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Judgment
The instant appeal has been filed by the appellant assessee, M/s. T & T Metals Pvt. Ltd., against Order-in-Original dated 28.03.2018 passed by the
Ld. Pr. Commissioner, Central Excise & GST, Ranchi, whereby he has confirmed demand of Central Excise duty of Rs.3,65,79,324 (incl. cess)
alongwith equivalent penalty and applicable interest for the period 2012-13 to 2015-16.
Briefly stated, the facts of the case are that the appellant is engaged in the manufacture of non-alloy steel ingots classifiable under chapter 72 of the
Central Excise Tariff Act, on which Central Excise duty is being paid. Proceedings were initiated by the Department by issuing Show Cause Notice
(SCN) dated 05.05.2017 wherein it was alleged that the appellant has undervalued their final products inasmuch as the assessable value adopted for
payment of duty is lower than the actual cost of manufacture of said products and therefore, the valuation cannot be made in terms of Section 4(1)(a)
of the Central Excise Act, 1944 (the Act), but under Section 4(1)(b) of the said Act, read with Rule 8 and Rule 11 of the Central Excise Valuation
Rules, 2000 and therefore, the appellant was required to assess the value by taking into consideration the cost of manufacture plus 10%.
In the said SCN, the decision of the Apex Court in the case of Fiat India Ltd [2012 (283) ELT 161 (SC)] was relied to hold the aforesaid proposition
for determining valuation for payment of Central Excise duty. The learned Pr. Commissioner while adjudicating the matter, confirmed the said demand
as proposed in the SCN alongwith interest and equivalent penalty.
Sri Kartik Kurmy and Sri Rajesh Sharma, learned Advocates, appeared for the appellant and Sri S. S. Chattopadhyay, learned Authorized
Representative appeared for the respondent Revenue.
The learned Advocate for the appellant submitted that there is no dispute that that the goods have been sold to unrelated parties and that there is no
additional flow back of fund. He also submitted that when the goods have been sold at the time and place of removal, the price at which such goods
have been sold is the transaction value for the purpose of assessment of excisable goods cleared by the appellant and merely because the cost of
production is higher than the price at which goods have been sold cannot be made the reason to disregard the transaction value adopted by the
appellant.
4.1 The learned Advocate also relied on the CBEC Circular No.979/3/2014-CX dated 15.01.2014, issued after the Apex Court’s decision in Fiat
India (Supra), wherein it has been clarified that merely because the goods are sold below the manufacturing cost cannot be made the whole basis for
rejecting the transaction value. He also submitted that the goods have been sold as per the prevailing market prices and the sale prices even though
were kept lower than the manufacturing cost, but not with the intent to penetrate the market. He also submitted that Board in aforesaid circular has
clarified that the various aspects which have to be considered by Revenue such as percentage of loss at which the sale has taken place, the period for
which loss making price has prevailed, reason for which sale at such loss making price, whether sale is leading to erosion of capital, etc. All these
aspects have to be examined by the Department, whereas, no such enquiry or examination has been undertaken by the Department but merely the
decision in Fiat India has been mechanically applied to raise the impugned demand. He also relied upon the Apex Court’s decision in the case of
CCE, New Delhi vs. Guru Nanak Refrigeration Corp. [2003 (153) ELT 249 (SC)] to submit that the price received by the appellant assessee would
be the assessable value under Section 4(1)(a) when there is no allegation of flow back of additional consideration and that buyers were not related
persons.
4.2 He also submitted that average loss during the period in dispute in their case has been around 10% as against the loss of 60% in the case of Fiat
India (Supra) where the purpose was to penetrate the market, which the Apex Court considered to be an additional consideration leading to
undervaluation of excisable goods therein.
4.3 He further submitted that the said decision in the case of Guru Nanak Refrigeration has been duly considered by the Hon’ble Supreme Court
in Fiat India’s case, and has not be held to be per incuriam and therefore, the ratio of said decision in Guru Nanak Refrigeration is still applicable.
4.4 He also submitted that the allegations of earning profit from commodity trading to counter loss from manufacturing business have been made in the
impugned order whereas no such allegation was ever made in the SCN and therefore, to that extent, the impugned order has travelled beyond the
allegations in the SCN. He relied upon several case decisions to support his contentions in this regard.
4.5 The learned Advocate has also made detailed written submissions and also contested the demand on the grounds of limitation as well as the
imposition of penalty in the absence of element of fraud or willful suppression. He submitted that the SCN dated 05.05.2017 issued for the period
2012-13 to 2015-16 is wholly barred by limitation since the extended period of limitation is not available to the Department.
The learned Authorized Representative for the respondent Revenue reiterated the findings made by the learned Pr. Commissioner and supported
the impugned order and prayed that demand is sustainable by applying the ratio in the case of Fiat India (Supra). He accordingly submitted that the
appeal filed by the appellant assessee has no merits and the same is fit to be rejected.
Heard both sides through video conferencing and perused the appeal records in great detail. Written submissions filed by the learned Advocate
have also been considered.
In the instant case, we find that the Department has rejected the transaction value under Section 4(1)(a) of the Act merely on the ground that the
cost of manufacture is higher than the price at which goods have been cleared by the appellant. There is no dispute that the goods have been sold to
the unrelated buyers and there is no flow back of additional consideration, as also have been specifically admitted by the learned Pr. Commissioner in
para 27 and para 30 of the impugned order.
7.1 We have perused the clarifications issued by the CBEC vide Circular dated 15.01.2014 (Supra) issued aftermath the decision in the case of Fiat
India (Supra), which is reproduced below:-
The 2. first issue is whether the declared transaction value can be rejected in all cases where the transaction value is lower than the
manufacturing cost and profit. The Hon’ble Supreme Court has not ruled that transaction value can be rejected in all cases where the
declared value is lower than the manufacturing cost and profit. At paragraph 66 in the FIAT judgment, the Hon’ble Court has declined
to hold its earlier judgment in case of Collector of Central Excise, New Delhi v. Guru Nanak Refrigeration Corpn [2003 (153) E.L.T. 249
(S.C.)] per-in curiam, distinguishing it on the basis of the facts of the case, though the transaction value in case of M/s. Guru Nanak
Refrigeration Corpn was less than the manufacturing cost and profit. The Hon’ble Supreme Court has cautioned against drawing
general conclusions and inferences quoting the truism stated by Lord Halsbury that “a case is only an authority for what it actually
decides and not for what may seem to follow logically from it.â€
Further, 2.1 in paragraph 50, the Hon’ble Supreme Court has cited two instances where a manufacturer may sell goods at a price
lower than the cost of manufacture and profit and yet the declared value can be considered as normal price. These instances are when the
company wants to switch over its business or where a manufacturer has goods which could not be sold within a reasonable time. The
Hon’ble Court has further held that these examples are not exhaustive. Therefore, mere sale of goods below the manufacturing cost and
profit cannot be taken as the sole basis for rejecting the transaction value.
Verification of payment of duty
The 3. second issue is regarding the procedure to be adopted by the field officers to identify cases where the ratio of the judgment would
apply. It may be noted that, under the self-assessment procedure, there is a legal obligation on the assessee to correctly assess and pay the
duty in terms of the Central Excise Act, 1944 read with the Valuation Rules, 2000. Verification of this aspect may be conducted by the
Central Excise officer during the audit of units. Aspects such as the percentage of loss at which sale has taken place, the period for which
such loss making price has prevailed, reasons for sale at such loss making price, whether such sales are contrary to the standard and
accepted business practices, and whether such sale is leading to erosion of capital of the company, may be looked into. In addition, due care
may be taken at the level of the Commissioner to see whether the case at hand is similar to the facts and circumstances of the FIAT
case....â€
7.2 The Board vide subsequent Circular No. 983/7/2014-CX., dated 10-7-2014 has also clarified as below:-
The matter has been examined in the light of the 4. facts in the case of M/s. Fiat India (P) Ltd. vis-Ã -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 an assessable value for Uno model cars at a price
which was substantially lower than the cost of manufacture, and the company continued to sell the cars at a loss making price for nearly five
years. The company admitted that the purpose of doing so was to penetrate the market and to compete with the other manufacturers of
similar cars. It was under these circumstances that the Hon’ble Supreme Court held that such sales could not be regarded as sales in
the ordinary course of sale or trade, nor could the declared value be accepted as the normal price for sale of cars. As the main reason for
selling cars at a lower price than the manufacturing cost and profit was to penetrate the market, the apex court held that this would
constitute extra-commercial consideration and not the sole consideration. Since the price was not the sole consideration for sale of cars, the
Court held that the Department was justified in invoking the provisions of Valuation Rules for the purpose of levy of excise duty.
On perusal of the above clarifications, it is noted that the Board has accepted that mere sale of price lower than the manufacturing cost cannot be
made the criterion to reject the transaction value unless the aspects such as the percentage of loss at which such sale takes place and the period for
which such loss takes place, reasons of sale at such loss, etc. are examined to ascertain if there was any “extra commercial considerationâ€. The
Board has also accepted the fact that the Apex Court in its judgement has observed that selling of final products below the manufacturing cost was
intended to penetrate the market which also constitutes extra commercial consideration in the hands of the manufacturer. We find that no enquiry or
investigation has been undertaken by the Department to reject the transaction value as nothing is appearing in the impugned order and that merely the
decision in the case of Fiat India has been mechanically relied to raise the impugned demand, which is basically a reiteration of the proposal in SCN.
We also note, as submitted by the learned Advocate for the appellant, that the loss in their case has been around 10% but that cannot be made the
sole criterion to disregard the valuation adopted by the appellant under Section 4(1)(a), as also clarified in para 2 of the aforesaid Circular. In view of
the same, the decision in the case of Fiat India (Supra) is clearly distinguishable and has no application to the facts of the present case.
7.3 We further find that the appellant’s case is squarely covered by the ratio laid down by the Apex Court in the case of Guru Nanak
Refrigeration (Supra) wherein also, in identical facts and circumstances, the Department proposed to reject the transaction value for the reason that
cost of manufacture was found to be higher than the price at which goods were eventually sold. The Apex Court taking note of the fact that when
there was no additional consideration and the goods were cleared to independent buyers, upheld the valuation adopted by the assessee under Section
4(1)(a). The relevant portion of the decision is reproduced below:
“4. ..........The show cause notice was issued to the assessee on the ground that the cost of production of the goods was more than the
cost of wholesale price, so why the differential duty on the basis of costs of production of the goods should not be recovered from it. The
reasoning in the show cause notice was adopted by the Assistant Collector in confirming demand as well as by the Collector in rejecting the
appeal. But the Tribunal set aside the order of the Collector and allowed the appeal by the order impugned in the appeal before us by the
Revenue.
5.A perusal of the show cause notice shows that it does not contain an allegation that the wholesale price to the buyers was for consideration
other than the one at which it purported to be sold or that it was not at arms length. There is also no allegation that there was any flowback
of the money from the buyer to the assessee. In the absence of these factors it cannot be contended that normal price was not ascertainable.
There is no valid reason to doubt the genuineness of the sale price. It can therefore safely be concluded that the goods were sold at the
normal price within the meaning of Section 4(1)(a) of the Act. In our view, the Tribunal is right in accepting the wholesale price as the
correct price following the judgment of the Court in Union of India &Ors. v. Bombay Tyres International Ltd. etc. [1983 (14) E.L.T. 1896].
We hold that clause (b) of sub-section (1) of Section (4) of the Act would not be attracted to determine the nearest ascertainable equivalent of
the normal in price of the goods for assessment of excise duty in the facts of this case. We do not find any illegality in the order of the
Tribunal in setting aside the order of the Collector. The appeal is therefore dismissed. No costs.â€
The aforesaid decision in Guru Nanak Refrigeration has not been held to be per incurium by the Apex Court as also noted in the aforesaid Board
Circular and hence, has a binding precedence as on date and the same is applicable to the facts of the instant case. In view thereof, we do not find
any reason to reject the transaction value adopted by the appellant in the absence of extra commercial consideration and thus, the demand in the
instant case cannot be sustained.
In so far as limitation is concerned, apart from the general allegations levelled in the SCN we do not find any positive evidence to show that there is
any fraud or willful suppression on the part of the appellant and hence, the demand is clearly barred by limitation. The impugned order is therefore set
aside. The appeal is allowed with consequential relief, if any, as per law.
(Order pronounced in the open Court on 18 March 2021.)