Oto-motive Products (i) Ltd. Vs. Commissioner C. Ex. - Court Judgment

Excerpt:
1. this is an appeal against the order-in-original passed on 18-7-1996 by commissioner of central excise, mumbai-iii in no. 165/96-commr. on file v/adj.(scn) 15-183/94 whereby the adjudicating authority confirmed the demand of rs. 2,40,355.45 under proviso to section 11a(1) of the central excise act read with rule 9(2) of the central excise rules and imposed a penalty of rs. 50,000/- under rules 9(2) and 173q of the central excise rules. he also ordered the appellant to pay interest at 20% under section 11aa of the central excise act.2. facts of the case are that the appellants are engaged in the manufacture of miscellaneous edible preparations falling under chapter 21 of the central excise tariff act, 1985 viz. alprovit granules 200 gms, alprovit granules 100 gms etc. falling under sub-heading 2107.91 for and on behalf of loan .licence i.e. m/s. cachet pharmaceuticals out of and under the brand name of m/s. cachet's raw materials, packing materials and in accordance with the loan licence agreement over and above manufacture of the said alprovit granules 200 gms, under loan licence agreement, the appellants also manufacture similar product namely agrofit granules 200 gms a miscellaneous edible preparation falling under the same sub-heading.3. the assessee was filing price list in part i for the product alprovit granules (physician samples) 100 gms and claiming the same on payment of duty. subsequently for further verification of the correctness of the price declared, the chartered accountant's certificate was called for in july, 1993. it would appear that during the verification of the said certificate with price list, it was observed that for working out the assessee the value in respect of the product alprovit granules 200 gms the assessee had added margin of profit ranging from 1.44% to 28%. however, the chartered accountant certificate produced in support of the product alprovit granules (ps) 100 gms shows a deduction of margin from the production cost.4. the department felt that under rule 6(b)(i) of the central excise valuation rules, 1975, in case of products which are not saleable the value has to be arrived at on the basis of the value of comparable products and if the comparable goods' value is not available the cost price plus margin of profit has to be taken into account for arriving at the assessable value under rule 6(b)(ii) and in no circumstances, deductions from the cost price towards margin of profit is contemplated in the rules.5. it was felt by the department that the assessee had supressed the actual costing of the product alprovit granules (p.s.) 100 gms and misdeclared the correct assessable value by deducting margin from the costs of production which is exclusive of profit margin and has contravened provisions of various rules of the central excise rules.hence show cause notice dated 16-1-1995 was issued covering the period december, 1989 to october, 1992 invoking proviso to sub-section (1) of section 11 a of the central excise act. a detailed reply, dated 1-3-1995 was given by the appellant as to how they resort to costing is not attracted when comparable price of goods is available. they also pleaded limitation as price list have been approved and some of the rt 12 returns have also been finalised.6. the adjudicating authority considered the entire matter and confirmed the demand and demanded duty and penalty as indicated earlier. hence this appeal.7. it is contended by shri m.h. patil, ld. advocate that valuation of.the product can be done only under rule 6(b)(i) of the central excise (valuatibri) rules, 1975. he explained that as the goods are not sold by the appellant but are given as samples resort can be made only to rule 6(b)(i). he would urge that only if provisions rules 6(b)(i) is not applicable then rule 6(b)(ii) can be resorted to. he has indicated profit margin for 200 gms of the product and for the product in question 100 gms the appellant is claiming only pro fata margin and he would rely on the trade notice dated 30th april, 1985 which reads as under. "the question of interpretation of notification 161/66, dated 8-10-1966 on the admissibility of ad hoc discount on the physician samples was under con sideration. physician samples in packs identical to packs ordinarily cleared for sale and which figure in the price list will be eligible for exemption under notification 161/66, dated 8-10-1966 (now 245/83, dated 13-9-1983). in the case of packs other than the normal packs the assessable value can be worked out on pro rata basis from the price of regular packs and benefit of notification extended".8. he would argue further that there was no suppression. what the assessee had claimed for 200 gms pack is being claimed pro rata for 100 gms pack. he also cites various judgments.9. mr. s.v. singh ld. d.r. argues contra. the entire approach of the assessee appellant to the trade notice is not correct in law. the product is not pharmaceuticals or medicines in this case but the product in this case common under miscellaneous edible preparation falling under chapter 21. he would argue that assessment under the best of judgment provided under rule 7 of the valuation rules will be applicable.10. we have carefully considered the rival contentions. price lists for various periods have been filed by the appellants with the following remarks. "products belong to m/s. cochet pharmaceuticals pvt. ltd. sold solely to m/s. alkem laboratories ltd. at above price. prices in col. 3 for sr. no. 2 is derived at pro rata basis".sr. no. 1 of price list is alprovit granules 200 gms. sr. no. 2 is alprovit granules 100 gms (physician samples). this price list has been approved by the authorities. rt12 returns have also been approved by the authority. the trade notice/indicates the thinking of the departments mind. hence the appellants case has to be accepted as rule 6(b)(i) of the valuation is applicable in this case and the collector has covered in confirming the demand. since the assessee has brought to the notice of the department about the correct valuation question of suppression as claimed in the show cause notice is wrong in law. we therefore set aside impugned order by allowing the appeal.consequential relief if any.

Judgment:
1. This is an appeal against the order-in-original passed on 18-7-1996 by Commissioner of Central Excise, Mumbai-III in No. 165/96-Commr. on File V/Adj.(SCN) 15-183/94 whereby the adjudicating authority confirmed the demand of Rs. 2,40,355.45 under proviso to Section 11A(1) of the Central Excise Act read with Rule 9(2) of the Central Excise Rules and imposed a penalty of Rs. 50,000/- under Rules 9(2) and 173Q of the Central Excise Rules. He also ordered the appellant to pay interest at 20% under Section 11AA of the Central Excise Act.

2. Facts of the case are that the appellants are engaged in the manufacture of miscellaneous edible preparations falling under Chapter 21 of the Central Excise Tariff Act, 1985 viz. Alprovit Granules 200 gms, Alprovit Granules 100 gms etc. falling under sub-heading 2107.91 for and on behalf of Loan .licence i.e. M/s. Cachet Pharmaceuticals out of and under the brand name of M/s. Cachet's raw materials, packing materials and in accordance with the loan licence agreement over and above manufacture of the said Alprovit Granules 200 gms, under loan licence agreement, the appellants also manufacture similar product namely Agrofit Granules 200 gms a miscellaneous edible preparation falling under the same sub-heading.

3. The assessee was filing price list in Part I for the product Alprovit Granules (Physician samples) 100 gms and claiming the same on payment of duty. Subsequently for further verification of the correctness of the price declared, the Chartered Accountant's certificate was called for in July, 1993. It would appear that during the verification of the said certificate with price list, it was observed that for working out the assessee the value in respect of the product Alprovit Granules 200 gms the assessee had added margin of profit ranging from 1.44% to 28%. However, the Chartered Accountant certificate produced in support of the product Alprovit Granules (PS) 100 gms shows a deduction of margin from the production cost.

4. The department felt that under Rule 6(b)(i) of the Central Excise Valuation Rules, 1975, in case of products which are not saleable the value has to be arrived at on the basis of the value of comparable products and if the comparable goods' value is not available the cost price plus margin of profit has to be taken into account for arriving at the assessable value under Rule 6(b)(ii) and in no circumstances, deductions from the cost price towards margin of profit is contemplated in the Rules.

5. It was felt by the department that the assessee had supressed the actual costing of the product Alprovit Granules (P.S.) 100 gms and misdeclared the correct assessable value by deducting margin from the costs of production which is exclusive of profit margin and has contravened provisions of various rules of the Central Excise Rules.

Hence show cause notice dated 16-1-1995 was issued covering the period December, 1989 to October, 1992 invoking proviso to Sub-section (1) of Section 11 A of the Central Excise Act. A detailed reply, dated 1-3-1995 was given by the appellant as to how they resort to costing is not attracted when comparable price of goods is available. They also pleaded limitation as price list have been approved and some of the RT 12 returns have also been finalised.

6. The adjudicating authority considered the entire matter and confirmed the demand and demanded duty and penalty as indicated earlier. Hence this appeal.

7. It is contended by Shri M.H. Patil, Ld. Advocate that valuation of.

the product can be done only under Rule 6(b)(i) of the Central Excise (Valuatibri) Rules, 1975. He explained that as the goods are not sold by the appellant but are given as samples resort can be made only to Rule 6(b)(i). He would urge that only if provisions Rules 6(b)(i) is not applicable then Rule 6(b)(ii) can be resorted to. He has indicated profit margin for 200 gms of the product and for the product in question 100 gms the appellant is claiming only pro fata margin and he would rely on the Trade Notice dated 30th April, 1985 which reads as under.

"The question of interpretation of Notification 161/66, dated 8-10-1966 on the admissibility of ad hoc discount on the physician samples was under con sideration. Physician samples in packs identical to packs ordinarily cleared for sale and which figure in the price list will be eligible for exemption under Notification 161/66, dated 8-10-1966 (now 245/83, dated 13-9-1983). In the case of packs other than the normal packs the assessable value can be worked out on pro rata basis from the price of regular packs and benefit of notification extended".

8. He would argue further that there was no suppression. What the assessee had claimed for 200 gms pack is being claimed pro rata for 100 gms pack. He also cites various judgments.

9. Mr. S.V. Singh Ld. D.R. argues contra. The entire approach of the assessee appellant to the Trade notice is not correct in law. The product is not Pharmaceuticals or medicines in this case but the product in this case common under miscellaneous edible preparation falling under Chapter 21. He would argue that assessment under the best of judgment provided under Rule 7 of the Valuation Rules will be applicable.

10. We have carefully considered the rival contentions. Price lists for various periods have been filed by the appellants with the following remarks.

"Products belong to M/s. Cochet Pharmaceuticals Pvt. Ltd. sold solely to M/s. Alkem Laboratories Ltd. at above price. Prices in Col. 3 for Sr. No. 2 is derived at pro rata basis".

Sr. No. 1 of Price list is Alprovit Granules 200 gms. Sr. No. 2 is Alprovit Granules 100 gms (physician samples). This price list has been approved by the authorities. RT12 returns have also been approved by the authority. The Trade notice/indicates the thinking of the departments mind. Hence the appellants case has to be accepted as Rule 6(b)(i) of the Valuation is applicable in this case and the Collector has covered in confirming the demand. Since the assessee has brought to the notice of the department about the correct valuation question of suppression as claimed in the show cause notice is wrong in law. We therefore set aside impugned order by allowing the appeal.

Consequential relief if any.