1. Both the Reference Applications have been moved by M/s. G.T.C.Industries, Bombay, under the provisions of Section 35G of the Central Excises and Salt Act, 1944, requesting for making a reference to the Hon'ble High Court of Bombay, on certain points of law allegedly arising from the common order Nos. 801-802/WRB/91 dated 19-4-1991 passed by this Bench, disposing of two appeals filed by the applicants.
2. Facts and issues involved in these two appeals disposed of by this Bench can be briefly stated as below : 3. The applicants, who are manufacturers of cigarettes, received certain damaged/unsold cigarettes from their dealers. The said cigarettes are reportedly received back in their factory under due intimation to the Central Excise Department, and these damaged cigarettes, after verification by the excise officers, are reportedly taken for remaking cigarettes and such remade cigarettes were cleared on payment of duty. They, later, filed two refund claims under Rule 97 of the Central Excise Rules in respect of the duty paid originally at the time of clearance, which were rejected by the Assistant Collector.
When the matter was pursued in appeal before the Collector (Appeals), their appeals were also rejected. Thus the applicants came up before this Bench by way of appeals against those orders of rejection. During the appeal before us, following two major issues were raised.
(i) Whether Clause (ix) of Rule 97 of the Central Excise Rules can be taken to have been satisfied? (ii) Whether the condition laid down in Clause (vi) of Sub-rule (1) of Rule 97 is satisfied? It was pleaded that during the relevant period pertaining to the refund claims, Rule 97 did not specifically exclude "cigarettes" from the scope of the application, as has been done subsequently by way of an amendment to the said Rule. This Bench, after hearing the arguments from both the sides, held the issue at (i) above in favour of the applicants but dismissed the appeals of the applicants on the ground that condition laid down in clause (vi) of Sub-rule (1) of Rule 97 aforesaid was not satisfied. The present Reference Applications are directed against the said findings of this Bench, pointing out that certain points of law have arisen out of the said order, which are required to be referred to the High Court. In other words, the present Reference Applications are only on the issue at (ii) above, where this Bench held it against the applicants.
1. Whether an amount admittedly paid by the applicants (by way of credit notes) was not the market value of the damaged cigarettes under clause (vi) of Rule 97(1) of the Central Excise Rules.
2. Whether the Tribunal was right in discarding a methodology prescribed and adopted by the Department in the applicants' own case.
3. Whether the Tribunal was right in discarding the verifiable method prescribed by the Department (Deputy Collector) in favour of a proforma offer on the face of the fact that there is not going to be any sale. In other words, discarding a verifiable method to that of a fictional offer as the basis? 4. Whether under clause (vi) refund would not be available merely because the damaged goods have not been sold or offered for sale.
5. Whether the Tribunal was right in its decision, which in effect denies the provisions of Rule 97 as not applicable to cigarettes, retrospectively? 5. However, Shri A.M. Setalwad, the Ld. Sr. Counsel, for the applicants, did not press for inclusion of question No. 5, during the arguments. Hence the same is treated as deleted. As regards questions at 2 and 3 above, he fairly agreed that the Tribunal's findings are based on factual appreciation of the data base adopted by the Deputy Collector in prescribing the methodology and found that the same cannot be accepted on factual appreciation of the data base. In this view of the matter, at the second day of hearing, Shri F.D. Sorabjee, the Ld.
Advocate did not press for inclusion of question Nos. 2 and 3 also.
However, Shri A.M. Setalwad, the Ld. Sr. Counsel, contended that questions at serial 1 and 4 are points of law arising out of the findings of the Tribunal and there is no authoritative pronouncement to his knowledge from any of the High Courts or from the Supreme Court on these points of law, since the issue involves an interpretation of law pertaining to Rule 97 of the Central Excise Rules, he sought for a reference to be made so as to get the points of law resolved beyond any doubt. Elaborating on his arguments he pleaded as below.
6. The applicants have issued credit notes in respect of the sale price of cigarettes, which were returned to them unsold by the dealers because they were damaged. This Bench has rejected the plea that the value of credit notes issued by the applicants cannot be taken to be the market value of the damaged cigarettes. This is a point of law, as it involves interpretation of the term "market value" of the excisable goods returned. This Bench has mainly gone on the ground that the credit note issued by the applicants to the dealers was to reimburse the value of the original cigarettes. Hence it could not be taken to be the sale price or re-purchase price of the damaged cigarettes. However, in this case, the applicants did not want to spoil their reputation in the market. Hence they have offered to take back the goods and compensate the loss to the dealers by way of issue of credit notes. In view of the peculiar nature of the goods and their anxiety to preserve their reputation, this could form an acceptable basis for the Assistant Collector to form an opinion that market value of damaged cigarettes is not less than the duty to be refunded. Since such a view is also plausible, there is a point of law arising out of the order, which should be referred to the High Court. He also pleaded that in the absence of any authoritative pronouncement by any of the High Courts or the Supreme Court or any other Tribunal with regard to the interpretation of the aforesaid clause (vi) of Rule 97(1), he would urge for making a reference to the High Court.
7. Shri M.I. Sethna, the Ld. Sr. Counsel for the Respondent, on the other hand, referred to the findings of this Bench in paragraphs 11.6, 11.7 and 11.8 and contended that the findings are based on factual position and not on a point of law. The Tribunal has clearly come to the conclusion that the Credit Notes are in the nature of reimbursement and cannot be equated with the market value of the damaged cigarettes.
The damaged cigarettes having an intrinsic value, no purchaser would go to purchase damaged cigarettes, and pay the value of original good quality cigarettes, which is sought to be reimbursed by way of credit notes. No attempt has been made to furnish the intrinsic value of the damaged cigarettes. The admitted position is that only cut tobacco is retrieved from the damaged cigarettes and even the value of the cut tobacco is not furnished before the Assistant Collector so that he could form an opinion as to whether the market value of the retrievable material is more than the duty paid. Rule 97 does not contemplate reimbursement value and it is foreign to Rule 97. He also pleaded that the cost of reimbursement can only be deemed to be the value of the good quality cigarettes originally cleared and cannot be equated with the value of damaged unsold cigarettes returned. The position is clear in Rule 97 itself and hence no point of law arises.
8. As regards questions at Ser. 2 and 3 above, he pleaded that the Bench has rejected the formula suggested by the Deputy Collector based on appreciation of the data base which were found to be defective and hence if these are questions to be considered that would be considering the abstract legal proposition, without an acceptable data base for making out the formula.
9. Shri F.D. Sorabjee, the Ld. Advocate, in reply stated that even if questions at Serial 2 and 3 above are construed to be questions involving appreciation of facts, questions at Serial 1 and 4 are definitely points of law, which he would urge for reference.
10. After hearing both the sides, it finally transpires that the applicants are interested in referring only the questions at serial 1 and 4 above. Before considering the arguments from both the sides, it is necessary to reproduce the relevant clause (vi) of Rule 97 (1) of the Central Excise Rules, for enabling proper appreciation of the arguments from both the sides: "The value of the goods at the time of their return to the factory, is in the opinion of the Collector not less than the amount of duty originally paid upon them at the time of their clearance from the factory." "Explanation. - In this clause, value means the market value of the excisable goods and not the ex-duty value thereof." (Emphasis supplied) 11. This Bench has taken the view that market value of the excisable goods returned to the factory cannot be equated with the cost of reimbursement representing the value of the cigarettes originally cleared in good condition and hence in absence of the data indicating the market value of the damaged cigarettes returned, opinion for arriving at whether it is less than the amount of duty originally paid cannot be formed and hence rejected their appeals. On a plain and straight reading of the aforesaid clause it leads us to the aforesaid conclusion; because what is referred to is the market value of the excisable goods at the time of return to the factory. This would mean that when the damaged goods are returned to the factory, what is their market value, and that value, in the opinion of the Assistant Collector, should not be less than the amount of duty originally paid at the time of their clearance from the factory. The documents pertaining to return of the damaged cigarettes perused by us indicated that the dealers were not re-selling the goods nor was there a re-purchase to take that as a sale price. This aspect has been discussed by this Bench in paras 11.6 and 11.7 of its order dated 19-4-1991. However, it is pleaded that Rule 97 contemplates refund of the duty originally paid in respect of damaged goods returned for re-processing, remaking etc. In the case of cigarettes which are damaged, the possible retrieval can only be that of cut tobacco and its value cannot be less than the heavy duty incidence on the finished cigarettes which is to the extent of 200 or 300% ad valorem. Shri Sethna at the time of hearing of appeal pleaded that Rule 97 of the C.Excise Rules, even prior to amendment could not be available to cigarettes because of the fact that the market value of the damaged cigarettes returned to the factory can never be less than the duty paid at the time of clearance and this position has been subsequently made explicit by way of amendment to Rule 97. Shri Setalwad, however, pleads that this could not have been the position prior to amendment and when Rule 97 is intended to give relief in the case of goods returned to the factory on account of damage, the benefit should not be denied on the basis of such a strict interpretation. Though he was fair enough to indicate that the view taken by this Bench, on a strict reading of the rule may be plausible, he pleads that when Rule 97 provides for relief in the case of duty paid on goods returned to the factory on account of damage, that relief has to be extended by making the rule workable and such a rigid interpretation would make the rule redundant in respect of cigarettes, especially when that item was not excluded from the purview of that Rule during the period in question.
12. For making a reference to the High Court, it should be a point of law and the point of law should arise out of the order passed by the Tribunal. If that point of law has not been settled one way or other, by way of any authoritative pronouncement from the High Courts, or from the Supreme Court, and if there is a possibility of another view existing, it calls for a reference to the High Court. Hence in this case, adopting the aforesaid yardstick, we find that Rule 97, prior to its amendment to exclude cigarettes from the scope of this rule, was found to be available, even in respect of damaged cigarettes returned to the factory. If that is the position, the market value of the damaged cigarette can only be the intrinsic value of the retrieved material, which can never be less than the original duty paid; because of the higher incidence of taxation on the finished cigarettes. Hence their plea is that the credit notes issued to the dealers by way of reimbursement of the cost of cigarettes originally cleared could also be taken to be the market value of the cigarettes. We are of the view that consideration of such a plea would, no doubt, raise a point of law in this Bench's order and would require an authoritative pronouncement from the Hon'ble High Court of Bombay.
13. As regards question No. 4, we are not inclined to make any reference because of the fact that we have not refused refund on the ground that damaged cigarettes have not been sold or offered for sale.
On the contrary, we have observed that in all the cases of damaged goods, the goods may not be sold or offered for sale; but there is an intrinsic value of the damaged goods and their intrinsic value or scrap value in the market should be more than the duty paid at the time of clearance. In the circumstances, reference on Question No. 4 is not called for.
14. In the result, we refer the following one question only to the Hon'ble High Court of Bombay, in terms of Section 35G of the Central Excises and Salt Act, 1944:- "Whether the amount of reimbursement of the cost of cigarettes originally cleared but returned in a damaged condition by way of issue of credit notes to the dealers, could be taken to be market value of the damaged cigarettes returned, for purpose of Clause (vi) of Rule 97(1) of the Central Excise Rules, 1944?"