| SooperKanoon Citation | sooperkanoon.com/31244 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Jun-17-2003 |
| Judge | A T V.K., P Chacko |
| Reported in | (2003)(161)ELT834TriDel |
| Appellant | Vimal Moulders (India) Ltd. |
| Respondent | Commissioner of C. Ex. |
2. During the POD, the assessee was engaged in the manufacture of plastic moulded parts of Colour Television, Audio Systems and Washing Machines. They manufactured such goods on job work basis and cleared the same on payment of duty to the customers. Among such customers were M/s. Sony India Pvt. Limited (for short, M/s. SIL), M/s. L.G.Electronics (I) Pvt. Limited (for short, M/s. LGE) and M/s. Matsushita Televisions and Audio India Limited (for short, M/s. MTA) who supplied free of cost to the assessee the moulds and dies required for the manufacture of the goods ordered by them. When the assessee cleared the goods to these customers during the POD, they did not include the costs of the moulds and dies in the assessable value of the moulded goods for the purpose of payment of Central Excise duty thereon. The department found this out and issued the SCN to the assessee demanding the differential duty. That demand was confirmed by the Commissioner in Order-in-Original dated 24-3-2000 and the appeal preferred thereagainst resulted in the Tribunal's remand order dated 10-10-2000. In that proceedings, it was submitted by both sides before the Tribunal that the question of includibility of the value of moulds and dies (supplied free of cost by buyer) in the assessable value of the goods manufactured by using such moulds and dies stood covered by the Tribunal's Larger Bench decision in Mutual Industries Ltd. v. CCE, Mumbai [2000 (117) E.L.T. 578 (T)= 2000 (37) R.L.T. 703]. It was also agreed by the DR that the demand required to be worked out in conformity with the said decision. The remand order was, therefore, passed by the Tribunal directing the Commissioner to take a fresh decision in the matter in conformity with the principle of valuation enunciated by the Larger Bench in Mutual Industries. The order also gave liberty to the appellant to raise other relevant issues before the adjudicating authority. The impugned order of the Commissioner is pursuant to the above remand order.
3. Heard both the sides. The question whether the value of moulds and dies supplied free of cost by customer is to be included in the assessable value of the goods manufactured by the assessee by making use of such moulds and dies is no longer res integra. This question has been settled by the Tribunal's Larger Bench in Mutual Industries (supra). It is not debatable in the instant case either, as the same stands concluded by our remand order dated 10-10-2000. The value of the moulds and dies supplied free of cost to the assessee by M/s. SIL, M/s.
LGE and M/s. MTA and used for the manufacture of the moulded plastic components which were cleared to the said customers during the POD has already been held to be proportionately includible in the assessable value of such components in terms of the principle of valuation enunciated by the Larger Bench. The proportionate value of the moulds and dies to be so included in the assessable value of the moulded products has to be determined by an amortization of the cost of the moulds and dies in accordance with the principle laid down by the Larger Bench. The only questions arising in the present appeal for our consideration are (a) whether the Commissioner has correctly determined the "amortised value" of the moulds and dies for inclusion in the assessable value of the moulded products, and (b) whether the demand of duty is barred by limitation.
4. Where the value and amortised quantity of mould were available, the adjudicating authority found that the amortised value given in the SCN was in conformity with the principle laid down in Mutual Industries (supra). Such moulds (as mentioned in the Commissioner's order) are the following :- "Rail Guide, Front Cover G-14, Rear Cover G-14, Door Control G-14, Button Power G-14, Button Control G-14, Guide Light G-14, Holder Cassette (W/man), Cabinet Front (W/man), Cabinet Rear (W/man), Holder Cassette (A+B), Speaker Box Rear (L & R), Speaker Box Front (L & R), Cabinet Front, Speaker Front (L)".
In respect of the moulds viz. Front Cover -2167, Rear Cover-2167, Bracket Main, Panel Control, Door Control and Button Power, for which the assessee had claimed the life span of mould to be three to five years, the Commissioner found the moulds to be old and second-hand, held their maximum life to be three years and approved the amortisation given in the SCN, after noting that the assessee had not produced any evidence to show that the moulds had actually been used in the three years' period for manufacture of more moulded products than that shown in the SCN. In respect of the remaining moulds viz. Back Cover-1487, Rear Cover-2185, Cartridge Heater, Band Heater, Thermocouple A & B, Beznet G-21 & T-21 and Shaft Door received from M/s. SIL as also the moulds received from M/s. LGE and M/s. MTA, it was found that the assessee had not produced evidence of life span or amortised quantity to disprove the amortisation done in the SCN and, accordingly, the amortised value determined in the SCN in respect of these moulds was also approved in the order of adjudication. In the result, the valuation in the SCN was upheld and the demand of duty raised on that basis was confirmed. The adjudicating authority also rejected the assessee's plea of time-bar against the demand.
5. Heard both the sides. The Counsel for the appellants submitted that the adjudicating authority had not properly complied with the remand order, nor correctly followed the amortisation principle laid down by this Tribunal in Mutual Industries (supra). The major part of the demand raised in the SCN was in relation to the moulds supplied by M/s.
SIL under Rule 57-S(6) challans. Neither the life span of the moulds nor their capability (production capacity) was taken into consideration for amortising their value, which was against the CBEC's instructions contained in Circular No. 170/4/96-CX., dated 23-1-96 which were approved by the Tribunal in Mutual Industries (supra). Though Cost Accountant's certificate in proof of capability of the moulds and Surveyor's Certificate in proof of their life span were produced before the adjudicating authority after remand of the case to it by this Tribunal, the evidence was not accepted by the authority, whereby the Board's instructions and the Tribunal's ruling were flouted. The life span of the moulds, Front Cover-2167 and Rear Cover-2167, which were returned to the customers (M/s. SIL) within 5-6 months of the date of receipt from them, ought to have been taken as five years on the basis of the Surveyor's certificate and the production capacity of the moulds worked out at 90% on the basis of the Cost Accountant's certificate.
Had it been so done, the duty payable on amortised value of the said moulds would have been far below what was estimated in the SCN. The moulds of Model 1487 and Model 2185 which were received under Rule 57-S (6) challans dated 3-6-96 and 6-8-96 were continuously in use through January, 2002 (when this appeal was filed) and there was no reason why the life span of such moulds should not be taken as five years. An amortisation of the cost of the said moulds on the basis of five years' life span and 90% production efficiency would have resulted in a much lower figure than what was determined in the SCN and consequently the duty liability would have been much lower than the SCN estimate. The same argument was advanced in respect of the moulds of Rail Guide which were received from M/s. SIL under Rule 57-S(6) challan dated 12-9-97 and were still in use. In respect of the mould of Shaft Door, it was submitted that the mould had been received from M/s. SIL under Rule 57-S(6) challan dated 10-3-98 and the same was sent back to the customer on the very next day after using it for production of 2,500 pieces of Shaft Doors. There was no justification in limiting the life span of such a mould to three years and estimating a high amortised cost. Cost Accountant's certificates which were produced in respect of the moulds supplied by M/s. LGE and M/s. MTA were also not accepted.
The Commissioner could have examined the Cost Accountant before rejecting his certificates. It was further submitted by the Counsel that the assessee's statements (worksheets) filed along with the Cost Accountant's certificates were also disregarded.
6. Ld. Counsel, on the issue of time-bar, submitted that the moulds had been supplied by customers under duly authenticated Rule 57-S(6) challans after taking the requisite permission from the jurisdictional Assistant Commissioner. The customers had supplied the moulds after taking Modvat credit thereon. They were reputed multinational companies and must have included the amortised value of the moulds in the assessable value of their own final products for payment of duty thereon. These facts were all known to the department. In the circumstances, it could not be said that the appellants had suppressed any fact before the department with intent to evade payment of duty. It was further contended that the appellants had only acted with a bona fide belief that the cost of mould was not includible in the assessable value of the moulded product. There were decisions of the Tribunal holding that the cost of mould was not includible in the assessable value of the moulded product, which fact worked as a reason for the above belief. The Counsel cited the Larger Bench judgment in Mutual Industries as evidence of the said fact. In support of the plea of limitation, reliance was also placed on the Supreme Court's decision in Cosmic Dye & Chemicals v. CCE - 1995 (75) E.L.T. 721 (SC) and the Tribunal's decision in CCE v. Allied Industries - 2000 (126) E.L.T.1216 (T)= 2000 (38) R.L.T. 643. This case law had been cited before the Commissioner but was not considered.
7. The SDR reiterated the findings of the Commissioner. He particularly submitted that there was no evidence to show that the moulds could be used in a period of 3 years for manufacturing higher quantities of products than those mentioned in the SCN. The Cost Accountant's certificates were purely on theoretical basis and not on the basis of actuals, and hence the same were rightly rejected by the adjudicating authority. Countering the Counsel's arguments on the limitation issue, the learned SDR submitted that, after 1996 when this Tribunal held in the case of Flex Industries that the value of printing cylinders was to be included in the assessable value of the printed product, there was no reason for a bona fide belief to the contrary. Upon receipt of additional consideration (in the form of the value of moulds and dies), the party should have filed fresh declaration under Rule 173C, which they did not do, only with obvious intent to evade payment of duty on any value addition. Suppression of material facts with intent to evade duty was evident. The extended period of limitation was, therefore, invocable to demand duty on the differential value of the moulded components cleared by the appellants to M/s. SIL, M/s. LGE and M/s. MTA during 1996-97 to November, 1998.
8. We have examined the records and submissions. Much of the debate was on the question whether the Commissioner had rightly amortised the costs of the moulds and dies for the purpose of value addition in respect of the moulded products. This question requires to be examined with reference to the principle laid down in the case of Mutual Industries (supra). In Mutual Industries, the Larger Bench approved the method of amortisation in Flex Industries Ltd. v. CCE, Meerut - 1997 (91) E.L.T. 120 referred to by the DR In Flex Industries, a regular Bench of the Tribunal had adopted the principle contained in Board's Circular No. 170/4/96-CX, dated 23-1-96, and worked out a method illustrated as under :- "To illustrate, we assume that a set of four cylinders of the value of Rs. X can be used in manufacture of ten lakhs printed pouches.
Hence it is reasonable to regard that Rs. X/10 lakhs is the proportionate value of cylinder which is used in the manufacture of a single printed pouch and this fractional value has to be added to the value of printed pouch".
The chief arguments advanced before us by the learned Counsel in the present case were based on the second half of the Board's clarification (vide italicized portion) reproduced below :- "The matter has been clarified and it is hereby clarified that the proportionate cost of pattern has to be included in the assessable value of the casting even in cases where such patterns are being supplied by the buyers of the casting or are got prepared/manufactured by the job worker at the cost of the buyer. In cases where there is difficulty in apportioning the cost of pattern, apportionment can be made depending on the expected life and capability of the pattern and the quantity of castings that can be manufactured from it and thus working the cost to be apportioned per unit. For this purpose, a certificate from a Cost Accountant may be accepted." In respect of some of the moulds in the present case, apparently there was no difficulty in apportioning the cost of moulds and the Commissioner has done the job on the basis of the costs and amortised quantities made available by the assessee, These are the moulds which we have mentioned as an extract from the impugned order, in para (4) of this order. There appears to be no grievance for the party in respect of these moulds, barring 'Rail Guide'. The dispute is in respect of Rail Guide and the following moulds :- "Back cover- 1487, Rear cover- 2185, Cartridge Heater, Band Heater, Thermo Couple (A) & (B), Front cover- 2167, Rear Cover- 2167, Bracket Main, Panel control, Door control, Button power, Beznet G-21 & T-21, Shaft door." In respect of these moulds, the Commissioner apparently proceeded on the premise that, for amortising the cost of a mould, the life expectancy of the mould or its amortised quantity was required, whereas, in terms of the Board's circular, the requisites were the mould's life expectancy and capability. It has also to be noted that, towards evidence of all the factors viz. life expectancy, capability etc., the Board's advice was to accept a Cost Accountant's certificate.
In the instant case, there is nothing in the impugned order to indicate that the Commissioner has considered the Cost Accountant's certificates produced by the party. He ought to have considered the certificates for the purpose of amortising the cost of moulds per unit in terms of the Board's circular which was binding on him.
9. Counsel also relied on Surveyor's reports (said to have been obtained from abroad by the customer at the time of importation of the moulds) which certified life expectancy of the moulds to be five years.
At the same time, it was submitted that some of the moulds received by the appellants in June and August, 1996 were still in use when this appeal was filed, which clearly meant that such moulds could be used far beyond their certified life span. ld. Counsel also cited instances of moulds having been used and returned to the customer within one or two days of the date of receipt thereof from them, which meant that a major part of life span of such moulds was left, unutilized, to the customer after the Rule 57-S(6) transaction. However, there is no evidence as to how long the customer, on their own or through job workers, could benefit from such unutilized part of the mould life. In such circumstances, we are of the view that the life expectancy of five years reported by the overseas surveyors is not reliable. Also, there is nothing in the Board's circular to obligate the adjudicating authority to accept the Surveyor's report.
9. On the limitation issue, we find no merit in the contentions raised on behalf of the appellants. It is an admitted fact that, though they received additional consideration in the form of value of moulds and dies supplied free of cost by their customers, they did not file fresh declaration under Rule 173C, nor did they pay duty of excise on the differential value of the moulded products cleared to their customers during the POD. In the original declaration filed by them, they had not disclosed the fact that they had received moulds and dies free of cost from their customers and were using the same for moulding the products.
Suppression of material facts is evident from this. The plea of bona fide belief that the value of the moulds were not includible in the assessable value of the moulded products is also liable to be rejected inasmuch as there was no reason to entertain such a belief where the provisions of Rule 5 of the Central Excise (Valuation) Rules read with Section 4(1)(a) of the Central Excise Act were clear enough to rule out such belief and the decision of this Tribunal in Flex Industries was there in place to remove any doubt from the mind of the appellants. The fact that the customers had supplied the moulds under Rule 57-S(6) challans to the appellants after taking Modvat credit thereon was also projected by ld. Counsel in his attempt to disprove the department's allegation that the appellants had intent to evade payment of duty on the value of the moulds. In this connection, he also relied on the Tribunal's decision in Allied Industries (supra) wherein it had been held that where the buyer was entitled to Modvat credit, the manufacturer could not be held to have intent to evade payment of duty.
These arguments of the ld. Counsel have also to be rejected in view of this Tribunal's Larger Bench decision in Jay Yuhshin Ltd. v. CCE, New Delhi [2000 (119) E.L.T. 718 (T-LB) = 2000 (39) RLT 501], according to which the department's charge of intent to evade payment of duty, against one party, would not be dislodged on the strength of a plea that another party was entitled to take Modvat credit. We have followed this Larger Bench view in the case of Autolite (India) Ltd. v. CCE, Jaipur [2002 (146) E.L.T. 345 (T)= 2002 (53) RLT 410] -- a case somewhat similar to the instant one. In any view of the matter, the extended period of limitation has been correctly invoked in this case to demand duty from the appellants.
10. For the reasons which we have stated in para (8) of this order, the amortisation, by the Commissioner, of the cost of the moulds of Rail Guide, Back Cover-1487, Rear Cover-2185, Cartridge Heater, Thermocouple (A&B), Front cover-2167, Rear Cover-2167, Bracket Main, Panel Control, Door Control, Button Power, Beznet G-21 & T-21 and Shaft Door is set aside as it is not in conformity with the Board's guidelines endorsed in Mutual Industries (supra). The demand of duty on the above moulds is consequently set aside. The Commissioner is directed to determine the amortised value afresh by accepting the relevant certificates of Cost Accountant to the extent admissible in terms of the Board's circular, and to requantify demand of duty accordingly. In respect of other moulds, there is no dispute raised in this appeal and therefore the amortisation as determined in the impugned order and the demand of duty on such amortised value are affirmed.
12. As the proviso to Section 11A(1) of the Central Excise Act has been held to have been rightly invoked in this case on the ground of suppression of facts by the assessee with intent to evade duty, the appellants are liable to pay interest under Section 11AB on the duty evaded and are also liable to be penalized under Section 11AC The penalty of Rs. 18,36,340/- imposed by the Commissioner is, however, set aside consequent to our order setting aside a part of the demand of duty. It will be open to the Commissioner to determine the quantum of penalty afresh after requantification of the demand of duty. Needless to say that the assessee shall be given a reasonable opportunity of being heard on all the remanded questions.