Judgment:
1. These 103 appeals are disposed of by a common order as the issue involved is common.
2. Appeals No. 1600 to 1606/89-A, arise out of an order-in-appeal No.2/Pat./89, dated 9-1-1989 of the Collector approving 7 price lists filed by the respondents.
2.1 Appeals Nos. 2935-2967/89-A and the supplementary appeals Nos.
2726- 2740/89-A arise out of an order-in-appeal No. 156-203/Pat./88, dated 28-8-1988 and 30-6-1988 of the Collector approving 48 price lists (33 +15) filed by the respondents.
2.2 Appeals Nos. 2929-2934/89-A and supplementary Appeals Nos. 3396- 3422/89-A arise out of an order-in-appeal No. 235 to 267/Pat./88 of Collector approving 33 price lists by an order dated 28-8-1988.
2.3 Appeals Nos. 2423-2437/89-A arise out of an order-in-Appeal No. 27- 42/Pat./89-A dated 9-3-1989 of the Collector approving 15 price lists filed by the respondents. In fact by this order the Collector approved 16 price lists, however, the department has not filed any appeal against the approval of the price list No. Ex/P/Strip/87-88/26.
The respondents M/s. Incab Industries Ltd. who supply goods on a contract basis to various buyers including Indian Railways submitted price lists by reducing the value declared in the earlier price lists by 8%. The said reduction is consequent to the Railway Board's letter No. 85/F(3)/l/D/VI/4 dated 15-1-1987 and 16-1-1987, requesting the respondents to pass on the benefit of Modvat credit obtained by them to the Railways.
4. On the basis of above facts show cause notices were issued to the respondents proposing to disallow their claim to reduce the assessable value by 8%. On consideration of their reply the Asstt. Collector approved the price lists after disallowing the respondents' claim to reduce the assessable value by 8%. While doing so he relied on an earlier Order No. V(85)70/411/87 dated 15-12-1987 passed by him in the respondents' case only.
5. The respondents' appeals to the Collector were allowed on the ground that the earlier Order No. V(85)70/411/87 dated 15-12-1987 of the Asstt. Collector on which the Asstt. Collector relied while passing the impugned orders was set aside by the Collector by his order-in-appeal No. 73/Pat./88 dated 29-2-1988 and 156-203/Pat./88 dated 30-6-1988, against which the department has come up in appeal.
6. Mr. Mukherjee appearing for the respondents raised a preliminary objection that the appeals are not maintainable and the order of the Collector (Appeals) (No. 73/Pat./88 dated 29-2-1988) has become final, no appeal against the same having been filed by the department. He submitted that the order of the Asstt. Collector has become non-est, and therefore, any order based on a non-est order is a nullity.
7. We have overruled the preliminary objection as it does not preclude the Tribunal to go into the merits of the present appeals merely because the earlier order of the Asstt. Collector on which reliance was placed was a non-est. The Asstt. Collector passed separate orders in respect of these price lists; the reference to an earlier order, even if set aside, does not automatically render these orders 'non-est'. We also rejected the submission that the order of the Collector has become final and therefore, the Tribunal cannot go into the merits of the present appeals. The Collector's order was final only in respect of the price lists covered by the orders set aside in that order-in-appeal.
(i) That under Section 4(4)(d)(II) value in relation to any excisable goods does not include the amount of excise duty, but it does not mean that the benefit of Modvat credit should result in the reduction of assessable value as is done by the respondents by reducing the value in the price list by 8%. He submitted that the modus operandi adopted by the respondents is that they submitted the price list reducing the value by 8% on the basis of the Railway Board's letter, which is not permissible. He also submitted that Rule 57 A of the Central Excise Rules provides that the input credit can be utilised towards the payment of duty on final products, but nowhere it provides that the said credit can be utilised for reducing the assessable value. He also submitted that the Modvat credit utilised towards payment of excise duty would have reduced the price of finished goods resulting in a benefit to the consumer but it does not result in reducing the assessable value. He submitted that by adopting the present procedure the assessee is taking the benefit of Modvat twice. On the one hand he is taking the Modvat credit for utilising it towards payment of duty on the end product and on the other hand he is also reducing the assessable value with the result that the net excise duty payable by the respondents is reduced resulting in the evasion of duty.
9. As against the above Shri Mukherjee submitted that they entered into DGS&D rate contract with Railways, BHEL, and Kirloskers. The price at which the products are to be sold to these organisations is fixed by contracts on the basis of which purchase orders are placed on them. The price lists are filed on the basis of the purchase orders. The price mentioned in the contract invariably is exclusive of excise duty as the excise duty is paid by the Railways and is separately mentioned in the contract itself. After the introduction of Modvat the Railways insisted that Modvat benefit should be passed on to them. In pursuance of this there were negotiations and the price of the products at which they were to be sold to Railways was revised accordingly. Since there is a reduction in the price, the assessable value should be based on the revised price list. He further submitted that whatever may be the consideration for the revision of price in the contract the assessable value should be the price at which the goods are sold to the Railways.
It may be that the consideration for the same is the benefit of Modvat which the respondents are getting. However, the said consideration is irrelevant and assessable value should be on the basis of revised price. He also submitted that the Collector or the Asstt. Collector have not gone into the relevant purchase orders and the contracts entered into between the parties and it is necessary before the matter is decided to look into all these aspects and sought for the remand of the matter.
10. The SDR in reply submitted that the modus operandi adopted by the appellants is that on the basis of the letter written by the Railways, respondents are claiming for reduction in the assessable value which is not warranted by law and is illegal. He also brought to our notice the contract entered into by the respondents with the Railways and a price list filed by the respondents.
11. The question that arises for consideration is whether the respondents are entitled to reduce the assessable value on the basis of Modvat credit obtained by them.
12. In order to appreciate the controversy in the case it is necessary to refer to the relevant provisions.
13. Section 4 of the Act provides for the valuation of excisable goods for purposes of charging of duty of excise. The relevant provision of Section 4 of the Act deals with the manner as to how the value is to be computed and Section 4 stipulates as follows :- "Valuation of excisable goods for purpose of charging of duty of excise. - (1) where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale: (i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assesses at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers; (ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so Ixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof; (iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail;" The Supreme Court while interpreting Section 4 in Bombay Tyre International (1983 E.L.T. 1896) observed that: "the normal price mentioned in the new Section 4(1 )(a), is the price at which the goods are ordinarily sold by the assessee in the course of wholesale trade. It is the wholesale price charged by him, it is a price which may vary according to the first proviso to new Section 4(a) with different classes of buyers. It may also be according to the second proviso to the new Section 4(l)(a) the price fixed as the wholesale price under any law or the maximum price where the law fixed the maximum. The price may also be different price if the case falls, within the third priviso to the new Section 4(l)(a). In that event it will be the price charged by a related person in the course of wholesale trade." One of the permissible deduction under Section 4 is the excise duty payable.
Therefore, the assessable value under Sec. 4 for the purpose of determining the duty payable is the value at which the goods are sold in the wholesale trade, and it differs in the three different situation covered by the three provisos under the said provision.
14. Since, according to the respondents they enter into DGS&D rate contract with Railways, BHEL and Kirloskar, the assessable value shall be the price at which the respondents agreed to sell the goods to various buyers under the DGS&D rate contract. For, the reason being, that where goods are sold at contract prices and if the terms and conditions of an agreement between the manufacturer and the customer are fair and reasonable and are arrived at a purely commercial basis, the price charged from such buyer will be assessable value. As long as the contract is in force, the assessable value remains the same as the contract price determines the assessable value.
15. The next aspect to be considered is the concept of 'Modvat'. Rules 57A to 57P provides for the scheme of Modvat. The relevant Rules for the purpose of deciding the issue in dispute are Rules 57A, 57G, 57N and they are as follows :- "RULE 57A. Applicability. - (1) the provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the "final products"), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the Notification : RULE 57G. Procedure to be observed by the manufacturer. - (1) Every manufacturer intending to take credit of the duty paid on inputs under Rule 57A, shall file a declaration with the Assistant Collector of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the said Assistant Collector may require, and obtain a dated acknowledgement of the said declaration.
(2) A manufacturer who has filed a declaration under sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him.
RULE 57N. Manner of utilisation of the credit. - (1) Credit of money allowed in respect of any inputs may be utilised towards payment of duty of excise on the final products in or in relation to the manufacture of which such inputs are intended to be used in accordance with the provisions of the declaration filed under Rule 570 : Provided that the credit in respect of inputs used in the final products cleared for export under bond shall be allowed to be utilised towards the payment of duty of excise on similar final products cleared for home consumption on payment of duty.
(2) No part of the credit allowed shall be utilised sa\e as provided in Sub- rule (1)." From the reading of rules it is clear that Rule 57A provides that under the scheme the manufacturer is allowed to obtain instant and complete reimbursement of the excise duty paid on the components and raw materials. Rule 57G provides the procedure to be followed by the manufacturer who intends to avail the Modvat scheme. According to which the manufacturer has to file a declaration with the Asstt. Collector in charge of the factory giving the particulars of the final products and the inputs intended to be used in each of them. After filing the declaration and obtaining the acknowledgement the manufacturer may take credit of duty paid on the inputs received by him. The inputs at the time of their receipt in the factory are to be accompanied by gate pass AR-1, Bill of entry or any other document evidencing payment of duty.
Rule 57N provides the manner of utilisation of the credit; according to this Rule the credit of money allowed on any input may be utilised towards payment of excise duty on the final products.
16. From a perusal of the rules referred to above it is clear that Modvat is a scheme under which the manufacturer is allowed to utilise the duty paid on inputs, by deducting the same from the duty payable on the final product subject to following the procedure under the rules.
It is only a benefit available to the manufacturer to utilise the duty paid on the inputs for payment of duty on the final product subject to following the procedure under the rules. It does not directly effect or reduce the assessable value automatically. It is no doubt true that it will result in reduction in the cost of final product to the extent of the credit, but it does not automatically reduce the assessable value which is to be determined in accordance with Section 4. The assessable value has to be determined in accordance with Section 4 of the Act and Section 4 only and Modvat credit has no direct impact on the assessable value.
17. As stated in the earlier paragraphs the benefit under Modvat is given to avail the credit of duty paid on the inputs while paying duty on the final product. It has and it cannot have any effect on the assessable value which is to be determined in accordance with Section 4 of the Act. Further, the assessable value is to be determined in accordance with the provisions of the Act, and the Modvat credit is provided by the rules and the rules cannot have any overriding effect on the provisions of the Act.
18. It may be that in a given case the manufacturer may revise the contract price at which the goods are sold as a result of reduction in the cost of final product on account of obtaining Modvat credit.
However, in the event of a revision in the contract price, the manufacturer has to follow the procedure under the Central Excise Rules, before the price revised/modified is accepted as the assessable value. In this context it is relevant to refer to Rule 173C of the CES Rules which reads as follows :- "RULE 173C. Assessee to file price-list of goods assessable an valorem. - (1) Every assessee who produces, manufactures or warehouses goods which are chargeable with duty at a rate dependent on the value of the goods, shall file with the proper officer a price-list, in such form and in such manner and at such intervals as the Collector may require, showing the price of each of such goods and the trade discount, if any, allowed in respect thereof to the buyers along with such other particulars as the Central Board of Excise and Customs or the Collector may specify.
(2) Prior approval by the proper officer of the price-list filed by an assessee under Sub-rule (1) shall be necessary only, where the assessee - (vi) submits a fresh price-list or an amendment of the price-list already filed with the proper officer and which has the effect of lowering the existing value of the goods.
(3) On receipt of price-list under Sub-rule (2), the proper officer may approve the price-list after making such modifications as he may consider necessary so as to bring the value shown in the said price-list to the correct value for the purpose of assessment as provided in Section 4 of the Act. He shall, thereafter, return one copy of the list approved by him to the assessee who shall unless otherwise directed by the proper officer, determine the duty payable on the goods intended to be removed in accordance with such list." A perusal of Rule 173C shows that every assessee shall file with proper officer a price list in such form and such manner and at such intervals, showing the price of each of such goods. Further, if the assessee submits a fresh price list or an amendment of the price list already filed with the proper officer and which has the effect of lowering the existing value of the goods, the prior approval by the proper officer shall be necessary. Needless to say that any modification or revision of the price-list relate only to prospective period.
Therefore, the manufacturer cannot automatically ask for reduction in the assessable value of the product as a result of obtaining Modvat credit, as under the rules, the benefit under Modvat is available only to deduct the duty paid on the inputs while paying duty on the final product, by following the procedure prescribed under the rules.
Secondly, the modification, revision, reduction in the price as a result of revision of contract price requires the prior approval of the proper officer under Rule 173C 2(vi) and in the absence of which it cannot be the assessable value.
19. From the foregoing discussion it follows that the assessable value cannot be reduced automatically as a result of obtaining Modvat credit by the manufacturer.
20. The respondents contended that the reduction in the assessable value mentioned in the price-list is based on a letter of Railways under which the price of the product is revised. We are unable to accept this contention, as neither before us nor before the lower authorities, the original contracts entered into between the respondents and the Railways is placed. We do not know what are the terms of the contract? We do not know whether the terms of the contract can be altered specifically with reference to rate during the operation of the contract? If so, in what manner can the terms be altered. Should it be by entering into a fresh contract or by merely issuing a letter? We do not also know whether the price once entered can be altered with retrospective effect. In the absence of these particulars which can be decided after examining the contract, it is difficult to accept the contention of the respondents.
21. We, therefore, direct the Asstt. Collector to re-examine terms of the original contract, 1) whether it contains a provision to alter the rate of contract with retrospective effect, 2) whether it can be altered by means of a letter. He should also call for any other relevant material for the purpose of arriving at a decision in the light of above discussion. The respondents should give all the assistance by filing the relevant documents.
22. We, therefore, allow the appeals and set aside the order of the Collector (Appeals) and remand the matter to the Asstt. Collector for disposal according to law.