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TMI Blog2015 (10) TMI 2402X X X X Extracts X X X X X X X X Extracts X X X X ..... work permission under EOU scheme. The said permission was granted some time in 2006. There were also periods in subsequent years when their job work permission under EOU scheme was not available and hence they were unable to clear the goods for reprocessing without payment of duty under job work scheme. During these periods, when they did not have the permission under job work they cleared the goods on payment of duty. 2.2 Prior to September 2005 M/s USV had entered into an agreement with M/s Sulakhi about the terms of the transaction. The said contract dated 2 September 2003 contained following notable clauses 2. Duration: 2.1 This Agreement shall come into effect from the 1st day of May 2003. Subject to the provisions of clause 13 hereof, this agreement shall remain in force for a period of 10 (ten) years from the effective date and may be renewed thereafter by the parties hereto for such further periods and on such terms and conditions as may be mutually agreed between the parties. 4. Supply of Material, etc. 4.1 The Company shall supply and impart to the Processor the technical information of the said product for the purpose of enabling the Processor to process the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany the value of such short delivery of the said processed product calculated at Rs. 25 per Kg or the then prevailing market rate of the said Processed Product whichever is higher. 5. Processing: 5.6 In the event of the said Processed Product giving a yield which is less than the yield specified, then and in such an event, without prejudice to any other right and remedy that the Company may have, the Processor shall be liable to make good the shortfall in the yield in such manner that may be directed by the Company from time to time. In such an event the company will adjust the value of such shortfall in the product to be calculated at its prevailing price, from any amount due and or payable to the processor and the company will have charge on all (tangible/intangible) belonging to the Processor against all amounts due from the processor. 8. Processing charges: 8.1 The Company shall pay to the Processor, the processing charges at Rs. 8.70 Per Kg. and in a manner that may be mutually agreed between the parties. 9. General obligations of the processor: 9.1 The Processor hereby undertakes and agrees with the Company that it shall at all times during the continuance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination or determination to the company against the processor. 2.3 There was however, no such agreement recovered in respect of M/s Sahastra and M/s Sangadeep. The new EOU unit continued to make clearances of spent material for reprocessing to the aforesaid units. Since for certain periods there was no job work permission available under EOU scheme the spent material had to be cleared on payment of duty. M/s USV started clearance of spent material at following assessable value: Spent DMF Rs. 5 per KG Spent DMF and IPV mix Rs. 7.5 per KG The reprocessed material was brought back by M/s USV at following cum duty rates DMF Rs. 26 per KG IPV Rs. 35 per KG The spent material consisted of the following mix Spent DMF 68% DMF Spent DMF and IPV mix 68.5% DMF and 28.5% IPV During this period the assessable value of imports were as follows DMF Rs. 36 - 60 per KG IPV Rs. 50 - 54 per KG 2.4 In this background investigation was conducted. Show cause notices were issued to M/s USV alleging that they have undervalued the assessable value of the spent DMF and spent DMF/IPV mix and have failing to pay correct Central Excise duty leviable unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IPA+DMF mixture and spent DMF are excisable goods and attract central excise duty. If so, whether the exemption under Notification No.23/2003 is available to the noticee. ii) Whether the assessable value determined by the noticee is correct or it is required to be determined as proposed in the notices. iii) Whether the extended period invoked for demanding duty is justifiable; and iv) Whether penalty is imposable as proposed under various clauses in the notices 2.8 On the first issue the Commissioner decided in favour of the appellants and the revenue is not in appeal and therefore, the issue is settled. On the 2nd issue the Commissioner observed: i) There is no evidence of any extra consideration flowing from the processor to the appellants ii) Income tax authorities and sale tax authorities have not challenged the transaction values between the appellant and the processor. iii) Just because the price shown while clearing to job worker prior to September 2005 was much higher and reduced immediately on conversion to EOU is not sufficient to establish that there was undervaluation. iv) The notice itself states that no comparative prices of similar goods are available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the respondent and the processor is that of a job worker and not sale. 4.1 It was also argued that the said agreement was reached between the parties before the said unit was converted to an EOU unit. It was argued that the processing charges remain the same. In this regard he brought our attention to parts of Para 5,8,9 and 11.2 to 11.5 of the agreement (reproduced in para 2.2.above). 4.2 Learned AR brought our attention to the various statements recorded during investigation. Shree Bhalchandra Namdeo Katkar working as Plant Manager with the respondent. He has been employed with the respondent since 1989 and has been working as Plant manager since August 2006. In the statement he has inter alia stated the following: Q.No.4 Whether do you have separate storage facility for imported and indigenously procured Fresh DMF/IPA in the EOU? A. We do not have separate storage facility for imported and indigenously procured fresh DMF and IPA in EOU. However, we have separate storage tanks to store fresh DMF/IPA, Crude DMF/IPA, Crude DMF+IPA Mix and re-processed DMF and IPA in EOU. Q.No.5 So, is it true that in EOU, you mix up Fresh DMF procured indigenously and imported in one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . into 100 per cent export oriented unit from 01/09/2005 we did not have job work/sub-contracting permission, as required, from Central Excise Department. Q.No.26 Is it true that technical personal of M/s.USV Ltd. regularly visit the job workers premises viz., M/.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals to supervise quality control and to check stock position of Crude/Spent and re-processed DMF? A. Yes; it is true. Q.No.27 Is it true that if the recovery is less than 63% during the course of distillation at the job worker's end i.e. M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals, the job workers are liable to reimburse to M/s.USV Ltd. value of short delivery of Processed/Pure DMF @ Rs. 25/- per kg. or the then prevailing market rate, whichever is higher? A. Yes; it is true. Q.28. What is your relationship with M/s.Sangdeep Acid Chem Pvt. Ltd., C/26, Old Pawana MIDC, TTC Industrial Area, Navi Mumbai? Whether do you send Crude/Spent DMF+IPA Mix to M/s.Sangdeep Acid Chem Pvt. Ltd., for re-process on job work basis? A. M/s.Sangdeep Acid Chem Pvt.Ltd., C/26, Old Pawana MIDC, TTC Industrial Area, Navi Mumbai is our customer and we are selling them IP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de/Spent DMF sent to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals is returned back by them after reprocessing to M/s.USV Ltd. at Lote, the price charged by them (M/s.Sulaki and M/s.Sahastra) is Rs. 22/- to Rs. 24/- per kg? A. Yes; it is true. Q.No.15 Can you explain as to why the sale transaction was carried out by issue of Invoices of Crude/Spent DMF during the period from September 2005 to September 2006 when M/s.Sulaki Chemicals and M/s.Sahastra Chemicals were your job workers for past 10 years? A. After conversion of M-3 Plant into 100% EOU, the matter of obtaining job work permission was under process; and so during the said period the Crude/Spent DMF was sent by following sale transaction procedure by issue of C.Ex. Invoices. Q.No.21 Do you know as to what factors were considered by M/s.USV Lt. (EOU) while placing PO on M/s.Sulaki Chemicals and M/s.Sahastra Chemicals to negotiate the purchase price between Rs. 22/- to Rs. 24/- per kg? A. I do not know the details on this as the same is dealt with by Commercial Deptt. Of our company located at Mumbai. 16. Learned AR brought our attention to statement of Shri Dileep Anandrao Pandit, Gen manager Commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of assessable value of Spent/Crude DMF and IPA+DMF Mixture removed out of factory USV-EOU during the period from September 2005 to November 2006. A. In view of my reply to Question No.2 above, there was no need to obtain Cost Certificate from competent authority to determine assessable value of Spent/Crude DMF and IPA+DMF mixture, because we have invited quotations from M/s.Sulaki Chemicals as well as M/s.Sahastra Chemicals and based on the quotes, we freeze the sales price at Rs. 5/- per kg. of Spent DMF. Q.No.5 Please state as to what factors were considered by USV-EOU while placing Purchase Order(s) on Sulakhi Chemicals and Sahastra Chemicals for purchase of reprocessed DMF and to negotiate the price between Rs. 22/- and Rs. 24/- per kg. A. I submit the details of costing of reprocessed DMF as under: i) Cost of Spent/Crude DMF Rs.5.00 per kg. ii) Excise duty component Rs.0.50 per kg. iii) Processing charge incl. profit Rs.8.70 per kg. iv) sub-total Rs.14.20 per kg. v) Conversion ratio of 63% Rs.8.94 per kg vi) Price of reprocessed MDF Rs.23.14 per kg. Q.No.6 Please state as to whether job work contract between USV and Sulaki Chemicals/Sahast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to M/s.USV Ltd. (DTA unit & EOU). I produce herewith a Cost Worksheet of pure IPA and pure DMF to explain the composition of price structure. Q.No.12 Is it true that purchase price for Spent/Crude IPA+DMF Mixture was initially determined for the purchases from M/s.USV Ltd. (DTA Unit) and the same is made applicable to the purchases of the said material from M/s.USV Ltd. (EOU)? A. Yes; it is true. Q.No.13 Do you agree that price of pure IPA and pure DMFs is ranging from Rs. 26 per kg to Rs. 57 per kg. if procured from indigenous market or international market? A. Yes; it is true but there is difference in the prices of DMF and IPA if manufactured by original manufacturers and if obtained by way of distillation of impure materials. Q.18 From the replies given by you above, does it not appear that there is abnormal reduction from the ordinary competitive price viz., Rs. 26/- per kg to Rs. 54/- per kg. of Spent/Crude IPA+DMF Mixture purchased by you from M/s.USV Ltd. (EOU)? A. We are a small company and are undertaking distillation of spent material. We are not original manufacturers of IPA and DMF from the raw materials. We have a limited market for the above reasons an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earance of cotton fabric by the respondent to DTP should be treated as transaction sale and therefore Rule 4 would be applicable. However, this argument has to be rejected in view of proviso to Section 3 of the Central Excise Act, 1944 which reads as under : "Duties specified in the [Schedule to the Central Section 3. Excise Tariff Act, 1985] to be levied. - (1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the Schedule to the Central Excise Tariff Act, 1985 : Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, -- (i) In a free trade zone and brought to any other place in India; or (ii) By a hundred per cent export-oriented undertaking and allowed to be sold in India; shall be an amount equal to the aggregate of the duties of customs which would be leviable under section 12 of the Customs Act, 1962 (52 of 1962), on like goods produced or manufactured outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said order the following has been stated: "13. In the light of the above discussion, we answer? the reference as under: (a) Revenue neutrality being a question of fact, the same is to be established in the facts of each case and not merely by showing the availability of an alternate scheme; (b) Where the scheme opted for by the assessee is found to have been misused (in contradistinction to mere deviation or failure to observe all the conditions) the existence of an alternate scheme would not be an acceptable defence; (c) With particular reference to Modvat scheme (which has occasioned this reference) it has to be shown that the Revenue neutral situation comes about in relation to the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessees manufactured goods; (d) We express our opinion in favour of the view taken in the case of M/s. International Auto Products (P) Ltd. (supra) and endorse the proposition that once an assessee has chosen to pay duty, he has to take all the consequences of payment of duty." 4.9 Learned AR brought to attention the decision of Hon'ble High Court of judicature at Allahaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the assessee is concerned, the same is clearly distinguishable in the facts of the present case. In the said case, there were various circulars of department operating at different points of time and there was scope for entertaining a doubt about the views expressed by the authorities themselves. It is in this background that the Court had gone to hold that there had been no deliberate suppression. 39. Similarly the judgment of the Apex Court in the case of Jai Prakash Industries Ltd. (supra) relied upon by the learned counsel for the assessee is also clearly distinguishable in the facts of the present case. In the said case, there were divergent views of the various High Courts, the issue as to whether crushing of bigger stones or boulders into smaller pieces amounts to manufacture. In these facts, it was held that if the assessee had not taken licence or he did not pay the duty, the extended period of limitation could not be invoked. 40. For the reasons recorded above, we find that the Tribunal under the order impugned is not justified in recording a finding that the extended period of limitation cannot be invoked, inasmuch as from what has been recorded by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the proceedings. 5.1 He asserted that what is imported is a product very different from the product cleared from his factory to the processor. He asserted that the price of imported product cannot be used to arrive at the price of the spent material cleared from his factory. 5.2 He asserted that the notice presumes a job charges of Rs. 8.7 per KG across-the-board. The notice does not give any reason why the same job charges have been adopted for all commodities across the board. He also asserted that rate mention in loan licensee agreement applicable to DMF has been applied to the DMF/IPV mixture also. He further asserted that the transaction between respondents and the processor is of the sale and purchase of goods and not that of job worker. He asserted that it does not matter what language has been used in the notice but the transaction between them was of sale and purchase of goods only. 5.3 On specific query he clarified that the sale and purchase of the material between them and the processors took place only during the period when they were not having the job of permission. The periods, during which they had job work permission under EOU scheme, they had not entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the allegation of suppression of the conditions of the contract is misplaced as there is no such restriction in any contract and thus the allegation is factually incorrect. Commissioners further observed that there is no allegation of cash flow back or other interests in the notice to establish intent to evade payment of duty. He is observed that in the running of consideration only suspicion is not sufficient to prove the intention to evade payment of duty it should be supported by other strong evidence. 5.9 Learned Counsel further submitted that the issue of the applicability of Notification No.23/2003CE was under dispute in parallel proceedings undertaken much before issue of the impugned notice. He asserted that there is an order lapping period between the two proceedings. He pointed out that the impugned order in original also refers to the order in appeal issued by the Commissioner (appeals) in the parallel proceedings regarding applicability of Notification No.23/2003 CE dated 31/03/2003. 5.10 He further pointed out that there is no specific challenge to the observation of Commissioner regarding revenue neutrality in grounds of appeal and therefore that issue ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tariff Act, read with exemption notification in this regard, if any, no exemption in respect of inputs utilized for the purpose of manufacture of such finished goods (including rejects, waste, scrap, remnant and by products) shall be available under this notification) 6.1 According to this proviso in case the exempted material imported under this notification is used in Manufacturer of any finish goods including waste which are exempt on non-excisable then benefit of this notification would not be available to imported material use in manufacture of such goods. He pointed out that not claiming non-excisable nature of the goods cleared by them is a well thought out move on their part as otherwise they will end up paying much larger customs duty. 6.2 Learned AR asserted that the loan licensee agreement came into departments notice only in 2008 and therefore any proceedings which were initiated for denial of Notification No.23/2003CE could not have covered the issue regarding undervaluation. In this regard he relied on the Honble Supreme Court decision in case of CCE, Guntur Vs. JOCIL Limited (2008 (226) ELT 8 (SC) wherein it has been held as follows The question before the CESTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enote ad valorem rates, in per cent. of basic customs duty and additional duty of customs leviable on the inputs or the capital goods respectively and X denotes the assessable value : [Provided that the CENVAT credit in respect of inputs and capital goods cleared on or after 1st March, 2006 from an export oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such unit pays excise duty under section 3 of the Excise Act read with serial number 2 of the Notification No. 23/2003-Central Excise, dated 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003] shall be equal to [X multiplied by [(1+BCD/200) multiplied by (CVD/100)]] :" On this basis learned AR asserted that it was not possible for the job workers to claim the credit of entire duty paid by the appellant. 7. I have gone through the arguments made by both parties and the records of the case. I find that principal issues to be decided are I If the local sale price of the goods can be treated as assessable value for the purpose of payment of customs duty. Ii If not what should be the method of arriving at the assessable value iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculation given by the appellants as reproduced above, the additional duty under the Textiles and Textile Articles Act is not required to be considered. The value thus is required to be recomputed by allowing the deduction mentioned in the example given above but without considering the additional duty under the Textiles and Textile Articles Act. This basis should be adopted for the purpose of determination of assessable value for the fabrics cleared by the appellant in DTA. The said decision of Tribunal has been upheld in the Supreme Court in the case of CCE, Nagpur Vs. Morarjee Brembana Ltd., reported in 2015 (318) ELT 600. It has been clearly held in this case that the domestic sale price cannot be treated as a price in the course of International trade. The learned counsel has argued that the said decision is not applicable as the imported product is different from the product being cleared from the EOU. I find that the aforesaid judgement lays down a principal that the domestic sale price cannot be a basis that for determining the assessable value in case of clearance from an EOU. It does not lay down any principal regarding how the valuation is to be done, but only lays do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals, Crude DMF supplied to M/s.Sulaki Chemicals Pvt. Ltd. and M/s.Sahastra Chemicals for reprocessing, is property of and owned by M/s.USV Ltd. (EOU) as per the said agreement, the processers are not allowed to sell the processed goods to anybody else and they have never done so, their technical person visits and supervises the process at processor's factory. He also stated that in case of less recovery of final product penalty is being imposed on the processors. In case of M/s.Sangdeep Acid Chem Pvt. Ltd., he clarified that there is no binding clause on M/s.Sangdeep Acid Chem Pvt. Ltd. to supply them reprocessed IPA and DMF mixture supplied by them. He also clarified that they cleared the spent product on payment of duty only when they did not have job at permission. They are purchasing IPA and DMF from M/s.Nayomi Chemisol as fresh IPA/DMF and they may not be getting IPA/DMF re-processed out of IPA+DMF mixture supplied by them to M/s.Sangdeep Acid Chem Pvt. Ltd. 7.2.2 Shree Pratap Rajaram Mahadik, the then Administrative Manager, who has been working with the respondent since 1992, deposed in his statement that they have received Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt/Crude DMF as Rs. 5/- per kg. and job charges as Rs. 8.70 per kg. and yield of pure DMF as 63%. He clarified the method of costing as follows i) Cost of Spent/Crude DMF Rs.5.00 per kg. ii) Excise duty component Rs.0.50 per kg. iii) Processing charge incl. prof Rs.8.70 per kg. iv) sub-total Rs.14.20 per kg. v) Conversion ratio of 63% Rs.8.94 per kg vi) Price of reprocessed MDF Rs.23.14 per kg. 7.2.4 Shri Krutarth Arul Shah, director of M/s Sangadeep Acid Chem Pvt, one of the processors, deposed that they are basically a distillation plant and engaged in the business of distillation/purification of Spent IPA+DMF mixture purchased from M/s.USV Ltd. He further deposed that they procure Spent/Crude IPA+DMF Mixture from M/s.USV Ltd. (DTA unit & EOU) subject it to the distillation process to obtain pure IPA and pure DMF. The said material is sold back to M/s.USV Ltd. (DTA unit and EOU) through their sister concern M/s.Nayomi Chemisol, who are Registered Central Excise Dealer. He also clarified that processed/purified/distilled IPA and DMF sold by M/s.Sangdeep Acid Chem Pvt. Ltd. to M/s.Nayomi Chemisol is further sold back to M/s.USV Ltd. (DTA Unit & EOU). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner has failed to appreciate that the transaction in case of a DTA sale is a local transaction price whereas in case of clearance of an EOU unit the assessable value should be the price in the course of International trade. 7.4 The issue that needs to be decided is that under these circumstances, what should be the basis of arriving at the assessable value for the purpose of Levy of Central Excise duty. The show cause notice attempts to arrive at the value from the import price of the fresh DMF/IPV imported by the respondents during the relevant period. It is noticed that the reprocessed DMF/IPV is stored in the same common tank as the fresh DMF/IPV. This has been confirmed by Shree Bhalchandra Namdeo Katkar working as Plant Manager with the respondent in the statement in response to question number 4. It is obvious that the fresh DMF/IPV are of the same quality and hence of comparable value. In those circumstances it seems logical to work backwards from the value of imported DMF/IPV. It is seen that that is not enough discussion on the alternate method of valuation in the order in original, as the Commissioner has treated the domestic sale value as a sale in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misdeclaration. 8.4 It has been argued by the respondents that there was no requirement of declaring the contract conditions to the revenue. There was no need to declare that there was a practice of return of hundred percent of the processed material from the processor. There was no need to declare that the price of reprocessed goods was much lower than the price of imported goods. The Commissioner has accepted these arguments, however he has ignored the fact that it is the responsibility of the respondents to declare the correct assessable value. The Commissioner was of the opinion that the respondents have declared the correct assessable value and therefore did not give much credence to these arguments. While it is correct to say that there is no need to declare these facts but the revenue but it is the responsibility of the respondents to take into consideration these facts while arriving at the correct assessable value. Learned AR has relied on the decision of Honourable High Court of judicature at Allahabad in case of Rathi Steel and Power Ltd. (2015 (321) ELT 200). The Honourable High Court has held as follows 32. We further find that under Rules, 2004, a burden is cast u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces may be the same the issue under dispute is totally different in so much as in the impugned notice the issue of proper assessable value was to be decided. In this regard learned AR relied on the decision of Honourable Supreme Court in the case of JOCIL 2008(226)ELT 8(SC). In the said judgement Honourable Supreme Court has held that in in cases involving different issues show cause notice invoking extended period can be raised. The learned AR also relied on the decision of Honourable High Court of Delhi in case of LSM exports 2015 (315) ELT 407 (DL), then it has been held that 2nd show cause notice invoking extended period can be raised on account of new facts coming to light. Furthermore the extended period has been invoked on account of recovery of the contract between the respondents and one of the processor's in the year 2008. The said agreement was not in the knowledge of the revenue and the terms of transaction between the respondents and the processor's were not in the knowledge of the Department and were not declared to the Department. I find that the terms between the respondents and it processor's are of extreme importance in determining the assessable value and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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