| SooperKanoon Citation | sooperkanoon.com/22213 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Mumbai |
| Decided On | Apr-18-2001 |
| Appellant | Shri D.K. Agriwalla, Shri M.V. |
| Respondent | Commissioner of Central Excise |
The movements of bulk drugs from one unit to another did not involve any sale. The declaration as required under Rule 173 of the Central Excise Rules 1944 were filed by the manufacturer from time to time.
M/s. GRL were also filing certain returns to the Drug Control Authorities in terms of the relevant Act. The officers of the Directorate of Anti Evasion compared the valuation of the Bulk Drugs as disclosed to the Central Excise Authorities and to the Drug Control Authorities. Where the later declarations were based on the details of various items of costing, the valuation for the Central Excise was merely described as "Selling Price" fixed by the company. The prima facie view of the officers was that the value of the goods was underdeclared to the Excise department. The Officers recorded the statements of certain officers of M/s. GRL. Shri D.K. Arsiwalla, Finance Director of M/s. GRL stated that Bulk Drugs viz., Hydroxy Progesterone caproats, Mesterolone, Bisacodyl, Xantinol, Nicotinate & Elophylline, were "non-scheduled bulk drugs" and were not subject to price control by Drug Control Authorities. He admitted that the price declared to the Excise authorities were less than the actual cost of production plus profit. He described it as corporate policy. Shri M.V.Gazinkar, the Costing and Budgetting Controller of M/s. GRL in his statement accepted that the price declared to the Excise Authorities was lower than the cost of production and also that the cost statements submitted to the Drug Control Authorities were not disclosed to the Excise Authorities. He corroborated the statements made by Shri D.K.Arsiwalla. Shri J.C. Madhavam, Manager (Excise) of M/s. GRL also confirmed these statements made by the other two officers of M/s. GRL.
2. At the conclusion of the investigation, Show Cause Notice dated 30.11.99 was issued. The allegation was that the assessable value of the Bulk Drugs cleared by the M/s. GRL to their sister unit should have been computed in terms of Rule 6 of the Valuation Rules. It was alleged that while costing data was available and was filed with the Drug Control Authorities, an arbitrarily lower price was declared for payment of duty. It was alleged that the suppression of the costing data from the Excise officers was willful with the intent to evade revenue. The duty short paid was computed at Rs.1,07,20,005/-. This amount was determined as short paid during the period April 1995 to June 1999. Longer period was invoked by alleging suppression and misdeclaration. The notice acknowledged that the assessee had voluntarily paid Rs.1,04,39,700/- on 30.8.99 and sought appropriation thereof against the duty demanded. The allegation was that M/s. GRL and its two officers Shri Arsiwalla & Shri Gajankar were liable to Penalty.
The Noticees filed replies. The Commissioner (Adjudication), Mumbai, on hearing the noticees passed orders confirming duty as demanded and appropriating the deposits already made towards the confirmation. He imposed Penalty of R.1,07,20,005/- on M/s. GRL under Section 11AC of the Central Excise Act 1944. Penalties of Rs. 1 lac each were imposed on Shri Arsiwalla & Shri Gajankar. Interest was demanded under Section 11AB. Against this order the appeals have been filed by M/s. GRL and its two officers. Since the facts are common, all the appeals are decided by this single order.
3. We have heard Shri Atul Setalwad, Senior Advocate appearing along with Shri D.B. Shroff, Advocate for the Appellants. We have also heard Shri A.K. Jain, Jr. Departmental Representative for the Revenue.
4. The first claim made by Shri Setalwad was that the Show Cause Notice was bad in law because it demands the entire duty short levied while at the same time admitting that almost the entire portion of duty short levied was paid by the assessee company voluntarily before the issue of the Show Cause Notice. For this statement he relies upon the Judgement of the Supreme Court in the case of J.K. Cotton Spg. & Wvg. Mills Co.Ltd. (1998 (99) ELT 8). We have examined this Judgement. The Court in this Judgement were examining the issue whether in view of the facts before them, the extended period could be invoked or not. On careful perusal we do not find any ratio appearing from the said judgement to support the claim made by Shri Setalwad. In para 21 of the said Judgement the various situations in the presence of which the extended period could be invoked are listed. Reference to the judgment was made in the cited judgement of the Tribunal C-II/2789/98WZD dated 30.11.98 of M/s. Enron Oil & Gas India Ltd. V/s. Commissioner of Cental Excise.
Although before the Tribunal the same point as is now raised, was raised, there is no definite finding of the Tribunal on this argument.
5. Section 11B of the Central Excise Act 1944 permits refund to be claimed of any duty paid by the assessee on valid grounds within the period prescribed. If in view of the voluntary payment, the show cause notice did not allege that the duty was initially short paid, then the department would be hard put to contest or rebut the claim made by the assessee for refund of duty as mere deposit voluntarily paid.
6. The Supreme Court in the Judgement in the case of Dunlop India Ltd. (1983 ELT 1556) held that the estoppel did not apply to taxation matters. The Court acknowledged the right of the importer in claiming refund even in the case of the earlier voluntary payment. In the present case, while the assessee company had voluntarily paid the bulk of the demand, the entire demand was vehemently contested before us. In this situation it was not only appropriate but was essential that the show cause notice demanded and sought to confirm the entire demand.
7. We have examined the communication under which the duty was voluntarily deposited. The Assessee Company in unambiguous term declared it as 'duty'. We have also seen the Show Cause Notice. The notice acknowledges the fact of payment, demands the entire duty initially short paid and seeks to appropriate the duty voluntarily paid towards the demand. The show cause notice thus reflects the factual position. On perusal of the show cause notice as well as the cited judgements, we find that there is no legal infirmity in the Notice.
8. Now we come to the principal issue involved. The determination of ad volarem duty is as per the provisions of Section 4 of the Act. For ease of reference the relevant provisions are extracted below:- "SECTION (4. 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: (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 anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof; (b) Where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed." (b) Where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based- (i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee: Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, in any, in the material characteristics of the goods to be assessed and of the comparable goods; (ii) if the value cannot be determined under sub-clause (1), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods;" 9. Very briefly stated, the claim of the Revenue is that the Bulk Drugs were not sold by the assessee company. Therefore, the value could not be determined in terms of Section 4(1)(a) of the Act; that the situation as described under Rule 6 (b)(ii) in the Valuation Rules would have application; that such valuation data was available and had been supplied by the assessee company to the Drugs Control Authorities; that the assessee company in the face of having the data had arbitrarily declared a much lower price and thus the short payment of duty was with intent to evade the same.
10. The first defence of the assessee company is that in terms of the Drug Control Act and Rules, the price of the contested goods were fixed and therefore such price would become the basis of the computation of the ad volarem duty.
11. Bulk Drugs have been defined in para 2(a) of the Drugs (Price Control) Order 1995 as under:- "(a) bulk drug means any pharmaceutical, chemical, biological or plant product including its salts, esters, stereoisomers and derivatives, confirming to pharmacopoeical or other standards specified in the second schedule to the Drugs and Cosmetics Act, 1940 (23 of 1940), and which is used as such or as an ingredient in any Formulation".
12. Such Bulk Drugs are covered under para 5 of the 2nd Schedule. Such Drugs are further classified as (a) included in the Indian Pharmacopea; and (b) Drugs not included in the Indian Pharmacopea but included in the official Pharmacopea of any other country. In order to fall in this Schedule the drugs have to conform to the various standards prescribed in the Pharmacopea. Some of the Bulk Drugs are listed in the first Schedule to the Drugs (Price Control) Order 1965 and are termed as "Scheduled Drugs". Those Bulk Drugs not so listed are called "non Scheduled drugs". The Drugs (Price Control) Order is not issued under Drugs Control Act but under the Essential Commodities Act 1955. The Order makes a clear distinctive between "drugs" and "formulations". In terms of para 5 of the Order, the prices of the "Scheduled Drugs" are fixed by the Government. This is on the basis of the cost of production plus appropriate margin of profit. The details as to the cost are to be furnished in terms of para 4 of the order. The Government fixes the maximum price, the retail price and the selling price of the Scheduled Bulk Drugs. The deviation from the prices so fixed attracts penalty.
Para 5 of the said Order requires costing details of 'non Scheduled drugs' also to be furnished to the Government and the Government has the power to fix the prices of the 'non scheduled drugs'; also. Para 15 of the said order requires that prices of 'non scheduled formulations' should be printed on the cartons and also in the pricelists. There is however, no such requirement of display, etc. in the case of 'bulk drugs'.
13. The reading of the said Order shows that while the Government fixes the prices of all the 'scheduled drugs', the prices of 'non scheduled drugs' are not so fixed by the Government. Where the prices of both the Scheduled drugs formulations are fixed, price lists have to be issued specifying the prices so fixed and the details of the prices have to be displayed. Para 14 of the said Order makes this mandatory for Bulk Drugs as well as for formulations. But similar provisions as made in terms of para 15 are only for 'non Scheduled formulations' and not for 'non Scheduled bulk drugs'.
14. In other words, where the bulk drugs are 'non Scheduled bulk drugs', although the manufacturer is required to furnish the costing details, the Government does not fix the price. The Order (in terms of para 16) however makes it mandatory to disclose the pricelist or display the price on the packing thereon.
15. To a specific question Shri Setalwad replied that the bulk drugs were cleared in drums.
16. Shri Setalwad attempted to state that even in the case of 'non Scheduled drugs' the manufacturer was to declare the cost construction and could not sell bulk drugs in excess of the price so voluntarily declared. It is his case that in this situation the proviso (2) to Section 4 of the Act would apply making the prices so declared as the normal price. On perusal of the various provisions as enumerated above, we do not find any merit in the submission made by Shri Setalwad. The requirements of the price display do not cover 'non Scheduled bulk drugs'. Therefore the reliance placed on the Supreme Court Judgement in the case of Aluminium Indus. (1999 ELT (98) 486) is without basis.
Where the bulk drugs were not specified, then the price declared by the manufacturers in terms of the said Order would not qualify for the term 'fixed under any law'.
All the six bulk drugs referred to above were initially claimed to be non Scheduled. Before us it was claimed that 'Etofylline' was 'Scheduled Bulk Drug'. Reference is made to letter dated 22.1.98 of the National Pharmaceuticals Pricing Authority. In this letter the assessee company has been called upon to submit price data for Etofylline in the format applicable to scheduled bulk drugs on the ground that it was a derivative of 'Theofylline'. Shri Setalwad stated that the relevant proviso of Section 4 of the Central Excise Act would apply for pricing of this substance and that out of the total duty allegedly short levied, duty of about Rs.75 lacs demanded against Etofylline cannot be sustained.
18. Prima facie the argument had merit. Shri Jain however made the claim that the provisions of Section 4(1)(a) would come into play only where there is a sale. It is his statement that even for the proviso (ii) to apply there has to be a sale in the course of wholesale trade.
We have reproduced hereinabove the relevant provisions of the Section and we find the claim to be correct. The main Section as well as the proviso proceeded on the assumption that there is a sale. Where there is no sale this proviso would not apply and even if there is a price determined under any other law that price would not become the normal price in the absence of a sale. Clause (b) of Section 4(1) refers to the situation where the goods are not sold. It has been claimed and accepted that none of the bulk drugs including 'Etofylline' was ever sold. Therefore the determination of price of this substance would not be governed by the provision of Section 4(1)(a) but would have to be made in terms of Section 4(1)(b) and the Central Excise (Valuation) Rules 1975.
19. The next issue for determination is whether the demand made for the extended period would survive. M/s. GRL have claimed that during the period April 1995 to August 1996 the cost construction statements were supplied to the authorities. The department thus was aware of the facts and at this stage it cannot claim suppression. It was claimed that the department was aware that the drugs were not sold but were stock transferred. In this knowledge also the RG-12 returns were passed and assessment were finalised. It is therefore claimed that the question of suppression does not arise. The main claim made is that the formulations being dutiable, Modvat Credit was available. Therefore whatever was paid as duty on bulk drugs was available as credit for the formulations. It is claimed that in this situation the intent to evade duty cannot even be alleged. The Judgement of the Tribunal in the case of R.H. Indus. Vs. CCE [2000 (36) RLT 848] has been relied upon in identical situation. In para 4 of the judgement the Tribunal held as follows:- "4. Ld. Counsel representing the appellant raised contention that the show cause notice covering the period from November 1990 to July 1995 cannot be sustained. The contention is that for invoking the proviso to Section 11A of the Central Excise Act, 1944, Department should not only show that there was short levy on account of fraud, collusion, mis-statement or suppression it must also be shown that said fraud, collusion, mis-statement or suppression must have been made with intent to evade payment of duty. In the instant case even if it is shown that there was short payment of duty, there could not have been any willful misstatement with intent to evade payment of duty. In the absence of willful mis-statement with intent to evade payment of duty the Department cannot, it is argued, invoke the Proviso to Section 11A. In support of this argument ld. Counsel submits that even if the price of the bushes supplied by Punjab Tractors was included in the value of Axle Beam Assembly and duty paid accordingly, the Punjab Tractors could have claimed Modvat Credit of that amount. In such a situation there would not have been any intention to evade payment of duty. If duty was paid taking into consideration the value of bushes as well, when Modvat Credit is claimed, result would have been Revenue neutral. In such a situation, it was contended that the party could not have been attributed with any intention to evade payment of duty. We find much force in this argument. In a situation where the job worker utilizes the goods supplied by the manufacturer free of cost and includes the value of such goods for the purpose of payment of excise duty, the manufacturer can claim Modvat Credit. This will result in Revenue neutral. In such circumstances, we are clear in our mind that job worker cannot be attributed with any intention to evade payment of duty. In the absence of such an intention to evade payment of duty, Department will not be justified in invoking the Provision contained in Proviso to Section 11A to the Act." The facts in the present case being akin the ratio of the above judgment would apply. We therefore hold that the demand for the extended period would not sustain.
20. On the basis of our earlier discussions, the demand within the normal period would however sustain.
21. We have earlier held that for such determination the Valuation Rules have to be followed. The show cause notice alleges that the applicable Rule would be Rule 6 (b)(ii). In the arguments before the Commissioner and also before us it was claimed that the comparable price was available for all the similar goods manufactured by other manufacturers. Only in one case, the argument was made, comparable price was not available. But it is likely that the assessee can show evidence of such price in regard to other bulk drugs also. Therefore, for determination of the quantum of duty short paid during normal period the proceedings will have to be remanded back to the Commissioner.
22. We now come to the aspect of imposition of Penalty. Penalty has been imposed upon M/s. GRL under Section 11AC. It is claimed that this provision was enacted after lapse of substantial period covered in the show cause notice. It is also claimed that such penalty can be imposed only if the demand within the extended period is established and is upheld. Since, following the judgement of the Tribunal, which we have earlier cited, the demand for the larger period is incapable of confirmation, penalty under Section 11AC would also not sustain. The learned Commissioner has not imposed any penalty on M/s. GRL under Section 173Q of the Act. Although when the charge of evasion of duty within normal period is established such penalty would be leviable, the Commissioner has refrained from doing so.
23. Such a situation had earlier been noticed in the Tribunal Judgement in the case of ITC Ltd. V/s. Commissioner of Central Excise, Bangalore (1998 (104) ELT 151). In that case, Penalty had been imposed upon 52A(5)(c) and 209 of the Central Excise Rules 1944. The Tribunal held that in view of the reasons given in the Order penalties could not be imposed under these Rules. The provisions of the Rule 209A had also been invoked in the show cause notices. The Adjudicating authority however refrained from imposing Penalty under this Rule, in view of his having imposed penalty under the other Rules. In this situation the Revenue had urged the Tribunal in the proceedings to use the powers under that Rule and to impose Penalty. The Tribunal however declined to do so. In the present case although the Revenue had not made any such request, the ratio of this judgement applies and therefore the orders of imposition of penalty on GRL do not sustain.
24. S/Shri D.K. Arsiwalla. M.V. Gazinkar have been charged with penalty under Rule 209A of the C.Ex.Rules in para 6 of the Show Cause Notice dated 30.11.99. Penalties of Rs.1 lac each has been imposed in the impugned order. These two officers of the GRL have also filed appeals against the imposition of penalties. In the case of ITC Ltd. V/s.
C.C.Ex., Bangalore, cited (supra) the officers of the company had also been charged with penalty under Rule 209A. In that judgement in para 230 the CEGAT held that if the Penalty could not be imposed upon M/s.
ITC Ltd., penalties could not be imposed on the persons allegedly behind the fraud. Following the ratio of that judgement, we hold that the order of imposition of penalty on the officers also does not survive.
(a) Orders of imposition of Penalties on GRL and on S/Shri D.K. Arsiwalla and M.V. Gazinkar are set aside.
(b) The orders of confirmation of duty do not survive as far as the extended period is concerned.
26. The case proceedings are remanded back to the jurisdictional Commissioner for re-calculation of the demand within the normal period.
He shall keep in mind our observations in paragraph 21 above.