| SooperKanoon Citation | sooperkanoon.com/3210 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Feb-13-1987 |
| Reported in | (1987)(13)ECC118 |
| Appellant | Hindustan Shipyard Limited |
| Respondent | Collector of Central Excise |
(e) Is the appellant precluded from contending in this second appeal that the aforesaid notice was either without jurisdiction or barred by limitation, or violative of the principles of natural justice not having raised such pleas initially in the reply to the show cause notice or the grounds of appeal before the Collector (Appeals)? (a) pursuant to a ship building contract for the construction and delivery of two ships with the India Steam Ship Company Ltd., dated 18th August, 1975, the appellant was, originally, paid a price of Rs. 28,88,11,152.52 on which Central Excise duty in a sum of Rs. 1,44,40,557/- was assessed and recovered on clearance of the ships in March and October, 1978; (b) subsequently, during February, 1979, the appellant required the buyer to pay certain additional sums of money towards escalation in the price of steel, escalation on labour, and escalation in Customs duty for some imported components in terms of the various escalation clauses in the contract itself. The escalation demanded by the appellant would appear to be in a sum of Rs. 40,17,880.55 in aggregate for both the ships; (c) on 17-12-1980, a notice was issued merely intimating the appellant that on account of a failure to pay duty on the escalated and enhanced cost of the two vessels, a sum of Rs. 2,00,895.16 was short paid in contravention of Rule 10(1) of the Central Excise Rules, 1944, and they were required to show cause; (d) by an adjudication order dated 20-3-1981, it was held, inter alia, that the amounts demanded by way of escalation were part of the price of the two vessels and accordingly part of the assessable value thereof. Consequently, the Assistant Collector proceeded to demand the amount of Rs. 2,00,895.16 under Rule 10(2) of the Central Excise Rules, 1944; (e) in appeal, the order was confirmed and the instant revision application, which is now heard as an appeal by us, was the sequel.
(a) the assessable value is only the agreed price and not the escalation which is merely reimbursement as additional expenditure incurred in the construction of the ships in question. Accordingly, escalation is not part of price or the assessable value of the vessels. In the circumstances, the escalation in the price of steel and of labour and Customs duty cannot be taken into account in computing the assessable value; (b) the demand for payment of escalation was made on 5-2-1979. The notice, having been issued on 17-12-80, was barred under the provisions of the Act and Rules; (c) the learned Appellate Collector was in error in failing to consider the issue of limitation which was definitely raised before him; (d) the Assistant Collector, who was the adjudicating authority had no jurisdiction to demand payment beyond six months, unless it was alleged in the notice itself that there was any fraud, collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or of the Rules with intent to evade payment of duty. Without any allegation to that effect in the notice, there is no initial jurisdiction to raise a demand beyond six months; (e) it was incumbent on the part of the Revenue to make out a case in the notice for claiming the enlarged period of limitation and if this was not done and established in the course of the proceedings the Revenue could not have availed themselves of the enlarged period of limitation. The failure to make the requisite allegations (in the notice) to attract the larger period of limitation results in a denial of opportunity to show cause and thus violative of the principles of natural justice. The Revenue cannot now make out a new case for attracting the larger period of limitation; (f) in any event, the demand for the payment of the escalated amount of Rs. 40,17,880.55 for both the ships is not yet realised as it is the subject matter of disputes pending in arbitration between the appellant and their buyers.
4. The learned Departmental Representative generally defended the orders below.
5. It would appear to us on a perusal of the record, the submissions made and otherwise, that :- (A) (i) in terms of Section 4(1)(a) of the Act, the assessable value for levy of duty ad valorem shall be deemed to be the normal price of the goods in question, 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; (ii) in the case of ships to be constructed and delivered, a normal price or the price at which they are ordinarily sold is inconceivable, for they have to be constructed in accordance with such specifications and at such price as mutually agreed upon in terms of a contract between the parties. Ships are not ordinarily manufactured or bought and sold in the course of wholesale trade.
They are invariably "future goods" in terms of Section 6 of the Sale of Goods Act, 1930, constructed in terms of what is usually a works contract and sold; (iii) if, therefore, the normal price of such goods in the wholesale trade is not ascertainable for any reason whatsoever, the nearnest ascertainable equivalent thereof is to be determined in the manner prescribed under Valuation Rules, 1975, in terms of Section 4(1)(b); (iv) a perusal of the Rules would appear to disclose that it is only Rule 7 that would apply and none of the other Rules; (v) in terms of the said Rule, the value of such goods is to be determined according to the best judgment of the proper officer and for this he may have due regard, among other things, to any one or more of the methods provided for in the other Rules; (vi) a best judgment assessment should not be arbitrary. It should have a nexus with the facts discovered [AIR 1973 SC 2266 - Commissioner of S.T. v. Esu falli]; (vii) consequently, if the assessment is based upon the "price" payable in terms of the contract for the construction and delivery of each of the ships, it is not unreasonable and cannot be assailed as arbitrary.
(B) (i) "Price" is not defined in the Act itself. It is, however, the money consideration for a sale of goods in terms of Section 2(10) of the Sales of Goods Act, 1930. Generally, the price is fixed by the contract of sale itself or some method of its fixation is agreed upon in it, which must be resorted to by the parties to ascertain the price. It may also be left to be fixed by a third party; (ii) in the contracts, presently before us in the Appeal, it would appear that :- (a) the price payable was to be determined on the basis of "valuation of international price to be obtained and according to and in terms of other conditions forming part of the pricing formula evolved by the Government of India and indicated to the builders in their letter No. SY-VI(2)/70, dated 22nd July, 1971 and subject to such revision and modifications in this formula as may be made by the Government of India". In other words, a method of the fixation of price as laid down in the contract itself; and (b) the price so fixed is further subject to reimbursement of extra expenditure on account of variation in the value of Indian rupee or any other currency in statutory levies applicable to the contract; (iii) in the first blush, the stipulations in relation to escalation in the price of steel or labour or customs duty on imported parts in the contract may appear to partake of the character of reimbursement of actual expenditure incurred on account of statutory levies. But then, are they, truly, reimbursement of additional expenditure incurred on these counts and do not have any impact upon the price payable in terms of the contract? In other words, is the contract price not varied or modified in terms of the escalation in question, notwithstanding that the contract speaks of reimbursement thereof? (iv) it does not appear that there is any warrant for claiming that payments made on account of the escalation clauses in the contracts do not partake of the character of price but are mere reimbursement of additional expenditure incurred, seeing that the amounts paid by way of escalation are also, indisputably, part of the money consideration in terms of the definition of "price" in Section 2(10) of the Sale of Goods Act, 1930. That is why, the escalation clauses are incorporated in article 7 of the contract dealing with price.
The price is, therefore, not only to be determined in accordance with the specified formula but is also subject to variation in terms of the escalation clauses; (v) the escalation in the contract on various accounts is of the same genre as those specified in Section 64(a) of the Sale of Goods Act, 1930, which speaks of addition to or deduction from the contract price when duty is imposed or varied, after the making of the contract, to the extend of the variation. When such an amount is added to the price in consequence of statutory variation in terms of Section 64(a), it becomes part and parcel of price. To describe it as a reimbursement of actual expenditure in contradistinction to "price" is a mere sophistical escapism; (vi) in the premises, we hold that amounts paid, or realised, if any, towards escalation on various counts is part of the price payable -hence forms part of the assessable value for levy of duty ad valorem.
6. The other questions that were debated do not appear to require much of a consideration in the light of the judgement of the Bombay High Court in Misc. Petition No. 261 of 1976 dated 25-2-1981 (Premier Automobiles Ltd. v. A.K. Bandyopadhyay) in almost identical facts and circumstances. In that case :- (a) the Premier Automobiles Ltd. raised the price of Fiat cars manufactured by them from Rs. 12,660/- fixed by the Government by informal price control to Rs. 14,862/- w.e.f. 8th September, 1969; (b) on the issue of a Price Control Order under the Industrial (Development & Regulation) Act, 1951, fixing, inter alia, the retail price of the cars at Rs. 13,434/- per car, the aforesaid company filed a Writ Petition in the Supreme Court impugning the fixation of such a price; (c) the company informed its dealers that the price in their bills at the rates specified in the impugned Price Control Order was provisional and is subject to alteration in the event of the company succeeding in the Supreme Court. This was incorporated in their invoices as well; (d) In the price-list filed by the company before the Central Excise authorities, the controlled price of Rs. 13,434/- was shown. It was accepted as the assessable value and Excise Duty paid accordingly.
Although the Excise authorities were aware that the price was provisional, they did not make a provisional assessment. It was a final assessment made by them on the price declared; (e) in the Writ Petition, the Supreme Court was pleased to determine the price of cars sold between 22nd September, 1969 and 31st June, 1970 as well as those sold between 1st July, 1970 and 15th April, 1971. As a result of such fixation, the company was entitled to recover Rs. 334/- per car and Rs. 1,353/- per car respectively sold during the aforesaid periods; (f) on the issue of notices dated 23rd March, 1972 and 25th July, 1972 requiring the company to show cause against a demand for the payment of differential duty in certain specified sums in relation to the quantum of increase over the assessable value determined earlier for the aforesaid periods and the adjudication thereof as well as subsequent appeal and revision, the company filed the instant Writ Petition challenging the show cause notices, the orders made by the Assistant Collector in adjudication thereof, the order of the Collector (Appeals) and the order of revision. It was contended in the main for the company that there could be no revision of the assessable value on account of the subsequent increase or decrease in prices in terms of the old Section 4 of the Act, and in any view of the matter, the assessments already made were final and completed without any suggestion that they were provisional or incomplete and cannot, therefore, be reopened merely because of an escalation in the price, in the absence of such facts ' as may justify such reopening; (g) it was held that the assessments were final and complete only to the extent that they were made on the provisional price. If the Department had chosen to demand further duty on the provisional price, the Department would certainly have been in a quandry as the assessments were completed assessments. The additional duty demand by the Department is not, however, a duty upon the provisional price. It is a duty on the price fixed by the Supreme Court ultimately. Thus, the Department are not prevented from recovery. It was only when the price was fixed by the Supreme Court with retrospective effect that that price became the final price entitling the Department to call upon the company to pay duty on the difference.
7. The similarity in facts between the instant case and the aforesaid case of Premier Automobiles .is striking. In this case as well, the price stipulated to be paid in terms of the contract, as we have already observed is nothing but provisional and subject to escalation in terms of the escalation clauses therein. While it may be that the ships were assessed finally to duty on the basis of a provisional price in terms of the contract, this, by itself, does not come in the way of an ^assessment on the final price including the escalations demanded from the buyers, as and when such escalations are awarded in the proceedings in arbitration and to the extent of such award. Till, therefore, the amounts demanded towards escalation are finally settled and awarded in the arbitration proceedings, there is no determination of the final price. A mere demand for payment is not realisation of the amount demanded when the demand is not complied with and is disputed.
The show cause notice dated 17-12-1980 issued in this case is, in the circumstances, premature. The distinction, sought to be made, between the aforesaid case of Premier Automobiles and the instant case on the ground of the mutual awareness of the price being provisional in the case of Premier Automobiles whereas it is not so in this case is one that would make for no difference when we come to the conclusion that the issue of the notice itself in this case was premature. May be it is relevant if any question relating to the bar of limitation for the issue of the notice is in consideration. Not if it is held that the issue of the notice is premature. Since it is not reopening a final and completed assessment, the bar of limitation in the Rules does not apply. Nor do the nice questions of law debated at length in relation to limitation and jurisdiction arise for consideration in the view we are taking, following the ratio of the aforesaid judgment of the Bombay High Court.
8. In the circumstances, we allow the appeal and set aside the demand made in the notice to show cause dated 17-12-1980 as premature. The respondent will be at liberty to issue demands/notices to show cause in respect of such amounts in escalation as may be awarded in the arbitration proceedings now pending between the appellant and the buyers of the ships in question as and when the awards are made. The appeal is allowed subject to that condition.