1. Appellants are an assessee (herein after refers, to M/s PSL) are interalia engaged in manufacture of spiral welded steel pipes at the unit at Daman and the General Manager of the appellant company.
2.1 While pipes manufactured at Daman, are cleared as 'bare pipes' from the "Pipe Mill" to another unit of M/s PSL referred to as "Coating Unit" where cement/coal tar coating or PE coating is effected as per requirements of the customer & thereafter coated pipes are cleared to the customers site over a distance of 20 Km to 1800 kms, depending upon the location.
2.2 Issue is valuation of pipes, removed from the 'Pipe Mill' without paying duty, on value of coating effected at 'coating mill' not reckoned on the count that coating does not amount to manufacture the said part of duty as well as on transport charges collected upto the delivery site ex. Daman plant or and on profits made on excess of Transport charges over actuals following Borode Electirc meters v. CCE 1997 (94) ELT 13 SC for the period prior to 1.7.2000 was not discharged. After the amendment to Section 4, for the period 1.7.2000 to 30.6.2001 the appellants submits that on a belief that transaction value would also include the coating charges, they paid duty on value of such coating charges, when Bare Pipes were removed from the "Pipe Mill" Simultaneously CEVAT credit was availed of duty paid on the inputs, that went into the coating of the pipes.
2.3 On 5.9.2000, the appellants paid Excise Duty relating to coating activity for despatches made during the period 1.7.2000 to 31.8.2000, including the duty on such coated pipes in stock as on 31.8.2000. After 1.9.2000, the removals of Bare Pipes were on payment, of duty even on value of coating charges.
i) Transportation charges collected on average basis on profits made on transport costs, vis a vis actuals, of coated pies being an additional consideration therefore duty was liable to be paid, on such amounts.
ii) Appellants knew that excise duty was to be paid on additional transport charges (Profit on Transportation) hence larger period under proviso to Section 11 A was to be invoked.
iii) Accordingly, a demand of duty for the period July 2000 to June 2002 was proposed to be determined & demand on excess transport charges. Proposals for penalty & interest were raised.
i) M/s PSL without protest, voluntarily paid an amount of Rs. 3,59,307 on 19.8.02 in RG 23A, on account towards excess collection of transportation charges which proves admission of guilt on their part & that was supported by statements.
ii) Details of transportation/freight collected and actual payment of freight amounts made to the transporters, and the amounts collected in excess, details of expenses incurred on Company's trailers for transportation, project-wise; details of such collection, etc., for the period from 1.7.2000 to 30.6.2001 and 1.7.2001 to 30.6.2002, were supplied by M/s PSL Ltd. vide their letter No. PSLH/DAMAN/2000/01 dated 18.8.2002 and No. PSL-D/CCE/004/1250 dated 9.9.93. Shri P.S. Mann, Dy. General Manager (Commercial of the factory at Daman, along with his statement dated 9.9.2003, also produced a detailed statement (worksheet) showing excess amount recovered from buyers towards transportation costs during the period from 1.7.2000 to 30.6.2002. These details indicate that M/s PSL Ltd. had collected excess amount from their customers than the amount paid to transporters as under.
Period Excess amount collected (Rs.).
--------------------------------------------------- 1.7.2000 to 30.6.2001 89,14,311 --------------------------------------------------- TOTAL 2.73,52,040 --------------------------------------------------- As such, it was found that evident that the excess collection aggregately amounting to Rs. 2,73,52,040/-towards transportation charges, than the actual amount charged from the buyers, during the period from 1.7.2000 to 30.6.2002 has been admitted by M/s PSL Ltd..
The said collection of excess money forms additional consideration flowing from the buyer to them and includible in the assessable value as per provisions of Section 4(1)(b) of Central Excise Act 1944 read with Rule 6 of Valuation Rules 2000, and therefore, Central Excise duty @ 16% amounting to Rs. 43,76,326/- is required to be demanded and recovered from M/s PSL Ltd. For the amount of Rs. 89,14,311/- collected in excess during 1.7.2000 to 30,6.2001, the amount of Central Excess duty works out to Rs. 14,26,289/-, however, M/s PSL Ltd have paid duty amounting to Rs. 8,59,307/- which apparently appears to have been worked out after adjusting duty towards aggregate deficit of Rs. 35,43,644/- on account of transportation during the said period which is not correct. Since the amount of Rs. 89,14,311/- has been admitted to have been collected in excess than the transportation charges collected from the customers, such amount would form part of assessable value as discussed above and the Central Excise duty amounting to Rs. 14,26,289/-should have been paid by M/s PSL Ltd. and therefore there is short payment of duty to the tune of Rs. 5,66,983/- for the said period. Similarly, in the details furnished by M/s PSL Ltd. and in the work sheet given along with the statement of Shri Mann, the excess collection has been shown as NIL for the period from 1.7.2001 to 30.6.2002 apparently considering deficit during the period whereas in fact M/s PSL Ltd. have collected excess amount of Rs. 1,84,37,729/- during the said period towards transportation charges.
In view of position discussed in preceding paragraph, here also the Central Excise duty amounting to Rs. 29,50,037/-should have been paid by M/s PSL Ltd. On the said excess collection of Rs. 1,84,37,729/- In his statement dated 9.9.2003, Shri P.S. Mann has confessed that no copy of purchase orders/contracts and sales/Central Excise invoices were submitted to the Range or Division Office. Shri. F.S. Negi, in his statement recorded on 19.8.2002, has deposed that he was aware of the fat that in terms of the provisions contained in Section 4 of the Central Excise Act 1944, such excess amount recovered by them from the buyers would form part of assessable value of the goods, in the Inter Office Memo dated 31.8.2001 also, Shri. F.S. Negi has stated that they should pay the excise duty on differential amount between the receivable/received from clients and payable/paid by them to the transports.
iii) In view of the above findings, proviso to Section 11A could be involved & penalty & interest provisions were to be invoked.
iv) Shri F.S. Negi was holding a responsible position of General Manager(Commercial) who in his statement recorded during the course of investigation , has confessed that he was aware about the collection of excess amount towards transportation charges from the customers than the amount actually paid to the transporters. In the Inter Office Memo dated 31.8.2001 written by him, he has expressed his views that they should pay the excise duty OP differential amount between the receivable/received from the clients and payable/paid to the transporters. These facts and admissions of Shri Negi proves that he was aware and knowingly concerned in dealing with the excisable goods in the manner otherwise than as provided in the Central Excise Law. Thereby, he has rendered himself liable to penal action under Rule 26 of Central Excise Rules 2002.
(a) The Show Cause: Notice no F. No. V(Ch.73)3-7/DEM/2002 dated 9.7.2002 which had been issued to the Coating Unit, has been dropped by the Commissioner vide order dated 21.1.2004. This notice pertains to issue on whether coating of the Pipes would amount to manufacture. Hence the department itself appears to have dropped pursuing this view on manufacture in this case. This appeal, on valuation, has to be determined keeping the same in account.
b) The contracts entered into by the appellants are for sale of Coated Pipes, transportation charges mentioned in the contract pertain to the transportation charges for such coated pipes. The coated pipes are new commercial goods, since coating does not amount to manufacture in the appellants case, as per proceedings consequent to notice dated 2.12.2004. demanding of duty on the profits made on transportation charges, for such coated pipes, therefore cannot be upheld. c) S. C decision in the case of CCE v. ACERINDIA Ltd (2004(172) ELT 289(SC) wherein Court has held in that case in the para 54, 55.
"goods' which is not excisable if transplanted into a goods which is excisable would not together make the same excisable goods so as to make the assessee liable to pay excise duty on the combined value of both. Excise duty, in other words, would be leviable only on the goods which answer the definitions of "excisable goods" and satisfy the requirements of Section 3........." rendering as exciable by definition of value in the machinery provisions contained in Section 4 when they are not excisable, cannot be upheld in this case. In para 55 of this decision the S.C has held ........." Further more, invoice value is not always excisable value in respect of the goods" Following the same, when coating does not amount to manufacture as proceedings have been dropped against the assessee in this case the cost of transportation of the such coated pipes ex coating pipes mill to buyers distination cannot be added to the value.
d) The price quoted and accepted in this regard are on all inclusive end cost basis against which the Ex-works price for bare pipe is arrived at by deducting the freight, insurance, sales tax and central excise duty'. In para 7, the show cause notice it is stated that freight is collected on average basis from the customers. The plea of the appellant to the effect that the contracts are Work Orders entered into by them with the customers for Coated Pipes is for a total consideration and cannot be split into values pertaining to pipes, coating and freight incurred on coated pipes, cannot be ignored. It is pertinent to note, here that both the categories of contracts are for sale of Coated Pipes only. The customer places order for coated pipes. If the pipe gets damaged during the coating process, then the appellants are responsible for the same. This also proves that there is no sale of a bare pipe by the appellants to a customer because appellants have paid duty on transportation charges, they have deducted approximate coaling value from the lumpsum consideration to arrive at the value for the bare pipes, the excisable entity and thereafter paid duty on such value. Since duty has been paid on bare pipe and what is being transported are not bare pipes, any value addition on account of transporting of such coated pipes can foe therefore not added.
e) Rule 6 of Valuation Rules, 2000 applies only when the sale price charged by a manufacturer from his buyer is not the sole consideration for sale and some other consideration goes to the seller from the buyer. Explanation to Rule 6 make it clear that the Rule 6 applies whenever buyer supplies goods or services, free of cost or at concessional rate. What Rule 6 talks about is the additional consideration following from a buyer to the seller in relation to the sale of the goods. In the present case, consideration for sale of bare pipes, coating and transportation has been mutually agreed between the seller (i.e., PSL Ltd) and the buyer. There is no additional consideration flowing from the buyer to seller qua the bare pipes. Transportation of pipes is a separate effort & contract. Hence, profit on transportation will not & does not amount to additional consideration in this case to bare pipes.
This explanation and application of Rule 6 is therefore not relevant in the facts of this case.
f) Prior to 1.7.2000 the decision of the Supreme Court in the case of Baroda Electric Metric v. CCE-1997 (94) E.L.T 13 (SC) held that excise duty was a tax on manufacture and not on profit made on transportation charges. This decision would still be applicable under new Section 4 and Valuation Rules, 2000 introduced w.e.f.
1.7.2000, as held by Tribunal in Apollo Tyres v. CCE-2003 (57) RLT 163 (T) and Kisan Mouldings v. CCE-2004 (62) RLT 712 (T) nothing contrary has been shown to hold that these decisions cannot be applied following the settled law no cause is made out to add excess transport charges called if any.
g) There is no finding arrived at that the value of the Bare pipes as determined on which duties have been discharged was actually depressed and were being recovered by coating or & transport charges.
h) The detailed calculations relied upon by the show cause notice are as follows: ------------------------------------------------------------------ Period July 2000 to July 2001 to June Total June 2001 2002 ------------------------------------------------------------------ Margin on 89,14,311 1,84,37,7.29 2,75,52,040 Transportati (profit) (profit) (profit) on 35,43,644 5,02,43,345 5,37,86,989 (Loss) (loss) (loss) ------------------------------------------------------------------ Total (Rs.) 53,43,644 3,18,05,616 2,62,34,949 (profit) (loss) (loss) The show cause notice has demanded duty @16% on profit made on transportation i.e., 2,75,52,040, totally ignoring loss of Rs. 5,37,86,989 made 011 transportation. In effect, the appellants have suffered loss of Rs. 2,62,4,949 and therefore there is no question of coining to conclusion that profits have been made on excess transportation charges recovered. The appellants are claiming refund of Rs. 8.59 lacs wrongly debited by them. They may make an application to the proper officer to claim the same back as we cannot at this stage give any findings about the eligibility of refund as pleaded.
i) The reliance upon Inter -Office memo & alleged consequent statements and also payment of duties as per incorrect understanding of one officer of PSL cannot make law & be evidence to arrive at valuations. The appellants were paying duty on coating value upto 30.6.2001 as per that submissions however, w.e.f. 1.7.2001, the appellants stopped paying duty on coating value was not payable; however there was a view of one of the General managers that duty on such value was payable the entire office memo proceeded on the price that the activity was of manufacture and its value was required to be subjected to duty. The inter office memo on valuation may be the view and interpretation, as to how the assessee perceive the levy under Central Excise Act, that cannot be primary evidence or be base for findings to conclude that the assessee knowingly and deliberately was wanting to avoid payment of duty. The mere understanding of an officer of the company cannot be allowed to be a reason to invoke the proviso clause of Section 11 A(1) j) In view of the finding there is no reason to arrive at and up hold the demands as confirmed. Since no duty demands are being up held there is not question of penalty and of interest on the assessee and other appellant herein.
3. In view of the findings arrive at this appeals are allowed after setting aside the order.