| SooperKanoon Citation | sooperkanoon.com/43996 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT |
| Decided On | Nov-03-2006 |
| Judge | S Peeran, J T T.K. |
| Reported in | (2007)(210)ELT196Tri(Bang.) |
| Appellant | J.J. Confectionery (P) Ltd. |
| Respondent | The Commissioner of Central |
The assessee manufactures different types of confectioneries which are excisable. They carried out job works for M/s Parry's Confectionery Ltd., Chennai based on an agreement between them. M/s Parry's Confectionery Ltd. would supply raw material. The Revenue initiated proceedings against the assessee on the ground that they have not included various amounts while determining the assessable value of the goods cleared for the period from September 1997 to March 2002. The Original authority confirmed the demand of Rs. 1,40,599/-. Interest under Section 11AB of the Central Excise Act was also demanded. Equal penalty under Section 11AC of the Act was imposed.
3. Actually there were three issues - (1) Inclusion of production incentive paid to the assessee by M/s Parry's Confectionery Ltd. as a compensation for not permitting the assessee to produce the agreed quantity as per the agreement. (2) Inclusion of remuneration paid to the person posted in the factory for pre-delivery inspection at the option of M/s Parry's Confectionery Ltd. (3) Reversal of Cenvat credit availed by the assessee on excess consumption (material variance).
In respect of the issue No. (1), the Commissioner (Appeals) held that the production incentive paid as compensation for not permitting the assessee to produce the agreed quantity as per the agreement has nothing to do with the manufacturer of products. Hence he held that the same is not includible in the assessable value. As regards the issue No. (2), he held that the remuneration paid to the supervisor posted for inspection is includible on the assessable value. As regards the issue No. (3), he held that show cause notice was issued for reversal of Cenvat credit, whereas the Order-in-Original decides the valuation.
Since the Order-in-Original is beyond the scope of the show cause notice, he decided the third issue in favour of the assessee. The assessee is aggrieved over the impugned order.
3. Shri A.K.J. Nambiar, learned Advocate appeared for the assessee and Shri R.K. Singla, learned Jt. CDR appeared for the Revenue.
The salary and the allowances to the officer posted at the assessee's premises are paid by M/s Parry's Confectionery Ltd. The officer was deputed by M/s Parry's Confectionery Ltd. To ensure that the final product which are going to be supplied to M/s Parry's Confectionery Ltd. confirm to the quality specification under the agreement entered between the appellant's company and M/s Parry's Confectionery Ltd. The officer, in other words, is only a person deputed by the raw material supplier for ensuring that the products supplied to the raw material supplier confirmed to the quality standard. It is pertinent to note that the production process at the assessee's factory involves quality checks at various stage and hence the assessee does not require another person to perform quality checks of the final product at a stage just prior to clearance. It was at the insistence of the raw materials supplier that a supervisor was deputed to the assessee's premises to perform a quality check. The function of the deputed officer has nothing to do with the manufacturing and marketing operations of the assessee's company, the salary and allowance paid to the said officer by his employer cannot be included in the cost of the appellants. Therefore the Commissioner (Appeals) has erred in the impugned order by upholding the order of the lower authority. The learned Advocate relied on the decision of the Tribunal's Larger Bench decision rendered in the case of Commissioner of Central Excise, Raipur v. Bhaskar Ispat Pvt Ltd. wherein it was held that cost of additional testing concluded at customer's request and borne by the customer is not includible in the assessable value of the goods.
5. The Revenue has filed appeal against the same Order-in-Appeal on the following grounds: (i) The amount of compensation for loss of production received by the assessee is Rs. 4,78,000/-. However, the Commissioner (Appeals) mentioned that the amount involved is 2,78,000/- in Para 7. There is no basis for the findings of the Commissioner (Appeals) that the amount involved is Rs. 2,78,000/-.
(ii) The amount paid as compensation for not utilizing the contracted capacity is only conversion/job charges is an attempt deliberately made to evade payment of duty. Such payment will definitely be included as a cost factor for the confectionary manufacture and is a part of the intrinsic value of the goods as held by the Apex Court in the case of Ujagar Prints case [1989 (39) ELT 493 (S.C.)]. Thus the findings that the payment has nothing to do with manufacture is not correct.
(iii) The commissioner (Appeals) has not appreciated the show cause notice properly while reaching the conclusion that the Order-in-Original is in variance with the show cause notice so far as cost of excess raw materials value of Rs. 2,04,800/- consumed is concerned. The Commissioner (Appeals) found that the show cause notice is regarding reversal of Cenvat credit whereas the order is on the valuation. The relevant portion at Para 13 of the show cause notice is extracted below: (d) an amount of Rs. 2,04,800/- being reimbursement for material variance as paid by M/s J.J. Confectionary (P) Ltd. represents the cost of raw materials consumed in excess of agree consumption thus, appears as input value is taken back by M/s J.J. Confectionary (P) Ltd., but by way of clandestinely suppressing the above mentioned expenditure/cost from the value of confectioneries declared for the relevant period and by the reason of fraud and willful mis-statement with intention to evade payment of duty, but not having arrived at the value in consideration with the above production expenditure/costs....
Thus the show cause notice has clearly brought out that the amount of Rs. 2,04,800/- is includible in the value. The Original authority has correctly included this into the assessable value of the goods and have confirmed the demand in this regard. The Original authority has correctly not demanded the Cenvat credit taken on this quantity of raw material (used in excess) since the value is included in the assessable value.
(iv) The Commissioner (Appeals) has also erred in reducing the penalty under Section 11AC. Penalty under Section 11AC is imposable equal to the duty determined.
4. The learned Jt. CDR re-iterated the ground of the appeal filed by the Revenue. He relied on the Tribunal decision rendered in the case of Diamond Clock Manufacturing Co. Ltd. v. CCE, Pune which has been upheld by the Apex Court wherein it has been held that Testing charges in respect of Meters are not deductible from the assessable value. Further the decision of the Tribunal in the case of Hindustan Gas & Industries Ltd. v. Commissioner of Central Excise & Customs, Baroda was relied on, wherein it was held that inspection charges for testing of inserts conducted by RITES has to be included in the absence of optionality. The case of Saket PVC Pipes Industries Pvt Ltd. v. Commissioner of Central Excise & Customs, Patna was also relied on wherein it was held that testing charges includible in the assessable value of the product in absence of any evidence in support of contention that such charges were re-testing charges.
5. We have gone through the records of the case carefully. As regards the issue No. (1), the Commissioner (Appeals) has decided the issue in favour of the assessee. It is the Revenue which has come in appeal against the non-inclusion of payment made as compensation for not being permitted to the assessee to produce the contract quantity. We find that there was a contract between the assessee and M/s Parry's Confectionery Ltd. and as per the contract certain quantity has to be produced by the assessee. For the reason for not being permitted the assessee to produce the contract quantity, the assessee has been paid some compensation. In our view, this is in the nature of a penalty for breach of contract. This has nothing to do with the goods manufactured and cleared. In these circumstances, the finding of the Commissioner (Appeals) is correct. Therefore there is no merit in the Revenue's appeal. On this point, the Revenue's appeal is not sustained.
6. As regards the issue No. 2, the Commissioner (Appeals) has decided the issue against the assessee. The case laws produced by the learned Advocate and the learned Jt. CDR only support of the case of the assessee. The inspection carried out by the officer deputed by M/s Parry's Confectionery Ltd. is an additional inspection. The Supervisor was also paid by M/s Parry's Confectionery Ltd. Since the supervision is at the option of the buyer and charges are paid by the buyer, the same is not includible in the assessable value. The citation in the case of Bhasker Ispat Pvt Ltd. and Ors. case laws cited supra are clearly applicable to the issue. Therefore we set aside the Commissioner's (Appeals) order for inclusion of the remuneration of the supervisor appointed by M/s Parry's Confectionery Ltd. 7. As regards the issue No. 3, for demanding duty on account of receipt of excess consumption of raw material, we find that Para 8 of the show cause notice speaks of reversal of Cenvat credit. Further Para 12 speaks of demand of duty involved on the excess raw material consumed.
Since there is no clarity in the show cause notice, we have to agree with the Commissioner (Appeals) that the adjudication order goes beyond scope of the show cause notice and thereby we give the benefit to the assessee. Hence we have to uphold the Commissioner's (Appeals) findings in this issue.
8. In the result, we allow the assessee's appeal and reject the Revenue's appeal.
(Operative portion of the order has been pronounced in the court on completion of hearing)