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TMI Blog2012 (11) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... s includible in the assessable value of the goods supplied to them in terms of Section 4(3)(d) of the Central Excise Act itself. Merely because, the demand has been confirmed under rule 11 read with section 4 (3) (d), it does not become infructuous. Value of inputs received free of cost by the appellant from M/s Mahindra & Mahindra is required to be included in the assessable value of goods supplied to them and the extended period for demand of differential duty has been rightly invoked. Extended period of time has been correctly invoked to demand ineligible cenvat credit taken in respect of inputs found short, which have been written off in the books of accounts. - E/315,316,317/07 – Mum - M/849-852/11/EB/C-II - Dated:- 17-11-2011 - Ashok Jindal, Sahab Singh, JJ. For Appellant: Shri V Sridharan, Sr. Adv . For Respondent: Shri K M Mondal, Consultant Per: Ashok Jindal: The appellants namely M/s. Lear Automotive India Pvt. Ltd. is in appeal against the confirmation of duty demand of Rs. 2,69,08,172/- along with interest and equivalent amount of penalty under section 11AC of the Central Excise Act, 1944 and Shri Ratinder K. Puri, Managing Director and Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us by way of these appeals. 5. Shri V. Sridharan, Sr. Advocate, learned Counsel appeared on behalf of the appellants and Shri. K.M. Mondal, Consultant appeared for the Revenue. 6. As there are three issued involved in these appeals, we are dealing with all the issues separately. 7. Issue No. 1. Whether the inputs received free of cost by the appellant is includable in the assessable value of finished goods. 7.1 Shri V. Sridharan, Sr. Advocate, submitted that the period involved in this demand is 01.03.2000 to 03.02.2004 and show- cause notice has been issued on 28.10.2005. The show-cause notice is barred by limitation as there is no suppression on the part of the appellants in the facts and circumstances of the case. The appellants are clearing their goods as per the assessable value correctly arrived at by them as per Section 4 of the Central Excise Act, 1944. The adjudicating authority has confirmed the demand for non-amortization of cost of tooling development charges received by the appellant under Rule 11 of the Central Excise valuation rules, 2000 read with Section 4(3)(d) under the proviso of Section 11A of Central Excise Act, 1944. The said Rule is not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 11 of Valuation Rules ia an appropriate rule to arrive at the assessable value. Therefore, the adjudicating authority has rightly included the entire tooling cost in the assessable value. 7.3 Considering the submissions made by both the sides, we find that in this case the principal manufacturer has given a particular amount to the appellants for tooling development cost. That amount has been incurred by the appellant for making tools for the goods manufactured by them to be supplied to their principal manufacturer. In that scenario, the tools are to be used only for the manufacture of those goods. Therefore, the appropriate rule for valuation in this case is Rule 6 of the Violation Rules. The adjudicating authority has adjudicated the assessable value to be arrived at as per Rule 11 which is not appropriate in the facts of this case. As the valuation is to be done as per Rule 6 ibid but the adjudicating authority invoked Rule 11 ibid, therefore, the allegation of suppression is not sustainable in the facts of this case. When there is a dispute that assessable value is to be arrived at under which Rule, the allegation of suppression is not sustainable. When the suppression i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hearing both sides, we find that if the appellants had either opted to pay duty on the full value of the goods inclusive of the raw materials cost, then the Bhilai Steel Plant could have taken credit on the duty so paid, or the appellants could have obtained the raw materials free of cost without payment of duty so paid, or the appellants could have obtained the raw materials free of cost without payment of duty and supplied the bricks back to the Nilai Steel Plant following the Rule 57F Procedure. The appellants have not strictly followed either of the procedures, but they paid duty on the job charges. Since in a similar case, recognizing status of a similar appellant as an intermediate manufacturer, the Hon'ble Supreme Court has held that the intermediate manufacturer (namely M/s. International Auto herein) need not pay the duty and such a decision as been followed in two other cases by the Tribunal, we also follow the same route and hold that the appellants need not pay duty on the bricks made by them as intermediate manufacturer for the Bhilai Steel Plant. Accordingly, we set aside the impugned order and allow the appeal." 8.4 As contended by Shri K.M. Mondal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Greaves Cotton Ltd. (supra) therefore, the demands are not sustainable. 9.2 Shri K.M.Mondal also relied on the decision of CCE Cus v. Greaves Cotton Ltd. (supra) and submitted that as the appellants have not disclosed the fact to the department, therefore, extended period is invokable in this case and the demand has to be confirmed. 9.3 Considering the submissions made by both the sides, we find that the issue has been dealt with by the Hon'ble High Court of Bombay in Greaves Cotton Ltd. (supra) and held that the assessee is required to reverse the CENVAT credit on the inputs which have been written off in the Books of Accounts on the physical verification of the stock. Therefore on merit, demand is sustainable but in the said decision the Hon'ble High Court of Bombay has held that misstatement or suppression of facts cannot be alleged and extended period is not invokable. Admittedly in this case show-cause notice has been issued by invoking the extended period of limitation which is not sustainable in this case in the light of the decision of the Hon'ble High Court of Bombay in the case of Greaves Cotton Ltd. (supra). Therefore, the show-cause notice on this issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain cenvatable inputs were found short on physical verification and the same were written off from the books of account without reversal of cenvat credit. Proceedings were, therefore, initiated by issue of show-cause notice dated 26.10.2005 which resulted in the impugned order confirming the duty demand against the appellant, imposing equal amount of penalty on it under Sec. 11AC of the Central Excise Act, 1944 and also imposing penalty of Rs. 5 lakhs each on Shri Ratinder K. Puri, Managing Director and Shri S.Sunder, Plant Manager of the company under Rule 26 of Central Excise Rules, 2001 and Rules 2002. 4. There are 5 issues to be decided in the present case. Firstly, whether the tooling advance received by the appellant from M/s. M M Ltd. is required to be amortized in the assessable value of the goods. Secondly, whether the value of inputs received free of cost by the appellant from M/s. M M Ltd. is required to be included in the assessable value of the goods. Thirdly, whether the cenvat credit taken in respect of the inputs found short but ultimately written off from the books of accounts is required to be reversed. Fourthly, whether the extended period of limitation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follow:- "Rule 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section 1 of Section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. [Explanation I] For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the good being valued and aggregated accordingly, namely:- (i) value of materials, components, parts and similar items relatable to such goods; (ii) value of tools, dies, moulds, drawings, blue print ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So it was a case of revenue neutral situation. The Commissioner has rejected this contention on the ground that the duty was paid only after detection of the case. Therefore, it was the case of suppression of facts. I also find that before the investigation and detection of the case, there was no dispute as to whether Rule 6 or Rule 11 of the Central Excise Valuation Rules, 2004 will be applicable. It is a case of intentional non-payment of duty. Therefore, I hold that the extended period of limitation has been rightly invoked in this case. 7. Receipt of inputs free of cost: The value of inputs received free of cost from M/s. M M Ltd. during the period 29.1.03 to 3.2.03 was Rs. 2,08,35,250/- and the differential duty involved was Rs. 33,33,640/-. I find that the appellant in its reply dated 21.3.2006 to the show-cause notice has fairly admitted that the value of free inputs received from the buyer of the goods is in the nature of additional consideration and needs to be aggregated in the invoice price for assessment of excise duties. Accordingly, the central excise duty amounting to Rs.3,33,640/-as demanded in the show-cause notice should have been assessed to the central e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of modvat permits the person who clears the ultimate final product to take the benefit of the modvat scheme at the time of clearance of such final product. Therefore, the Hon'ble Apex Court held that there was no need for the assessee to include the cost of inputs free of cost in the assessable value of floor plate assemblies. 7.3 The facts of the present case are distinguishable. It is not a case of receipt of inputs free of cost under Rule 57F(2) of the erstwhile Central Excise Rules, 1944. The appellant in the present case was not a job worker of M/s. M M ltd. As an independent manufacturer, it received certain inputs free of cost from M/s. M M Ltd. and the same was used in the manufacture of the finished goods viz. seats interior fitments which were ultimately sold to M/s. M M Ltd. for its vehicles. Therefore, the appellant ought to have included the value of the inputs in the assessable value of the finished goods in terms of Sec. 4 of the Central Excise Act, 1944 as held by the Hon'ble Apex Court in the case of Burn Standard Co. Ltd. vs. Union of India 1992(60)ELT 671(S.C.) . I therefore, hold that the Commissioner is rightly confirmed the duty demand on this cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor did it bring to the notice of the department. The value of the inputs written off was Rs. 4,22,48,729/- and the amount of credit available was Rs. 67,59,797/- for the period 1.4.2000 to 3.2.2004. 8.1 In the case of CCE vs. Greaves Cotton Ltd. 2008(225) E.L.T. 198(Bom) , the Hon'ble Bombay High Court has held that the cenvat credit taken on inputs found short and finally written off from the books of accounts is required to be reversed. Relying upon this decision of the Hon'ble High Court, the ld. Member (J) has already held that the demand raised on this account is sustainable. I agree on this point. However, in so far as the extended period of limitation is concerned, from the facts of this case, I find that the appellant did not disclose the fact to the department that the inputs found short on physical verification were ultimately written off from the books of accounts. The department came to know only when the officers of DGCEI visited the factory premises of the appellant in Feb. 2004 but for this, it would not have been possible for the department to know that the appellant had not reversed the cenvat credit taken on inputs written off from the books of accounts. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeking to take on record 2 affidavits one filed by Shri Atul Sheth, Plant Manager and another by Shri Dhananjay Shirode, Senior Engineer as additional evidence. From the records, I find that this application has been filed by the appellant company after the lapse of more than 3 years from the date of filing of the appeals i.e. 5.3.07 apparently to strengthen this case. This application does not disclose whether the deponents of the affidavits were concerned persons working with the appellant company at the relevant time. I am therefore, not satisfied with the bonafides of this application and hence decline to allow the additional evidence to be taken on record. 13. In the result, I reject all the three appeals on merits as well as on limitation. I also reject the Misc. application seeking to endorse the additional evidence. Difference Of Opinion 1. Following difference of opinion is placed before the Hon'ble Vice President/HOD;_ (a) In the facts and circumstances of the case, whether the correct assessable value has been arrived at by invoking Rule 11 of the Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000 as held by Member (Technical). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voked to raise the demand; only when the bar of time limit is crossed, the question of determination of assessable value whether under Rule 6 or Rule 11 will arise. From the records of the case, it is seen that existence of a supplemental agreement dated 12/10/2000 under which the provision for payment of tooling advance was made was never disclosed to the department. All the officials of the appellant company shoes statements have been recorded have clearly admitted to this fact. The invoices issued in respect of the goods supplied also did not reveal the fact of receiving of the tool advance and the amortization of the cost of tool advance or otherwise in the pricing of the product. With the introduction of the self-assessment scheme, the onus is on the assessee to determine his tax liability correctly and discharge the same. If the assessee had any doubt regarding the includibility or otherwise of the tool advance, they should have either opted for provisional assessment or intimated the fact of receipt of tool advance to the department. The appellant assessee's conduct itself reveals their malafide intention. When they incurred the tooling cost and bore the incidence of such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration itself is received in money as advance, the question of quantification of money value does not arise. The definition of transaction value under section 4(3)(d) includes all amounts charged by reason of or in connection with the sale, whether payable at the time of sale or at any other point of time. In the instant case, there is no doubt that the tool advance was received in money for the supply and sale of goods by the appellant to the buyer. Therefore, such advance/consideration received, irrespective of the purpose for which it has been used, will be includible in the transaction value on which excise duty liability has to be discharged. 2.4 The ld. Counsel for the appellant has relied on the decision of the hon'ble apex court in the case of Moriroku UT India (P) Ltd. which dealt with the provisions of UP Trade Tax Act,1948. The facts involved in that case was that the customer supplied tools, dies, moulds, etc free of cost to M/s Moriroku to enable it to manufacture automobile components. The Trade Tax authority determined the sale price of the goods by adding the amortization cost of the tooling which was negative by the hon'ble apex court. In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded under section 14 of the Central Excise Act wherein he has admitted the position clarified by Sri. Sundar. Thus the understanding of the appellant as clarified by its Managing Director is different from the argument put forth now. There is one more reason to arrive at this conclusion. A company purchase its assets by borrowing loans from banks or other financial institutions. Merely because the assets have been purchased with the loans procured, the property in the assets vests with the company only and not with the lender. Only when the asset is hypothecated to the bank, the bank acquires the right to dispose of the asset when there is default in the loan payment. In the instant case, there is no clause in the agreement stating that the ownership of the tools lies with the buyer who has made the tool advance. In view of this position, I do not find any merit in the argument adduced now which is only a futile attempt to confuse the real issue. 2.7 An argument has been adduced by the ld. Counsel that the duty demand has to be computed on the amortized cost of the tools and if this is done, the demand will be only Rs.28,14,657/-. It is further submitted that the appellant would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods supplied to them in terms of Section 4(3)(d) of the Central Excise Act itself. Merely because, the demand has been confirmed under rule 11 read with section 4 (3) (d), it does not become infructuous. At best invocation of rule 11 can be termed superfluous. But so long as section 4(3)(d) is invoked, which is the position in the instant case, the demand is legally sustainable and I hold accordingly. 3. The second point of reference is whether the value of input received free of cost by the appellant from M/s Mahindra and Mahindra is required to be included in the assessable value of goods as held by Member (Technical) or is not required to be included in the assessable value as held by Member (Judicial) relying on the decision of International Auto Ltd. (supra) and Orissa Industries Ltd. (supra). During the perio from 29/1/2003 to 3/2/2004, the appellant had received certain inputs free of cost from M/s M M Ltd. or on their behalf and the value of such inputs were not included in the assessable value of the finished goods to M M Ltd. 3.1 The argument of the Ld. Counsel for the appellant the activity undertaken by the appellant is in the nature of job work. In terms of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation and detailed examination of the records, this could not have been unearthed and it is clear case of deliberate attempt to evade payment of duty and therefore, the extended period has been rightly invoked for demand of differential duty. 3.3 A Larger Bench of this Tribunal in the Jay Yuhshin Ltd. vs. CCE, New Delhi [2000 (119) ELT 718 (LB)] considered an identical issue and held that where the scheme opted for by the assessee is found to have been mis-used (in contradistinction to mere deviation or failure to observe all the conditions) the existence of an alternate scheme would not be an acceptable defence. The Tribunal further held that the revenue neutral situation comes about in relation the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessee's manufactured goods and the said decision was affirmed by the hon'ble apex court. Both these principles laid down by the Larger Bench applies squarely to the facts of the case. In the instant case, the appellant was not operating under the job work procedure under rule 4(5)(a) of Cenvat Credit Rules but was discharging duty liability as a manufacturer of final pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instructions and withholding of information from the department tantamount to suppression of facts. In a tax regime which places high reliance on voluntary compliance, the onus on the part of the assessee is quite high and failure to comply with the law can not be taken lightly. Therefore, I am of the view that the extended period of time has been correctly invoked to demand ineligible cenvat credit taken in respect of inputs found short and which have been written off in the books of accounts. 5. To sum up, the reference is answered as follows:- (1) The amount of tooling advance received by the appellant from M/s Mahindra Mahindra is includible in the assessable value of the goods supplied to them in terms of Section 4(3)(d) of the Central Excise Act itself. Merely because, the demand has been confirmed under rule 11 read with section 4 (3) (d), it does not become infructuous. (2) The value of inputs received free of cost by the appellant from M/s Mahindra Mahindra is required to be included in the assessable value of goods supplied to them and the extended period for demand of differential duty has been rightly invoked. (3) The extended period of time has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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