1. This application under Section 35F of the Central Excise Act, 1944, is heard afresh pursuant to the direction of the Hon'ble High Court contained in the order dated 11.8.2006, setting aside the earlier interim order of the Tribunal made on 20.6.2006 and remanding the matter back to the Tribunal to decide the application afresh in the light of the law laid down by the Hon'ble High Court of Allahabad in Civil Writ Petition No. 1219 of 2003 (I.T.C. Limited v. Commissioner (Appeals), Customs and Central Excise and Ors.
2. The applicant has challenged the order in appeal dated 27.12.2004 made by the Commissioner (Appeals) upholding the order-in-original of the Joint Commissioner (Adj.) made on 18.2.2003 by which demand of Central Excise duty amounting to Rs. 7,67,165/- was confirmed under Section 11-A of the Central Excise Act 1944, and penalty of the like amount was imposed on the appellant under Rule 173Q of the Rules of 1944 read with Section 11-AC of the Act, with a direction to pay interest at the appropriate rate under Section 11-AB of the Act.
3. The appellant was engaged in the manufacture of transformers falling under sub-heading No. 8504 of the schedule to the Tariff Act. From the scrutiny of their records it transpired that the appellant had collected Rs. 35,98,220/- on account of equalized freight and Rs. 11,96,563/- by way of labour & painting charges which fact was neither declared by the appellant nor was the excise duty paid on these amounts. According to the Revenue, the amounts collected on account of equalized freight and labour & painting charges should have been included in the assessable value, in view of the amended provisions of Section 4 of the Central Excise Act, 1944 read with Central Excise Valuation (Determination of price of excisable goods) Rules, 2000. In reply to the show cause notice, the appellant contended that the transformers were to be supplied at various places within the State as per the terms and conditions of the purchase order at fixed price and in addition to that, the appellant was paid fixed freight amount for delivering the goods at the desired destinations, which freight amount was shown in the invoices. According to the assessee, it had not suppressed the information since it had followed the same practice and was not aware about the changes in the definition of transaction value, which was not even pointed out by any of the officer. It was contended that the audit party had noticed the record earlier and it cannot be said that the appellant had suppressed the information. It was also contended that assuming without admitting the alleged facts regarding scrutiny of record, since all the customers were government buyers, there could be no intention of non-payment of excise duty which were to be billed separately.
4. The Joint commissioner (Appeals) on the basis of the material on record came to a finding that the appellant had collected amounts, over and above the invoice price, on account of equalized freight and labour and painting charges and did not include them in the value of the goods for calculation of excise duty. The substituted new Section 4, which came to effect on 11^st July 2000, was taken into consideration, and referring to the definition of transaction value in Section 4(3)(d) and to the admission by the assessee that they were paid fixed freight amount for delivering the goods at the desired destinations and that they were under an obligation to deliver the goods to the desired destinations, came to a finding that the expenditure on freight was includible for determination of transaction value as it was in connection with sale and by reason of sale. Thus, the freight amount of Rs. 35,98,220/- collected by the appellant was held to be includible in the value for the purpose of determination of excise duty. The original authority also examined as to whether the freight was being charged on equalized basis and came to a finding that it had collected fixed amount of freight instead of actual freight and as per the definition of transaction value, freight i.e. outward handling charges were includible in the value of the goods for determination of excise duty.
4.1 As regards the amount collected by the appellant as labour and painting charges to the tune of Rs. 11,96,563/-, the adjudicating authority, considering the submission of the assessee that they were following the same practice since the beginning and were not aware of the changes in the definition and that they had not suppressed any information with intent to evade duty, held that, in the light of the definition of transaction value w.e.f. 01.07.2000, labour and painting charges, received by the appellant from their customer during the period from July 2000 to November 2001 amounting to Rs. 11,96,563/-, were includible in the value of the goods for determination of excise duty. On the question of the penalty, it was held that the appellant company was a well organized company working since many years and had full knowledge of the Act and rules, and though the provisions defining transaction value came into force from 01.07.2000, they did not intentionally pay correct duty on removal of the finished goods.
4.2 The Appellate Commissioner after considering the contentions raised on behalf of the appellant and noticing that the appellants were under an obligation to deliver the goods to desired destinations at fixed freight, held that in light of the definition of 'transaction value' the deduction in the assessable value on account of equalized freight was not admissible to the appellant. Even as regards labour and painting charges, it was held that the adjudicating authority had correctly confirmed the duty. The Commissioner (Appeals) rejected the contention that the amount collected on labour and painting charges was collected against the repair work, on the ground that no such plea was raised by the appellant before the adjudicating authority. The learned Commissioner (Appeals) did not find any infirmity in the order-in-original including the penalty imposed under it.
5. The learned Counsel appearing for the appellant raised the following contentions in support of the application for interim relief.
(i) The goods were to be delivered at the customer's premises under the purchase order and the freight was to be separately charged as shown in the invoices. According to him since the freight was separately shown in the invoices it could not be included in the transaction value of the transformer. Reliance was placed on the decision of the Tribunal in Filament India v. CCE, Jaipur reported in 2003 (160) ELT 314, in which it was held, in paragraph 5 of the judgment, that inspite of the amendment brought in the statute w.e.f. 1.7.2000 and the new valuation Rules, freight charge's were not includible in the assessable value of the goods concerned in those appeals.
(ii) The labour and painting charges were charged on non-excisable goods because they were incurred in respect of the transformers, which were sold in the past and were received by the appellant for repairs.
(iii) The show cause notice having been issued on 10.4.2000, the demand prior to 10.4.2001 was time barred and this aspect was not considered by the authorities below.
(iv) The appellant was declared as a sick unit under the Sick Industrial Companies (Special Provisions) Act, 1985 and therefore, undue hardship would be caused to the appellant company if it was required to pre-deposit of any amount.
(v) Even though the freight was fixed it could not be treated to be on equalized basis and any amount of profit element in that freight cannot be considered for payment of excise duty by including it in the transaction value. He placed reliance on the decision of the Tribunal in PSL Ltd. and Anr. v. CCE, Daman reported in 2005 (70) RLT 389 (CESTAT-Mum.), in which it was submitted that profit on account of transportation which was a separate effort and contract, did not amount to additional consideration. The decision of the Apex Court In Baroda Electric Metric v. CCE , was cited for the proposition that excise duty was a tax on manufacture and not on profit made on transport charges, would be applicable.
6. The learned authorized representative for the department supported the reasoning and the findings of the authorities below contending that the appellant was not entitled to raise any issue which was not raised in reply to the show cause notice or before the adjudicating authority.
It was submitted that in view of the definition of the expression 'transaction value' which came into force from 01.07.2000, the freight charges which were fixed and not actual were includible in the assessable value of the goods sold. It was further submitted that no contention was ever raised in the reply to the show cause notice or before the adjudicating authority that labour and painting charges were recovered in respect of transformer received in the factory for repairs. On the issue of invocation of extended period, it was submitted that since the duty was not paid by the company which was aware of the excise laws, inference of evasion of duty should be made.
It was submitted that the extended period was rightly invoked. In any event, for the period from 10^th July 2001 to November 2001, which was within one year prior to the issuance of the show cause notice, the duty liability was roughly about 66% of the total amount confirmed. The learned Counsel for the appellant also submitted that about 66% of the duty demanded was within the period of limitation while the remaining amount was time barred.
6.1 The learned authorized representative submitted that as held in the decision of the Hon'ble Supreme Court in Metal Box India Limited v.Commissioner of Central Excise, Mumbai Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, cannot be invoked in the context of the provisions of Section 35F of the said Act.
7. The total liability to pay duty and penalty under the impugned order works out to Rs. 1534330/- (Rs. 767165/- plus penalty of the like amount). Admittedly, the appellant is in a running condition as stated by the learned Counsel, though proceedings are pending before the BIFR.However, in view of the decision of the Hon'ble Supreme Court in Metal Box India Limited (Supra) payment of pre-deposit, covered under Section 35F of the Central Excise Act, 1944 does not fall under any of the categories mentioned in Section 22 of Sick Industrial Companies (Special Provisions) Act, 1985. We will however, keep this fact into consideration while assessing the financial condition of the appellant.
8. Under Section 4 of the said Act as per the amended definition of transaction value in Clause (d) of Sub-section (3), transaction value would be the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay by reason of, or in connection with the sale, and would inter-alia, include outward handling charges. Under Rule 5 of the Central Excise Valuation (Determination of price of excisable goods) Rules, 2000, as it existed at the relevant time, it was provided that where any excisable goods were sold by the assessee under Sub-section (a) of Section 4(1) of the Act except the circumstances in which the excisable goods were sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the actual cost of transportation from the place of removal upto the place of delivery of such excisable goods, provided the cost of transportation is to be charged to the buyer in addition to the price for the goods and shown separately in the invoice for such excisable goods. In the present case, the cost of transportation is shown separately in the invoice in addition to the price for the goods. However, admittedly, the cost of transportation shown is fixed cost per transformer irrespective of the actual cost of transportation incurred from the place of removal to the place of delivery of the transformer. Such a fixed cost of transportation irrespective of the distances to various destinations would not be the actual cost of transportation. Therefore, prima-facie, since only actual cost of transportation could be excluded, exclusion of fixed cost of transportation irrespective of the distance is not contemplated by the provisions of Rule 4. It, therefore, prima-facie, appears that the authorities below have correctly come to a concurrent finding that the amount of Rs. 35,98,220/- collected on account of fixed freight was includible in the assessable value of the goods by virtue of the provisions of Section 4(3)(d) of the Act. The decision of the Tribunal in Filament India holding that inspite the amendment, freight charges are not liable to be included in the assessable value of the goods will therefore not assist the applicant in the present case in view of the fixed transportation charges being invoiced as against the actual cost of transportation contemplated by Rule 6.
9. As regards labour and painting charges of Rs. 11,96,563/- received by the appellant from the customers during the period in question, admittedly, no contention was ever raised in reply to the show cause notice or before the adjudicating authority that the said amount was received in respect of the transformers which were repaired by the appellant. If the labour and painting charges were relatable to transformers which had come for repairs, that fact could not have been missed by the appellant while replying to the show cause notice in which it was alleged that the said amount was includible in the transaction value of the goods removed by the appellant during the period from July 2000 to November 2001. The Commissioner (Appeals), therefore, rightly did not attached any weight to this contention which, prima-facie, appears to be after-thought. Therefore, prima-facie, the authorities below had correctly computed the said amount of Rs. 11,96,563/- in the value of the goods for determination of excise duty.
10. On the issue of invocation of extended period, it, however, appears that the authorities below have inferred intentional duty evasion on the part of the appellant on the ground that they had full knowledge of the Act and rules and were aware of the provisions of amended Section 4 of the Act defining transaction value w.e.f. 1.7.2000. Even if the extended period was not to be invoked, admittedly, about two third of the total duty demand i.e. approximately Rs. 30 lakhs was within the period of limitation as stated by both the sides. It would have been desirable for the authorities below to have given a more specific opinion on the invocation of the extended period.
11. As regards penalty equal to the amount of duty imposed on the appellant, such order of penalty was warranted by the provisions of Rule 173Q read with Section 11AC of the Act. Under Rule 173Q, it is inter-alia, provided that when there is a contravention of the nature referred to in Clause (a) or Clause (b) or Clause (bb) or Clause (bbb) or Clause (c) or Clause (d) committed, manufacturer shall, inter-alia, be liable to a penalty not exceeding three times the value of the excisable goods. Keeping in view this provision it is apparent that the penalty imposed equivalent to the duty confirmed was in no way harsh or excessive.
12. On the issue of financial hardship, admittedly, the applicant manufacturing transformer is a running concerned. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 cannot be invoked by the appellant. No material is placed on record to show the actual financial condition of the applicant including assets and the expenditure incurred by the company. However, while making the order of pre-deposit, we are keeping in view the fact that the applicant is a sick but running unit.
13. Having regard the aforesaid facts and circumstances of the case, we are of the view that the applicant has not made out any case for total waiver of pre-deposit of duty and penalty. Keeping in view the relevant aspects referred to hereinabove by us, we direct that there shall be interim stay of the impugned order of recovery of duty and penalty on the applicant's depositing Rs. 5 lakhs (Rupees five lakhs only) within eight weeks from today, failing which the appeal shall dismissed. Post the matter for reporting compliance on 05.01.2007.