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TMI Blog2019 (6) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... its Service Tax liability on the amount arrived at after deducting the commission of the dealer from the MRP. The case of the Department is that Chambal Fertilizers should discharge its Service Tax liability on the MRP fixed by the Government and not on the value it sells Urea to the dealers. Thus, what is required to be examined is whether the Chambal Fertilizers should pay Service Tax on the transaction value as contemplated under section 4 of the Act or on MRP as contemplated under section 4A of the Act. It is not in dispute that Urea was sold by Chambal Fertilizers at a price arrived at after deducting the commission of the dealer from the MRP. It would be this price on which Urea was actually sold to the dealer. This would, therefore, be the transaction value under section 4 of the Act on which value Chambal Fertilizers would be liable to pay Excise Duty. M/s. Chambal Fertilizers was required to pay Excise Duty only on Transaction Value and not on MRP . Such being the position, the refund claim filed by M/s Chambal Fertilizers could not have been rejected. This refund claim is, therefore, required to be examined afresh after considering the issue of unjust enrichm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improving agricultural productivity, the fertilizers are invariably sold to farmers at less than the cost of production resulting in a loss which is compensated by the Government by giving a subsidy. The subsidy is basically the difference between the cost of goods plus profit margin and the selling price. Chambal Fertilizers sells urea through a network of dealers at a price arrived at after deducting the commission payable to the dealers from the Maximum Retail Price (hereinafter referred to as MRP ). 4. An audit objection was raised by the Department alleging that Chambal Fertilizers had short paid Excise Duty by not including the commission of ₹ 180/- per MT of the dealer for the period March, 2011 to October, 2012 and ₹ 230/- per MT for the period November, 2012 to April, 2013, since duty has to be paid on the MRP fixed by Department of Fertilizer. It was noted that Chambal Fertilizers had paid Excise Duty only on the transaction value, which was MRP minus the commission of the dealer. 5. At this stage, it needs to be noted that on such an objection having been raised, Chambal Fertilizers deposited ₹ 1,35,72,638/- on 21 August, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why : i) An amount of ₹ 1,37,89,160/- [₹ 1,35,72,638/- (for the period 01.3.2011 to 31.7.2014 and ₹ 2,16,522/- (for the period 01.8.2014 to 19.8.2014)] should not be recovered from them (as applicable during the relevant period0. Since the amount of ₹ 13789160/- has already been deposited by the assessee, why the same should not be appropriated into Govt. account. ii) Interest should not be recovered from them under Section 11AB/11AA of the Central Excise Act, 1944 (as applicable during the relevant period). iii) Penalty should not be imposed upon them under Section 11AC of the Central Excise Act, 1944 in respect of the amount mentioned at (i). iv) Penalty should not be imposed upon them under Rule 25 of Central Excise Rules, 2002. 7. A detailed reply dated 19 October, 2015 was filed by Chambal Fertilizers pointing out that duty under Section 4 of the Central Excise Act, 1944 (hereinafter referred to as the Act ) was payable on the transaction value and there is no provision for payment of Excise Duty on fertilizers on MRP since it was not a notified item under section 4A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for in section 4 of the Act. The Commissioner, therefore, held that there was no short payment of duty and the relevant paragraph 7.1 of the order is reproduced below : 7.1 I am therefore inclined to agree with the contention of the appellant that declared MRP is for the purpose of sale to ultimate customer i.e. farmer . Urea is finally sold to farmers through a network of dealers. The dealers earn margin on sale of Urea , which they buy from appellants. The appellant sell Urea to dealers at a price arrived at after deducting margin payable to them from the MRP. Thus, I find that appellant have been charging only such price from dealers (MRP minus dealer margin), who are independent entities and no consideration other than the price so charged is received by the appellant from dealers. The appellant sell Urea to dealers and such dealers further sell Urea to their customers. The transaction is on principal to principal basis. Thus, all the essential ingredients of Section 4 of the Central Excise Act, 1944 are fulfilled in the case of the appellant and therefore, the price charged by the appellant in respect of sale to dealers should be the basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions advanced by the learned Authorised Representative of the Department and the learned Counsel for the Respondent/Appellant. 14. The issue, therefore, that arises for consideration in this appeal is, as to whether Chambal Fertilizers have to discharge duty liability on the MRP fixed by the Government for Urea for the period March, 2011 to October, 2012 and November, 2012 to April, 2013 or it should discharge duty liability on the transaction value which is the difference arrived at by deducting the commission of the dealer from the MRP. 15. As noted above, the Central Government regulates the price at which Urea is sold and as the policy of the Government is to provide fertilizers to farmers at an affordable price for sustained agricultural growth, the MRP fixed by the Government is lesser than the cost of production. The Government, therefore, reimburses the value between the cost of production and the notified price in the form of a subsidy. Urea is sold to the farmers through a network of dealers. The dealers pay an amount to the Appellant after deducting their commission from the MRP fixed by the Government. Chambal Fertilizers has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. Section 4A of the Act deals with valuation of excisable goods with reference to retail sale price and the relevant portion is reproduced below : Section 4A. Valuation of excisable goods with reference to retail sale price - (1) The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Legal Metrology Act, 2009 (1 of 2010) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply. (2) Where the goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, then, notwithstanding anything contained in section 4, such value shall be deemed to be the retail sale price declared on such goods less such amount of abatement, if any, from such retail sale price as the Central Government may allow by notification in the Official Gazette. 18. The concept of charging Excise Duty on MRP is contained in Section 4A of the Act. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Fertilizers that in the case of price-controlled fertilizers which are sold to distributors/wholesale dealers at MRP fixed by the Government at the time of their clearance from the factory the excise duty of 1% would be chargeable on the MRP and not on the total cost of production. In the case of fertilizers not subject to price-control, the excise duty would be chargeable on their wholesale price representing the transaction value at the factory gate. 3. Trade and Industry Associations have represented that inspite of the clarification issued by the Department of Revenue to the Department of Fertilizers, the field formations have issued show cause notices to the fertilizer companies seeking to levy excise duty on the subsidy component of price-controlled fertilizers in the light of the judgment of the Supreme Court in the case of CCE, Mumbai v/s/ M/s Fiat India Pvt. Limited [2012-TIOL-58-SC-CX = 2012 (283) ELT 161 (SC)]. 4. The matter has been examined in the light of the facts in the case of M/s Fiat India (P) Ltd. vis- -vis the facts in the case of fertilizers. The facts in the case of M/s Fiat India (P) Ltd were that the company had declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid that fertilizer manufacturers have under-declared the value with a view to penetrating the market or competing with the other manufacturers of similar fertilizers. 4.3 In the Fiat India case, it was a conscious decision on the part of the manufacturer to sell the goods below the cost of production to penetrate the market and to compete with the other manufacturers of similar cars. While dealing with the word consideration , the Supreme Court has observed that consideration means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee and it is for the Excise authorities to show that the price charged to the buyer is a concessional or specially low price or a price charged to show favour or gain in return extra-commercial advantage. 4.4 From the above, it is clear that the facts at hand are clearly distinguishable from the facts and circumstances of the Fiat India case. The manufacturers of fertilizers do not gain any extra commercial advantage vis-a-vis other manufacturers because of the subsidy received from the Government. The subsidy paid by the Government to the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Central Excise, Mumbai vs M/s Fiat India Private Limited, reported in 2012 (283) ELT 161 (SC). The Government noticed that M/s Fiat India Private Limited was selling cars at a price substantially lower than the cost of manufacture so as to penetrate the market and to compete with other manufacturers of similar cars. It is in this context that the Supreme Court held that such sales should not be regarded as sales in the ordinary course of sale or trade as the main reason for selling cars at a lower price than the manufacturing cost and profit was to penetrate the market. Thus, the price was not the sole consideration for sale of cars. The Government further noticed that in the case of fertilizers, the manufacturers were mandated to sell the goods at prices notified by the Government and the Government reimbursed the differential between the cost of production and the notified price to the manufacturer. The manufacturers of fertilizers, therefore, did not gain any extra commercial advantage vis- -vis other manufacturers and the subsidy paid by the Government was in larger public interest and not for the benefit of any individual manufacturer seller. The Government, therefore, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... August, 2014 and ₹ 2,16,522/- on 5 September, 2014 under protest and before the issuance of the show cause notice in view of the audit objection raised by the Department that Excise Duty should be paid on MRP. Soon thereafter, M/s Chambal Fertilizers filed an application for refund of this amount. A show cause notice dated 03 February, 2015 was issued by the Assistant Commissioner requiring it to show cause as to why the claim should not be rejected for the reason mentioned in the notice, namely, that the audit had correctly required M/s Chambal Fertilizers to pay Central Excise Duty on the quantity of Urea cleared during March, 2011 to July 2014. A reply dated 24 February, 2015 was filed by M/s Chambal Fertilizers contending therein that it had correctly paid Central Excise Duty on the transaction value and was not required to pay Central Excise Duty on the MRP and, therefore, the amount should be refunded. This reply was not accepted by the Assistant Commissioner, who by order dated 04 March, 2015 rejected the refund claim. The Assistant Commissioner observed that the refund claim filed by the assessee was not sustainable for the reason that the assessee was required to p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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