| SooperKanoon Citation | sooperkanoon.com/32497 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Oct-01-2003 |
| Judge | S Kang, A T V.K. |
| Reported in | (2004)(91)ECC114 |
| Appellant | Hello Mineral Water P. Ltd. |
| Respondent | Commissioner of C. Ex. |
2.1 Shri A.R. Madhav Rao, learned Advocate, submitted that the Appellant No. 1 manufacture Aqua Minerals water in their unit No. 1 (Water unit), Hot and Cold Water Dispenser in their unit No. 2 (Dispenser unit) and Polycarbonate bottle and PP bottles in their unit No. 3 (Bottle unit); that all these units are located at different places in Noida; that Mineral water and Dispensers were removed after obtaining Central Excise Registration and following the procedure thereof; that, however, no separate registration had been taken for Bottle unit since the bottles were used captively and necessary endorsement in this regard was obtained on the Central Excise Registration for the water unit.
2.2 He, further, submitted that the granules required for manufacture of 12/24 litre bottles were removed from the water unit and bottles manufactured out of such granules were received back in the water unit under the cover of internal challans; since the said bottles were of durable and returnable nature and the approximate life of these bottles was 40 cycles, the proportionate cost of the bottle is included in the value of mineral water; that they stock transfer mineral water in 12/24 litre to their depots from where they sold and distributed the mineral water to the ultimate consumers through their distribution agents; that they claimed abatement of distribution charges paid to the delivery agents for delivery from depot to the ultimate consumer from the retail prices.
2.3 He also mentioned that they sold the water dispenser to individual customers and claimed abatement of only sales tax from retail price; that the sale of dispenser to franchisees was in bulk in the course of wholesale trade; that on the security deposit made against the term of the agreement by the franchisees, they paid appropriate interest on termination of the agreement.
3. He mentioned that the Commissioner, under the impugned Order has held as under : - (i) Benefit of exemption under Notification No. 15/94-C.E. is not available to 12/24 litre bottles as the Modvat credit of the duty paid on the inputs used for manufacture of bottles has been availed.
(ii) The benefit of exemption under Notification No. 67/95-C.E., dated 1-3-95 is not available in respect of 12/24 litre bottles since the cost of packing is excludible from the value and such cost has not been included in the value of the mineral water.
(iii) There is no wholesale price available for water dispenser and the assessable value did not represent the correct value and thus the water dispensers were under valued.
(iv) Input credit availed in respect of water dispenser is not available as the inputs were not received in the factory.
(v) SSI exemption under Notification No. 1/93-C.E., dated 28-2-93 is not admissible for the year 1996-97 as the aggregate value of clearance during 1995-96 exceeded Rs. 3 crores if the cost of durable and returnable bottles is included.
(viii) (a) Penalty imposed on Appellants No. 1 under Rules 173Q, 226, 52A and 9(2)s of the Central Excise Rules, 1944. (b) Penalty imposed on Appellants No. 1 under Section 11AC of the Central Excise Act. (c) Penalties imposed on Shri J.S. Sandhu, Director and Shri Lakhvinder Kumar, Director, under Rule 209A of the Rules.
4.1 The learned Advocate submitted that the benefit of Notification No.15/94 has been denied in respect of the bottles on the ground that Modvat credit has been reversed subsequently which does not satisfy the condition of Notification No. 15/94; that this finding is incorrect in law; that it has been held in Wear-well Tyre and Tube Industries v.CCE, Final Order No. 424/97-D, dated 19-5-1997 that once Modvat credit has been reversed, it cannot be said that credit of duty paid on the inputs has been taken. Reliance has also been placed on the decisions in Franco Italian Co.
Ltd. v. C.C.E. [2000 (120) E.L.T. 792 (T-LB) = 2000 (40) RLT 295 (CEGAT)] and Chandrapur Magnet Wires Ltd. v. CCE, 1996 (81) E.L.T. 3 (S.C.) wherein the Supreme Court has held that reversing the credit would be equivalent to the Appellants having not taken Modvat credit on the inputs used in the manufacture of exempted final product.
4.2 Alternatively, he claimed the benefit of Notification No.214/86-C.E. as the proportionate cost of the bottle was included in the price of the mineral water; that for the same reason, benefit of Notification No. 67/95-C.E. would be available and reliance has been placed on the decision in the case of Black Diamond Beverages Ltd. v.CCE, 5.1 He also contended that Modvat credit of Rs. 40,874/- is available to them; that ABS of 3 tons was directly sent to the job worker, M/s.
Navneet Polymers Pvt. Ltd. for undertaking the process of injection moulding; that such practice of sending the inputs directly to the job worker from the supplier is permissible. Reliance has been placed on the decision in J.P. Rewa Cement v. C.C.E., 5.2 The learned Advocate also contended that the demand of duty on the water dispensers by adopting the retail price is on the premises that sales to the franchisees were not at arm's length and hence the retail sale to the ultimate consumer is the only sale available; that on such erroneous premises the Revenue has adopted the retail price as the value for the sales made to independent franchisees; that the sales to the franchisees were in the course of wholesale trade and the price was the normal price; that the prices at which the water Dispensers were sold to franchisees were not affected by any extra commercial consideration; that as per Agreement, the security deposit is to earn a simple interest @ 12% per annum (payable quarterly); that interest has been duly paid by the Appellants. In support of this contention he referred to the photocopy of the Interest A/C maintained by the Appellants at Page 446 of the Paper Book. He relied upon the decision in the case of C.C.E., Mumbai-III v. I.S.P.L. Industries Ltd., 2003 (154) E.L.T. 3 (S.C.) = 2003 (56) RLT 8 (S.C.). Wherein the Supreme Court has held that "mere fact of making interest free advance by a buyer to the manufacturer, by itself will not be a sufficient ground to reload assessable value with notional interest. It would be necessary for the Revenue to show that such advance has influenced, in the lowering of the price and that it is not depicting the normal price of the goods". He also referred to the judgment in U.O.I v. Mahindra & Mahindra Ltd., 1995 (76) E.L.T. 481 (S.C.) wherein the Supreme Court while interpreting an agreement between the Respondents and the foreign collaborator observed that "No evidence is available to show that the payment of royalty to the Collaborator induced any extra commercial obligation for the price of CKD Packs, parts and components. Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements reflect the real state of affairs".
5.3 Alternatively, the learned Advocate mentioned that if the transactions with the franchisees are regarded not to be at arm's length, then necessary abatement towards retail margin is admissible.
He relied upon the decision in the case of Modi Xerox Ltd. v. C.C.E., 1998 (98) E.L.T. 12 (S.C.).
5.4 Finally he mentioned that demand has been made under Heading 85.16 of the Schedule to the Central Excise Tariff Act which is wrong as the water dispenser has been classified under Heading 84.79 by the Assistant Commissioner, under Order-in-Original dated 27-3-98.
6. The learned Advocate also claimed the benefit of Notification No.1/93-C.E., dated 28-2-1993 contending that the value of bottles is not to be included in the aggregate value of clearances since the bottles were captively consumed. He relied upon the decision in the case of Universal Electrical Industries v. CCE, 1994 (70) E.L.T. 279. He contended that no penalty is imposable on the Appellant-company either under Section 11AC of the Central Excise Act or under Rule 173Q of the Central Excise Rules, 1944; that moreover the entire period involved is prior to 28-9-96 and Section 11AC of the Act came into force only on 28-9-96; that penalty is also not imposable on Appellants No. 2 and 3 as the same has been imposed on them without any specific charge; that there is no material or evidence to show that they knew or had the reason to believe that the goods were liable for confiscation.
7. Countering the arguments, Shri A.S. Bedi, learned SDR, reiterated the findings as contained in the impugned Order and emphasized that Notification No. 15/94 stipulates a pre-condition that bottles are exempted from payment of duty if no credit of duty paid on the inputs used in the manufacture of such goods have been availed of; that such condition should have been satisfied at the time of clearance of the bottles; that a reversal of credit after detection by the Central Excise Officers cannot be regarded as complying with the condition of the Notification; that Notification No. 67/95-C.E. is also not available as in their declaration under Rule 173B dated 2-6-95 they have declared that the cost of the bottle is not included in the assessable value of the final product, mineral water; that for the same reason, the benefit of Notification No. 214/86-C.E. is also not available to the Appellants. He also mentioned that SSI exemption under Notification No. 1/93 is also not available to the Appellants as the value of bottles manufactured and cleared during 1995-96 by them was not taken into account during the preceding financial year; that Shri Raju Katiyar, Assistant Manager, has admitted in his statement dated 12-2-98 that cost of bottles had not been included in the cost of mineral water; that the decision in the case of Universal Electrical Industries is not applicable as the bottles had been manufactured in a different unit.
8. He further submitted that Modvat credit in respect of 3 tons ABS is not available to them since as per Inter Office Memo dated 8-8-96, they actually received 3 tons ABS under Invoice No. 2853 dated 20-3-96 and the same was transferred to their job worker; that, however, the said invoice showed 3 tons ABS and thus the Appellants had availed excess Modvat credit on 3 tons; that this fact has been admitted by Shri Deepak Goel, Controller of Accounts, in his statement dated 27-3-1998.
9. Regarding under valuation of water dispenser, the learned SDR, submitted that the Appellants No. 1 have entered into an agreement with their franchisees who would give 5% commission on the gross sale proceeds of mineral water; that franchisees would also give a security ranging from Rs. 1 lakh to 6 lakhs; that they would also independently give the publicity to the products of the Appellants; that thus the transactions with the franchisees were not at arms length; that the Appellants thus reduced the assessable value from Rs. 7,072/- to Rs. 5,800/- for Deluxe model and from Rs. 6,887/- to Rs. 5,500/- for regular model; that Shri Deepak Goel, initially stated that the security deposits received by them were interest free which he later retracted; that this shows that the Appellants did not pay any interest on the security deposit received from franchisees. He finally mentioned that penalty on all the three Appellants is imposable; that both Appellants No. 1 and 2 as Directors, are responsible to discharge their obligations under the Central Excise Law which they had not discharged.
10. In reply, the learned Advocate submitted that the publicity given by the franchisees is in addition to the publicity given by the Appellants and is confined to the areas of operation of the franchisees only; that it is now settled law that the advertising undertaken by a buyer in his area of operation, which benefits both the buyer and the manufacturer, is not includible in the assessable value of the goods.
Reliance is placed on the judgement in the case of Philips India Ltd. v. CCE, Pune, 1997 (91) E.L.T. 540 (S.C.). He also submitted that the Tribunal, in their own matter, has remanded the case to the jurisdictional Assistant Commissioner, vide Final Order Nos.
A/715-28/1999-NB, dated 18-8-1999 to ascertain as to whether the cost of bottles was included on pro rata basis in the assessable value of the mineral water.
11. We have considered the submissions of both the sides. As far as disallowance of Modvat credit in respect of 3 tons of ABS is concerned, the Appellants have not succeeded in rebutting the findings recorded by the Commissioner in the impugned Order based on Inter-office Memo which clearly mentions that they had actually received 3 tons instead of 6 tons mentioned in the invoice. Shri Deepak Goel, Controller of Accounts, has also confirmed the said factual position. We, therefore, uphold the disallowance of Modvat credit amounting to Rs. 40,874/-.
12.1 Regarding duty demand in respect of bottles manufactured in unit 3, the benefit of exemption under Notification No. 15/94-C.E. is available subject to the condition that no credit of the duty paid on the inputs used in the manufacture has been availed of under Rule 57A the Central Excise Rules. It is an admitted position that the Appellants had availed of the Modvat credit of the duty paid on the inputs used in or in relation to manufacture of the impugned bottles.
The Appellants have contended that they had reversed the Modvat credit and as such benefit of exemption cannot be denied to them. The Revenue on the other hand has contended that the condition of the Notification should have been complied with before the clearance of the bottles and reversal of credit after the detection by Central Excise Officers would not amount to complying with the condition of the Notification. We agree with the submissions made by the Revenue that the credit availed of should have been reversed at the time of or before the removal of the bottles as the exemption from payment of duty is available subject to the condition of non-availing of the Modvat credit of duty paid on inputs. In Chandrapur Magnet Wires (P) Ltd., supra, the Supreme Court has held that "We see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product," [Emphasis provided]. It is thus apparent that debit entry has to be made in the Credit account before removal of the product. In Chandarapur Magnet case the assessee reversed the credit entries of duty paid on inputs which were utilised for manufacture of duty free copper wires. In Wearwel Tyre & Tubes Industries P. Ltd. case also the Appellants had made the reverse entry before officers visited the factory.
12.2 We observe that the benefit of Notification No. 67/95-C.E., dated 16-3-95 is available only if the cost of the packaging materials or containers is included in the assessable value of the final products under Section 4 of the Central Excise Act. The Tribunal in the Appellants own matter, vide Final Order Nos. A/715-28/99-NB, dated 18-8-99 has remanded the matter to the Department to consider as to whether the cost of bottles was included in the assessable value of mineral water. We, therefore, remand this aspect to the adjudicating authority for reconsideration with liberty to both the sides to adduce evidence to substantiate their claim of inclusion/non-inclusion of the cost of bottles on pro rata basis in the assessable value of mineral water. As the issue relating to their eligibility to benefit of SSI Notification No. 1/93-C.E. is dependent on the aspect of duty liability on the bottles the same is also remanded to be decided afresh after deciding the duty liability of the bottles in question.
13. Now we come to the issue regarding under valuation of the water dispenser. We find substance in the submission of the learned Advocate that the retail price as such cannot be adopted as assessable value for the purpose of levying Central Excise duty on the water dispensers sold to their franchisees. If at all it is held that the sale to the franchisees is not at arm's length, the retail price has to be adjusted as was provided in Rule 6(a) of the Central Excise Valuation Rules, 1975. This was also the view expressed by the Tribunal in the case of Swaraj Mazda Ltd. v. C.C.E., Chandigarh, 2001 (137) E.L.T. 547 (T) wherein the Tribunal observed that "the Central Excise Authorities could not have adopted the retail price without making suitable adjustments to make them correspond to wholesale price." However, we observe that the Commissioner has not accepted the price charged from franchisees on the ground that they are giving interest free security deposit and are spending money on the advertisement. As far as advertising is concerned, the issue has been settled by the Supreme Court in the case of Philips India Ltd., wherein the Supreme Court has held that the advertisement which the dealer was required to make at its own cost benefited in equal degree the manufacturer and the dealer and making a deduction out of the trade discount on this account is uncalled for. On the aspect of security deposit, both the sides have argued contrary to each other. According to Revenue no interest is paid on the security deposit taken from the franchisees whereas the learned Advocate for the Appellants has shown the interest clause in the Agreement and has also shown the Interest Account maintained by the Appellants. If interest is paid by the Appellants, it cannot be alleged by the Revenue that the security deposit has depressed the price of the water dispenser. As the payment of interest is a factual aspect, we remand this question also to the adjudicating authority for re-adjudication after ascertaining the fact as to whether interest is paid by the Appellants to the franchisees on the security deposits made by them.
14. We agree with the submissions made by the learned Advocate that the penalty cannot be imposed for the period prior to 28-9-1996. We, therefore, set aside the penalty imposed on the Appellant No. 1 under Section 11AC of the Act. Regarding imposition of penalty under other provisions of the Central Excise Rules, 1944, we leave the matter open to the Commissioner's consideration at the time of re-adjudicating the matters.