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TMI Blog2008 (2) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... inal No. date Duty Penalty amounts involved 1. E/928/2005 20/2005, dated 30-6-2005 Duty: ₹ 5,03,79,920/- + ₹ 1,57,05,017/- Penalty: ₹ 1,57,05,017/- 2. E/788/2006 04/2006, dated 24-4-2006 Duty: ₹ 12,33,18,598/- ₹ 2,88,414/- Edu. Cess: ₹ 24,66,372/- ₹ 5,768/- 2. The appellant is a company incorporated under the Company's Act having its principal place of business in Mumbai and a factory at Bangalore. The appellants are engaged in the manufacture of elevator parts and components in their factory located at Jigani. They undertake indivisible, lump sum, works contracts for the erection and installation of lifts and elevators. Various parts and components are necessary for the erection of a lift or an elevator by the appellant. Some parts and components are manufactured in the appellant's Jigani unit and cleared from Jigani unit on payment of Central Excise duty for the purpose of using erection of lifts and elevators at site. Some parts and components are manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and the resultant value computed. Even in the year 1997, the Department questioned the valuation adopted by the appellants. Therefore proceedings were initiated against the appellants by issue of show cause notice dated 9-10-1997 demanding differential duty for the period from 1-4-1997 to 30-10-1997. For the subsequent period also two show cause notices were issued. In all, there were 12 show cause notices and in all the show cause notices, it had been alleged that as per the transaction value based valuation under the new Section 4, excise duty ought to have been paid on the price actually paid or payable for the goods when sold and the transaction value would include, in addition to the amount charged as the price, any other amount that the buyer was liable to pay in connection with the sale. All these 12 show cause notices were adjudicated by the Adjudicating authority who issued the Order-in-Original No. 05/2003 dated 30-11-2002, by means of which the proceedings pursuant to all 12 show cause notices were dropped by the Joint Commissioner. 5. In spite of the above position, Revenue proceeded against the appellants by issue of show cause notice dated 16-11-2004. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey had under assessed the duty on the elevators cleared in unassembled condition. The appellants participated in the adjudication proceedings and gave a suitable reply. After the adjudication, the Commissioner partly accepted the contention of the appellants and held that the items cleared by the appellants would constitute part or components of the elevators or lifts and not lifts cleared in CKD condition. The Commissioner disagreed with the reasoning in the show cause notice that the entire lifts/elevators were being removed and therefore the contract value for the lifts/elevators would be the basis for valuation. He held that the assessable value of the excisable goods cannot be determined in terms of Rule 8 read with Rule 11 as the ingredients of Rule 8 of the Rules are not satisfied in the present case. However, the Commissioner failed to give any finding on the issue as to why the same principle of valuation as stated in Rule 8 could not be applied under Rule 11. The Commissioner held that the transaction value can be derived from the composite value keeping in view the principles in Section 4(1)(a) of the Act. According to the Commissioner, the assessable value can be worked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is beyond the specific provision of Section 4 of the of the Central Excise Act (with various Rules of the Central Excise Valuation Rules, 2000). The confirmation for a demand for a longer period of limitation on an issue in respect of which no specific allegation were made to support the application of the longer period of limitation, is not sustainable. The core of show cause notice was that an elevator in an unassembled form is cleared at the factory gate at jigani. The impugned order accepts unequivocally that an elevator in an assembled form is not cleared from Jigani. The impugned order also accepts that the transaction value of an unassembled elevator is not the appropriate basis of view of valuation for the clearances made from Jigani. In view of the clear allegations in the show cause notice and the basis sought to be adopted therein [the transaction value under Section 4(1) (A)], the show cause notice should have been dropped in its entirety in view of findings in the impugned order. The Respondent, the Commissioner, has adopted an entirely fresh basis for valuation mainly, a deductive value working back from the contract price by excluding certain elements from the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue under the provisions of Rule 11 read with Rule 8 of the Valuation Rules. (v) The basis adopted in the impugned order that the goods are sold because the sales tax is paid under the Works Contract Act is inaccurate. The Commissioner ought to have appreciated that by a deeming fiction a specific provisions under the Works Contract Act renders what is not otherwise a sale, as a sale liable to tax under that act. The sale in question is therefore, not a sale as defined under the Act under Rule 2(b) which is the only relevant definition to determine the concept of sale under the Valuation Rules (vi) The finding in the impugned order that the clearances made from the factory are not consumed in the production of manufacture of other articles is also not sustainable. The term article is not defined under the Act. The term article as per normal language dictionaries refers to any item or commodity . The claim in the impugned order that Rule 8 cannot apply is unsustainable and bad in law under Rule 11 read with Rule 8. Rule 8 squarely sets out analogous principle which can be applied to the present case. (vii) The Commissioner has also exceeded his jurisdiction in recalcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply is that the components under assessment are not meant for consumption in the production or manufacture of other article as required by Rule 8. It is submitted that it is illogical to interpret the meaning of the term article as limited only to excisable goods. The purpose of Rule 8 is for valuation of goods that are consumed in the production of other items. Interpreting the term 'article' in such a manner defeats the very purpose of Rule 8. Without prejudice to the contention that Rule 8 applied to the facts of the case, it is submitted that the Commissioner has failed to appreciate that the principle of valuation enunciated by Rule 8 could be adopted under Rule 11. The failure to consider this argument of the appellant has completely vitiated the impugned order which is liable to be set aside. - (xii) It is an admitted position that no separate transaction value is available for parts or components of the elevators cleared from the Jigani unit, whether for the erection of new lifts or for repairs/modernization. The Commissioner has erred in suggesting that goods can be valued using transaction value . In view of the fact that the transaction value for parts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is completely irrelevant and distinguishable from the present case. The above decision is not relevant to the present case at all as the case is under the Andhra Pradesh General Sales Tax Act, 1957. Further the issue under consideration in the above case was whether the transaction in question could be said to constitute a contract for sale or works contract, which is not the issue in the present case. The ratio in Kone Elevators case is - there is no standard formula by which one can distinguish a 'contract for sale' from a 'works contract'. The question is largely one of fact depending on the terms of the contract. Therefore, the decision in 'Kone Elevators' case is essentially on the factual situation of the case and cannot prima facie apply to any other factual situation. The decision clearly states that there is no standard formula for determination of the issue whether a contract is a works contract or a contract for sale of goods. Removal of parts or components of elevator was held to be a sale in the 'Kane Elevators' because it was specifically mentioned in the brochure of Kone Elevators that they had been exhibiting various models of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and components cleared for repairs and modernization contract. (xxi) There was no allegation in the show cause notice that the Department was unaware of the basis of valuation for clearances made for the purpose of repairs/modernization. In the absence of any specific allegation in the show cause notice on what the appellant had suppressed with respect to these clearances, the demand for the extended period of limitation is unsustainable and liable to be set aside. Reliance was placed on the decisions of the Apex Court in the case of CCE v. HMM Ltd. [1995 (76) E.L.T. 497]; Kaur Singh v. CCE [1995 (94) E.LT. 289 (S.C.)]and Raj Bahadur Narain Sing Sugar Mills Ltd.v. Union of India [1996 (88) E.L.T. 24 (S.C.)] wherein it was held that to sustain the invocation of the extended period of limitation, the show cause notice should articulate a specific al legation stating the nature of suppression, willful misstatement, etc. assessee had indulged in. (xxii) All along the basis for valuation for the clearances made for ejection of new lifts and repair/modernization remained the same and there was no occasion either for the Department or for the appellant to address thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation provisions The issues raised herein are covered in Paras 9 to 20 of the written submissions. The method of valuation adopted in the Order-in-Original is based on sound principles and is also supported by judicial pronouncements. The appellants have all along avoided giving full details, which could have allowed the Department to work out the duty due more precisely. Yet the figures taken for arriving at the duty liability are based on the figures supplied by the appellants. (iii) Argument: Clearances to Modernization sites and NSC are for consumption; no transaction value is applicable thereon. This point has been coveted in Para 22 of the written submissions. These clearances were for sale and the consideration relevant for contracts for erection and commissioning of elevators is not applicable in respect of such clearances. (iv) Argument: Decision in Koyana case is not applicable This issue has been dealt with in Para 21 of the written submissions. The arguments advanced are devoid of merit. (v) Argument: Quantification of demand is not correct (a) This issue has been dealt with in Para 19 and 20 of the written submissions and Para 23 of the Order-in-Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no escape from this method. Therefore we are in agreement with the learned Advocate that transaction value cannot be determined from the total contract value by means of certain deductions. The method of valuation adopted should be within the ambit of Section 4 read with Valuation Rules. 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. In the present case, the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inally issued on the assumption that the appellants were clearing the lifts in the assembled form which is not correct as brought out by the Order-in-Original. Therefore the entire basis of the issue of show cause notice is demolished. In these circumstances, the order of the Commissioner goes beyond the scope of show cause notice. We have already said that the valuation method to be adopted by the Commissioner in valuing the parts and components is not the part of show cause notice. In this respect also we once again reiterate that there is violation of the Principles of 'Natural Justice'. The Commissioner has not properly appreciated the Rule 8 read with Rules 11. In terms of the Rule 8, we are of the view that the appellants had correctly valued the goods. There is no allegation that the appellants had actually undervalued the goods under the cost construction method. In view of the above, we do not find any merit in the impugned order. The second Order-in-Original is based on the decision of the Commissioner in the first Order-in-Original. Even the first order cannot be sustained. Therefore there is no specific reason to sustain the issue of show cause notice for subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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