1. This appeal is directed against Order-in-Original No.89-94-Collector, dated 30-12-1994 passed by Collector of Central Excise, Bombay-Ill confirming demand of duty of Rs. 43,93,220/- under the proviso to Section 11A(1) of the Central Excises & Salt Act, 1944 and imposing penalty of Rs. 5 lakhs under Rule 173Q of the Central Excise Rules, 1944.
2. The facts as stated in the memorandum of appeal can be summarised as follows. Appellant owns a printing press and has been printing various flexible laminates used as packaging material for food and other allied products manufactured by customers of the appellant. The motifs and pictorial representations of the products of the Customers are printed by the appellant in the printing press using printing cylinders which are manufactured by M/s. Helio Gravure, a Division of the appellant - Company and located in the same premises though operating with a separate Central Excise licence. M/s. Helio Gravure produces printing cylinders according to specifications of customers who desired printing to be done on laminates. Such customers are the owners of the cylinders and these cylinders are used by the appellant in printing laminates.
The printing cylinders captively consumed were exempt from payment of duty under Notification No. 64/86. Apparently, the printing cylinders manufactured by M/s. Helio Gravure for customers of the appellant and used by the appellant in printing laminates were treated as captively consumed by the appellant since M/s. Helio Gravure was taken to be a division of the appellant. Thus, no Central Excise duty was paid on the printing cylinders. Appellant was filing price lists from time to time on the printed laminated packing materials and on approval of the same, was clearing the goods on payment of appropriate duty on the basis of approved prices.
3. The dispute in this appeal relates to the period from 1-1-1989 to 6-9-1993. It was found subsequently that apart from the price realised from the customers, appellant was separately collecting "service charges" from the buyers of the packaging materials without declaring the same in the price list and without including the same in the assessable value declared in the price list and had suppressed the recovery of such extra amount with intent to evade payment of duty.
Accordingly, show cause notice, dated 1-2-1994 was issued reciting all the relevant facts as summarised above and proposing demand of differential duty on the basis of the assessable value inclusive of the service charges separately collected and proposing imposition of penalty. Though appellant resisted the notice, the Collector passed the impugned order.
4. Learned Counsel at the outset stated that in view of the decision of the Tribunal in Flex Industries Ltd. v. Commissioner of Central Excise, Meerut -1997 (91) E.L.T. 120 (Tribunal), appellant desires to change the factual stand taken hitherto. The statement can be understood in the light of the facts which wo proceed to indicate hereinafter. The show cause notice specifically alleged that the expenses on the manufacture of printing cylinders were recovered separately under separate invoices in debit notes from the buyers of the packaging materials and these expenses would be part of the assessable value of the packaging materials. The show cause notice referred to various statements made by the Officers of the appellant. Anil Talwar, Sr.
Sales Manager stated that printing cylinders would be property of the appellant and the same were not sold to any party at any time. He also stated that laminates cannot be printed without the design and art work etched on the printing cylinders in the premises of the engraver.
Bhushan Trehan, Divisional Manager stated that no servicing was carried out by the appellant in respect of printing cylinders. M.C. Dalal Accountant of the appellant stated that he was not aware of the servicing of printing cylinders and the invoices raised on account of servicing of printing cylinders was being attended to by the accounts and finance departments. He was definite that after delivery of cylinders to the appellant, no servicing was done by the appellant.
M.K. Srinivasan, Dy. General Manager stated that the printed cylinders were not sold to any other customers and appellant was charging service charges for the cylinders. When asked to explain the nature of service charge, he stated that service charge was service charge and he had nothing more to add. V.P. Nayyar, Sr. Manager, Stores stated that service charges were for maintenance, preservation and development of the design and art work of the customers. Appellant has not produced a copy of the reply to the show cause notice. It is stated on behalf of the appellant that it is not necessary to look at the copy since the contentions raised in the reply are seen reflected correctly in the impugned order. Reference is made to the reply at pages 3 & 4 of the order. Appellant stated in the reply that cylinders are manufactured by the sister concern M/s. Helio Gravure, that cylinders incorporating the motifs and designs of the customers are used merely as consumables and not as inputs in the manufacture of the final product, that the cylinders are used only as appliances and not inputs. Service charges are apportioned to the manufacturing expenses of cylinders manufactured by the sister concern. If the charges are apportioned to the value of the excisable products, the same are to be added to the value of cylinders and since cylinders are exempt, additional value shall have no revenue implication. The impugned order, at pages 4 & 5 refers to the contents of the written brief presented by the appellant's representative. In the written brief, the appellant stated that the cylinders are the property of the appellant but the etching on the cylinders are the intellectual property of the buyers of packaging materials and service charges are charges for incorporation of such intellectual property on such cylinders.
5. The above narration all show that the definite stand of the appellant was that cylinders remained the property of the appellant but the designs and motifs etched on the cylinders remained the intellectual property of the buyers of packaging materials who placed the order for etching on the cylinders. The show cause notice, no doubt, proceeded on the basis that the expenses of the manufacture of cylinders were recovered separately under separate invoices or debit notes. It is thus seen that so far as the stand of the parties before the Adjudicating Authority was concerned, there was a broad measure of agreement namely, agreement to the effect that amounts collected under separate invoices represented fully (in full or in part) the cost of the printing cylinders.
6. It is in this background that we have to appreciate the present contention raised by Shri A.K. Patnaik, representing the appellant to the effect that the cost of printing cylinders had already been amortized in the price of the packing materials. The stand now taken totally contradicts the stand taken before the lower authority. No materials are also placed before us in support of the present stand. In these circumstances, it follows that the amounts collected under separate invoices represented, as admitted before the Adjudicating Authority, a part of the cost of printing cylinders namely, the price paid for etching, the art work and motifs on the cylinders. There is no dispute that without the use of printing cylinders containing etched motifs and art work specified by the customer, the final product manufactured by the appellant cannot come into existence.
7. It is true that one of the officers stated in the course of investigation that the charges collected were for service charges but, he could not further explain the concept but the Sr. Manager, Stores stated that service charges represented the charges for preservation, maintenance and development of the design and art work of the customer.
When design and art work of the buyer are not developed, preserved or maintained, printing of laminates by the appellant cannot be undertaken. Evidently, by design and art work are meant the motifs and other matters etched on the printing cylinders. If the charges collected separately were charges for activity referred to by the Sr.
Manager, Stores they should certainly be part of the assessable value.
If they are part of the cost of the cylinders themselves, such cost also should be reflected in the assessable value of the materials printed using such printing cylinders. Even assuming that the charges recovered were not charges for development, maintenance and preservation of the motifs of the art work etched on the printing cylinders, the activity for which the charges were recovered must be regarded as an activity essential to enable the appellant to print the laminated cartons which are the appellant's final products and in this view also, the charges collected would be part of the assessable value.
8. This view is in consonance of the view taken earlier in Flex Industries Ltd. -1997 (91) E.L.T. 120 (Tribunal). The Tribunal held that where cylinders are used in the manufacture of printed HDPE pouches spread over a considerable period and over a large quantity or number of finished products, the cost of cylinders must be reflected in the assessable value of the final product by amortising the cost.
The present appellant had no case before the Adjudicating Authority that the cost of cylinders had been amortized to any extent. Whether the amount collected as service charges represented notional cost of the cylinders of etching or the cost of maintenance of cylinders, such charges would be includible in the assessable value.
9. According to Shri A.K. Patnaik, representing the appellant, the show cause notice was defective. He has taken us through all the averments in the show cause notice and we are unable to see any defect in the show cause notice. According to him notice did not proceed on the basis that any part of the cost of cylinders was not included in the price of the packaging materials. This submission does not appear to be correct.
Show cause notice as well as the order proceed on the basis of the principle which is seen approved in Flex Industries Ltd. -1997 (91) E.L.T. 120 (Tribunal).
10. The last contention urged is that during a substantial part of the disputed period, duty chargeable on the finished product of the appellant was nil rate of duty either on account of Board order, dated 5-5-1989 or on account of exemption Notification No. 49/87, dated 1-3-1987. These contentions have not been raised before the Adjudicating Authority who, therefore, did not have the opportunity to apply his mind in this regard. Though these contentions have not been raised before the lower authority, we are inclined to grant the appellant permission to raise these contentions at this stage.
Consideration of these contentions would require reference to the approved classification lists and the description of the goods covered by the Board's order and the notification and also require factual investigation. In this view, this controversy should be decided by the Adjudicating Authority.
11. In this view, the quantification of penalty also requires to be decided afresh.
12. While not interfering with various findings of the lower authority dealt with in this order, we set aside the impugned order and remand the case to the jurisdictional Adjudicating Authority for passing a fresh order after deciding two aspects namely, what is the correct rate of duty, if any, chargeable during the period on the excisable product of the appellant and the correct amount of differential duty, if any payable, and what is the correct amount of penalty to be imposed. The appeal is allowed in this manner.