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TMI Blog2001 (11) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be added to the assessable value of cigarettes manufactured by the appellants, as held by the Member (Technical) ? or Whether the money value of additional consideration is required to be added to the price declared in the price list and assessable value determined by working backwards, as held by the Member (Judicial) ? (2) Whether total margins are required to be added to assessable value, as held by the Member (Technical) ? or Whether only the expenses actually incurred by wholesale dealers on account of advertisement and sale promotion must be added to the price, as held by the Member (Judicial) ? (3) Whether deduction claimed on account of PME disallowed by the adjudicating authority has rightly been ordered to be added to assessable value, as held by the Member (Technical) or Whether disallowed PME must be added back to the price and not to the assessable value, as held by the Member (Judicial) ? 3.The relevant facts for appreciating the contentions raised by both sides on the above issues are as follows : M/s. ITC Ltd. which has its Head office at Calcutta is engaged in the manufacture of cigarettes of different brands in their factories at Bangalore, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Rule 5 - (i) freight element (whether actual or equalised) cannot be added, (Para 14.3). (ii) similarly, cost of CFC cannot be added, (Para 14.3.2). (iii) advertisements and sales promotion expenses incurred by the WDs shall be added, and (Para 14.3.3). (iv) similarly, interest including that on the security deposits made by the WDs shall be added (Paras 14.3.6, 14.3.8 and 14.3.11). (e) no deduction whatsoever on account of the supposed duty shall be made from the advertisement and sales promotion expenses and interest, while adding these to the price (15.2). (f) the company is liable for penal action under Rule 173Q of the Central Excise Rules, 1944. (Para 16.3). (g) principles of natural justice are not violated by not producing the witnesses for cross examination by the company, and (Para 17.7). (h) no para of the demand is time barred. (Para 17.8). The contention raised before us by both sides mainly relate to the interpretation to be given to the findings entered by the DG in his order dated 10-4-86. The appellant would submit that on a proper interpretation of Section 4 of the Act and Rule 5 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court by filing Special Leave Petition. While disposing of the above SLP on 22-8-90 the Supreme Court permitted ITC to file an appeal before the Collector (Appeals) raising all the contentions put forward before the High Court and the Collector (Appeals) was directed to go into all the questions raised before him uninfluenced by the observations made by the High Court. Pursuant thereto, ITC filed appeal before the Collector (Appeals) Ghaziabad. After referring to the arguments put forward by both sides, the Collector (Appeals) held as follows : I"14.(b) note that order-in-original dated 10-4-86 of Director General has reached the finality as no appeal has been preferred against the same by M/s. ITC. Hence the submissions made by the appellant with regard to merit of the case is out of place to be considered in this order. The scope of appeal is limited to determination of the exact amount of demand based on the principles, determined by the order-in-original dated 10-4-86 of Director General. I find that the said principles were vividly discussed in the meeting held in Calcutta under the Chairmanship of the Principal Collector, Calcutta. On the basis of discussion in that meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof shall be determined in such manner as may be prescribed. The prescription is under Rule 5 of Valuation Rules, 1975, which reads as below :- "5.Where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of Section 4 of the Act except that the price is not the sole consideration, the value of such goods shall be based on the aggregate of such price and the amount of the money value of any additional consideration flowing directly or indirectly from the buyer to the assessee". Interpretation of Rule 5 has been subject matter of departmental clarification vide M.F. (DRI) F. No. 312/1/7-CX. 10, dated 8-8-75. The relevant portion reads as follows :- Rule"(3) 5. (a) Rule applies where all factors of the 'normal price' are present except that the price is not the sole consideration for the sale of the goods and there is some additional consideration may be in cash or in any other form. It may be separately ascertainable or it may be form part of some payment made or to be made by the buyer to the assessee. Where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.G. as early as in April, 1986 when the interpretation of Rule 5 by several orders and decisions were not available and the law was not clear. According to the learned Counsel for the Revenue the view was taken by the DG in his order dated 10-4-86 is binding on the appellant since it has not challenged the above order at any point of time. 10.On the other hand, learned Counsel for the assessee would contend that on a proper reading of the order passed by the D.G. it will be clear that he has not gone against the interpretation placed by the authoritative decision on Rule 5. He has correctly found that the additional consideration are to be added to the price and not to the assessable value. Learned Counsels appearing on both sides took us through relevant portion of the order in appeal to support their respective contentions. Before we go into such details we would refer to certain other proceedings which has emanated from the adjudication order of D.G. dated 10-4-86. 11.We have already referred to the fact that the order dated 10-4-86 covered ITCs factory at Mungher coming under Patna Collectorate also. The Assistant Collector, Central Excise Bhagalpur, Patna had issued a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above judgment which are relevant for the purpose of the present appeal are quoted below :- "Learned Counsel appearing for the first respondent says and which submission is recorded herewith that the first respondent does not challenge the correctness and validity of the Order-in-Original No. 1/86, dated April 10, 1986 passed by Shri B.K. Aggarwal, Director General of Inspection (Customs Central Excise). The Counsel however says that it should be open to the first respondent to question the interpretation placed upon the said order by the Revenue. It is made clear that while the interpretation of the said order shall be open in the proceedings taken herein, its correctness or its validity shall not be questioned by the first respondent." 13.During the pendency of CWCJ No. 1713/90 before the High Court of Patna, M/s. ITC filed another writ petition in the same High Court as CWCJ No. 3176/90 challenging the order dated 10-4-86 it is to be interpreted that the direction is to add additional consideration to the assessable value and not to the price. High Court disposed of the original writ petition on 4-9-91 directing the assessee to avail of its alternative remedy. The Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of interpretation of Rule 5 going by its language or the precedents but on the interpretation given by the D.G. in his order dated 10-4-86. Learned Counsel for the assessee places great emphasis on the finding as summed up in Paragraph 18.1 of the order dated 10-4-86. He submits that clause (c) of 18.1 specifically holds that the assessable value(s) of the cigarettes has to be determined in accordance with the provisions of Rule 5 of the Central Excise (Valuation) Rules, 1975 (13.1). According to him so long as no different interpretation has been given by the D.G. to Rule 5 when he holds that assessable value has to be determined in accordance with Rule 5, there can be only one meaning to the direction namely the meaning obtained from the clear language of the rule and the meaning given to the rule by the decisions of Tribunal and the Courts. He also submits that in clause (d) sub-clause (iii) and (iv) there is no direction given by the D.G. to add advertisement and sale promotion expenses incurred by the wholesale dealers or the interest including that on the security deposit made by the wholesale dealer to the assessable value. On the other hand, in clause (e) ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law has been thus settled by the Supreme Court. It is in this background, the appellant contended that the Tribunal shall not give an interpretation to the order dated 10-4-1986 which would militate against the legal principle. In support of the above contention the learned Counsel for the appellant placed reliance on a decision of the Supreme Court - [1995 (75) E.L.T. 24 (S.C.) = 1995 (1) SCC 251] Ravinder Singh v. Phool Singh and Another. It was held therein that the order of the Supreme Court cannot and should not be construed in a manner inconsistent with the provisions of the statute. The Court could not have contemplated passing an order contrary to the provisions of the statute. 18.According to the appellant, the department also understood the scope of the order dated 10-4-86 in the manner now contended by the appellant. This would be clear from the proceedings at the Calcutta meeting held under the Chairmanship of Principal Collector of Central Excise; Calcutta, as per directions given by the CBEC. Referring to certain documents which have been produced by the assessee in this appeal it is contended that assessable value was computed on the above basis at the Calcutta me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation of Rule 5 the additional consideration has to be added to the assessable value and not to the price. In Paragraph 18.1 of the order where the D.G. has entered specific findings on the different issues, there is no direction that the additional consideration has to be added to the assessable value. On the other hand, clear indication is to the effect that additional consideration has to be added to the price. In this background we have to examine the contention of the Revenue that in the light of certain observations in the discussion portion of the order one has to come to the conclusion that the D.G. has taken the view that the additional consideration has to be added to the assessable value and not to the price. 21.In clause (c) of Para 18.1 the D.G. holds that - "the assessable value(s) of the cigarettes has to be determined in accordance with the provisions of Rule 5 of the Central Excise (Valuation) Rules, 1975. (Para 13.1)". In Para 13.1, the D.G. after referring to his conclusion that the price at which cigarettes were sold by the company to its wholesale dealers was not the sole consideration for the sale makes reference to the provisions contained under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration as discussed above, should not be added to their said ex-factory prices for arriving at the assessable value under Section 4 of the Act read with Rules 5 and 7 of the Valuation Rules. In Paragraph 46 of the corrigendum issued by the Department on 13-9-85 show cause notices dated 8-12-78 and 29-1-79, also the assessee was directed to show cause as to why the deductions claimed by them in their price lists relating to the period from 1-10-75 to 28-2-83 should not be disallowed and further why the elements as discussed in the notice should not be added to their said ex-factory prices for arriving at the assessable values under Section 4 of the Act. 23.From the above portions of the show cause notices it is clear that the proposal of the Department was to add the additional consideration to the price and not to the assessable value. It was due to this reason, as mentioned earlier, the DG has not posed the issue as to whether the additional consideration has to be added to the price or to the assessable value in his order. 24.In view of the above, we are inclined to understand the word 'value' used by the DG as meaning 'price' in his observation in Paragraph 14.3 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect assessable value. There is no direction here also to add interest to the assessable value for computing the correct assessable value. 27.In Paragraph 14.3.9 discussion is relating to the rate of interest which is to be considered appropriate for the purpose of determining income from the security deposits. After referring to the argument of the Company that if at all the price is to be loaded by the amount of interest, it shall be only at the rate of 4½%, the DG holds that 12% per annum proposed in the show cause notice was reasonable. There is no finding that interest is not to be added to the price but to the assessable value. In Paragraph 14.3.11 the direction is to add 12% interest for arriving at the assessable value. 28.Sub clause (e) of clause (d) of Para 18.1 reads as follows :- no"(e) deduction whatsoever on account of the supposed duty shall be made from the advertisement and sales promotion expenses and interest, while adding these to the Price (15.2)." There is no ambiguity in the above finding. The plain meaning is that the advertisement and sales promotion expenses and interest are to be added to the price (emphasis supplied). But no deduction on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the WD for and on behalf of the company. The Revenue now demands that on the extra amount of Re. 1.00 allegedly spent by the WD, the company must pay Rs. 3.00 as excise. On this basis, the company has received Rs. 4.00 in cash and the alleged benefit of Re. 1.00 totalling Rs. 5.00. But it is asked to pay excise duty of Rs. 3.00 (on the alleged flowback of Re. 1.00) in addition to the already assessed excise duty of Rs. 3.00 totalling Rs. 6.00 on an admitted consideration of Rs. 4.00 and on alleged consideration of an additional Re. 1.00. This itself shows the arbitrariness of the demand. It is submitted that such a claim violates the basic concept of excise duty which is a part of the price and cannot transcend it. 15.2 I have given anxious considerations to the above submissions. However, in view of the plain language of Rule 5, I find it difficult to accept the company's submissions in this regard. The said Rule 5 say that the value is based on the aggregate of such price on the amount of money value of any additional consideration; flowing directly or indirectly from the buyer to the assessee (emphasis provided). In other words the assessable value has to be the aggregat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that in the light of the settled position regarding interpretation of Rule 5, it requires much more than certain stray observations in the order of the D.G. to persuade us to hold that he had, as a matter of fact, held that the additional consideration has to be added not to the price but to the assessable value. This is so especially in view of the direction in the show cause notice to the assessee, namely to show cause why additional consideration shall not be added to the price in order to arrive at the assessable value. 32.According to us the department had also initially understood the direction in the DG's order as one to add additional consideration to the price as is evident from what happened at the Calcutta meeting. The calculation made at the above meeting on the basis of departmental instructions dated 8-8-75 issued by CBEC when Central Excise Valuation Rules were framed, element of additional consideration was added to the price declared in the original price list and revised price list showing the revised assessable values and excise duty and the differential duty for the various brands were also prepared. All these documents bear signatures of the officers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e committed by him was the one relating to the quantum of the amount demanded. Pursuant to the Calcutta meeting the demand was only to the extent of Rs. 1.88 crore. 34.In view of the stand taken by the Revenue before us that it is not contending that on a proper interpretation of Rule 5 additional consideration flowing back to the assessee had to be added to the assessable value and not to the price, we are not referring to all the decisions relied on by the appellant in support of its contention. But a reference to the assessee's own case in 1994 (72) E.L.T. 315 is required to appreciate another contention of the assessee. In the above decision by a three Member Bench of this Tribunal, later affirmed by the Supreme Court, the question of adding freight administrative charges recovered by the assessee from its WDs for the purpose of arriving at the assessable value was considered. It was held that freight administrative charges recovered by the assessee are in the nature of additional consideration and by applying Section 4(1)(b) of the Act read with Rule 5 it has to be added to the wholesale price and assessable value worked back after allowing admissible deduction. Learned Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d we find that no direction had been given by the D.G. in his order dated 10-4-86 in the matter of disallowance of PME claimed by the assessee In respect of the clearances between October 75 and February 83 the assessee had claimed certain PME incurred by it as deduction from exfactory price in its price lists. Subsequently, the law relating to claim for deduction of PME had been settled by the Supreme Court in Union of India v. Bombay Tyre International Ltd. - 1983 (14) E.L.T. 1896 (SC). Therefore, the assessee is not entitled to claim such deductions. But the Assistant Collector while finalising the assessment added those deductions back to the assessable value originally determined. The appellant is fully justified in contending that the above procedure followed by the Assistant Collector is untenable in law. What is being denied to the assessee is deduction made by it from the ex-factory price. When such deductions are disallowed, the amount covered by such deduction can be added only to the ex-factory price by putting the assessee in the same position as if he has not claimed any deduction. Under no provision of law, the assessing authority is entitled to add to the assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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