNs it had been clearly alleged that all the sale of aerated waters and BIBs were through CKD and PKD and there was no sale at the factory gate of DKDBL to independent buyers, the Commissioner during the course of adjudication, in view of DKDBL's plea that they also have sales to independent buyers at the factory gate, called for a report from the jurisdictional Deputy Commissioner, who confirmed the existence of sales of aerated water to independent buyers at the same price at which the same were being sold to PKD and CKD. The Commissioner, on this basis, dropped the duty demand of Rs. 7,98,27,729/- in respect of sales by DKDBL of aerated water through PKD and DKD, treating the DKDBL's price to PKD and CKD as the correct assessable value, even though he held that PKD and DKD are dummy companies floated by DKDBL and just extended arms of DKDBL. The fact that there is huge difference between the price at which DKDBL sold aerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges on dispensing machine are not includible in the assessable value of concentrate syrup; allowed the appeals without going into the question as to whether PKD, CKD and RSPL are dummy units and whether extended period of limitation is applicable. 1.8 The Department filed appeals before Hon'ble Supreme Court against the Tribunal's Order No. 794-801/04-NB(A) dated 26-7-04 [2005 (182) E.L.T. 57 (Tribunal)] under Section 35L(b) of the Excise Act. Hon'ble Supreme Court vide Order dated 3-2-2009 [2009 (238) E.L.T. A28 (S.C.)] set aside the Tribunal's order and remanded the matter to the Tribunal observing as under: "By consent, the impugned judgement of the Customs, Excise and Service Tax Appellate Tribunal dated 26th July, 2004 in Appeal No. E/3931/03-NB(A) and Appeal No. E/1280-1286/04-NB(A) is set aside and the matters stand remitted to the Tribunal for decision in accordance with law on the following questions, namely, (i) limitation (extended period of limitation) and (ii) whether PKD and CKD are the marketing companies of the respondent assessee or whether they are "Dummy Companies" as alleged by the Department. In this connection, we may add that depending on the answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce/repairs are not includible in the assessable value. (4) The salary and wages towards distribution of BIBs are not includible in the assessable value and the Commissioner had righlty allowed these deductions. (5) The goods were cleared under valid invoices and the clearances were reflected in the RT-12 returns. There was no wilful mis-statement or suppression of facts on the part of DKDBL. Therefore neither longer limitation period under proviso to Section 11A(1) of the Excise Act was applicable, nor was penalty under Section 11AC imposable. 2.2 Shri B.K. Singh, the learned Joint Chief Departmental Representative, made the following submissions :- (1) As observed by the Commissioner in paras 6, 8, 9 & 10 of the Order-in-Original No. 78-81/CE/JAL/2003 dated 18-9-03 and in paras 7, 8, 9, 11, 12, 13,14, 15 & 16 of Order-in-Original No. 130-136/CE/JAL/2003 dated 17-12-03, PKD, CKD and RSPL do not have independent existence but are extension of DKDBL. (2) PKD, CKD and RSPL do not have any permanent office and all the business of PKD, CKD and RSPL is being handled in the office of DKDBL. The proprietor of PKD & CKD and present Directors of RSPL - Shri Hari Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited v. Collector of Central Excise, Calcutta reported in 1987 (30) E.L.T. 490 and Track Air Conditioning Systems Ltd. v. Commissioner of Central Excise, Bangalore reported in 2005 (180) E.L.T. 327 (Tri.-Bang.). (8) In the order-in-original No. 78-81/CE/JAL/03 dated 18-9-03, the Commissioner's order permitting deduction of expenses incurred towards distribution of product salary and wages given to establishment of PKD & CKD, is incorrect and contrary to the judgement of Hon'ble Supreme Court in case of Government of India v. Madras Rubber Factory reported in 1995 (77) E.L.T. 433 (S.C.), wherein it was held that marketing and selling organisation expenses are includible in the assessable value. (9) The rental and repair & maintenance for PMX machine installed by DKDBL at the premises of buyers of BIBs from PKD, CKD and RSPL is includible in the assessable value of BIBs. The judgement of Hon'ble Supreme Court in case of M/s. Pepsico India Holdings (supra) is not applicable to this case as while in the case of M/s. Pepsico India Holdings, the vending machines had been installed by the holding company, but the marketing charge were payable to the marketing company, not to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance charges, outward freight and salary & wages towards distribution, when deduction must be allowed. 3.1 The Commissioner while allowing the deduction of sales tax & octroi, cash and quantity discount, freight expenses from the premises of PKD, CKD &. RSPL and salary and wages towards distribution, has disallowed the deduction of PMX machine rental and repair/maintenance charges. Besides this, the Commissioner has treated the difference between the DKDBL's price in respect of BIBS to PKD/CKD/RSPL and RSPL's price for the same to independent buyers as cum duty price and has permitted abatement of central excise duty from the same. While the Commissioner's order disallowing the deduction of PMX machine rental and repair/maintenance charges has been challenged by the Appellant-DKDBL in Appeal No. E/3931/03-NB(A) and E/1280-1286/04-NB(A), the Commissioner's order allowing deduction of "wages & salary towards distribution has been challenged by the Department in Appeal No. E/5530/04-NB(A). The points which as per direction of Hon'ble Supreme Court in its order dated 3/2/07 have to be decided in Appeal No. E/3931/03-NB(A) and E/1280-1286/04-NB(A) filed by DKDBL are as under : (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 17-12-03. The proprietor of PKD was one Shri Hari Singh and later on, after his death, his son Shri Avtar Singh became its proprietor. The proprietor of CKD is one Shri Partap Singh, son of Shri Hari Singh. The promoter-directors of RSPL are Shri Avtar Singh and Shri Partap Singh. Shri Hari Singh was an agriculturist and so are his sons Shri Avtar Singh and Shri Partap Singh and all of them are uneducated. None of them have any experience of marketing of products like aerated water or soft drinks concentrate syrup. They do not appear to have even financial capacity to run marketing company, as while investment of Shri Hari Singh/Shri Avtar Singh and Shri Partap Singh in PKD and CKD respectively is Rs. 20,000/- each, the investment of these persons in RSPL is Rs. 75,000/- each. There is no explanation as to why the firms/companies like PKD, CKD & RSPL with capital of Rs. 20,000/- and Rs. 1.5 lakh respectively, owned/controlled by agriculturists without any education and without any experience of marketing of soft drinks have been given by DKDBL the business of marketing of aerated waters/BIBs manufactured by them worth crores of rupees and that too without any formal written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination like Ludhiana, Gurgaon, Amritsar, Jalandhar, Hoshiarpur, Moga, etc. which shows that the DKDBL were keeping track as to where the goods sold by them to PKD, CKD and RSPL, were being sold by PKD, CKD & RSPL. If PKD, CKD & RSPL were genuinely independent marketing companies, there was no reason for DKDBL to track the sales of PKD, CKD & RSPL. (8) There are numerous instances by DKDBL of payments of salary etc. to the employees of PKD and vice versa. Even the leave of the employees of PKD & CKD was being sanctioned by the office of DKDBL. No satisfactory explanation has been given for this. (9) There are a number of entries in the books of both PKD and DKDBL which show that huge amounts have been transferred from PKD to DKDBL without mentioning the nature and reasons of such fund transfer. Apart from this, there are many entries in the books of accounts of DKDBL, which show the amount deposited by PKD in the books of account of DKDBL on account of "Fund transfer". No satisfactory explanation has been given for this fund transfer. 4.1.1 It is unconceivable that a manufacturer of aerated waters and concentrate syrups, whose marketing requires considerable expense and fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust dummy units floated by DKDBL and mere extensions of DKDBL, it is the price at which PKD and CKD were selling the goods to independent buyers, which will be the assessable value, not the obviously under-declared price to PKD & CKD on which duty was being paid; (b) just because there were some sales of aerated waters to buyers claimed to be "independent buyers" at the same price, the DKDBL's price to PKD &. CKD does not become the correct assessable value, as there is neither any investigation nor any finding on this point as to whether so-called sales to "independent buyers" were genuine or whether such sales had been artificially created; (c) it is inconceivable that a manufacturer will sell his goods to customers at a price 50% lower than the price at which he can sell his goods to others; and (d) and even if the "independent buyers" are genuine, they may constitute a separate class of buyers whose price could not be adopted as assessable value in respect of sale to other buyers, but there is absolutely no discussion in the Commissioner's order on this point. Therefore, Commissioner's order accepting the DKDBL's price to PKD & CKD as the correct assessable v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessable value. Earlier, Hon'ble Supreme Court in its judgement in case of Union of India v. Bombay Tyre International reported in 1983 (14) E.L.T. 1896 (S.C.) had held that marketing and selling organisation expenses are includible in the assessable value. In view of settled legal position on this issue, we hold that salary & wages of the staff of CKD, PKD & RSPL engaged in marketing and distribution of the goods is includible in the assessable value of the goods and the Commissioner's order permitting these deductions is not correct. 5.3 Coming to the question as to whether the PMX machines rental and their maintenance and repair expenses are includible in the assessable value of BIBs, we find that PMX machines have been installed by DKDBL at the retailer's premises and it has been pleaded that PMX machines rental and their maintenance and repair expenses are included in the price charged by PKD, CKD & RSPL from their customers. 5.3.1 What is manufactured and cleared by DKDBL is post mix concentrate syrup for aerated waters being sold under brand name, Lehar Pepsi, Miranda, Teem, etc. The syrup is a mixture of soft drink concentrate and sugar chargeable to duty un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual basis, the evidence regarding, the quantum of deduction claimed and its correctness has to be produced by the appellant. With regard to correctness of the amount claimed as PMX machine rental, we are of the view that the same must be comparable with amortised value per BIB of the PMX machine plus reasonable profit margin of the machine owner renting the machine. 6. Whether extended limitation period under proviso to Section 11A(1) of the Central Excise Act, 1944 is available to the Department for the recovery of short paid duty. 6.1 Since as discussed in paras 4.1 & 4.2 above, PKD, CKD & RSPL are nothing but dummy entities created by DKDBL to depress their assessable value for evading central excise duty and since the facts regarding real nature of transaction of DKDBL with PKD, CKD & RSPL came to the knowledge of the Department only after a departmental investigation, longer limitation period under proviso to Section 11A(1) of the Excise Act, 1944 would be available to the Department for recovery of short paid duty and for the same reason, the provisions of Section 11AB and Section AC would also be attracted. 7. Quantification of Duty demand - 7.1 For cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ziabad reported in 2007 (210) E.L.T. 183 (S.C.) has held that unless it has been shown by the manufacturer that the price of the goods includes the excise duty payable by him, no question of exclusion of duty element from the price for determination of value under Section 4(4)(d)(ii) will arise. 7.2 In view of the above discussions, for quantification of duty demand, the assessable value has to be determined by permitting from the price list price, the deductions of (a) taxes actually paid; (b) cash and quantity discounts, if any, given to customers; (c) outward freight from the premises of PKD/CKD/RSPL to their customers' premises; (d) rental and repairs & maintenance expenses of PMX machines if the same are included in the price charged. No deduction of salary & wages towards distribution is to be permitted. However, the evidence regarding the trade discounts given to the customers and their quantum, taxes paid, quantum of outward freight from the premises of PKD/CKD/RSPL to the customers' premises and rental/repair & maintenance expenses PMX machines and correctness of the PMX machine rentals has to be produced by the appellants for claiming their deduction from the sale p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 4(1) of the Act as it stood during the period of dispute, is the price for delivery of the goods at the time and place of removal and if in case of sale from depot, the freight expenses from depot to customers premises are included, the price would cease to be the price at the place of removal. Therefore, the freight expenses from the depot to customer's premises would have to be deducted for arriving at the assessable value. However, the evidence with regard to the quantum of freight expenses from depot to customer's premises would have produced by the appellant. 8.4 In view of the above discussions, the matter has to be remanded to original adjudicating authority for re-quantification of duty after permitting exclusion from the assessable value of - (a) PMX machine rental and repair and maintenance expenses (if included in the price of BIBs); and (b) outward freight for depot to the customer's premises and also if taxes actually paid and cash & quantity discounts, which had been allowed by CCE (Appeals) and are not under challenge. Needless to say, the Respondent (DKDBL) have to produce evidence with regard to the quantum of deduction in respect of these expens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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