Judgment:
1. Order-in-Original No. 5/90, dated 24-10-1990 passed by the Collector of Central Excise, Rajkot is challenged in this appeal.
2. Appellant, engaged in the manufacture of ceramic tiles in the factory near Rajkot in Gujarat, was effecting sales in wholesale to dealers within the State of Gujarat at the factory gate, stock-transferring goods from the factory to the branch at Bombay from where sales were made to dealers within the State of Maharashtra, stock transferring goods to certain consignment agents at Indore and Cochin through whom goods were sold to wholesale dealers within the States of Madhya Pradesh and Kerala respectively. Three price lists were filed in Part I, one in respect of Gujarat disclosing no trade discount, one in respect of Madhya Pradesh and Kerala claiming deduction of 8% trade discount and another in respect of Maharashtra claiming deduction of 3% trade discount. On approval of the price lists clearances were made on payment of appropriate duty. Enquiry showed that in regard to Madhya Pradesh and Kerala, prices collected from wholesale dealers were higher than the approved prices. It was also found that in regard to sales in Maharashtra appellant collected charges for transportation, insurance and incidental expenses in excess of the amounts spent actually and without paying central excise duty on the differential amount.
3. Show cause notice dated 4-5-1990 was issued reciting the above facts, alleging wilful suppression of material fact with intent to evade duty and proposing demand of differential duty on the above basis and imposition of penalty. Though the appellant resisted the notice, the Collector confirmed the demand of Rs. 4,52,114.65 for the period from January, 1985 to the end of financial year 1988 in respect of goods cleared to Madhya Pradesh and Kerala and of Rs. 1,58,239.70 in respect of the clearances made to wholesale dealers through Bombay branch during the years 1985 to 1988 and imposing penalty of Rs. 75,000/- for violation of Rule 173Q(1) of the Central Excise Rules, 1944. This order is now challenged.
4. Though various contentions have been raised in the Memo, of Appeal, learned Counsel for the appellant, in the course of his submissions, pressed only two contentions. The first contention is that the additional amount recovered by the appellant had been erroneously added to assessable value but should have been treated as part of the cum-duty price and assessable value should have been arrived at on that basis. The second contention is that in regard to goods transferred to Bombay branch, non-recoverable turnover tax and additional sales tax to the extent of Rs. 14,09,352 had been paid to the State Government that the same had not been recovered from dealers and should have been deducted from the total assessable value of all the goods including the goods sold in Madhya Pradesh and Kerala and differential duty should have been quantified on that basis. These contentions are opposed on behalf of the Department.
5. We have held in Pawan Tyres. Pvt. Ltd., 1997 (93) E.L.T. 635 (Tribunal) - 1997 (19) RLT 66 (T) that the excess amount realised by the manufacturer should be treated as cum-duty price and assessable value should be arrived at by deducting the duty element which has not been collected from the buyer. To the same effect are the decisions in the cases of Geep Industrial Syndicate Ltd., 1995 (80) E.L.T. 341 (T) and Krishna Industrial Chemicals Ltd., 1997 (21) RLT 853 (T). Shri K.Srivastava, SDR placed before us Order No. 440/87-B1, dated 25-1-1987 which takes a contrary position. This decision did not consider' the effect of Section 4(4)(d)(ii) of the Central Excise Act, 1944, according to which central excise duty has to be deducted from the cum-duty price to arrive at the assessable value. Cum-duty price is the price collected from the buyer where duty is not separately collected.
The excess amount realised by the manufacturer is part of cum-duty price since duty on that amount has not been separately collected. It must be regarded as part of wholesale price and profit of the manufacturer and duty element has to be deducted to arrive at the assessable value. This view is supported by the weight of precedents referred to earlier. In this view, the matter needs to be reconsidered by the adjudicating authority.
6. The show cause notice refers to proposal for demand on two separate counts - one on account of goods stock transferred to agents in Madhya Pradesh and Kerala and the other in relation to certain excess amounts collected in respect of sales to wholesale dealers at Bombay branch.
Claims on these counts are Rs. 4,63,877.10 and Rs. 1,58,239.70 respectively. Appellant contended that a sum of Rs. 14,09,352/- had been paid to Maharashtra State Government by way of turnover tax and additional sales tax in respect of goods cleared to Bombay branch office and sold from this branch, that this amount had not been recovered from dealers and could not be recovered from dealers as they are irrecoverable and central excise duty had been paid originally without deducting this amount and since the matter is being reopened, assessable value of the clearances made in all the regions should be re-determined by deducting the aforesaid tax amount and if such exercise is done, no further amount of central excise duty would be found due. It is stated that differential assessable value in respect of Madhya Pradesh and Kerala arrived at by the Collector was Rs. 9,84,345/- and the differential assessable value in respect of sales effected at the branch office at Bombay was Rs. 3,26,484/- and the total of these two amounts would be more than offset by the turnover tax and additional sales tax paid. This argument is rebutted on behalf of the Department by contending that the demand made is of short-levy duty demand under Section 11A of the Central Excise Act, 1944. Show cause notice did not have the effect of reopening the entire assessment but of re-opening only part of the assessment referable to the higher price recovered for goods sold in Madhya Pradesh and Kerala and higher amount recovered by way of transportation, insurance and incidental expenses recovered for sales at Bombay office and other questions cannot be raised by the appellant in response to the show cause notice.
It is pointed out on behalf of the Department that if on the date of show cause notice or the reply to the show cause notice or the date of adjudication, appellant had filed refund claims of the central excise duty referable to the amount of turnover tax and additional sales tax and sought deduction, refund claim would have been barred by limitation. It is contended that if the refund claim would be barred by limitation, effect of refund cannot be secured by pleading adjustment in response to short levy demand made by the Department. While the appellant places reliance on the decisions in Krishna Industrial Chemicals Ltd. and Ors. 1997 (21) RLT 853 (Tribunal) and other decisions, the Department places reliance on Final Order No. 835/97-A, dated 9-5-1997 passed by the Tribunal in Appeal E/No. 1986/89-A.7. In the case of H.M.M. Ltd. (Appeal No. E/1986/89-A), the original price lists filed showed prices exclusive of sales tax and claimed deduction also of extra sales tax paid during the current year in respect of previous years. The question was whether deduction was admissible in respect of sales tax paid in the current year for the previous year. It was held that the amount so paid in respect of a previous year has nothing to do with the assessable value of clearances made during a subsequent year and hence deduction was not admissible.
This decision is not helpful in resolving the controversy.
8. In Krishna Industrial Chemicals Ltd. case - 1997 (21) RLT 853 (T), the assessee had realized certain additional amounts over and above the prices reflected in invoices and had sold goods to two concerns at much lower prices. The adjudicating authority added the extra amount collected to the original assessable value and determined the assessable value of the goods sold to the two concerns on the basis of higher price paid by the two concerns to another supplier. The adjudicating authority also rejected the claim for deduction of additional sales tax paid by the assessee and not deducted originally in determining the assessable value. The assessee did not claim deduction at the time of clearance of the goods and did not file refund claim within the time prescribed immediately after the finalisation of sales tax assessment or payment of additional sales tax. The Tribunal, in allowing the deduction of additional sales tax, observed as follows :- "...The whole issue of assessment has been reopened by the authorities and the authorities have come to the conclusion that the appellants are required to pay higher duty as they had realised some extra amounts over and above the invoice value. The revenue, is therefore, entitled to the recovery of higher duty in view of the position.... But this duty has to be only that much as would be admissible under the law. Even though the appellant may not have abatement of the additional sales tax, that would not be a reason that an extra duty over and above i.e. the duty due can be collected from the appellants. What has to be seen is what is the amount which has flown to the coffers of the revenue in the form of duty or otherwise and what is the total duty which is held to be payable and it is the differential of these two which the appellant would be required to pay... the duty which is to be demanded has to be after taking into reckoning what has already been paid by them notwithstanding their not having claimed the abatement earlier. That factor is a relevant factor and will have to be taken note of while demanding the duty in terms of proceedings now"drawn. Further, the other admissible abatements will also have to be given to the appellants." 9. Lili Foam Industries Pvt. Ltd., 1990 (46) E.L.T. 462 (T) was a case of undervaluation of scrap, side skin, bottom skin and top skin of polyurethane upheld by the Tribunal. Differential duty became payable on such excess value. The assessee raised a dispute about classification of and rate of duty applicable to these items, though he had paid duty on lower value as per approved classification. The Tribunal upheld the assessee's right to challenge classification, observing as follows :- "...Whenever the department seeks to reopen the assessment and demands differential duty for whatever reason, it is open to the assessee to contest the demand of higher differential duty with an argument that rate of duty originally applied was wrong. Even if the allegations against them in the proceeding are found to be correct, the quantum of differential duty to be paid by them can be questioned. The Tribunal cannot shut out such an argument of the appellant on the ground that he has not raised the dispute regarding the rate of duty until the proceedings are initiated against them.
After all, the department seeks to rely on Section 11A of the Central Excises and Salt Act demanding differential duty. The demand of differential duty can arise only when the department correctly determines the duty payable by an assessee and the duty actually paid by him earlier. The correct quantum of duty payable by an assessee, in cases where the goods are subjected to ad valorem rate of duty, depending on the value of goods and also the rate of duty.
Therefore, the determination of correct rate of duty for the goods on which differential duty is demanded is the first step before quantifying the demand." [Emphasis supplied] 10. In Bakeman's Home Products Pvt. Ltd., 1997 (95) E.L.T. 278 (T), imported goods were cleared, mis-declaring description, quantum and value. Confiscation and demand of differential duty was ordered.
Besides contesting these allegations, the importer sought to reopen classification declared in the Bill of Entry. The Tribunal upheld his right to do so in the following words following the decision in Lili Foam Industries (P) Ltd., 1990 (46) E.L.T. 462 (T) :- "When allegation is made of misdeclaration of value by adjusting the value of one item under one sub-heading with the value of another item falling under another sub-heading to take illegal advantage of lower rate of duty available for an item, the same can be sought to be resisted by pleading that on correct classification there would be no duty advantage for the importer and the alleged misdeclaration of value would not really result in duty evasion." 11. The decision in M/s. Sun Engineering Works (P) Ltd., AIR 1993 SC 43 arose in connection with the provisions in Section 147 of the Indian Income Tax Act, relating to reassessment of income escaping assessment.
It was held that claims which had been disallowed in the original assessment cannot be reagitated on the assessment being reopened for bringing to tax certain income during the course of the original assessment. A claim cannot be agitated in reassessment proceedings unless relatable to the item sought to be taxed as escaped income. But it would be open to the assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the income.
12. Where duty is ad valorem and based on assessable value, the provisions of Section 4 of the Central Excise Act, 1944 have to be followed in determining assessable value. Section 4 provides the basic framework of assessable value. Assessable value is based on the normal price and if normal price is not ascertainable, it is the nearest ascertainable equivalent thereof determined in accordance with the provisions of Central Excise (Valuation) Rules, 1975. Section 4(4)(d) indicates the deductions required to be given in determining the assessable value. Value does not include the amount of excise duty, sales tax and other taxes payable on the goods as indicated in sub-clause (ii) of Section 4(4) (d) of the Act. If excise duty, sales tax, additional sales tax, turnover tax and other taxes payable on goods have not been collected separately, they form part of wholesale price and must be deducted in order to arrive at the correct assessable value of the goods and excise duty has to be reckoned at the appropriate rate on such value. No manufacturer is required to pay excise duty on the element of such taxes. If a manufacturer for some reason, happens to pay duty on the element of such taxes, it is open to him to seek refund of excess duty paid, in accordance with the provisions of Section 11B of the Act. If no refund is so claimed, that is ordinarily the end of the matter. We are in the present case, however, concerned with proceeding initiated by the Department for recovery of duty short-levied initiated as per the provisions of Section 11A of the Act under which the duty short-levied can be demanded.
13. How is the extent of 'duty short levied' to be determined? This can be done only by examining the various elements which were taken into consideration in originally determining the assessable value and rate of duty and verifying if there were omissions or errors committed.
Assessable value and duty have to be recalculated after rectifying the errors and supporting the omissions. This is also subject to the mandate of Section 4 of the Act and particularly of Sub-section (4) of Section 4. Thus correct duty payable on the correct assessable value can be arrived at. This amount of duty less the duty paid originally would be the short-levied duty which can be demanded under Section 11A of the Act. Thus determination of quantum of short-levied duty also involves recomputation of correct assessable value on the basis of true and correct wholesale price and legitimate deductions as per the provisions of Section 4 and adoption of correct rate of duty. It may be that the statutory authority detected an error in an element having a bearing on the assessable value or rate of duty and proposes determination of correct assessable value and duty and demand of such determination, the authority failed to discover another or other errors committed in the original determination of assessable value or duty and repeats the errors. It must be open to the assessee, in such circumstances, to point out such error. If such errors are pointed out, cognizance thereof must be taken by the authority whose function is to compute the correct assessable value and duty and the correct amount of short-levied duty. This function of the authority cannot be avoided merely because the assessee himself had earlier committed an error at the stage of filing classification list or price list or at any other stage and had failed to discover the error or to file refund claim within the time allowed by law. It is the function and duty of the statutory authority to determine the amount of duty short-levied. This exercise of determining the correct amount of duty short-levied cannot be stultified by the failure of the assessee to file refund claim within the time allowed by law. The finality brought about by the failure to file a valid refund claim is affected by the invocation of Section 11A by reopening the determination of assessable value and quantification of duty payable. We are, with respect, in agreement with the view expressed in Krishna Industrial Chemicals Ltd., 1997 (21) RLT 853 (T), Lili Foam Industries (P) Ltd., 1990 (46) E.L.T. 462 (T) and Bakeman's Home Products Pvt. Ltd., 1997 (95) E.L.T. 278 (T).
14. The differential assessable value of goods cleared to Bombay Branch (on account of excess collection on account of transportation, insurance and incidental charges) is Rs. 3,26,484.13. Excess collection of transport and insurance charges cannot be taken into account. Even if the amount of differential value determined is accepted as correct, the differential duty on goods sold in Maharashtra would be only Rs. 1,58,239.70. But appellant is entitled to deduction of turnover tax and additional sales tax which is said to be over Rs. 14 lakhs. Thus, the differential assessable value in respect of goods cleared to Bombay Branch is more than covered by the amount of turnover tax and additional Sales Tax liable to be deducted. Hence, the demand of Rs. 1,58,239.70 on account of goods cleared to Bombay branch has to fail.
15. Out of Rs. 14,09,352.00 being turnover tax and additional sales tax paid by the appellant in respect of goods removed to Bombay Branch, Rs. 3,26,484.13 is adjusted leaving a balance of Rs. 10,82,865.00, which according to the appellant has to be deducted from the differential assessable value of goods cleared to Madhya Pradesh and Kerala, namely, Rs. 9,84,345.03. If this is permissible, no differential duty would be payable on account of goods cleared to Madhya Pradesh and Kerala.
According to Section 4(4)(d)(ii) of the Act, assessable value in respect of any excisable goods does not include excise duty, sales tax and other taxes payable on such goods. Excise duty and taxes payable on specific goods is deductible in quantifying the assessable value of such specific goods. What appellant seeks is deduction of a part of turnover tax and additional sales tax paid in respect of specific goods, that is, goods removed to Bombay branch and sold in Maharashtra State, from out of assessable value (or differential assessable value) of other goods removed to Madhya Pradesh and Kerala. This is not permitted by Section 4(4)(d)(ii) of the Act. If any such taxes had been paid in respect of goods removed to Madhya Pradesh and Kerala and have not been deducted in quantifying assessable value (or differential value), deduction has to be given in terms of Section 4(4)(d)(ii) of the Act. But the appellant has no such case or plea. What is claimed is deduction from assessable value of goods A, of the taxes paid in respect of goods B. That is not permissible in law. The assessable value of goods removed to Madhya Pradesh and Kerala cannot be affected by the taxes paid not in respect of such goods but in respect of goods removed to Bombay branch. The amount of such taxes cannot be deducted from the assessable value of excisable goods removed to Madhya Pradesh and Kerala and cannot bring down the duty liability in respect of such goods. The correctness of the demand of Rs. 4,52,114.65 in respect of goods removed to Madhya Pradesh and Kerala is not challenged on any other ground, except as already indicated.
16. From what we have indicated above, it must follow that the demand of Rs. 1,58,239.70 in respect of goods removed to Bombay branch must fail. The demand in respect of goods removed to Madhya Pradesh and Kerala is Rs. 4,52,114.65. This amount was arrived at by adding the differential price realised to the assessable value. We have held that this is not correct. The differential price realised must be treated as cum-duty price and assessable value must be arrived at after deducting the element of duty and differential duty must be quantified on the basis of such assessable value. The quantification made is erroneous_and has to be done afresh. Quantification of penalty, which depends on the quantification of differential duty has to be done afresh.
17. For the reasons indicated above, we set aside the impugned order and remand the case to the jurisdictional adjudicating authority for decision afresh in accordance with law and the findings and directions in this order and after giving appellant an opportunity of hearing.