Commissioner of Central Excise Vs. Orissa Extrusions Ltd. - Court Judgment

Excerpt:
1. no one appeared on behalf of the respondents despite notice and adjournments granted earlier. there is also no adjournment request.heard the learned s.d.r. for the appellant commissioner. the respondents cleared 4487 mts. of aluminum extruded sections during 01.04.97 to 01.09.98. the original authority confirmed a duty demand of rs. 84,85,740/-(rupees eighty-four lakh eighty-five thousand seven hundred and forty) and imposed a penalty of rs. 2000/- which have been set aside by the lower appellate authority leading to this appeal by the department.2. it is the department's case that the respondents were found to have cleared the impugned consignments below the cost of their production.the learned s.d.r. states that the special cost auditors confirmed the sales to be below the cost as detailed in the show- cause notice and the order-in-original. however, the lower appellate authority has allowed the appeal of the respondents on the ground that the impugned goods were cleared from the factory by the respondents after submitting the price-declaration to the department. he also states that where a manufacturer either for the reasons beyond his control or due to prevalent conditions and circumstances in the market, sells his goods at a lower price, such a price would be the assessable value under section 4 of the central excise act, 1944, since that price is not shown to be guided by any extra consideration. he has also cited in campbell and co. 1980 (6) elt 653 and another in the case of shree nijrang poly pack industries v. c.c.ex. . on the other hand, the department has argued that the lower appellate authority has overlooked the decision of the hon'ble supreme court in the case of union of india v. bombay tyres international 1983 (14) elt 1986 (sc) which held that an article for the purpose of levy of excise duty shall include all costs and expenses which have given the articles its marketability. it is therefore, the case of the department that the value of the goods has to include cost of materials, labour cost and overhead, depreciation, interest etc. and profits. the department's contentions remain uncontroverted in the absence of the respondents.3. after hearing both sides and perusal of case records, we find that the case relates to the period from april, 1997 to september, 1998 when the value was defined under section 4 of the central excise act, 1944 to be the normal price in the ordinary course of trade. keeping in view the aforesaid decision of the hon'ble supreme court in the case of bombay tyres (cited supra) and the fact that normal price has to be the price at which goods are ordinarily sold in wholesale trade, a price which is below the cost of production cannot be accepted as normal price. in the ordinary course of trade, a manufacturer would recover at least the cost of production and a reasonable profit. there may be occasions when a few sales may take place below the cost of production.but such sales by their very nature would be on account of abnormal circumstances and cannot be deemed to be in the ordinary course of trade. normal price has to be based (sic) course of trade and not based on sales that are abnormal being at a price below the cost of production. hence, we are of the view that the lower appellate authority has misdirected himself in accepting the below-the-cost-price as the normal price. accordingly, we set aside the impugned order and restore the order-in-original. in view of the fact that the penalty imposed by the original authority is only a small amount of rs. 2,000/-(rupees two thousand) we are of the view that the same does not call for any reduction.

Judgment:
1. No one appeared on behalf of the respondents despite notice and adjournments granted earlier. There is also no adjournment request.

Heard the learned S.D.R. for the appellant Commissioner. The respondents cleared 4487 MTs. of Aluminum Extruded Sections during 01.04.97 to 01.09.98. The Original Authority confirmed a duty demand of Rs. 84,85,740/-(Rupees eighty-four lakh eighty-five thousand seven hundred and forty) and imposed a penalty of Rs. 2000/- which have been set aside by the lower Appellate Authority leading to this appeal by the Department.

2. It is the Department's case that the respondents were found to have cleared the impugned consignments below the cost of their production.

The learned S.D.R. states that the Special Cost Auditors confirmed the sales to be below the cost as detailed in the show- cause notice and the order-in-original. However, the lower Appellate Authority has allowed the appeal of the respondents on the ground that the impugned goods were cleared from the factory by the respondents after submitting the price-declaration to the Department. He also states that where a manufacturer either for the reasons beyond his control or due to prevalent conditions and circumstances in the market, sells his goods at a lower price, such a price would be the assessable value under Section 4 of the Central Excise Act, 1944, since that price is not shown to be guided by any extra consideration. He has also cited in Campbell and Co. 1980 (6) ELT 653 and another in the case of Shree Nijrang Poly Pack Industries v. C.C.Ex. . On the other hand, the Department has argued that the lower Appellate Authority has overlooked the decision of the Hon'ble Supreme Court in the case of Union of India v. Bombay Tyres International 1983 (14) ELT 1986 (SC) which held that an article for the purpose of levy of excise duty shall include all costs and expenses which have given the articles its marketability. It is therefore, the case of the Department that the value of the goods has to include cost of materials, labour cost and overhead, depreciation, interest etc. and profits. The Department's contentions remain uncontroverted in the absence of the respondents.

3. After hearing both sides and perusal of case records, we find that the case relates to the period from April, 1997 to September, 1998 when the value was defined under Section 4 of the Central Excise Act, 1944 to be the normal price in the ordinary course of trade. Keeping in view the aforesaid decision of the Hon'ble Supreme Court in the case of Bombay Tyres (cited supra) and the fact that normal price has to be the price at which goods are ordinarily sold in wholesale trade, a price which is below the cost of production cannot be accepted as normal price. In the ordinary course of trade, a manufacturer would recover at least the cost of production and a reasonable profit. There may be occasions when a few sales may take place below the cost of production.

But such sales by their very nature would be on account of abnormal circumstances and cannot be deemed to be in the ordinary course of trade. Normal price has to be based (sic) course of trade and not based on sales that are abnormal being at a price below the cost of production. Hence, we are of the view that the lower Appellate Authority has misdirected himself in accepting the below-the-cost-price as the normal price. Accordingly, we set aside the impugned Order and restore the Order-in-Original. In view of the fact that the penalty imposed by the original authority is only a small amount of Rs. 2,000/-(Rupees two thousand) we are of the view that the same does not call for any reduction.