Full Judgment
(a) reduction of the demand from Rs. 85,28,607/- to Rs. 77,52,053/- by allowing abatement of Octroi, sales tax etc.
(b) dropping the proposal for charging of interest Under Section 11AB of the Central Excise Act, 1944.
2. The issues in the appeal filed by M/s. Ashima Denims Ltd. involve, determination of valuation of yarn for captive consumption and valuation of yarn purchased from outside for captive consumption after dyeing & sizing and the applicability of extended period of limitation.
3. We have heard both sides. It is the contention of the manufacturer that for valuation of captively consumed yarn, unless the method prescribed under Rule 6(b)(i) is ruled out, Rule 6(b((ii) cannot be applied straightaway and that the Commissioner has not given any clear finding as to why the comparable invoices submitted during investigation and adjudication cannot be accepted. The further submission is that administrative overheads in relation to activities other than manufacturing activities, interest and financial charges are not to be included in the valuation of yarn captively consumed as per Cost Accounting Standard 4(CAS-4), which has been accepted by the Central Board of Excise &Customs under Circular No. 692/08/2003-CX dated 13/02/03. The appellants cited the decision of the Tribunal in Alstom Ltd. v. CCE, Kolkata [2003(157)ELT 462(T)], wherein the Tribunal has remanded the case for re-adjudication on the basis of the above mentioned circular. The decision of the Tribunal in Bharti Systel Ltd. v. CCE, Chandigarh.I (2002(145)E.L.T.626) was cited to support the plea that the circular will operate with retrospective effect. The further submission is that if administrative overheads in relation to activities other than the manufacturing activities, interest and financial charges are excluded from the assessable value, then no duty liability would remain. The further argument was that the Commissioner has wrongly adopted over-all profit of the unit which manufactures fabrics as well as other products and this is contrary to the larger Bench decision in Raymonds Ltd. -2001(129)E.L.T. 327 wherein it has been held that profit relevant for determining the assessable value is the profit relating to the manufacture and sale of goods under assessment only, and not any other goods.
4. On the issue of valuation of yarn purchased from outside for captive consumption after dyeing cum sizing, the appellants contend that the demand is inflated as it has been raised not only on dyeing components but also on the, value of grey yam, warping and sizing and further dyeing of yarn was an activity amounting to manufacture only with effect from 1.3.95 and was specifically exempted by virtue of Notification No. 35/95-CE dated 16.3.95 and on a correct calculation the duty demand on this aspect would get reduced (to Rs. 6,50,309/-. It is also contended that the same logic which weighed with the Commissioner for dropping demand on dyed yam manufactured and captively consumed viz. that the process of dyeing was in the knowledge of the department from the classification lists filed by the assessees, should have been applied to drop the demand of duty on yarn purchased from outside for captive consumption after dyeing and sizing. On limitation, the submission of the appellant was that there was no intention to evade payment of duty, and mere non filing of price list does not amount to suppression. The appellants also argued that in the circumstances of the case, no penal action is called for either against the company or its officers.
5. On the other hand, Shri K.M. Mondal, Consultant appearing for the Revenue submits that Rule 6(b)(i) of the Valuation Rules has no application in the facts and circumstances of the present case (even though there is no dispute that for valuation of captively consumed yarn, Rule 6(b)(ii) cannot be applied straightaway unless Rule 6(b)(i) is ruled out) for the reason that the Commissioner has recorded a clear finding as to why invoices from other manufacturers submitted by the appellants during investigation and adjudication cannot be relied on.
The Commissioner has found that the so called comparable yam was on cone while the yarn manufactured by the appellants was on beam in dyeing cum sizing stage, and has also found that the quality of yarn depends on various factors such as (a) type of machine used (b) quality of cotton used, (c) twist per inch in yarn, (d) strength of the yarn etc. He submits that from the invoice of so called comparable goods submitted by the appellants, it could not be ascertained as to what types of machines were being used and what type of cotton was used by other manufacturers for making the yarn and in the absence of all these relevant details, the yarn covered by those invoices could not be compared with the quality of the yarn manufactured by the appellants.
The Id.Consultant relies upon the decision of the Tribunal in CCE,Meerut v. Addi Cotton Mills (2001(136)E.L.T.688 in support of the plea that the quality of yarn manufactured by the assesses/appellants should be the same for comparing the price of yarn manufactured by other assesses. He submits that since the appellant has failed to substantiate its case that the yarn manufactured by it was comparable with the yam manufactured by others, the Commissioner had to apply the method of valuation under Rule 6(b)(ii) ie. the cost of production method and the cost of production furnished by the appellants' Group President. Shri Atul K.Singh under cover of his letter dated 7/4/98 has been adopted for determination of the assessable value and therefore, no fault can be found with such determination. In so far as administrative overheads, interest and financial charges are concerned, the ld.Consultant submits that these elements are includible in the assessable value as held by the Tribunal in J.K. Synthetics Ltd. v.CCE, Jaipur.
6. Regarding Board's Circular dated 13/2/03, it is the contention of the ld.Consultant that it will not have retrospective effect and will only apply prospectively for the reasons interalia that the Board's Circular has een issued in the context of new Valuation Rules vz.
Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 which have been brought into force with effect from 1.7.2000 and para 3 of the Circular clarifies that cost of production of caplively consumed goods will "hence forth" be done strictly in accordance with CAS.4. The respondents submit that the decision in the case of Bharti Systel Ltd. is no longer good law in view of the latest judgment of the Apex Court in Kalyani Packaging Industry v. UOI [ 2004(168)E.L.T. 145(S.C.)] wherein it has been held that Board's circular cannot have over-riding effect over the law laid down by the Supreme Court. As regards addition of over-all profit, the respondents contend that the impugned order is based upon the decisions of the Tribunal such as Kanoria Chemical Industries v. CCE, Allahabad [ 1995(8O)E.L.T.795(T)] However, the respondents have no comments to offer on the Larger Bench decision in the case of Raymonds Ltd. cited supra. On the question of valuation of yarn purchased from outside for captive consumption after dyeing cum sizing, the respondent submits that although the process of dyeing of yarn was deemed to amount to manufacture with effect from 1.3.95 by incorporation in Note (1) to Chapter 52, even prior to that date, it was covered by the main definition of 'manufacture' in Section 2(f) of the Central Excise Act.
As for the valuation of such yarn, it also includes the cost of raw materials which have gone into making of such yarn viz. grey yarn which has been transformed into a new and identifiable product viz. dyed yarn after carrying out the process of dyeing and therefore, the valuation of dyed yarn has been correctly arrived at. The contention of the appellants that the demand on yarn purchased and dyed by the appellants and captively consumed thereafter should have been dropped on application of the same reasoning for dropping the demand on yarn manufactured by them and captively consumed after dyeing, is met by the Revenue by submitting that the appellants had never informed the department that they were purchasing yarn from outside for captive use after dyeing and the appellants' further contention that the dyed yarn was entitled to exemption in terms of Notification No. 35/95-CE is also disputed by the Revenue for the reason that the appellants were availing of the modvat credit of duty on dyeing colour chemicals and sizing materials, contrary to the condition of the Notification In response to the arguments on limitation, the Revenue contends that the extended period of limitation was available to the Department as the appellants did not file any price declaration as required under Rule 173C of the erstwhile Central Excise Rules nor did they make it known to the department at the relevant point of time as to whether the price shown in the invoice filed with RT 12 returns was on the basis of cost of production or on the basis of comparable price and the appellants had also never declared either in their classification declaration or in the RT.12 returns the fact of purchase of yarn from outside and dyeing such yarn for captive consumption. The decision of the Supreme Court in Madras Petro-Chem Ltd. v. CCE [1999(108)E.L.T.61 1(S.C) and T.N. State Transport Corporation Ltd. v. CCE, Madurai [2004(166)E.L.T.433(S.C.) and the Tribunal's decision in Associated Film Industries Pvt. Ltd. v. CCE [2000(117)E.L.T. 776(T) are relied upon to support the argument that non disclosure of material particulars, including non filing of classification lists, amounts to suppression of facts. Lastly, the Revenue contends that imposition of penalties is justified as it is a case of evasion of duty due to suppression of material facts from the Department.
7. We note that the assessees submit that they have valued the yarn on the basis of valuation of comparable yarn available in the market. In the course of investigation as well as adjudication, invoices were supplied to the department to demonstrate that the yarn is valued on the above basis. The show cause notice does not clearly make out that the yarn manufactured by the assessee is not comparable to other yarn whose market value constitutes the basis for valuation of the present yam. The notice merely states that because of various aspects which may affect the valuation of yarn, such as machinery, count of yarn, fibre etc., yarn can never be valued on the basis of comparable yam value. On this basis, the notice proceeds to hold that the yarn cannot be valued under Rule 6(b)(i) of the Valuation Rules and has necessarily to be valued in terms of Rule 6(b)(ii). However, we note that in the case of CCE, Bhopal v. Raymonds Ltd. (2001 (128) ELT 94), it has been held that even if yarn differs in material characteristics, necessary adjustment can be made under Rule 6(b)(i) and yarn valued on the basis of comparable yarn. There is no clear finding of the Commissioner as to why yarn whose market value sought to be relied upon is not comparable to yarn captively consumed. There must be a specific finding on the existence of factors which rendered comparison impossible. The Commissioner holds that there is nothing on record to demonstrate that machinery for manufacture of yarn is the same, fibre is the same etc.
and yet goes on to hold that therefore yarns are not comparable. Unless material existed for comparison, he could not have come to the conclusion that the yarns are not comparable. Further, the percentage of profit applied in the present case is that of the entire unit which includes sales of fabrics of various kinds. Percentage of profit can, however, only be taken with regard to the product in question and not the products of the entire unit as seen from Tribunal's decision in 2001 (129) ELT 327 in the case of Raymonds Ltd. v. CCE, Aurangabad. It is for these reasons that we are of the view that the matter should go back for fresh look by the Commissioner. Yet an another reason for holding that remand of the case is required is that CAS-4 issued by the Institute of Cost & Works Accountants in consultation with the Central Excise Department clearly states that for goods captively consumed, interest and administrative overheads pertaining to non production activities are required to be excluded. The CAS-4 has been relied upon by the Tribunal in the case of Alstom Ltd. v. CCE. Kolkata [2003 157 ELT 462] for ordering remand of the case to the Commissioner to consider the same.
8. As regards dyeing, we note that duty is demanded on dyed yarn even by adding the value of grey yarn while in the case of other units like Arvind Mill etc. duty is demanded only on the elements of dyeing charges. Cost of sizing has also been included in the present case, whereas, in the case of other units, the Commissioner has held that value of sizing is not required to be included. It is also noted that for the period from 16.3.1995 to 18.5.1995, dyed yarn was entitled to the benefit of exemption in terms of Notification No. 35/95 CE dated 16.3.95. All these aspects are required to be considered afresh by the Commissioner. He is also to consider the time bar aspect once again in the light of the fact that he has held in the impugned order that extended period of limitation is not applicable in so far as yarn captively consumed for dyeing is concerned, since, once it is found that the department is aware that the appellants' unit is actually dyeing the yarn and show cause notices have been issued proposing recovery of duty at spindle stage and not at dyeing stage, the knowledge of the department that the appellants are carrying out dyeing processes in their factory, exists.
9. In the light of the above discussion, we set aside the impugned order and remand the case for fresh decision to the jurisdictional Commissioner on the applicability or otherwise of Rule 6(b))(i) of the Central Excise Valuation Rules, for considering the application of CAS-4, for recomputing the value of dyed yarn and for considering the time bar aspect relating to dyeing of yarn purchased from market. He shall pass fresh orders after extending reasonable opportunity of hearing to the appellants.