| SooperKanoon Citation | sooperkanoon.com/45347 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Tamil Nadu |
| Decided On | Apr-17-2007 |
| Judge | P Chacko, K T P. |
| Reported in | (2007)(119)ECC176 |
| Appellant | Aurobindo Pharma Ltd. |
| Respondent | Commissioner of Central Excise |
2. The facts of the case are that APL was engaged in the manufacture of bulk drugs like Amoxycillin and Ampicillin. APL had sister units located at Medak and Hyderabad. The appellants used to send intermediate products 6-APA and 7-ADCA for further processing to their sister units. In a sale each in 96-97 and 97-98, they had also sold 6-APA to unrelated buyers. The assessee used to file price declarations in terms of Rule 173C of the Central Excise Rules periodically for clearance of these goods. Investigations indicated that in 1997-98, APL had apparently cleared these products to their two sister units paying duty on incorrect values based on ad hoc cost, undervaluing the goods and evading payment of excise duty. It was tentatively found that during the year 1997-98, APL had adopted incorrect values based on material cost plus 10% of such cost towards overheads and profit margin for clearances of 6-APA from 21.5.97 to 8.6.97 and from 10/97 to 3/98, and for a clearance on 05.09.97 of 7-ADCA. Such clearances of 6-APA and 7-ADCA during 1997-98 were tentatively determined to involve duty evasion to the extent of Rs. 51,80,003.57. Accordingly, a Show Cause Notice was issued to demand the above amount of duty, interest due thereon and to impose penalty on the assessee.
3. The assessee contested the proposals. They claimed that they had regularly filed price declarations under Rule 173C, removed the goods under proper invoices and had filed RT-12 returns and invoices. As the goods had been cleared to sister units, there could be no allegation of misdeclaration of neither facts nor intent to evade payment of duty.
Therefore longer period could not be invoked to demand the alleged short levy in view of the following case law:Pushpam Pharmaceuticals Co. v. CCE, Bombay They had made a stray sale of 6-APA on 5.7.97 at the rate of Rs. 2050/-per kg. They were not required to adopt that price for the clearances of such goods made during 29.8.97 to 30.9.97. Applying the price for a stray sale for assessment of all clearances made in the ensuing period was not necessary as per the ratio of the decision of the Tribunal in the case of U.T. Limited v. CCE, Chennai 1999 (34) RLT 562(CEGAT). They denied undervaluation in clearing the said goods at the price rate of Rs. 1750/- per kg, during 1.10.97 to 19.10.97 and claimed that the reduction in value was owing to fall in the raw material prices. They also claimed that the values proposed in the notice based on cost to assess the clearances of the impugned goods between 21.5.97 and 8.6.97 and between 1.10.97 and 31.3.98 were against the guidelines contained in the CBEC Circular No. 258/92/96-CX dated 30.10.96. The method adopted for determining the value in the Show Cause Notice was also against the costing principles. The appellants explained the method of costing to be adopted and demonstrated that in respect of disputed clearances of 6-APA and for one clearance of 7-ADCA, the overhead cost adopted had been incorrect. The assessee also showed that the profit margin adopted for determining the assessable value based on cost construction in the Show Cause Notice was not in accordance with the guidelines prescribed by the CBEC in the Circular dated 30.10.96 (supra). As per the guidelines in the Circular, the profit margin worked out to 7.54% for both the products instead of 29.41% for 7-ADCA and 15.23% for 6-APA proposed to be adopted. As per their calculation they were eligible for refund, as they had paid excess duty. The demand was time-barred in view of the ratio of the decision in UT Limited v. CCE, Chennai (supra). As no duty was payable there was no question of imposing penalty under Section 11 AC or demanding interest under Section 11 AB of the Central Excise Act, 1944 (the Act).
4. While adjudicating the notice, the Commissioner found that during the material period 21.05.97 to 31.3.98, APL had adopted incorrect values based on ad-hoc cost for clearances of 6-APA (except between 9.7.97 and 26.8.97) and 7 ADCA. He found that the appellants had made deliberate efforts to evade payment of duty and longer period was invocable in terms of proviso to Section 11A(1). Accordingly he passed the impugned order demanding Rs. 50,55,615/- under Section 11A(1), imposing equal amount of penalty under Section 11AC and demanding interest under Section 11AB of the Act.
5. In the appeal before us, the assessee cited the ratio of the U.T.Limited case where the Tribunal had decided that when two manufacturing units belonged to a single company having a common Balance Sheet and one of them cleared goods to the other, it logically followed that the duty paid by one unit and the credit thereof was taken by the other unit, there would be no intention to evade payment of duty. They had adopted the price for a sale of 6-APA made on 27.1.97, for clearances made for a short period from 4/97 to 5.5.97 in 97-98. They had followed the cost-based price for the clearances in the rest of the year. The lone sale on 5.7.97 in the year 1997-98 as well as the single sale on 27.1.97 of 6-APA in the year 96-97 were known to the Department and therefore, suppression could not be alleged and longer period could not be invoked especially in view of the case law in U.T. Limited (supra).
They argued that the computation of assessable value made by the Commissioner was incorrect and inconsistent with the guidelines contained in the Board's Circular. The Commissioner had adopted the profit accrued in the year of clearance instead of the profit margin of the previous year in computing the assessable value. This was contrary to the instructions in the Circular. If the Circular had been followed, instead of any amount being due from them, they would have been entitled to refund of duty paid on a value of Rs. 2,71,613.16. Neither penalty was imposable on them nor interest due from them as no duty was payable by them.
6. In the written brief submitted at the time of hearing they made the following further submissions.
A. For the clearances of 6-APA during 21.5.97 to 8.6.97 and from 1.10.97 to 31.3.98, the Commissioner had worked out the cost as follows: The sale price of 6-APA for sale under invoice No. 707/27.1.97 in the year 96-97 and that for sale under invoice No. 102/5.7.97 in the year 97-98 were taken to arrive at the average selling price of 6-APA per kilogram. As per the CBEC Circular, for assessment of clearances in the year 1997-98, the profit margin percentage with reference to the sale price and cost of 96-97 had to be adopted.
This percentage had to be applied to the cost of production in the year 97-98 to arrive at the assessable value for clearances in that year. Instead, the sale price with reference to the aforesaid invoices of 96-97 and 97-98 was adopted and the cost of production of 97-98 was deducted from the receipt (realization) based on that price to arrive at the profit margin of 97-98. This was not in accordance with the Board's Circular and was incorrect otherwise also. If the profit margin was reckoned as per the Circular and the cost of production worked out correctly, there was no undervaluation or short levy for clearances made in 1997-98.
B. During the period 29.8.97 to 30.9.97, the appellants had declared a price of Rs. 1,750/- per kg. under Rule 173C vide their declaration dated 28.8.97. In the impugned order, Commissioner had adopted the sale price for the transaction covered by invoice No. 102/5.7.97 for assessment of clearances during the period 29.8.97 to 30.9.97. According to the appellants the Commissioner had followed an incorrect procedure. The appellants relied on Tribunal's decisions in (i) Rallies India Pvt. Ltd. v. CCE 2006 (201) ELT 429 (Tri) and (ii) National Aluminimum Co. Ltd. v. CCE 2000 (125) ELT 519 (Tri) in support of this plea.
For the alleged short levy in 97-98, Show Cause Notice was issued on 2.9.99 i.e. above eleven months beyond the normal period of six months.
They had filed price declarations during the material period which had been acknowledged by the Department. The sale invoices had also been filed with the Department along with RT 12 returns. The demand was therefore barred by limitation. The appellants relied on the judgment of the Tribunal in Kores (India) Ltd v. CCE 2004 (178) ELT 901 (Tri.
Bang) in respect of this claim. It was held in that decision that despite the fact that the appellants had not determined the correct value of each grade of Barium Carbonate in that case, there was revenue neutrality and intention to evade payment of duty could not be alleged nor extended period invoked. In brief it was submitted that the demand was not sustainable as there was revenue neutrality as held by the Tribunal in PTC Industries Ltd. v. CCE As there was no intention to evade duty, penalty could not be imposed.
Interest also could not be demanded.
7. Ld. Counsel for the assessee reiterated the written arguments during the hearing and pleaded that the demand amount was incorrectly computed. The Show Cause Notice had invoked extended period in respect of clearances by assessee to other units of the same company. Therefore the demand was not sustainable and the order deserved to be set aside.
8. Ld. SDR submitted that the impugned order was passed in accordance with law. She submitted that the sale price to unrelated buyers could be adopted to assess clearances to sister units as per the ratio of the judgment in Ashok Lelyand v. CCE, Madras 9. We have carefully studied the case records and considered the submissions made by both sides. The dispute involved in this case relates to valuation of intermediate products viz. bulk drugs cleared by the APL's Pondicherry unit to its two sister units during the year 97-98. Two intermediate products 6-APA and 7-ADCA are involved in the impugned clearances. The impugned order covers clearances made in 1997-98 of 6-APA from 21/05/97 and 7-ADCA on 05/09/97. In the impugned order, price of 6-APA for a solitary sale on 05/07/97 was adopted for assessment of clearances from 29/08/97 to 30/09/97.
The assessee had adopted a value based on cost of manufacture and a notional profit including overhead @ 10% for the period 21/5/97 to 31/3/98. Differential duty was demanded with reference to higher prices determined by the Commissioner based on costing principles. However, as regards clearances of 6 APA up to 05.05.97 and from 9.7.97 to 26.8.97, in the year 97-98, there is no dispute. For these clearances APL had adopted the nearest sale price to unrelated buyers for assessment.
10. We find that the goods cleared by APL for captive consumption by its sister units have to be assessed as per Rule 6 (b) (ii) of the Central Excise Valuation Rules 1975, following the cost construction method in the absence of comparable price. The assessee had filed price declarations under Rule 173C of the Rules periodically which had been acknowledged by the Department. Whatever duty was paid by the Pondicherry unit for the impugned clearances would have been availed as modvat credit by its sister units. In such a revenue neutral situation the appellants cannot be alleged to have had an intention to evade payment of duty. As the assessee had filed price declarations and no willful suppression of facts or misdeclaration on the part of the assessee could be alleged, the demand is barred by limitation. For clearances of 6-APA during the period 21.5.1997 to 8.6.1997 and 10/97 to 3/98, and for the clearance of 7-ADCA on 5.9.97, the Commissioner computed the assessable value following the guidelines contained in the Board's Circular dated 30.10.96. However, he adopted average of prices for two sales, one in 96-97 and another in 97-98 and also the percentage of profit margin in 97-98 to determine the value for assessment of clearances of 6-APA. Board's Circular had prescribed that the percentage of profit margin should be worked out with reference to the previous year's transactions to determine the assessable value on the basis of cost of the relevant year of clearances. Therefore, the Commissioner had ascertained the assessable value incorrectly.
Moreover, clearances had been made to the assessee's sister units and Show Cause Notice had been issued wrongly, invoking longer period.
Therefore, the demand is not sustainable. The demand pertains to clearances made during the period 21.05.97 to 31.03.98. The proposal to demand differential duty had been made on the basis that the assessee had not worked out the assessable value correctly following the method prescribed by the CBEC. It is seen that the sale price of 6-APA on 5.7.97 was Rs. 2050, whereas much higher prices had been declared for clearances of the product during that fiscal. The assessee had declared various prices such as Rs. 2100, 1750, 2350, 2260, 2085 in their 173 C declarations during the period of dispute 21.05.97 to 31.3.98. It was explained during hearing that the varying prices were declared owing to the fluctuation in prices of inputs. If there was short levy with reference to the sale price in the 5.7.97 invoice, the Show Cause Notice had been issued much beyond the 6 months time prescribed, as the related invoice had been furnished to the department. In working out the assessable value for demanding the differential duty in respect of 97-98 clearances, the Commissioner had adopted the profit margin of 1997-1998 whereas as per the Board's Circular supra he should have adopted the profit margin in percentage of 1996-1997 and applied the same to the cost of 1997-1998.
11. It is settled that the departmental authorities are bound to follow the Circulars of the CBEC. All the impugned clearances except the single clearance of 6-APA and another clearance of 7 ADCA had been made to the two sister units of the appellants. Any excess duty paid on the assessee's clearances would have been available to its sister units as modvat credit. Therefore, there was no motive for the assessee to undervalue its clearances. There was no intention to evade payment of duty on the part of the assessee. As per the case law in UT limited case, in respect of such transactions between sister units, as the outcome being revenue neutral, longer period of limitation could not be invoked. In the circumstances, we find that the demand is not sustainable on merits as well as limitation. Accordingly we set aside the impugned order and allow the appeal.