Sharda Synthetics Ltd. Vs. Commissioner of C. Ex. - Court Judgment

Excerpt:
2. the appellants processed grey fabrics received from merchant manufacturers. the period under dispute is march, 1982 to january, 1989. during this period the presumption was that the merchant manufacturer was the manufacturer in terms of section 2(f) of the central excises and salt act, 1944. notification 305/77-c.e. exempted such manufacturers from licensing control provided they filed a declaration giving the cost of construction each time the grey fabrics were sent. the declaration by the merchant manufacturers formed the basis of the price list filed by the predecessors in terms of rule 173c of the central excise rules, 1944 as it then stood. there was divergence in opinions' as to what should be the assessable value. in a judgment the delhi high court had held that the quantum of job charges alone attracted the central excise duty. the issue was finally settled by the supreme court judgment in the case of ujagar prints and ors. in this judgment and in the clarificatory judgments was held that the processors' gate was a deemed factory gate and that the assessable value of the fabrics processed by him would be the composite of the, value of the grey fabrics, the processing charges and the job worker's profits was specifically held that the trader's profits should be excluded. it is signffi-: cant to note that trader's profit were included in the declarations filed the merchant manufacturers under the old system.3. the present appellants were one of the petitioners before the su preme court leading to the judgment in the case of ujagar prints.during the pendency of the writ petition, adhoc payments were made by the present plicants towards duty. the excise interpreted the judgment of the suprem court to mean that the trader's profit referred to therein would mean profit received by the trader when he sold those goods to another person that the profit declared in the various declarations would continue to be eluded. the view was held by the department that the merchant manufacture being governed by notification 305/77 was the manufacturer. against this terpretation the present applicants approached the city civil judge, but that was settled out of court by mutual consent whereby the departmed was allowed to raise their demands in writing. the assistant collector vide letter dated 14-14993 directed the present appellants to deposit the sum of 3,04,27,882.43. interpreting the phrase "post manufacturing profits" use the supreme court, the assistant collector in paragraph 20 of the letter held follows :- "in view of rule 174a, read with notification no. 305/77, dated 5-11-1977, the merchant manufacturer's are the legal manufacturers and all the factors, including the manufacturing profit contributing to the price upto the stage of first sale of the goods in the wholesale market is to be included in the assessable value. by the above method alone all the four ingredients of value mentioned in the clarificatory order would be comprehended in the assessable value. as per the aforesaid observations, the post manufacturing profit would be the profit arising on the subsequent sale of the goods after the 1st sale of the merchant manufacturers. as no such profit arising on the subsequent sale of .the goods have been included in the assessable value, it cannot be said that traders profit or the post manufacturing profit was included in the assessable value and that any demand of duly was made in excess by the department." 4. this order ultimately reached the tribunal. the tribunal in their order dated 19-10-1994 remanded the matter back to the assistant collector. in the remand order ujagar prints judgment was cited, as also that of saheli synthetics and directions were made to the assistant collector to follow the ratio thereof. in the post-remand order the assistant collector observed that he had directed the present applicants to produce the documentary evidence that the traders profit was included in the assessable value as also to indicate the separate quantification thereof. the assistant collector held that no positive evidence was led by the assessees to indicate what the traders margin was. he therefore concluded that the premium did not contain any element of traders profit and reconfirmed the demand. the matter once again reached the tribunal resulting in the following order being made :- "after hearing both sides, we find that on principle, there does not appear to be any dispute. both sides agree that the traders profit margin has to be excluded from the assessable value in view of the supreme court's judgment. we are not able to appreciate the difficulties expressed by the assistant commissioner in quantification of the amount in view of the material on record. generally the fact that the traders' profit margin is separately indicated in the declaration filed by the appellant. there should therefore not be any difficulty in requantifying the assessable value in the manner laid down by the supreme court. we, therefore, set aside the orders passed by the commissioner (appeals) and by the assistant commissioner and remand back the matte? to the assistant commissioner with the direction to decide the matter afresh in the light of the tribunal's earlier order no. 303/94a, dated 19-10-1994 on the basis of the declarations available with the department." 5. pursuant to this order the assistant commissioner heard the present appellants. the appellants claimed that they did not have all the copies of the declarations involved in the disputed proceedings but that they were able to place on record 29 such declarations covering the relevant period. the assistant commissioner found that the declarations indicated traders' profit as ranging between 17% and 42%.the assistant commissioner and the present appellants agreed that an average of these margins could be adopted- according to the appellants it would come to about 25%. the assistant commissioner, however, made certain deviation. he took the notional example from the ujagar prints judgment where the supreme court had presumable taken 10% as the traders' margin. he took the lowest traders' margin as shown in the declaration i.e. 17% averaged at 13.5% and rounded it to 14%. taking 14% as the margin of profit and deducting the same for the computation of the assessable value, he confirmed the demand of rs. 92,59,931.80.6. the assessees then filed an appeal before the commissioner. it ap-pears that the assessees had as a pro-condition to hearing of the appeal by the tribunal in the first phase deposited a sum of rs. 75 lakhs which amount was still with the department and which was brought to the notice of the learned commissioner but to little avail. after going through the formality of disposal by the commissioner (appeals), the matter has now reached the tribunal for the third time.7. shri vipin jain, arguing for the appellants, submitted that the department having made the claim of short payment was required to place on record the evidence to sustain the allegations. except for the declarations filed by the assessees, there were no other documents.although the entire body of the declarations was supposed to be available with them, the department was apparently unable to secure the complete set of declarations. the assessees due to a fire in their factory had a limited number of declarations on hand which they had submitted to the assistant commissioner. they had agreed to a percentage of 20 just to clear the issue. he submitted that the supreme court . had not determined the percentage at 10 but actually in terms of the illustra tion the traders profit would come to 20%. if the assistant commissioner re-lied on the ujagar prints judgment then there was no reason for not accepting a 20% profit margin, which was suggested by the appellants themselves. it is his submission that in view of the failure of the department to state their case the appeal should be allowed and total benefit given to the assessees or in the al-ternative clear and specific directions be made to the assistant commissioner to settle the issue within a specific time limit.10. it is correct that the person who makes the allegation has to sustain it. in this case the issue for consideration is the determination of the traders margin of profit. the requisite declarations were filed with the department. the department took various suggestions made by the assessees as to rely upon these documents. the assessees claimed loss by fire. the reasons by the department do not have the documents sent forthcoming from the proceedings. in the absence of the specific declarations the assistant commissior could not follow the specific directions of the tribunal and therefore adopted the system of averaging. the assessees had no objection to adoption of' system but then the manner in which the average has been arrived at wholly without basis. in the absence of the entire documentation reliance had to be placed on what was available and not on extraneous material. there was no cause for the assistant commissioner to rely upon the illustration given by the supreme court in determining the profit margin. if he was not in a tion to arrive at the correct margin on the basis of the entire documentation, was incumbent upon him to arrive at such determination on the basis of the documents made available before him. the methodology adopted by him and the conclusion arrived at by him were not in conformity with the specific directions made by the tribunal in remanding the matter back to him. when the issue was directed to be settled in a specific manner it was entirely unnecessary for the learned commissioner (appeals) to insist on payment of pre-deposit and to dismiss the appeal for failure of the appellants to do so.11. we set aside the impugned order. we once again remand the proceedings to the jurisdictional assistant commissioner with a caution and warning that he shall operate within the framework of the tribunal's previous order dated 3-3-1997 read with our observations above. he shall once again call the assessees for a hearing, determine the issue and issue a speaking order within two months of the receipt of this order.12. a copy of this judgment be sent to the chief commissioner of central excise as also to the jurisdictional commissioner of central excise with a view that they are aware of the directions made by us to the assistant commissioner.

Judgment:
2. The appellants processed grey fabrics received from merchant manufacturers. The period under dispute is March, 1982 to January, 1989. During this period the presumption was that the merchant manufacturer was the manufacturer in terms of Section 2(f) of the Central Excises and Salt Act, 1944. Notification 305/77-C.E. exempted such manufacturers from licensing control provided they filed a declaration giving the cost of construction each time the grey fabrics were sent. The declaration by the merchant manufacturers formed the basis of the price list filed by the predecessors in terms of Rule 173C of the Central Excise Rules, 1944 as it then stood. There was divergence in opinions' as to what should be the assessable value. In a judgment the Delhi High Court had held that the quantum of job charges alone attracted the central excise duty. The issue was finally settled by the Supreme Court judgment in the case of Ujagar Prints and Ors. In this judgment and in the clarificatory judgments was held that the processors' gate was a deemed factory gate and that the assessable value of the fabrics processed by him would be the composite of the, value of the grey fabrics, the processing charges and the job worker's profits was specifically held that the trader's profits should be excluded. It is signffi-: cant to note that trader's profit were included in the declarations filed the merchant manufacturers under the old system.

3. The present appellants were one of the petitioners before the Su preme Court leading to the judgment in the case of Ujagar Prints.

During the pendency of the writ petition, adhoc payments were made by the present plicants towards duty. The Excise interpreted the judgment of the Suprem Court to mean that the trader's profit referred to therein would mean profit received by the trader when he sold those goods to another person that the profit declared in the various declarations would continue to be eluded. The view was held by the department that the merchant manufacture being governed by Notification 305/77 was the manufacturer. Against this terpretation the present applicants approached the City Civil Judge, but that was settled out of court by mutual consent whereby the departmed was allowed to raise their demands in writing. The Assistant Collector vide letter dated 14-14993 directed the present appellants to deposit the sum of 3,04,27,882.43. Interpreting the phrase "post manufacturing profits" use the Supreme Court, the Assistant Collector in paragraph 20 of the letter held follows :- "In view of Rule 174A, read with Notification No. 305/77, dated 5-11-1977, the merchant manufacturer's are the legal manufacturers and all the factors, including the manufacturing profit contributing to the price upto the stage of first sale of the goods in the wholesale market is to be included in the assessable value. By the above method alone all the four ingredients of value mentioned in the clarificatory order would be comprehended in the assessable value. As per the aforesaid observations, the post manufacturing profit would be the profit arising on the subsequent sale of the goods after the 1st sale of the merchant manufacturers. As no such profit arising on the subsequent sale of .the goods have been included in the assessable value, it cannot be said that traders profit or the post manufacturing profit was included in the assessable value and that any demand of duly was made in excess by the department." 4. This order ultimately reached the Tribunal. The Tribunal in their order dated 19-10-1994 remanded the matter back to the Assistant Collector. In the remand order Ujagar Prints judgment was cited, as also that of Saheli Synthetics and directions were made to the Assistant Collector to follow the ratio thereof. In the post-remand order the Assistant Collector observed that he had directed the present applicants to produce the documentary evidence that the traders profit was included in the assessable value as also to indicate the separate quantification thereof. The Assistant Collector held that no positive evidence was led by the assessees to indicate what the traders margin was. He therefore concluded that the premium did not contain any element of traders profit and reconfirmed the demand. The matter once again reached the Tribunal resulting in the following order being made :- "After hearing both sides, we find that on principle, there does not appear to be any dispute. Both sides agree that the traders profit margin has to be excluded from the assessable value in view of the Supreme Court's judgment. We are not able to appreciate the difficulties expressed by the Assistant Commissioner in quantification of the amount in view of the material on record.

Generally the fact that the traders' profit margin is separately indicated in the declaration filed by the appellant. There should therefore not be any difficulty in requantifying the assessable value in the manner laid down by the Supreme Court. We, therefore, set aside the orders passed by the Commissioner (Appeals) and by the Assistant Commissioner and remand back the matte? to the Assistant Commissioner with the direction to decide the matter afresh in the light of the Tribunal's earlier Order No. 303/94A, dated 19-10-1994 on the basis of the declarations available with the department." 5. Pursuant to this order the Assistant Commissioner heard the present appellants. The appellants claimed that they did not have all the copies of the declarations involved in the disputed proceedings but that they were able to place on record 29 such declarations covering the relevant period. The Assistant Commissioner found that the declarations indicated traders' profit as ranging between 17% and 42%.

The Assistant Commissioner and the present appellants agreed that an average of these margins could be adopted- According to the appellants it would come to about 25%. The Assistant Commissioner, however, made certain deviation. He took the notional example from the Ujagar Prints judgment where the Supreme Court had presumable taken 10% as the traders' margin. He took the lowest traders' margin as shown in the declaration i.e. 17% averaged at 13.5% and rounded it to 14%. Taking 14% as the margin of profit and deducting the same for the computation of the assessable value, he confirmed the demand of Rs. 92,59,931.80.

6. The assessees then filed an appeal before the Commissioner. It ap-pears that the assessees had as a pro-condition to hearing of the appeal by the Tribunal in the first phase deposited a sum of Rs. 75 lakhs which amount was still with the department and which was brought to the notice of the learned Commissioner but to little avail. After going through the formality of disposal by the Commissioner (Appeals), the matter has now reached the Tribunal for the third time.

7. Shri Vipin Jain, arguing for the appellants, submitted that the department having made the claim of short payment was required to place on record the evidence to sustain the allegations. Except for the declarations filed by the assessees, there were no other documents.

Although the entire body of the declarations was supposed to be available with them, the department was apparently unable to secure the complete set of declarations. The assessees due to a fire in their factory had a limited number of declarations on hand which they had submitted to the Assistant Commissioner. They had agreed to a percentage of 20 just to clear the issue. He submitted that the Supreme Court . had not determined the percentage at 10 but actually in terms of the illustra tion the traders profit would come to 20%. If the Assistant Commissioner re-lied on the Ujagar Prints judgment then there was no reason for not accepting A 20% profit margin, which was suggested by the appellants themselves. It is his submission that in view of the failure of the department to state their case the appeal should be allowed and total benefit given to the assessees or in the al-ternative clear and specific directions be made to the Assistant Commissioner to settle the issue within a specific time limit.

10. It is correct that the person who makes the allegation has to sustain it. In this case the issue for consideration is the determination of the traders margin of profit. The requisite declarations were filed with the department. The department took various suggestions made by the assessees as to rely upon these documents. The assessees claimed loss by fire. The reasons by the department do not have the documents sent forthcoming from the proceedings. In the absence of the specific declarations the Assistant Commissior could not follow the specific directions of the Tribunal and therefore adopted the system of averaging. The assessees had no objection to adoption of' system but then the manner in which the average has been arrived at wholly without basis. In the absence of the entire documentation reliance had to be placed on what was available and not on extraneous material. There was no cause for the Assistant Commissioner to rely upon the illustration given by the Supreme Court in determining the profit margin. If he was not in a tion to arrive at the correct margin on the basis of the entire documentation, was incumbent upon him to arrive at such determination on the basis of the documents made available before him. The methodology adopted by him and the conclusion arrived at by him were not in conformity with the specific directions made by the Tribunal in remanding the matter back to him. When the issue was directed to be settled in a specific manner it was entirely unnecessary for the learned Commissioner (Appeals) to insist on payment of pre-deposit and to dismiss the appeal for failure of the appellants to do so.

11. We set aside the impugned order. We once again remand the proceedings to the jurisdictional Assistant Commissioner with a caution and warning that he shall operate within the framework of the Tribunal's previous order dated 3-3-1997 read with our observations above. He shall once again call the assessees for a hearing, determine the issue and issue a speaking order within two months of the receipt of this order.

12. A copy of this judgment be sent to the Chief Commissioner of Central Excise as also to the jurisdictional Commissioner of Central Excise with a view that they are aware of the directions made by us to the Assistant Commissioner.