Full Judgment
2. Appellant, engaged in the manufacture of microphones, was filing price lists from time to time during the period 1992-97 declaring the wholesale prices at which the goods were to be sold to M/s. AKG Acoustics (India) Ltd. (for short AKG) and was clearing the goods on payment of excise duty on the approved prices. The department came to know subsequently that under the terms of an agreement dated 11-7-1992, appellant was to manufacture microphones in the brand name of AKG and supply the entire production to the AKG at mutually agreed prices.
Investigation showed that appellant was purchasing capsules, one of the inputs used in the manufacture of microphones, from AKG at Rs. 55/- and Rs. 64/- per piece for two models respectively as against the price of Rs. 255/- charged by AKG to M/s. Peico Electronics and other customers.
The agreement also required the goods to be manufactured to the specifications and standards of AKG. AKG representatives could inspect the plant and examine the components and materials used by the appellant. It was also found that AKG which was purchasing microphones at agreed prices was selling the same at substantially higher prices.
The prices charged by the appellant ranged from Rs. 182/- to Rs. 332/-per piece for different models while the prices charged by the AKG ranged from Rs. 196/- to Rs. 1288/- per piece. The department came to the tentative conclusion that the price of capsules supplied to the appellant by AKG was deliberately depressed with a view to substantially depress the assessable value of microphones manufactured by appellant and supplied to AKG who was a favoured buyer and related person of the appellant. Copy of the agreement entered in between the two parties in regard to manufacture and sale of microphones was not filed along with the price lists. Only part-purchase orders issued by AKG had been filed along with the price lists. The fact that capsules were being purchased exclusively from AKG and that at prices substantially lower than the price charged by AKG to other buyers was suppressed at the stage of approval of price lists. Accordingly, show cause notice dated 5-8-1997 was issued to the appellant reciting the relevant facts summerised above, proposing determination of the assessable value of microphones on the higher prices charged by AKG to their customers and proposing demand of differential duty on that basis invoking the proviso to Section 11A (1) of the Act. Show cause notice also proposed imposition of penalties. Though appellant resisted the notice of merits and the ground of limitation, the Commissioner passed the impugned order.
3. Learned Counsel for the appellant addressed arguments on the merits, limitation, violation of breach of natural justice and financial hardship.
4. There is no serious dispute on the basic facts of the case.
Appellant was receiving and buying capsules, one of the inputs, at Rs. 65/- and Rs. 54/- per piece for two models from AKG and manufacturing microphones in the brand name of AKG and selling the same to the latter at wholesale prices ranging from Rs. 182/- to Rs. 332/- per piece and AKG was selling the same to others at prices ranging from Rs. 196/- to Rs. 1288/- per piece. According to the appellant, the prices charged by AKG to appellant for capsules were comparable to the landed cost of similar capsules of Japanese origin imported in India, copies of the relevant import documents had been produced before the Commissioner who, however, did not advert to the same. That being so it is contended that the prices charged by the AKG to appellant for capsules cannot be regarded as depressed prices. Comparison of the prices charged by appellant to AKG with prices charged by AKG to other buyers cannot be made, it is said, since appellant was a bulk buyer (purchasing 2864 to 11390 pieces per year during the period as against 50 to 384 pieces sold by AKG to all other buyers in these years). It is stated the capsules sold by AKG to other buyers were in individual cardboard packing as against the bulk packing used in the case of the appellant.
The Commissioner did not advert to specifically to these submissions.
It is pointed out for the department that while the appellant placed before the Commissioner the aspect of bulk purchase, the aspect of differential packing was not placed before the Commissioner.
5. According to the appellant in view of the landed cost of similar capsules being more or less the same as the prices charged by AKG to appellant and in view of the bulk nature of sales of microphones by appellant no significance can be attached to the difference in prices for capsules charged to the appellant and others by AKG. Even if the differential prices are to be regarded as significant, it is contended only on the difference could have been added to the assessable value.
It is also contended that the components of the price of 255/- such as the extent of element of tax, duty, freight etc. are available. It is pointed out that AKG did not sell capsules to appellant below the cost price as can be seen from AKG cost data available with the department in the file relating to AKG, and the department did not make available a copy of the document in spite of request.
6. The show cause notice alleged relationship and described AKG as a favoured buyer. It is contended that there is no material to establish any mutual interest in the business of each other on the part of appellant and AKG and the only circumstance available on record is the lower capsule price charged to the appellant, which, according to the appellant has been explained. It is contended that show cause notice had been issued to AKG proposing demand of differential duty on the capsules supplied to the appellant on the basis of assessable value based on the higher price of Rs. 255/- and the demand was confirmed. It is pointed out that AKG filed an appeal before the Tribunal and the Tribunal by Stay Order No. 180/98-A, dated 2-6-1998, granted unconditional waiver of the requirement of pre-deposit with direction to the appellant not to alienate plant and machinery of the value of Rs. 30 lakhs. It is contended that if this is the view taken in the case of AKG no different view can be taken in the case of appellant at this stage.
7. Learned Counsel also contended that the price lists filed by AKG for capsules before the Assistant Collector disclosed the different prices charged by AKG and there was no suppression of the differential price system adopted by AKG. The contention of the department is that the agreement was not placed before the department by either of the parties and the purchase orders and the price lists did not disclose that the appellant was receiving capsules only from AKG that appellant was to manufacture goods of the brand name of AKG and sell the entire production to AKG and that suppression of these facts would attract the proviso to Section 11A.8. Having considered the above submissions, in our opinion appellant has made out a prima facie case on the merits for consideration at the hearing of the appeal. In the absence of evidence of relationship Under Section 4(4)(c) of the Act and satisfactory evidence of depression of prices of microphones by comparison with prices of comparable goods manufactured by other manufacturer, it appears prima facie that the question of adopting the AKG price to other buyers for determining the assessable value of microphones manufactured by the appellant and sold to AKG would not arise.
9. The Appellant has pleaded financial hardship. It is stated that there was loss of Rs. 7 lakhs in 1995-96 and of Rs. 1 lakh of 1996-97, that the factory was closed in August 1996 and all the Directors have resigned and the Managing Director had to retrunch bulk of the existing staff and had to seek employment in another factory. It is also pointed out that AKG factory is also closed.
10. Having regard to the prime facie view and the financial hardship pleaded we deem it fit to waive the requirement of pre-deposit by the appellant on condition that appellant files within 10 days from today an affidavit undertaking not to transfer or alienate the plant and machinery till the disposal of this appeal.