Judgment:
1. This appeal is directed against the order passed by the Collector (Appeals) dismissing the appeal filed before him by the present appellant against the order of the Assistant Collector confirming two demands for differential duty to the extent of Rs. 15,387.34 and Rs. 9,935.13 respectively. We have heard both sides.
2. The Assistant Collector initially had passed an order on 22-9-1981 which had been set aside by the Collector (Appeals) who remanded the case for fresh adjudication. After remand the Assistant Collector passed an order confirming the demand on 25-7-1986 and this has been confirmed by the Collector (Appeals).
3. Appellant is engaged in the manufacture of chemicals falling under erstwhile Tariff Item 68. Appellant had opted for self removal on the basis of invoice procedure under Notification No. 120/75, dated 30-4-1975 and availing the benefit of exemption therein. One of the finished products of the appellant is temporary corrosion preventive fluid (T.C.P.F.) which during the two relevant periods was being sold only to one party namely, M/s. B.P.C.L. under contract entered into on the basis of tender procedure. Appellant was clearing the goods paying duty on the invoice prices. Superintendent issued two show cause notices dated 29-1-1981 and 27-5-1981 in regard to different periods namely 25-7-1978 to 22-8-1979 and 27-8-1979 to 25-3-1981 respectively alleging that the appellant had misused the provisions of Notification No. 120/75 and contravened Rule 173C of the Central Excise Rules, 1944 by clearing T.C.P.F. on payment of duty on invoice price which was lower than the price charged by M/s. B.P.C.L. from their wholesale buyers. The goods were manufactured by the appellant exclusively for M/s. B.P.C.L. Appellant resisted the notice by filing replies contending that the benefit of Notification No. 120/75 had been rightly invoked and the price of M/s. B.P.C.L. had no relevance to payment of duty by the appellant.
4. Assistant Collector indicated that under the contract all the raw materials were to be procured by the company thereby meaning M/s.
B.P.C.L., the contract specifically enabled M/s. B.P.C.L. to allocate two ingredients, namely, Mineral Turpentine and Bharat Osmex Cylinder Oil thereby giving preferential treatment to appellant, that the requirement of testing at the instance of the buyer with a liability on the appellant to share 50% of the cost was in order to avoid supervision of manufacture and they had influenced the invoice price.
It was on this basis that the invoice price was rejected and the price of their buyers was adopted as the basis. The Appellant Collector indicated that the supply of raw materials by the buyers to the manufacturer had direct effect and influence over the invoice price.
5. It is apparent that both the lower authorities found that appellant did not satisfy the condition in Proviso (iv) to Notification No.120/75. The notification exempts goods falling under erstwhile Tariff Item 68 cleared from the factory on sale from so much of the duty as is in excess of the duty calculated on the basis of the invoice price (excluding duty and local taxes, if any, included in such price) charged by the manufacturer for sale of such goods. The proviso indicates that the exemption is admissible only if the provisions of proviso are satisfied. The lower authorities have relied on proviso (iv) which reads as :- (iv) the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sales of the aforesaid goods." It is thus seen that proviso (iv) requires the appellant to affirmatively establish that the invoice price is a genuine price that is, not influenced by any relationship commercial, financial or otherwise between the two manufacturer and the buyer. Of course relationship created by the sale of the subject goods does not fall within the purview of proviso (iv). The relationship should be created by some means other than the sale of the goods. Even assuming that the contract leading to the sale of subject goods is attracted by proviso (iv) the contract should not have influenced the invoice price.
6. We have been taken through the letter dated 5-12-1980 of M/s.
B.P.C.L. of the appellant accepting the quotation submitted by the appellant in 1981. The agreed price was Rs. 5.65 per litre. The period of the contract was one year. The clause relating to raw materials reads thus :- "All the ingredients will be procured by you. You will be allocated the necessary quantities of Mineral Turpentine and Bharat Osmex/Cylinder Oil for processing of our requirements if required.
Rate accepted by you would remain firm during the tender period except that we shall consider proportionate escalation in your rate; if there is any variation in the price of Mineral Turpentine. For every Rupee increase/decrease per kl. in the price of Mineral Turpentine, we shall consider increase/decrease of Rs. 0.79 per kl." The letter also gave the price of Mineral Turpentine at the time of quotation. The lower authorities thought that the contract required M/s. B.P.C.L. to supply all raw materials. This view was based on a misunderstanding of the clause quoted above. The clause clearly puts the onus on the appellant to procure all ingredients necessary.
Regarding two ingredients, namely, Mineral Turpentine and Bharat Osmex/Cylinder Oil, M/s. B.P.C.L. had agreed to supply, if required.
This does not mean M/s. B.P.C.L. agreed to supply these two ingredients free of cost. They were to sell it to the appellant. We say so because the basic responsibility of purchasing raw materials and ingredients was on the appellant who would have taken these circumstances into consideration while quoting a price. There was no justification for the lower authorities recording that a special favour was shown to appellant by supply of raw materials. Naturally M/s. B.P.C.L. who required the finished products were guarding the scarcity conditions in which appellant would not be in a position to procure the two ingredients which in turn would lead to delay in manufacture and supply of finished products and hence agreed to supply, if required. This is not sufficient to show that some special favour was shown to the appellant in the matter of cost of raw materials.
7. Paragraph 7 of the aforesaid letter indicates that appellant is to submit a test report along with each batch of supply made and M/s.
B.P.C.L. will send samples of product to independent laboratories for test at their sole discretion and 50% of the cost will be borne by the appellant. This would indicate that appellant would conduct a test in the factory and besides such test, the manufacturer would send samples to independent laboratories in which case 50% cost will be met by the appellant. This was an additional test which was not part of the manufacturing activity or which did not contribute in making the goods fit for delivery. This was an additional test according to buyer's desire and the appellant agreed to meet half the cost. We fail to see how this clause would show that condition proviso (iv) of the Notification is not satisfied. Condition requires a relationship. The invoice price should not to be influenced by such relationship. We believe that the condition regarding cost of additional cost would have been there in the tender notice and that being so, every tenderer would have taken this aspect into consideration in quoting his own price.
Appellant also would have done so. There is no warrant for drawing an inference that invoice price was fixed without taking into consideration this additional cost.
8. We hold that the view taken by the lower authorities that the appellant did not satisfy the condition proviso (iv) of Notification No. 120/75 is not sustainable. Appellant has satisfied the condition.
That being so the refund claim was justified. In this view it is unnecessary for us to consider the aspect of limitation urged before us.