Shree Chalthan Vibhag Udyog Vs. Cce - Court Judgment

Excerpt:
1. the appellant is a sugar mill engaged in the manufacture of sugar, molasses and distillation of ethyl alcohol. it denatures the ethyl alcohol before clearance. the denatured alcohol is of two types, specially denatured and ordinary denatured. we are concerned with the value for assessment of specially denatured ethyl alcohol. the alcohol denatured by adding to it acetone, benzene or other substances. the appellant requires the buyers of this product to supply to it the quantity of denaturant substances that it requires. while clearing the denatured alcohol, it included, for purpose of assessment, the quantity and volume of denaturant i.e. the total of undenatured alcohol and the denaturant, but for the price to be paid by the buyer deducted the quantity and value of denaturant. one of the gate passes issued by the appellant, as an example, will illustrate this point. less, denaturant itrs. 400 provided by buyer rs. 1,97,220/- sales tax, etc. rs. 39,444/-.2. the notice issued to the appellant alleged that it did not include the value of the denaturant in the assessable value of alcohol in the manufacture and proceeded to demand duty alleging the quantity of 10,615 litres of denaturant whose value was rs. 1.68 crore and demanded duty on the same. in the order impugned in this appeal, the commissioner has confirmed the demand for duty. hence this appeal.3. the contention of the counsel for the appellant is that there is no material cited, either in the show cause notice or in the order of the commissioner on the basis of which the value of the denaturant is determined. he does not dispute that the quantity used by the appellant has been rightly indicated in the show cause notice but says that in the total absence of material in the notice, the order impugned cannot be sustained. he contends that only a vague reference is made in the commissioner's order of supplier's bills issued, which is untrue and no bills were ever seized from the appellant. he also points to another order no. 1/dem/2002, dated 21-1-2002 of the same commissioner, dropping the proceedings initiated against another manufacturer of the same product on the same ground by holding that it is untenable.4. the departmental representative reiterates the findings in the order of the commissioner. he is however unable, when asked by us, to explain how the commissioner has determined the value or to say, in what appears to be identical case, the commissioner has taken diametrically opposite view.5. it must be made clear at the outset that the method adopted by the appellant does not show that it has included, as it should, in the value for assessment of the denatured alcohol the cost of the denaturant. by including in the total volume of denatured alcohol on which it paid duty, the quantity of denaturant, it has assumed that the value of the alcohol and the cost of the denaturant are identical. the counsel for the appellant states frankly that he is unable to establish this to be true. however, at the same time, the show cause notice does not cite any acceptable basis or material for the value of the denaturant. it does not cite any document or statement of the party to say what it should be. the reference by the commissioner to the suppliers bill can hardly make the position clear. he does not say what these bills are or from whom they were recovered. we are therefore left in a position to say that while the method adopted by the appellant does not appear to be correct, there is not the slightest material in the notice or in the order on the basis of which we can confirm the demand for duty.

Judgment:
1. The appellant is a sugar mill engaged in the manufacture of sugar, molasses and distillation of ethyl alcohol. It denatures the ethyl alcohol before clearance. The denatured alcohol is of two types, specially denatured and ordinary denatured. We are concerned with the value for assessment of specially denatured ethyl alcohol. The alcohol denatured by adding to it acetone, benzene or other substances. The appellant requires the buyers of this product to supply to it the quantity of denaturant substances that it requires. While clearing the denatured alcohol, it included, for purpose of assessment, the quantity and volume of denaturant i.e. the total of undenatured alcohol and the denaturant, but for the price to be paid by the buyer deducted the quantity and value of denaturant. One of the gate passes issued by the appellant, as an example, will illustrate this point.

Less, denaturant Itrs. 400 provided by buyer Rs. 1,97,220/- Sales tax, etc. Rs. 39,444/-.

2. The notice issued to the appellant alleged that it did not include the value of the denaturant in the assessable value of alcohol in the manufacture and proceeded to demand duty alleging the quantity of 10,615 litres of denaturant whose value was Rs. 1.68 crore and demanded duty on the same. In the order impugned in this appeal, the Commissioner has confirmed the demand for duty. Hence this appeal.

3. The contention of the Counsel for the appellant is that there is no material cited, either in the show cause notice or in the order of the Commissioner on the basis of which the value of the denaturant is determined. He does not dispute that the quantity used by the appellant has been rightly indicated in the show cause notice but says that in the total absence of material in the notice, the order impugned cannot be sustained. He contends that only a vague reference is made in the Commissioner's order of supplier's bills issued, which is untrue and no bills were ever seized from the appellant. He also points to another Order No. 1/Dem/2002, dated 21-1-2002 of the same Commissioner, dropping the proceedings initiated against another manufacturer of the same product on the same ground by holding that it is untenable.

4. The departmental representative reiterates the findings in the order of the Commissioner. He is however unable, when asked by us, to explain how the Commissioner has determined the value or to say, in what appears to be identical case, the Commissioner has taken diametrically opposite view.

5. It must be made clear at the outset that the method adopted by the appellant does not show that it has included, as it should, in the value for assessment of the denatured alcohol the cost of the denaturant. By including in the total volume of denatured alcohol on which it paid duty, the quantity of denaturant, it has assumed that the value of the alcohol and the cost of the denaturant are identical. The Counsel for the appellant states frankly that he is unable to establish this to be true. However, at the same time, the show cause notice does not cite any acceptable basis or material for the value of the denaturant. It does not cite any document or statement of the party to say what it should be. The reference by the Commissioner to the suppliers bill can hardly make the position clear. He does not say what these bills are or from whom they were recovered. We are therefore left in a position to say that while the method adopted by the appellant does not appear to be correct, there is not the slightest material in the notice or in the order on the basis of which we can confirm the demand for duty.