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TMI Blog2007 (6) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals), Central Excise, Jalandhar dated 29-9-2006. 2. The issue stems from a show cause notice issued to the company by the Assistant Commissioner on 18-1-2006 questioning the valuation practice adopted by the Company. The Department noticed that, from April, 2001 onwards the Company started a practice of issuing debit notes separately over and above the invoice value in respect of (a) Commission, (b) wear and tear charges (earlier known as rental charges), and (c) freight to the different distribution agencies. The allegation is that the company had not declared these elements in invoices pertaining to the clearance of their goods (misc. edible preparations) deliberately to evade payment of Central Excise Duty. 3. The show cause notice has a reference to a statement recorded on 24-1-2002 of Shri Rahul Rastogi, Finance Manager of the Company. 4. The order-in-original passed earlier on 31-8-05 by the learned Asstt. Commissioner held that all the three elements are includible in the assessable value. Thus, the demand of Rs. 3,44,751/- was confirmed under Section 11A of the Act, imposing a like amount of penalty under Rule 25 of the Rules read with Section 11AC, and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the syrup. Following the ratio of the above decision, which is in turn based upon the apex court decision in Collector of Central Excise v. Indian Oxygen Ltd. [1988] (36) E.L.T. 730 (S.C.)], which is directly applicable to the facts of the present case, we hold that the appellants are entitled to deductions of repair and maintenance charges for PMX machine and rental charges for the same from the assessable value." Not only in terms of number, but also in content these decisions weigh in favour of the Company. 6.2 Commission charges: The learned Commissioner (Appeals) had observed -if not wondered- that, no agreement was entered into by the company with its so-called "distributors" being referred to as "buyers". In the absence of any written agreement/contract between the parties he found that the transaction cannot be considered as if on principal to principal basis, paid to the so called distributors i.e. commission agents shall be liable to be included in the transaction value for payment of Central Excise Duty. 6.3 It was strongly contended by the learned authorized representative for the Company that the Department has adopted "double standard" while asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver during the hearing. From this document, it becomes evident that the Company keeps track of various cost-elements that contribute towards arriving at the final selling price of their product even after the "sale" which is reported to take place "at the factory gate". How does the Company determine and keep a track of the various cost components that adhere to the product could be seen by the following reproduction of the Tables taken from the document, referred to as "pricing master" surfaced during the investigation :- Table-I Sales - Katra Shrine TYPE SHRINE KATRA PACK 18000 ml KO 18000 ml FX 18000 ml TU 18000 ml LI 18000 ml SP Cases per POM-'A' Selling Price/Cases-'B' 16.00 126.15 13.50 128.55 13.75 126.21 13.75 126.21 13.50 128.55 SP per POM-(AB) 2,018.32 1,735.37 1,735.37 1,735.37 1,735.37 Less Retailers Margin Landed Base for Dist. 2,028.32 1,735.37 1,735.37 1,735.37 1,735.37 Less : Shrine Discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Duty 298.29 241.85 247.49 247.49 241.85 Basic Price 1,218.51 987.95 1,011.01 1,011.01 987.95 Assessable Value Per Ltr. 67.6949 54.89 56.17 56.17 54.89 From the above, it is evident that, starting from assessable value per litre, the appellant has premeditated upon every subsequent cost factors/components which snow-ball into the final price i.e. selling price per case. This document reveals more than it hides: it indicates that though the Company has been vociferously claiming that their sales takes place "at factory gate", its long hands of control reach up to a remote point of sale far from the factory gate. It touches a point till the product reaches the hands of their consumers, if is not their parched throats! 7.2 Boning up on this document one cannot but notice that the appellants do not pay any sales tax (due to exemption) and that there are provisions for smoothly adding rentals, freights, distributor's commissions, retailer's margin and what not. In this context an extract of Shri Rahul Rastogi, Finance Manager of the Company's statement dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the above it means that sale price (are the distributor price) is the basis for determining assessable value rather than the other way round. Do you agree? Ans.: Yes. Q. 15. That means that the basic price on which the duty is paid is not the real price but is the notional one only. Ans. : The basis prices desired for calculation of duty are desired as per the explanation given vide Ans. No. 13/14. Q. 16. Your Katra Dist. Agent is charging commission from your Company by issuing debit note but you are saying that the Company does not pay any commission. Pl. explain. Ans. As already explained vide AB, Company is reimbursing/paying the dist. Commission due to the fact that the said distributor is selling the product to shrine Board at a much lower value than the suggested price and therefore, not in a position to recover even his commission from such sale and therefore the Company is re-imbursing this commission to Katra distributor only." 7.5 It may be seen here that in the case of Katra Distributor, the company raised the debit note for recovering the sale difference as the sale to Shrine Board was much below the "suggested price". This statement go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osts and other Variable Costs with a reasonable margin of profit and in similar parlance their actual cost is reflected for Assessable value found out for POM. The Selling Price per 100 comes to Rs. 91 whose Cost is lower than Rs. 9/- after given Distribution Commission and retailers margin. The cost of one glass of 300 ml poured from POM is also the same. Thus there was no question of lowering Assessable value. Further it yield for filling 8 litre POM is higher than filling one bottle of 300 ml each time." 7.7 The said show cause notice dated 8-10-2002 cannot be simply brushed off as having no bearing on the subject issue. It gives a clear insight as to how the company, over the years have addressed this very issue. It confirms the practice of giving commission to Katra Distributor. What was "commission" before and for which a deduction was openly sought from the Department in the earlier period is now transformed to be termed as the "profit margin of the distributor". In this context it is relevant to recall the provisions of Section 4(1)(a) of the Act, which proclaims that price should be the sole criterion. Here, however we notice that it is not only the price but even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also indicates that there was no sale at the factory gate. In our opinion, had there really been a whole-sale price at the factory gate, as claimed by the Company, they would not be in a position to control the pricing mechanism of its buyers. It is also evident that in the pricing master, the commission is very much inbuilt in the distributor's price. An examination of the mode of payment resorted to also indicates that there has been no out-right sale. Had there been a sale, either the amount would have been paid to the company or if any credit period is involved, then discount would have been sought for by them. The company has thoroughly failed to demonstrate any such particulars/details, despite anxious questioning by the Bench for hours during the hearing. 7.11 Lastly a letter dated 25th February, 2004 addressed to the Asstt. Commissioner, Jammu by the Company dealing with the show cause notice by way of an interim reply has been brought to our notice. In the illustration given under the heading "Commission to Agents", the Company had shown a component of sales tax which in fact is exempted. It is somewhat misleading and appears to be an attempt to camouflage the facts. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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