2. In appeal No. E/61/2001, the appellant, a PSU, has preferred appeal against the order dated 25-10-2000 issued by the Commissioner of Central Excise, Bangalore confirming demand of differential duty amounting to Rs. 2,87,13,951/- and imposing penalty of Rs. 5,00,000/- on the ground that the applicant company has erred in declaring assessable value for clearance of manufactured items on stock transfer basis under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 from KGF factory to other manufacturing units in Bangalore and Mysore for captive use in production of excisable final products.
3. The brief facts of this case are that the Central Excise Department has alleged that- (a) the Company is removing parts of Bulldozers and Motor vehicle to the sister units at Bangalore and Mysore on stock transfer basis; (b) while transferring these spares the Company has adopted stock transfer cost instead of stock transfer price as worked out by the costing Department of the Company for purpose of payment of Central Excise Duty; (c) the stock transfer price consists of elements like element of profit, administrative overheads, labour overheads, cost of tooling, marketing overheads, etc.
(d) the stock transfer cost consists of only material cost and local overheads and hence does not represent the true cost of the spares supplied to the sister units; and (e) by adopting stock transfer cost instead of stock transfer price has led to under invoicing in the value of goods removed on stock transfer and suppression of real value of spares as detailed in the worksheet enclosed for the period from June, 1994 to March, 1999.
4. After hearing both sides and considering the materials, we find that- (a) There is no dispute that the appellant company had filed the price declaration from time to time for payment of duty on stock transfer items under Section 4(1)(b) of the Central Excise Act, 1944 read with Central Excise (Valuation) Rules, 1975.
(b) The position is more clear on the fact that when the price declaration was earlier questioned by the Department by issue of show cause notice dated 23-1-96 which culminated in passing the Order No. 50/96, dated 18-9-96 dropping action initiated in the said notice. The jurisdictional Assistant Commissioner in the said order observed as follows - "The show cause notice consists of two proposals for revising the declared prices in the Annexure. The first proposal is to add the overhead charges which is said to have been not included to arrive at the assessable value and the second proposal is to take 10% of cost of production as notional profit instead of 5% adopted by the assessee.
I find that the first proposal is totally unsubstantiated. It is not correct to say that the overhead charges have not been included to arrive at the assessable value without mentioning the basis as to how such an inference has been drawn and without any figures of cost to what extent such overhead charges are not included. On the contrary the assessee's contention in this regard that labour cost includes the overhead charges also, appears to be correct and acceptable" (emphasis supplied) Thus all relevant information was before the jurisdictional Assistant Commissioner for determination of the assessable value on stock transfer items under Central Excise Law and after scrutiny of the documents relating to stock transfer, the Assistant Commissioner had satisfied the methodology adopted by the Company for payment of Excise duty.
(c) The same issue was before the jurisdictional Assistant Commissioner who passed an order bearing No. 13/2000, dated 19/21-1-2000 that the assessee was adopting the cost construction method under Rule 6(b) of the Valuation Rules, 1975 for fixing value of the final products, since all the components manufactured were cleared on stock transfer to the unit at Mysore and Bangalore. Thus, there was no justification for the Commissioner to observe that the Company did not reveal the facts of determination of transfer price before the Department. The ratio of judgment of Hon'ble Supreme Court decision in the case of Pushpam Pharmaceuticals Co. Ltd. v. CCE reported in 1995 (78) E.L.T. 401 and Calcutta Discount Co. Ltd. v. Income Tax Officer reported in AIR 1961 Supreme Court 372 are relied to upheld the plea of limitation. The notice of demand issued for a period of more than 6 months is therefore required to be set aside as it is found.
(d) The Commissioner's observation that the appellant's Company made a mis-statement and misled the jurisdictional Assistant Commissioner to pass the order as the true fact was that the overhead costs have been included in the labour cost was not the full overheads, is not sustainable on the facts of the case. In the case of the appellant Company proceedings had been initiated on the basis of the declaration filed by the Company for removal of items on stock transfer basis to other Divisions of the Company for captive use in production of final excisable equipment as far back in January, 1996. The proceedings had been dropped by the jurisdictional Assistant Commissioner by passing orders. The order of the Assistant Commissioner became final in law.
(e) The observation of the Commissioner is that the overhead cost purportedly included in the labour cost was not the full overheads and this was clear misrepresentation as during the course of hearing before him in the present case, the appellant company produced a certificate from the Chartered Accountant dated 23-6-2000 stating that the labour cost included only labour overheads and not administrative overheads and marketing overheads. This finding is incorrect since all the primary facts to determine the assessable value by the adjudicating Assistant Commissioner were before the Department during 1995-96. The information as to how overhead charges had been ascertained for purpose of valuation under Central Excise Law had been furnished to the jurisdictional Assistant Commissioner for adjudicating the issue covered under the notice issued in January, 1996. Further, the information called for by the Department under the letter bearing OC Nos. 7797/96, dated 4-11-96 and 2796/96, dated 4-11-96 had been furnished under the appellant company's letter dated 13-12-96. The information called for by the Department was pertaining to the price list filed by the Company under the letter dated 15-10-96 and 9-11-96. The Department sought cost details to arrive at the assessable value as indicated in the Chartered Accountant Certificate along with Balance Sheet for the year 1995-96. The details for cost break up along with the Balance Sheet were furnished to the Department. Thus, it was open to the Department on the basis of the primary details available as far back in January, 1996 to ascertain the other details, if any, required by them. Since the issue relating to administrative and marketing expenses was raised by the Department in the present case through show cause notice, the information required by the Department was furnished by the appellant company. This did not preclude the Department to ascertain this information as soon as the cost breakup was given by the company in 1995-96. Further the Commissioner has not placed any reliance on documentary evidence that this information was not available with the Department when the orders were passed by the jurisdictional Divisional Officer. In fact, while examining the cost breakup of the price the adjudicating authority had come to a conclusion that the said cost would not form part of the assessable value. This submission of the appellant company is evidenced by the fact that the Assistant Commissioner had accepted the price declaration of the appellant company after necessary scrutiny of the cost breakup by passing suitable order dropping the proceedings initiated in the show cause notice. Thus, the Commissioner ought to have taken the above fact and accepted the submission of the appellant company that the issue covered under the present show cause notice was within the knowledge of the Department while passing the order by the Assistant Commissioner. Therefore, the finding of the Commissioner that there was mis-representation by the appellant Company before the Assistant Commissioner, is incorrect and is not sustainable.
(f) On merits, we find that the appellant's plea to apply the Indian Institute of Chartered Accountancy guidelines and definition of conversion cost is not upheld. Since the terms used under Rule 6(b)(ii), are 'cost of manufacture' and 'cost of manufacture' would include all costs, up to the date of removal of goods, incurred by a manufacture as upheld in the case of Bombay Tyre International reported in 1983 (14) E.L.T. 1896 and not merely the cost of converting raw material into final products, as argued by the learned Advocate. We also find no reason to interfere with the findings of the Commissioner in rejecting the guidelines of Indian Institute of Chartered Accountancy. Since we find no merit in the findings of the Commissioner as regards limitation and applicability of larger period. However, we would restrict the demands within the period of six months from the date of issue of notice. In view of our findings on the question of limitation, quantum of duty is to be reworked out. Depending on quantum of duty now to be re-determined, the penalty has to be re-determined.
5. The order is therefore set aside and is remanded to the Commissioner to re-work out the demand for within the period of six months and thereafter a penalty, if found justified.
6. In Appeal No. E/235/2001, the same appellant, a PSU, has preferred against the order dated 10-2-2001 demanding differential duty amounting to Rs. 30,00,375/- and imposing penalty of Rs. 3,00,000/- on the plea that the appellant Company had paid duty on stock transfer cost instead stock transfer price for clearance of manufactured items. A show cause notice was issued alleging the Company has removed goods manufacturing at EM Division and H&P Division of the appellant's Company without payment of Central Excise duty by transferring to R&D Center under Stock Transfer Inward (STI) and removal of the same from R&D premises in the guise of test and trial under Stock Transfer Out (STO) documents thereby evading Central Excise duty during the period from 1-9-94 to 31-10-97 to the tune of Rs. 87,62,823/-.
7. After hearing both sides we find that on the question of valuation, we found and upheld the valuation as arrived at by the Commissioner in the Order in Appeal No. E/61/2001 (supra). The same formula of valuation would be applicable to the removals covered in this case. We find no merits in the grounds taken by the appellants with reference to valuation in this case.
8. As regards the grounds that the appellant has not removed excisable goods without payment of duty as alleged and the Commissioner on verification has satisfied himself that the Company has discharged the duty. Since the allegation of clandestine removal has been dropped, the learned Counsel submitted there was no ground for revaluation of the goods. The findings of the Commissioner ordering so are beyond the notice. We do not concur with this plea. We find that the appellant himself has taken the plea that the show cause notice was issued demanding 'differential duty' and they had paid duty as per their own calculations and understanding. The same was not found to be correct.
Therefore, in the circumstances of this case, we find it would be in the interest of justice that the duty demands are to reworked out as per the formula of valuation approved in the Appeal No. E/61/2001 (supra).
9. For that purpose the present order of duty determination and penalty are set aside and the matter is remitted to the Commissioner for re-determination of duty and penalty.