| SooperKanoon Citation | sooperkanoon.com/30046 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Mumbai |
| Decided On | Feb-14-2003 |
| Judge | J Balasundaram, J T J.H. |
| Reported in | (2003)(154)ELT500Tri(Mum.)bai |
| Appellant | Morarjee Brembana Ltd. |
| Respondent | Commr. of C. Ex. |
This notification limits the benefit to goods manufactured using raw material produced or manufactured in India. The as-sessees in the manufacture of such fabrics had used both indigenous and imported inputs. Show cause notices were therefore issued proposing computation of duty in terms of Notification No. 2/95 and seeking recovery of the duty short paid and also alleging liability to penalty.
2. Before the Commissioner the assessee claimed that the imported materials were not raw material but were consumables and in an earlier case noticing the consumption facts benefits of Notification No. 8/97 had been granted. The CBEC had also permitted grant of benefit of this notification where imported consumables were used. It was claimed that the goods did not attract additional excise duty under the Special Importance Goods Act in terms of Notification No. 58/95-C.E., dated 25-7-1995.
3. In terms of Notification No. 8/97 the assessees attempted to distinguish the terms 'raw material' from 'inputs'. It was claimed that the Commissioner was prevented from arriving at a different conclusion in view of the earlier orders accepting their claim of benefit of Notification No. 8/97. It was claimed that in the absence of any intention penalty was not leviable.
4. The Commissioner passed orders holding that any materials or goods used in the manufacture qualified for the term 'raw material' and that the definition was not confined to yarn alone. He held that the Board's Circular No. 23/98-CX., dated 5-5-1998 permitted availment of the benefit of Notification No. 8/97 where apart from yarn, some "consumables" were used. It was his view that the contested inputs were not "consumables" but that they were 'raw materials'. On this observation he denied the benefit of that notification and held that duty as determined under Notification 2/95 was "appropriate and legal".
5. He therefore analysed the impact of the said notification. He accepted that in terms of Notification No. 127/84, such goods did not attract levy of Additional Duties of Excise (Goods of Special Importance) Act, 1957. He also held that the Additional Duties of Excise (Textiles and Textile Articles) were not leviable in terms of Notification 55/91. He interpreted the phrase "at the rate or fifty per cent of each of the duties of Customs" so as to include (1) basic customs duty, (2) countervailing duty under Section 3A of the Customs Tariff Act, (3) special additional duty under Section 3A of the CTA and (4) surcharge as per Finance Act of 1999 and 2000. In specifying the components of (2) above he included (a) basic excise duty, (b) additional duties both under the ADT & TA Act as well as the GSI Act and (c) textile cess.
6. He did not accept the plea of the assessees that rags and chindies were waste and scrap and held that they were goods falling under Heading 52.07.
7. On the observation that in the processing of grey fabrics, imported materials are used, benefit of Notification No. 1/95 was denied; in two orders-in-original.
8. The assessees challenge this belief in the present two appeals No.E/167/2001-Mum and E/3144/2001. Both the appeals involve common grounds, these are taken up together for disposal.
9. Findings : Notification No. 8/87 : - It is accepted that benefit of Notification No. 8/87 is not available in view of the CEGAT judgment in the case of Century Denim - 2001 (129) E.L.T. 657 being upheld by the Supreme Court - 2001 (133) E.L.T. A86. Benefit of Notification No.2/95-C.E. is claimed and allowed by the department although there is a contest on specifies.
10. Valuation : - The first contest is on valuation of the goods cleared into DTA. It is claimed that the reading of Section 3 of the CEA provides for valuation to be done in terms of Section 14 of the Customs Act and in terms of Section 4 of the Central Excise Act, 1944.
Citing Board's Circular No. 268/35/92/CX., dated 17-8-1994 it is claimed that where transaction value is not available, valuation is to be done in terms of Rule 7 of the Customs Valuation Rules. It is claimed that a hypothetical price be taken of the goods imported and from that certain deductions be made to arrive at an assessable value.
As a last resort, deduction of duty is demanded citing Shri Chakra decision of the Larger Bench of the Tribunal [1999 (108) E.L.T. 361 (Tri. -LB)].
11. We find that during the entire proceedings the aspect of valuation was not brought out at all however it has been raised in the miscellaneous applications. Since it is a point of law we allow the plea to be raised by allowing the applications and proceed to record our finding on this aspect.
12. The issue is whether duty is to be computed in terms of Notification Nos. 8/97 or 2/95.
"Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, (i) In a free trade zone or a special economic zone and brought to any other place in India; or (ii) By a hundred per cent export oriented undertaking and brought to any other place in India.
Shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if imported in to India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975)." It will be evident from the above that where the duty is chargeable with reference to value, the value shall be determined in accordance with the provisions of the Customs Act and the Customs Tariff Act, Section 14 of the Customs Act provides that where duty of Customs is chargeable on any goods in terms of value, the value shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale for-delivery at the time and place of importation in the course of international trade. Therefore it was submitted that the value shall be the price at which the goods are offered for sale in the course of international trade. Sub-section (1A) provides that the value shall be determined in accordance with the rules made i.e. the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The appellants have also invited attention to the circular of the Board bearing No. 268/85-CX-8, dated 29th September, 1994. The Board has clarified that the valuation of goods to be earned out under Rule 8 of the Customs Valuation Rules keeping in view the following.
It is further clarified in the same circular that where invoice price of such goods under assessment is in the nature of transaction value, for example more or less corresponding to the FOB Value in the case of identical nature in conformity with the provisions of Rule 3 of the Customs Valuation Rules, 1988, such invoice value can be accepted for the purpose of assessment. The appellants submit that the appellant exports to various countries in the world. The FOB value of the fabrics manufactured by them varies from country to country. Therefore the FOB value of the goods at which they are exported cannot be adopted as clarified by the Board in the circular. They further submitted that their sales price to the customers in India is not the sales price in the course of international trade as contemplated under Section 14 of the Customs Act. Therefore the transaction value as contemplated under Rule 4 of the Customs Valuation Rules is not available. It was submitted that Rule 5 or 6 deals with the transaction value of identical goods or similar goods. The appellants manufacture fabrics.
The variation in terms of quality of cotton, count of yarn, nature of dyes, design makes it nearly impossible for any person to substantiate the similarity or identical nature of the fabric. Therefore the provisions of Rules 5 and 6 are not applicable to the facts of the case. The Board of Central Excise and Customs has also in the circular accepted the said fact of certain difficulties in substantiation of the similar nature of the goods. In view of this the appellants submitted that the value shall be determined in terms of Rule 7 as provided in Rule 6A of the Customs Valuation Rules. Thus in order to determine the value under the Customs Act, the method provided under Rule 7 which is working backward from the sales price of the product is the most appropriate rule. In terms of the said rule the following amount is required to be deducted.
(i) either the commission usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with sales in India of imported goods of the same class or kind; (ii) the usual costs of transport and insurance and associated costs incurred within India; (iii) the customs duties and other taxes payable in India by reason of importation of sale of the goods; The appellants have in their miscellaneous application given the method of computation of assessable value under Rule 7 of the Customs Valuation Rules which is reproduced below :- 13. We have considered the submissions made by the appellants and find considerable force in their submission. The circular of the Board also realizes the fact that the value is required to be determined in terms of Rule 8 i.e. best judgment rule. The sales price charged to customer in India of the goods under assessment cannot be considered as a price in the course of international trade as provided under Section 14 of the Customs Act. The goods are sold in India. Therefore the said price cannot be considered as the price in the course of international trade.
The appellants contention that the FOB price for the export of goods of similar nature varies from country to country also has considerable force. It is well known that the manufacturer is able to realize higher amount for sales made to developed countries like America, UK, France etc. and the same amount cannot be realized for identical goods when the exports are made to underdeveloped countries like Bangladesh, Malaysia, Similarly the value under Rules 5 & 6 cannot be determined in view of the peculiar nature of the product. The value of the fabric not only depend upon the quality of yarn, count of yarn, but also on the design of. fabric, colour etc. Therefore it is very difficult to establish the similarity of the imported fabrics and the fabrics manufactured by the appellants Rule 7 is meant for computing the value when the imported goods are sold in India. As per the provisions of the said rule form the sales price certain expenses and profit is required to be deducted. Further the duty and taxes payable by any importer in normal course of importation is required to be deducted.
It is already observed in the above paras that additional duties under the Textiles and Textile Articles Act is not payable by the manufacturer of fabric in India. Therefore the same will not form part of the component of CVD. Hence in the calculation given by the appellants as reproduced above, the additional duty under the Textiles and Textile Articles Act is not required to be considered. The value thus is required to be recomputed by allowing the deduction mentioned in the example given above but without considering the additional duty under the Textiles and Textile Articles Act. This basis should be adopted for the purpose of determination of assessable value for the fabrics cleared by the appellant in DTA, 14. Countervailing Duty :- The second contest is on the leviability of countervailing duty. It is the claim that the provision for demanding "this duty under Notification No. 2/95-CE. was made only with effect from 16-9-1999. The period under demand in Appeal No. 167/2001 relating to the period prior to the amendment has been confirmed without any finding. However, in the order leading to Appeal E/3144/2001 the duty demanded prior to the amendment has been set aside.
15. We have seen the documents and also the fact that in the first cited appeal the plea was raised before the Commissioner. The demand confirming the burden of countervailing duty in Appeal No. E/I67/2001 is set aside following the law laid down by the Larger Bench of the Tribunal in the case of Fabworth (India) Ltd. v. Commissioner of Central Excise, Nagpur - 2002 (143) E.L.T. 663 (Tri.-LB). Where the levy of CVD is accepted two disputes are raised. The first is that in computing the CVD the duty under the Additional Duties of Excise (Textiles and Textile Articles) Act is not includible. The finding of the Commissioner is that this same would be addable inasmuch as Notification No. 5/91 does not exempt this duty. The claim made before us was that in computing the CVD the burden of duty to be attracted by goods of like kind and quality manufactured in the country has to be relied upon. Since additional duty under the TTA Act is exempted under Notification 18/96-CE. that duty cannot be added in computing the CVD.Although this point was raised before the Commissioner he has not given his mind thereupon. The Commissioner in his order dated 19-10-2000 in Paragraph 8(iv) has very categorically observed that the show cause notice did not propose levy and recovery of the duties imposable under the Additional Duties of Excise (Textiles & Textile Articles) Act, 1978. This observation has been repeated by him at the end of the paragraph also. He has observed that the assessees were harping on a wrong notion of such includibility. But this is not correct as the annexure to the show cause notice itself shows that such levy was also included and hence we are required to deal with this submission.
16. Section 3 of the Customs Tariff Act provides for levy of duty equal to the excise duty for the time being leviable on like articles produced or manufactured in India. The appellants are engaged in the manufacture of fabrics classifiable under chapter Heading 5207 of the Central Excise Tariff Act. The manufacturer of the similar goods in India other than manufacture in EOU is required to pay the following types of duty.
(a) Basic excise duty leviable under Section 3 of the Central Excise Act.
(b) Additional duty under the Additional Duties of Excise (Textiles and Textile Articles) Act.
(c) Additional duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957.
The additional duty leviable under the Additional Duties of Excise (Textiles and Textile Articles) Act is exempt under Notification Number 18/96-C.E. Therefore the manufacturer of the fabrics classifiable under chapter Heading 5207 is not required to pay the additional duty under the Additional Duties of Excise (Textiles and Textile Articles) Act.
As mentioned above, the CVD is equivalent to the duty payable by the manufacturer of like goods in India. The manufacturer of the like goods in India is not required to pay additional duty under the Additional Duties of Excise (Textiles and Textile Articles) Act and therefore the same is not required to be included as a component of CVD.17. Effective rate of duty to be added and not tariff rate :- The next point of dispute is that in computing the countervailing duty, effective rate of duty should be added and not the tariff rate. In the present case, the appellants are entitled to the benefit of Notification No. 2/95-C.E. which provides for payment of 50% of each of the duties of Customs thus if the tariff rate is 40%, the effective rate will be 20% i.e. 50% of 40%. On the assumption that the assessable value is Rs. 100/-, the effective rate of basic customs duty would be Rs. 20%. In the show cause notice for the purpose of calculation of CVD, the assessable value was determined as 100 + 20% and no corrigendum would subsequently issued so as to amend the method of determination of assessable value so as to increase the demand amount.
However in the impugned order the adjudicating authority has observed that the assessable value for the purpose of countervailing duty should be computed by addition of the basic customs duty without extending the benefit of the notification. Thus as per the Commissioner, the assessable value for the purpose of levy of CVD is to be determined as Rs. 100/- + Rs. 40/- for the month of February, 2000. Similarly for calculating special additional duty the full rate of CVD has been computed without giving effect to Notification No. 2/95. Subsection (2) of the Section 3 lays down the manner of determination of value for the purpose of computing CVD leviable under Section 3 the same reads as follows :- For the purpose of calculating under this section, the additional duty on any imported article, where such duty is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in Section 14 of the Customs Act, 1962 (52 of 1962) be the aggregate of - (i) The value of the imported article determined under sub-section (1) of the said Section 14 or the tariff value of such article fixed under subsection (2) of that section, as the case may be; and (ii) Any duty of customs chargeable on that article under Section 12 of the Customs Act, 1962 (52 of 1962), and any sum chargeable on that article under any law for the time being in force as an addition to and in the same manner as, a duty of customs, but not including the duty referred to in sub-section.
It will be evident from the above that only the duties that are chargeable on that article under Section 12 of the Customs Act are required to be added to the assessable value determined under Section 14 of the Customs Act. In the present case the appellants are required to pay 50% of the duty of the basic custom duty under Notification No.2/95. Therefore only 50% of the basic custom duty is required to be added to the assessable value under Section 14 for the purpose of qualification of CVD. Therefore the method of computation by assessable value for the purpose of computing CVD adopted by Commissioner of Central Excise for February, 2000 is not correct. Only the effective duty i.e. the duty applicable after giving effect to the notification should only be added to the assessable value under Section 14 for determining the assessable value for computing the CVD.Further the order of the Commissioner of Central Excise cannot go beyond the show cause notice. Since no corrigendum has been issued modifying the method of calculation of CVD and consequent demand thereupon. The demand on this account is required to be set aside.
18. Special Additional Duty :- The next plea is that special additional duty leviable under Section 3 of the Customs Tariff Act is not payable by them. Since only basic customs duty was payable on goods cleared by EOU to DTA as per Notification No. 2/95, prior to 16-9-99. Sub-section (5) of Section 3A provides that nothing contained in this section shall apply to any article, which is chargeable to duty levied under sub-section 3(1) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The appellants manufacture fabric classifiable under chapter heading 5207 of the Central Excise Tariff Act, 1985 on which duty under the above mentioned Act is leviable. Therefore we accept the appellants contention regarding non-leviability of Special Additional Duty on the fabrics manufacture by them.
19. Cess :- It is observed that the Cess is levied under the Textile Committee Act 1963.
Section 5A of the Textile Committee Act clearly provides that there shall be levied and collected as Cess for the purpose of this Act of duty of textile manufacturer in India. It is collected by the textile committee. It is evident from the said provisions that it is duty of excise leviable on the fabric manufactured by the appellants. As per the provisions of Section 3(1) of the Customs Tariff Act, the CVD is equivalent to the excise duty payable by the manufacturer on the like goods manufactured or produced in India. The section does not specify that CVD should only be equivalent ta excise duty payable under the Central Excise Act. Therefore CVD shall be equivalent to excise duty payable under any Act including the Textile Committee Act, 1963. Since Cess is in the nature of excise and is payable by the manufacturer of fabric in India, the Cess is includible as a component of CVD.Therefore the Commissioner has properly included the element of Cess in the CVD. The element of Cess has been rightly included in the CVD for the reason that it is duty of excise leviable on the fabric manufactured, by the appellants as per the provisions of Section 5A of the Textile Committee Act, 1963.
20. Penalty :- Lastly the appellants have submitted that no penalty should be levied on the ground that the Deputy Commissioner of Central Excise has for the period prior to May, 1998 allowed the benefit of Notification No. 8/97 to the appellants and has set aside the demand.
In the case of Century Denim also, the Commissioner of Central Excise set aside the demand. However the Tribunal has in 2001 vide its order in the case of Century Denim held that the benefit of Notification 8/97 is not available when imported dyes or fixing agents have been used.
The period under consideration is May, 1998 to August, 2000. During this period the appellant bona fide believed that they are entitled to the benefit of Notification No. 8/97. The appellants also relied upon the following judgments :- We find that during the period May, 1998 to February, 2000 there was no reason for the appellants to believe that they will not be entitled to the benefit of Notification No. 8/97. In their own case and the case of Century Denim, the lower authorities have granted the benefit of Notification No. 8/97. Further the differential demand arises on account of interpretation of the notification. The Hon'ble Tribunal has in the cases cited by the appellants has taken the view that the penalty should not be levied when the demand arises on account of interpretation of notification. Hence the penalty is set aside.
21. In the light of the above findings the duty demand is required to be re-calculated after extending the benefit allowed by us and for this purpose the matter is remanded to the adjudicating authority for re-determination of the duty payable in the light of the above guidelines.