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TMI Blog2022 (5) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act are not applicable as the levy of excise duty is on the production and manufacture of goods. In the present case the counsel for the appellant urge, that the appellant have consumed the goods cleared by them from their manufactory to their depot and from their depot they have cleared these goods cleared from the factory along with other bought out items, packed together in a carton as cable jointing kit . It is evident from the order of the Hon ble High Court of Andhra Pradesh, that the cable jointing kit is an excisable good classifiable under heading 85.47 of the First Schedule to Central Excise Tariff Act, 1985, however the same cannot be subjected to excise duty as the activities undertaken do not amount to manufacture and hence will be excluded from the purview of Section 3 of the Central Excise Act, 1944. Since, the finding of the Commissioner in the impugned order that the goods cleared from the factory of the appellant were not consumed captively in production of the finished goods, is agreed upon, Rule 8 of valuation Rules will not be applicable. Undisputedly the appellants have offered the goods for sale for the first time in normal course of trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd setting aside the penalties imposed on the appellants. - Excise Appeal No. 941-942 of 2008 and Excise Appeal No. 85535 of 2013 - A/85433-85435/2022 - Dated:- 6-5-2022 - MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND MR. P. DINESHA, MEMBER (JUDICIAL) Shri S.S. Gupta, Chartered Accountant, for the Appellant Shri Anantha Krishnan, Commissioner, Authorised Representative for the Respondent ORDER These appeals are directed against order in original No. 09-10/PD/TH-II/2008 dated 30.05.2008 of the Commissioner of Central Excise, Thane II. By the impugned order, the Commissioner has held as follows: ORDER 1. I hold that the value of excisable goods cleared/stock transferred to their Unit No. 2/Customer Care Centre at Kalher from where the goods are sold to unrelated buyers without carrying out any manufacturing activity should be determined by applying the principles and provisions enumerated under Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Since M/s Raychem RPG Ltd. have failed to give the selling price of the components manufactured in their factory which are put up along with other bought out items c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the excisable goods ) on stock transfer basis, to their Customer Care Centre situated at Kalher, Bhiwandi (depot), by paying duty on the value arrived at on the basis of 110% of the cost of production or manufacture of such goods. 2.3 At their depot, they also procure some bought out items/articles, such as copper braids, hose clips, support rings etc. directly from the market. These bought out items, in their original condition, as obtained from various manufacturers/dealers, are put together in cartons along with the excisable goods cleared by them from their manufactory. The composition/constituents of each carton varies as per the specifications / requirements of different customers. The goods put up/packed in the cartons are sold from their depot in the name of Cable Jointing Kits 2.4 The activity of making the cable jointing kit basically involves putting together of the excisable goods (in packed condition as received from their factory) along with other bought out items, along with the instructions for use of the said articles in the carton/box is not the activity of manufacture and hence the use of excisable goods for consumption by them or on their behalf in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount in Rs 20.04.2009 01.04.2008 to 30.09.2008 44,06,939/- 03.03.2010 01.04.2009 to 30.09.2009 49,50,322/- 2.10 These show cause notices were adjudicated by the Additional Commissioner, Central Excise Thane II confirming the demand of duty with interest and penalties, etc. 2.11 Aggrieved by these orders of Additional Commissioner, appellants file the appeal before Commissioner (Appeals). Commissioner (Appeals) has vide his order in appeal No 114/115 dated 23.10.2012 allowed the appeal filed by the appellant. 2.12 Revenue has filed appeal against the said order of the Commissioner (Appeals). 3.1 We have heard Shri S S Gupta, Chartered Accountant for the appellants and Shri Anantha Krishnan, Commissioner, Authorized Representative for the revenue. 3.2 Arguing for the appellant learned Chartered Accountant, submits:- Rule 8 of the Central Excise Valuation Rules, 2000 is applicable when the manufactured product is used in production or manufacture of other articles. The manufactured products have been used in production of cable jointing kits. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules. The learned Advocate has clearly shown that while arriving at the reduced transaction value, the Commissioner has simply gone by certain estimate. Compared to the method adopted by the Commissioner, we are of the considered view that the valuation method adopted by the appellant is more acceptable as it is within the ambit of Valuation Rules. It is very clear that the valuation cannot be dealt in terms of Rules 4, 5, 6, 7, 8, 9 10 and then finally, one has to come to Rule 11. While coming to Rule 11, the nearest thing which is consistent with Section 4 is only the cost construction method. We are also in agreement with the learned Advocate that the Commissioner has erred in holding that the cost construction method can be applied only if the goods are used for consumption for manufacture of other excisable goods. The word article is not limited to excisable goods The Supreme Court has also applied Rule 11 of the Central Excise Valuation Rules, 2000 in the case of M/s. UTC Fire and Security India Ltd. reported in 2015-(319)-ELT-591 (SC). In this case the company was selling smoke detectors and other parts in two distinct streams as under: Sales in loose condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in 2009 (235)-ELT-623 (Tri. LB Mum) that the redemption fine should not be levied if the goods are not available. 3.3 Arguing for the revenue learned Authorized representative while reiterating the findings recorded in the impugned order appealed against by the appellants, and the grounds of appeal in the revenue appeal. 4.1 We have considered the impugned orders along with the submissions made in the appeal and during the course of hearing of appeal. 4.2 Issue whether the process of packing the excisable goods manufactured by the appellant along with the other bought out items in a carton and sold as Cable Jointing Kit was considered in case of XL-Telecom [1999 (105) E.L.T. 263 (A.P.)] by Hon ble Andhra Pradesh High Court, holding as follows: 2 . W.P. No. 8818/97 is filed by XL Telecom Limited, Hyderabad questioning the circular issued by the Central Board of Excise and Customs, declaring that the process of putting together duty paid articles into a container like carton, kit etc. and bringing into existence a new commercially distinct product namely `Cable Jointing Kits amounts to manufacture under Section 2(f) of the Central Excise Act, 1944 (in short `th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the articles in the kit does not amount to manufacture, the provisions of the Act are not applicable as the levy of excise duty is on the production and manufacture of goods. 4.3 In the present case the counsel for the appellant urge, that the appellant have consumed the goods cleared by them from their manufactory to their depot and from their depot they have cleared these goods cleared from the factory along with other bought out items, packed together in a carton as cable jointing kit . It is evident from the order of the Hon ble High Court of Andhra Pradesh, that the cable jointing kit is an excisable good classifiable under heading 85.47 of the First Schedule to Central Excise Tariff Act, 1985, however the same cannot be subjected to excise duty as the activities undertaken do not amount to manufacture and hence will be excluded from the purview of Section 3 of the Central Excise Act, 1944. It is the submission of the counsel that finished goods cleared from their factory have been consumed for production of the cable jointing kit . To substantiate the said preposition he has relied upon the decisions in the case of V.M. Salgaoncar Bros. (P) Ltd [1998 (99) ELT 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evied. - There shall be levied and collected in such manner as may be prescribed, - (a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) . Section 4 Section 4 as originally enacted (in the Central Excise and Salt Act, 1944), Section 4 as amended by Amendment Act No. 22 of 1973 Section 4 as amended by Finance Act, 2000 with effect from 1-7-2000 Determination of value for the purposes of duty Where under this Act any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold for delivery at the place of manufacture and at the time of its removal therefrom, without any abatement of deduction whatever except trade discount and the amount of duty then payable. Valuation of excisable goods for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. (3) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of Section 3. (4) For the purposes of this section, - (a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) place of removal means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; or (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; (c) related person means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation. - In this clause holding company , subsidiary company and relativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation. - In this clause - (i) inter- connected undertakings shall have the meaning assigned to it in clause (g) of Section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and (ii) relative shall have the meaning assigned to it in clause (41) of Section 2 of the Companies Act, 1956 (1of 1956); (c) place of removal means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; (d) transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act will not be controlled by the nature of the levy. So long a reasonable nexus is discernible between the measure and the nature of the levy both Section 3 and 4 would operate in their respective fields as indicated above. The view expressed in Bombay Tyre International Ltd.(supra) is the correct exposition of the law in this regard. Further, we hold that transaction value as defined in Section 4(3)(d) brought into force by the Amendment Act, 2000, statutorily engrafts the additions to the normal price under the old Section 4 as held to be permissible in Bombay Tyre International Ltd. (supra) besides giving effect to the changed description of the levy of excise introduced in Section 3 of the Act by the Amendment of 2000. In fact, we are of the view that there is no discernible difference in the statutory concept of transaction value and the judicially evolved meaning of normal price . 4.5 We have referred to this decision of the Hon ble Supreme Court at this point because this decision refers to the charging section (i.e. Section 3) and valuation section (section 4) of the Central Excise Act, 1944. In para 7 Hon ble Apex Court has referred and reproduced both the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him or on his behalf in the production or manufacture of other articles, then the value shall be 115%/110% of the cost of production or manufacture of such goods. 40. Now let us see the situation prevailing in the instant case. It is an admitted fact that the excisable goods cleared from the factory are sold from the Customer Care Centre by placing in some other carton along with some bought out items. It is also an admitted fact that no process of manufacture is carried out on the said goods in the Customer Care Centre. Even the packing of the goods cleared from the factory as well as those bought out items are not removed. Hence, it cannot be said that even without opening packing or wrapper of any excisable goods, the goods were used for consumption for manufacture of other articles. Here the argument of the assessee that they produced some article, by putting extra labour and manipulating with the manufactured excisable goods (in their factory) and bought out items fails. What is required by Rule 8 is the excisable goods should be used for consumption ..... It is false to say that any goods can be consumed without even opening the packing done in the factory of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production or manufacture of new articles from the raw material. Consumption constitutes 'utilisation' thereof. 45. From the above discussions, it is fact that the goods manufactured in the factory by the assessee are not at all consumed by the assessee himself or on his behalf, which is not in agreement of the requirement of rule 8 of the Valuation Rules, 2000. 46. Now about the other requirement of the said rule- 'production or manufacture of other article'. Here the word manufacture' as per Section 2(f) of the Central Excise Act, 1944 includes any process - i) incidental or ancillary to the completion of a manufactured product; ii) which is specified in relation to any goods in the section or chapter notes of the first schedule) to the Central Excise Tariff Act, 1985; (5 of 1986) as amounting to (manufacture: or) iii) which in relation to the goods specified in the third schedule, involves packing or re packing of such goods in unit container or labeling or re-labeling of containers, including the declaration or alternation of retails sale price on it or adoption of any other treatment on goods to render the products marketable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t articles in the kit does not amount to manufacture'. As I have already mentioned above, the name 'cable jointing kit' is given to the combo pack containing different articles having their own original identity, quality and use as well as marketability, as such. 4.6 The reliance placed by the appellant on the decisions in the case of V.M. Salgaoncar Bros. (P) Ltd and N.C. Budharaja and Co, to argue that scope of the word production , is much wider than the manufacture would in our view will bring the cable jointing kits with the scope of Section 3 of the Central excise Act, 1944, and leviable to the duty of excise. In the case of Buddharaja, Hon ble Supreme Court has observed as follows: 7 The words manufacture and production have received extensive judicial attention both under this Act as well as Central Excise Act and the various Sales Tax Laws. The word production has a wider connotation than the word manufacture . While every manufacture can be characterised as production, every production need not amount to manufacture. The meaning of the expression manufacture was considered by this Court in Deputy CST v. Pio Food Packers8 among other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed not be confined to such a narrow meaning. It has a wider meaning in which any sort of utilization of the commodity would as well amount to consumption of the article, albeit that article retaining its identity even after its use. 9. A Constitution Bench of this Court has considered the ambit of the word consumption in Article 286 of the Constitution in M/s. Anwarkhan Mahboob Co. v. State of Bombay (now Maharashtra) and Others [1961 (1) SCR 709]. Their Lordships observed thus : Consumption consists in the act of taking such advantage of the commodities and services produced as constitutes the utilization thereof. For each commodity, there is ordinarily what is generally considered to be the final act of consumption. For some commodities, there may be even more than one kind of final consumption ........................................... In the absence of any words to limit the connotation of the word consumption to the final act of consumption, it will be proper to think that the Constitution-makers used the word to connote any kind of user which is ordinarily spoken of as consumption of the particular commodity. 10. In another decision a two Judge Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1989 (39) ELT 493 for the purpose of valuation. Here, I observe that in the case of Ujagar Prints, the goods were manufactured on job work basis and were not sold by the job worker. Whereas in the case before me, the goods are manufactured by the assessee and also are sold by the assessee from a premises other than the factory of manufacture. The citation is of a period prior to the insertion of Central Excise Valuation Rules, 2000. As such, the citation is distinguishable from the present case and not relevant. Thus, I find that costing method in terms of Rule 8 of the Valuation Rules, 2000 adopted by the assessee for valuation of goods which are stock transferred to their Kalher Godown is totally wrong and has been adopted intentionally to evade Central Excise duty. 4.8 In the case of Indian Hume Pipe Co. Ltd, the goods were not sold but were consumed by them at the project site of the project being executed by them on the turnkey basis. Since there was no sale of the goods cleared from the factory but were consumed at the project site this decision is distinguishable from the facts of present case. 4.9 In case of Diffusion Engineering Ltd. tribunal has observed as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds but have consumed them in their service centre and in facts of that case tribunal had observed as follows: (d) CBEC under per the (1) (2) of Greater No. MF(DR) F. No. 312/1/75-CX. 10, dated 8-8-75 had clarified that if goods are delivered in lots of different kind of packings, the values could differ depending upon the cost of packing. For comparison purposes of Rule 4 of the Central Excise (Valuation) Rules, 1975, material in such different packings cannot be comparable or SUCH GOODS . Therefore, valuation has to be arrived at under Rule 6(b) (ii). Since the removals Service Centre are for use and consumption on the assessees behalf, pursuant to the Service Contracts. Even in this case, for the same reasons the principles of Rule 6(b)(ii) would have to be applied. This would be so even under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 Rule 8 which take places of earlier Rule 6(b)(ii) of 1975 rules. This new rule does not relate to comparable goods but mandates that value should be one hundred fifteen per cent of the cost of manufacture and provides for consumption by or on behalf of the assessee. The term consumption need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are removed from the factory gate, they are not sold at factory gate but are sold from their Customer Care Centre. As such, it can be safely concluded that there is no sale at the time of removal and value cannot be determined under Section 4(1)(a) of the Central Excise Act, 1944. Section 4(1)(b) of the Central Excise Act, 1944 states that if the value cannot be determined under Section 4(1)(a), it shall be determined in such manner as may be prescribed by rules. Under these powers, Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 have been made effective from 1.7.2000. Among these Rules, only Rule 7 and Rules of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 deals with a situation where there is no sale at factory gate. As discussed earlier, applicability of Rule 8 has already been discarded as the said rule will be applicable only when the goods are consumed for manufacture of other goods by the assessee or by his agent on his behalf. As such, the recourse has to be taken to Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. As is evident and as admitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not related and iv) price is the sole consideration for sale. 55. In the instant case, the excisable goods manufactured and cleared/removed from the factory are not sold at the time and place of removal i.e. at the factory gate. The goods sold from other place i.e. unit at Building No. 2 or Customer Care Centre at Kalher. There the goods were sold to buyers who were not related at an agreed price which was the sole consideration for sale. The goods removed from the factory are sold in their original form and packing after putting in a carton along with some bought out items from the other place. Because of the said situation, the valuation of the said goods has to be made as provided under Rule 11 of the Valuation Rules, 2000 read with rule 7 ibid which is the most appropriate rule in the prevailing situation and this stand is also supported by the Hon'ble Tribunal's decision in the case of Castrol India Ltd. cited supra. Further, the assessee have failed to declare to the department as to the value of goods (manufactured individual component) cleared from factory taken for arriving at the price of cable jointing kit which also included the bought out items. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of these places of removal will be the normal price for levy of excise duty and there can be different assessable values for the same excisable goods depending upon the place of removal. It also means that duty will be required to be paid at the time of clearance of goods from the factory for those goods which are sold by the manufacturer at depot, consignment agents or any other place etc. at a sale price of the place of removal i.e. depot, consignment agents etc. Where the goods are sold at the factory gate, there would be no problem. 27. This amendment has taken away the basis of the judgments which dictated that where the factory gate price was available that price would apply to all clearances, including those made from the depots. The effect of the amendment would be that at the factory gate itself the same goods would be valued differently, depending upon their final place of removal. The findings of the Collector reproduced in Para 22 above would seem to suggest that the goods which are destined to be sold from the depots would be leviable to the duty at price charged at such depots when assessed at the factory gate. Where the goods so moved from the factory gate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar group would become such goods as far as the other goods in the same category or group are concerned. When these goods are placed in juxtaposition with the goods from another group they would not remain such goods but would become comparable goods. The issue involved in the said case was interpretation of the phrase such goods , and tribunal found that the manner in which the goods were sold from the depot were not covered by the said phrase, they disagreed to adoption of the sale value from the depot as the value for clearance of comparable goods from the factory. It is not even the case before us. In the case present case the issue is for determination of the value of the same goods without losing or modifying the identity, but sold along with the bought out items at the depot. Admittedly the value of the bought items could not be the part of the vale at which the goods were cleared from the factory. In case of Neycer India Ltd [2015 (320) ELT 28 (SC)] Hon ble Supreme Court has observed as follows: The Department/Revenue wanted to add the value of Handle assembly, Ball valve assembly, overflow assembly, Syphon assembly, Outlet flange assembly and Flush pipe ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act is applicable. That is the common case of the parties. As per Section 4(1)(a) of the Act, normal prices of the goods, viz., the prices at which such goods are ordinarily sold by the Assessee to a buyer, is to be taken into consideration, subject, of course, to the condition that the buyer is not a related person and the price is the sole consideration for the sale. In this case, as mentioned above, even the Assistant Commissioner in his final order, accepted that the case was covered by Section 4(1)(b) of the Act meaning thereby, he accepted the position that normal price of the goods in question was not ascertainable. It is only in such a situation that Section 4(1)(b) of the Act gets attracted. This provision further mentions that in such an eventuality, where the normal price of the goods is not ascertainable for the reasons given in the said provision, the criteria to ascertain the price mentioned is the nearest ascertainable equivalent thereof . This is to be determined in such manner as may be prescribed. Manner is prescribed in the Valuation Rules, 1975. Therefore, we have to consider as to which Rules of the Central Excise (Valuation) Rules, 1975 is applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of wholesale trade except to or through a related person and the value cannot be determined under clause (iii) of the proviso to clause (a) of sub- section (1) of Section 4 of the Act, the value of the goods so sold shall be determined (i) in a case where the assessee sells the goods to a related person who sells such goods in retail, in the manner specified in clause (a) of this rule; (ii) in a case where a related person does not sell the goods but uses or consumes such goods in the production or manufacture of other articles, in the manner specified in clause (b) of this rule; (iii) in a case where a related person sells the goods in the course of wholesale trade to buyers, other than dealers and related persons, and the class to which such buyers belong is known at the time of removal, on the basis of the price at which the goods are ordinarily sold by the related person to such class of buyers. RULE 7 . If the value of excisable goods cannot be determined under the foregoing rules, the proper officer shall determine the value of such goods according to the best of his judgment, and for this purpose he may have regard, among other things, to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficiently that while the levy is on the manufacture or production of goods, the stage of collection need not in point of time synchronize with the completion of the manufacturing process. While the levy in our country has the status of a constitutional concept, the point of collection is located where the statute declares it will be. We shall return to this later when it is necessary to consider a submission in regard to the effect of transactions to or through related persons . 13. We move on now to a different dimension, to the conceptual consideration of the measure of the tax. Section 3 of the Central Excises and Salt Act provides for the levy of the duty of excise. It creates the charge, and defines the nature of the charge. That it is a levy on excisable goods, produced or manufactured in India, is mentioned in terms in the section itself. Section 4 of the Act provides the measure by reference to which the charge is to be levied. The duty of excise is chargeable with reference to the value of the excisable goods, and the value is defined in express terms by that section. It has long been recognised that the measure employed for assessing a tax must not be confused with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the subject-matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the measure of a tax. It is, therefore, clear that the levy of a tax is defined by its nature, while the measure of the tax may be assessed by its own standard. It is true that the standard adopted as the measure of the levy may indicate the nature of the tax but it does not necessarily determine it. The relationship was aptly expressed by the Privy Council : In Re. A Reference under the Government of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland), 1934 - L.R. 1936 A.C. 352, when it said :- ........It is the essential characteristic of the particular tax charged that is to be regarded, and the nature of the machinery- often complicated-by which the tax is to be assessed is not of assistance, except in so far as it may throw light on the general character of the tax. The case was referred to by a Constitution Bench of this Court in R.R. Engineering Co. v. Zila Parishad Bareilly Anr. - (1980) 3 S.C.R. 1, where the relationship was succinctly described thus :- It may be, and is often so, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e wholesale cash price for which an article of the like kind and quality was sold, or was capable of being sold, at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market did not exist for such article at such place, then delivery was envisaged at the nearest place where such market existed. Section 4(b) declared that where such price was not ascertainable, the value would be deemed to be the price at which an article of the like kind and quality was sold or was capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, and if such article was not sold or was not capable of being sold at such place, at any other place nearest thereto. Then there was an Explanation which declared that no abatement or deduction would be allowed except in respect of trade discount and the duty payable at the time of the removal of the article from the factory. The wholesale price was envi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 4(a) of the Central Excises and Salt Act on the basis of the wholesale cash price payable by the wholesale dealers, and not under Section 4(b) on the basis of the price of retail sales effected directly to the consumers. The case was brought in appeal to this Court. The Court observed that for the purposes of Section 4(a), it was not necessary for a wholesale market to exist in the physical sense of the term where articles of a like kind or quality are or could be sold. A wholesale market, it was observed, could also mean the potentiality of the articles being sold on a wholesale basis . What was necessary was that the articles could be sold wholesale to traders. It was observed further that the application of Section 4(a) of the Act did not depend upon any hypothesis to the effect that at the time and place of sale any further articles of the like kind and quality should have been sold. If there was an actual price for the goods themselves at the time and place of sale and if that was a `wholesale cash price , the clause was not inapplicable for want of sale of other goods of a like kind and quality. Later follow the words, which have brought on the present controversy : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be the price at which the wholesale buyers had sold the dye stuffs to the distributors without taking into account the discount given to the distributors. Before this Court, the excise authorities pressed the same contention, urging that Section 4(a) did not provide that in every case the wholesale price charged by the manufacturer should be taken into consideration and not the wholesale price charted by the wholesale buyers who sold the product also in wholesale to the next buyers. One of us (Bhagwati J.) spoke for the Court in that case, and delivered a closely enunciated and lucid exposition of the true legal position. It was explained : The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods for the purpose of excise. There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arm s length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise. That would be the wholesale cash price for which the goods are sold at the factory gate within the meaning of Section 4(a). The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis. 23. This case also does not support the case of the assessees. When it refers to post-manufacturing expenses and post- manufacturing profit arising from post-manufacturing operations, it clearly intends to refer not to the expenses and profits pertaining to the sale transactions effected by the manufacturer but to those pertaining to the subsequent sale transactions effected by the wholesale buyers in favour of oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able equivalent thereof determined in such manner as may be prescribed shall be the value of the excisable goods for the purpose of charging the excise duty. 31. It will be noticed that the basic scheme for determination of the price in the new Section 4 is characterised by the same dichotomy as that observable in the old Section 4. It was not the intention of Parliament, when enacting the new Section 4 to create a scheme materially different from that embodied in the superseded Section 4. The object and purpose remained the same, and so did the central principle at the heart of the scheme. The new scheme was merely more comprehensive and the language employed more precise and definite. As in the old Section 4, the terms in which the value was defined remained the price charged by the assessee in the course of wholesale trade for delivery at the time and place of removal. Under the new Section 4 the phrase place of removal was defined by Section 4(b) not merely as the factory or any other place or premises of production or manufacture of the excisable goods from where such goods are removed but was extended to a warehouse or any place or premises wherein the excisable goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the value of the excisable article. The old Section 4 provided by the Explanation thereto that in determining the price of any article under that section no abatement or deduction would be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid. The new Section 4 provides by sub-section (2) that where the price of excisable goods for delivery at the place of removal is not known and the value is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery has to be excluded from such price. The new Section 4 also contains sub-section (4)(d)(ii) which declares that the expression value in relation to any excisable goods, does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the new Section 4(1)(a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(1)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value how poured several component, including those which have enriched its value and given to the article is marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court is set aside. The order of the Collector dated 7-7- 1983 in F. No. RO-943/83 is restored. 4.19 In case of Siddharta Tubes [2000 (115) ELT 32 (SC)] Hon ble Supreme Court has held as follows: 2. The appellants manufacture mild steel pipes and tubes. About 30% of the production is cleared at that stage, and the product is then known as black pipe. The balance production is taken to separate shed in the appellants factory premises and galvanised. The dispute is in relation to the galvanised black pipe. According to the appellants, what they clear is black pipe, the process of galvanisation is not a process of manufacture and no addition can be made to the assessable value of the black pipe on account of the galvanisation that subsequently occurred. The Tribunal rejected the contention. It said that the appellants themselves had, in their classification list, declared M.S. black pipes and galvanised pipes as their products. In such a situation, the mere fact that galvanisation was done subsequent to paying duty on the M.S. black pipes could not, by itself, be a ground for not including the cost of galvanisation in the assessable value of the black pipes subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pipes. Therefore, the cost had to be included in the assessable value of m.s. galvanized pipes. We do not find any error in the reasoning of the adjudicating authority. 8. In the case of Union of India Others v. Bombay Tyre International Ltd. reported in AIR 1984 SC 420, this Court observed as follows : ...... the price of an article is related to its value, and into that value one has to pour several components, including those which enrich the value of the product and which give to an article its marketability in the trade. Therefore, the expenses incurred on account of the several factors, which have contributed to the value of the product up to the date of sale, are liable to included in the assessable value. 9. Recently, this Court in the case of Procter Gamble Hygiene Health Care (supra), has observed as follows : 9. This case relates to valuation. At the outset, we would like to clarify certain concepts under the Excise Law. The levy of excise duty is on the manufacture of goods. The excisable event is the manufacture. The levy is on the manufacture. The measure or the yardstick for computing the levy is the normal price under Section 4(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacture of the m.s. galvanized pipes and, therefore, the cost of that process was rightly included in the assessable value. We do not find any error in the concurrent findings recorded by the Commissioner and by the Tribunal. 4.21 Undisputedly the appellants have offered the goods for sale for the first time in normal course of trade at depot only, which are their fully owned service centers. The actual place of removal as per the definition of place of removal, as section 4, as have been interpreted by the Hon ble Apex Court umpteen number of times has to be the depot only. Even if the arguments of the appellant are accepted, then also in view of the decisions of Hon ble Apex Court specifically in case of Sidharta Tube, the value will be determined only on the basis of sale price from depot. We have find that the form in which the goods have been sold at depot are in package comprising of the goods cleared from the factory of appellant and other bought items packed together in a carton. Hence the sale price of the goods comprise of the sale price of the goods manufactured by the appellant and the sale price of the goods trade by the appellant. It is in view of this show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured duty paid components. They did not inform that they were not going to carry any process or even will not remove the packing of the duty paid goods, but would be selling the duty paid goods as such along with some bought out items by keeping the duty paid goods in tact in their original packing condition in which they were cleared from the factory. The communication by the range superintendent and letter dated 4.4.2002 was regarding request for de-registering Building No. 2 and approval of fresh ground plans, having no bearing over valuation of goods. 57. From the above discussions, I conclude that M/s Raychem RPG Ltd. with intent to evade Central Excise duty, considered themselves or posed as if they were rightly covered within the scope of rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, when they were aware that they were not using the excisable goods manufactured and cleared by them for consumption in production or manufacture of other articles, but the goods were sold by them from their other premises without any process done on them. By putting manufactured components and bought out articles in a single packet/carton whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is nothing, but to undervalue the goods with the sole intention of evading Central Excise duty and thereby, defraud exchequer of its legitimate dues. For this act and omission on the part of the assessee, I also hold that M/s Raychem RPG Ltd. are liable to penalty under Section 11AC of the Central Excise Act, 1944. The assessee are also liable to pay appropriate interest in terms of Section 11AB of the Central Excise Act, 1944 on the demand amount held to be payable by/recoverable from them. 59. As regards penalty clause invoked in the Show Cause Notice dated 28.12.2007, I find that I find that the assessee have deliberately followed the modus operandi of clearing the manufactured components from their factory under the guise of captive consumption at Customer Care Centre with the sole intention to undervalue and evade the payment of correct Central Excise duty. The goods cleared in such a manner under the guise of captive consumption is in contravention of the Central Excise Act, 1944 and rules made thereunder and as such, these goods are liable to confiscation. As such, the assessee have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiscation; v) he believed and continued to believe that the appropriate duty liability was discharged on the goods and therefore, the same cannot be confiscated and vi) the Show Cause Notice only seeks to recover the alleged short payment of duty from the company and there is no proposal to confiscate the goods. 61. It can be seen from the statement of Shri Kapil Gohil that though he said that he was handling day to day matter pertaining to banking, treasury, legal and secretarial, but in his statement as well as in the reply to the Show Cause Notice, he has not only defended the act of short payment by the company, but has vouched for correctness of the method adopted by the company by giving his detailed statement as well as reply to the Show Cause Notice. Hence, his innocence cannot be accepted. Further, as regards his argument about confiscation of goods, it is certain that the goods in respect of which duty was evaded, were liable to confiscation. Only because the goods are not available for confiscation, there is no proposal for confiscation in the Show Cause Notice. Therefore, Shri Kapil Gohil, Senior Manager (Finance) of the company, making assertive statement regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o find that Commissioner has imposed penalty on the appellant 2 under Rule 26, we are not in position to sustain the same for the reasons as stated in para 4.24. 4.26 Thus in effect the appeals filed by the appellant are allowed to the extent of setting aside the demands beyond the normal period of limitation. Setting aside the penalties imposed on the appellants. 4.27 Since the entire demand of duty in the appeals filed by the revenue is within normal period of limitation and we have held that demand will, sustain on merits, these appeals are allowed to this extent only. We do not sustain confiscation of the goods, imposition of fine and penalties by the adjudicating authority vide his order in original. 5.1 Appeal No E/941/2008 filed by M/s Raychem RPG Limited is partly allowed to extent of setting aside demand beyond the normal period of limitation and all the penalties imposed on them under Section 11AC of the Central Excise Act, 1944 and Rule 25 of Central Excise Rules, 2002 5.2 Appeal No E/942/2008 filed by Shri Kapil Gohil is allowed. 5.3 Appeal No E/85535/2013 filed by revenue is partly allowed to the extent of demand of duty and interest only. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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