Collector of Central Excise Vs. Tata Chemicals Ltd. - Court Judgment

Excerpt:
1. the respondent in the appeal, engaged in the manufacture and sale of soda ash, manufactured one unit of fireless locomotive for moving various kinds of goods within the factory in the course of manufacture of the final product. in respect of the fireless locomotive, respondent filed price list under rule 6(b)(ii) of the central excise valuation rules, 1975, furnishing the cost of raw materials, the cost of production and indicating notional margin of profit as 10%. the price list was approved provisionally and paid duty on that basis. it was found that the gross profit of the final product in the year in question was 21.51%. on this basis, show cause notice was issued proposing quantification of the notional profit as 21.51% instead of 10% and proposing demand of differential duty. the notice was opposed by the respondent on several grounds. respondent contended, inter alia, that there was actually no profit in the manufacture of fireless locomotive as only one unit was manufactured and there was no justification to adopt the gross profit of the final product as the notional profit margin for fireless locomotive. the assistant collector overruled these contentions and confirmed the demand. his order was set aside by the collector (appeals) who remanded the case for fresh disposal. after remand, the assistant collector found that the correct gross profit was 17.70% and held that this was the notional margin of profit liable to be added and confirmed the demand in part. in appeal filed by the manufacturer, the collector (appeals) held that what should be added is not the gross profit, but the net profit of the final product which was 12.95%. this order is being challenged by the department as well as the respondent.2. shri k. srivastava, sdr, placing reliance on the decisions of the tribunal in kanoria chemical industries v. collector of central excise, allahabad,(tribunal), west coast paper mills ltd. v. collector of central excise, belgaum, 1996 (81) e.l.t. 403 (tribunal), collector of central excise, patna v. sumitan electro power (p) ltd.,(tribunal), collector of central excise, pune v. greaves faseco ltd., 1997 (93) e.l.t. 233 (tribunal) and final order nos. 1645 and 1646/97-a, dated 2-9-1997, contended that what should be added is the gross profit and not the net profit and, therefore, the collector (appeals) was in error in holding that the net profit of the final product has to be added.3. shri ravinder narain, advocate appearing for the respondent, contended that since only one unit of fireless locomotive was manufactured, there was no profit at all, but to buy peace price list was filed suggesting addition of 10% margin of profit, that the actual profit on the final product in this case can never be adopted as the notional margin of profit of the fireless locomotive in view of the difference in nature, quality and quantity of the products manufactured. according to him, the collector (appeals) committed a fundamental error in merely adopting the net profit of the final product as the notional profit of the intermediate product without considering the dissimilarities between the two products and without making any adjustment on account of such dissimilarities. learned counsel also stated that even at this stage going only by the percentage (without going into the controversy regarding gross or net profit), respondent is agreeable to add 12.95%, even though the price list referred only to 10%. he also pointed out that if a strict view of the matter is taken, remand may be necessary to consider the adjustments required to be made if the profit margin of the final product is to be adopted. he also referred to the decision of the tribunal in national litho press v. collector of central excise madurai, 1997 (91) e.l.t. 140 (tribunal), where it was held that though it is not possible to say that margin of profit derived on the final product has no relevance in deciding the margin of profit on the intermediate product, the extent to which it is relevant must necessarily depend on the facts and circumstances of each case, the nature of the two products, the comparative cost of production of the two products and the like. the decision also indicated that in some cases there may be justification to adopt the same figure as the margin of profit for intermediate product, while in some cases there may be justification to make adjustment in the margin of profit. in paragraph 6 reference was made to another decision of the tribunal where 50% adjustment was given on the profit margin of the final product [see graphite india ltd. v. collector of central excise, calcutta, 1995 (78) e.l.t. 17 (tribunal)]. in national lithopress v. collector of central excise, madurai, 1997 (91) e.l.t. 140, while the profit margin on the final product was 30.89%, the tribunal reduced it to 20% for the intermediate product.4. we find little similarity between the intermediate product and the final product in this case. the intermediate product is fireless locomotive and only one unit was manufactured. the final product was soda ash and evidently substantial quantity of the product was manufactured and cleared. the two products cannot be regarded as having any similarity. in these circumstances, there would be no justification in merely adopting the profit margin on the final product as the profit margin on the intermediate product. necessarily some adjustment would be required. the gross profit and the net profit on the final product were 17.70% and 12.95% respectively. even if one goes by the gross profit, sufficient adjustment would be necessary in determining the notional profit margin on the intermediate product. in other words, 17.70% cannot be adopted as the notional margin of profit of the intermediate product. necessarily a substantial reduction has to be granted in arriving at the notional profit margin of the intermediate product. in the facts and circumstances of the case, we are of opinion that there is no justification for remand of the case to determine the notional profit in arriving at the assessable value of one unit of intermediate product. even going by the gross profit, a substantial reduction has to be given. in these circumstances, the figure adopted by the collector (appeals), namely, 12.95% does not appear to be unjustified. we are not going into the question whether 10% should be the notional profit in view of the submission made by the learned counsel for the respondent.5. for the reasons indicated above, we dismiss the appeal and the cross-objection.

Judgment:
1. The respondent in the appeal, engaged in the manufacture and sale of Soda Ash, manufactured one unit of Fireless Locomotive for moving various kinds of goods within the factory in the course of manufacture of the final product. In respect of the Fireless Locomotive, respondent filed price list under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975, furnishing the cost of raw materials, the cost of production and indicating notional margin of profit as 10%. The price list was approved provisionally and paid duty on that basis. It was found that the gross profit of the final product in the year in question was 21.51%. On this basis, show cause notice was issued proposing quantification of the notional profit as 21.51% instead of 10% and proposing demand of differential duty. The notice was opposed by the respondent on several grounds. Respondent contended, inter alia, that there was actually no profit in the manufacture of Fireless Locomotive as only one unit was manufactured and there was no justification to adopt the gross profit of the final product as the notional profit margin for Fireless Locomotive. The Assistant Collector overruled these contentions and confirmed the demand. His order was set aside by the Collector (Appeals) who remanded the case for fresh disposal. After remand, the Assistant Collector found that the correct gross profit was 17.70% and held that this was the notional margin of profit liable to be added and confirmed the demand in part. In appeal filed by the manufacturer, the Collector (Appeals) held that what should be added is not the gross profit, but the net profit of the final product which was 12.95%. This order is being challenged by the Department as well as the respondent.

2. Shri K. Srivastava, SDR, placing reliance on the decisions of the Tribunal in Kanoria Chemical Industries v. Collector of Central Excise, Allahabad,(Tribunal), West Coast Paper Mills Ltd. v. Collector of Central Excise, Belgaum, 1996 (81) E.L.T. 403 (Tribunal), Collector of Central Excise, Patna v. Sumitan Electro Power (P) Ltd.,(Tribunal), Collector of Central Excise, Pune v. Greaves Faseco Ltd., 1997 (93) E.L.T. 233 (Tribunal) and Final Order Nos. 1645 and 1646/97-A, dated 2-9-1997, contended that what should be added is the gross profit and not the net profit and, therefore, the Collector (Appeals) was in error in holding that the net profit of the final product has to be added.

3. Shri Ravinder Narain, Advocate appearing for the respondent, contended that since only one unit of Fireless Locomotive was manufactured, there was no profit at all, but to buy peace price list was filed suggesting addition of 10% margin of profit, that the actual profit on the final product in this case can never be adopted as the notional margin of profit of the Fireless Locomotive in view of the difference in nature, quality and quantity of the products manufactured. According to him, the Collector (Appeals) committed a fundamental error in merely adopting the net profit of the final product as the notional profit of the intermediate product without considering the dissimilarities between the two products and without making any adjustment on account of such dissimilarities. Learned Counsel also stated that even at this stage going only by the percentage (without going into the controversy regarding gross or net profit), respondent is agreeable to add 12.95%, even though the price list referred only to 10%. He also pointed out that if a strict view of the matter is taken, remand may be necessary to consider the adjustments required to be made if the profit margin of the final product is to be adopted. He also referred to the decision of the Tribunal in National Litho Press v. Collector of Central Excise Madurai, 1997 (91) E.L.T. 140 (Tribunal), where it was held that though it is not possible to say that margin of profit derived on the final product has no relevance in deciding the margin of profit on the intermediate product, the extent to which it is relevant must necessarily depend on the facts and circumstances of each case, the nature of the two products, the comparative cost of production of the two products and the like. The decision also indicated that in some cases there may be justification to adopt the same figure as the margin of profit for intermediate product, while in some cases there may be justification to make adjustment in the margin of profit. In paragraph 6 reference was made to another decision of the Tribunal where 50% adjustment was given on the profit margin of the final product [see Graphite India Ltd. v. Collector of Central Excise, Calcutta, 1995 (78) E.L.T. 17 (Tribunal)]. In National Lithopress v. Collector of Central Excise, Madurai, 1997 (91) E.L.T. 140, while the profit margin on the final product was 30.89%, the Tribunal reduced it to 20% for the intermediate product.

4. We find little similarity between the intermediate product and the final product in this case. The intermediate product is Fireless Locomotive and only one unit was manufactured. The final product was Soda Ash and evidently substantial quantity of the product was manufactured and cleared. The two products cannot be regarded as having any similarity. In these circumstances, there would be no justification in merely adopting the profit margin on the final product as the profit margin on the intermediate product. Necessarily some adjustment would be required. The gross profit and the net profit on the final product were 17.70% and 12.95% respectively. Even if one goes by the gross profit, sufficient adjustment would be necessary in determining the notional profit margin on the intermediate product. In other words, 17.70% cannot be adopted as the notional margin of profit of the intermediate product. Necessarily a substantial reduction has to be granted in arriving at the notional profit margin of the intermediate product. In the facts and circumstances of the case, we are of opinion that there is no justification for remand of the case to determine the notional profit in arriving at the assessable value of one unit of intermediate product. Even going by the gross profit, a substantial reduction has to be given. In these circumstances, the figure adopted by the Collector (Appeals), namely, 12.95% does not appear to be unjustified. We are not going into the question whether 10% should be the notional profit in view of the submission made by the learned Counsel for the respondent.

5. For the reasons indicated above, we dismiss the appeal and the cross-objection.