The appellants
were manufacturers of copper cathodes, copper rods and coils, falling under
Chapter 74 of CETA, 1985. The price of copper cathodes/rods that the
appellants sell locally depends upon the international prices of copper,
which are published in bulletins of the London Metal Exchange (LME),
consistent with the practice in the industry in the course of month, are
priced with reference to the average LME price of the copper during that
particular month. Since such an average is ascertainable only at the end of
the month, they have been following a policy of issuing a provisional
invoice at the time of clearance of goods wherein the price declared is 95%
of the previous month’s average LME price. On the last day of the month,
when the average price for that month becomes known, a final price circular
is issued and the differential price payable or receivable for the
clearances already effected in the course of the month is paid/received by
issue of a supplementary invoice. The differential duty payable on the
supplementary invoices is paid along with the amount of duty, due for a
particular month.
While most of the
clearances to the local market are governed by the price circulars, there
are several instances where such clearances are effected at further
negotiated rates either on account of the buyer being an OEM or belonging to
a separate class (such as exporters or deemed exporters). Appellants submit
that the marketing and the pricing pattern that they follow are consistent
with the industry practice.
Appellants were
issued two identical worded show cause notices demanding differential duty
in respect of goods cleared during the period May 2002 to June 2003 on the
ground that certain clearances were made below the prices shown in the price
circulars issued, from time to time.
In response to
the above referred show cause notices, the appellants contended that the
prices shown in the invoices reflected the correct transaction value of the
goods, which had been sold to independent buyers. Further it was argued that
price circulars merely contain indicative prices and that in several cases
the actual prices charged to the customs are higher or lower depending on
various commercial factors such as :
-
Clearances made
for deemed exports for which price circulars were not applicable;
-
Clearances
which were for replacement of rejected consignments;
-
Special
contract rates for some customers; and
-
Clearances
cleared at previous month’s rates due to spill over (unexecuted purchase
order for previous month).
They also
submitted copies of source invoices and supporting documents to illustrate
the point along with written submission.
The Commissioner
confirmed the order of lower authorities on the ground that sufficient
documentary proof in the form of invoices, purchase orders, rejection slips
etc. were not produced to justify the claim of the appellants. And there
were no legitimate reasons for the difference between the prices as shown in
the invoices and price circulars. The department, in a hearing before the
Tribunal, explained that the buyer who held an advance licence permitted
duty free import of its materials surrendered the licence to the DGFT and
obtained an Advance Release Order (ARO) against which supplies were effected
by the appellant, which are considered to be deemed exports as per the EXIM
Policy. As one of the incentives available for such deemed exports,
compensation is to be given by DGFT’s office. This drawback amount, which
the appellant received, on its deemed export supplies was an additional
consideration for the sale, which is liable to be included in assessable
value.
The Tribunal observed as under:
The impugned
order ignores the provisions of the amended section 4 of the Central Excise
Act, 1944, which clearly provide that after 1-7-2000, the concept of
‘normal’ value no longer exists, in its place the new section provides that
duty of excise is chargeable on each removal with reference to a
‘transaction value ‘of the goods for each such removal.
The new section 4
essentially seeks to accept different transaction values, which may be
charged by the assessee to different customers, for assessment purposes, so
long as these are based upon purely commercial consideration for sale. Thus,
it enables valuation of goods for excise purposes on value charged as per
commercial practices rather than looking for a notionally determined value.
The burden of
proving that the invoice price did not correctly reflect the price paid or
payable for the goods, is entirely upon the department. The Commissioner, in
confirming the demand on the ground that all necessary documents such as
purchase orders, invoices, goods rejection notes etc. had not been produced
by the appellant in support of its defence contention that there were no
legitimate reasons for the difference between the invoice price and the
price circulars is not correct and cannot upheld. Since the department has
not discharged the initial burden of proof, which lay upon it, the appellant
was not under any onus to produce such documents on its own and absence of
the same cannot be a cause to upset the value.
The Commissioner
is not justified in rejecting the submissions made by the appellant merely
on the ground that all the relevant invoices had not been produced. If the
Commissioner wanted to see the remaining invoices, he could have stated so
in the course of the hearing or and exercised the powers under the law to
procure the documents.
Price circular is
a pre-offer document and it was always open to the contracting parties to
negotiate and fix a different price and no material exist to rebut this plea
of the appellant. Under section 4, now ‘a negotiated price’ alone is liable
to be treated as the ‘transaction’ hence assessable value for each
clearance.
In respect of
argument of the department that drawback received from DGFT was an
additional consideration, the Tribunal observed:
The department
should not be allowed to enlarge the scope of show cause notice by making an
entirely new allegation at this stage.
Even otherwise, it is now well settled that the ‘additional consideration’
referred to in section 4 of the Act refers only to ‘additional
consideration’ flowing from the buyer to an assessee. This is further clear
from the definition of "transaction value" in section 4, which states that
such value refers to a price actually paid or payable for the goods and
includes "any price amount that the buyer is liable to pay to, or on behalf
of the assessee". This position has also been clarified in para 22 of the
Board Circular No. 354/81/2000-TRU, dated 30-6-2000.
Tribunal’s
decision in the case of IFGL Refractories Ltd. vs. Commissioner of C.Ex,
Bhubaneswar-II, 2001 (134) E.L.T. 230, wherein it was held that
statutory benefits allowed by statutory authorities cannot be considered as
additional consideration flowing to a manufacture from the buyer.
The ratio of the
above discussed judgments is to the effect that benefit received under an
altogether different scheme promulgated by the Government cannot be
considered to be a part of total sale value of the goods or the total sale
turnover.
At this stage we
can also take note of the Hon’ble Supreme Court’s judgment in case of Dai
Ichi Karkaria – 1990 (112) ELT 353 (S.C) wherein the benefit of the
Modvat credit of duty paid on the inputs had been allowed to the assessees
while arriving at the contract price between the seller and the buyer. As
the taking of credit on the inputs results in lowering the cost of the final
product. The price arrived at between the buyer and the seller after taking
into consideration the said factor has been held to be correct assessable
value for the purpose of payment of duty
The view was also
supported by the opinion of the Department of Legal Affairs as in para 11 of
Board Circular No. 549/45/2000-CX, dated 18-9-2000.
"Taking up the
second angle, CBEC has raised a query as to the valuation of goods sold to
State Electricity Boards to be used in IBRD funded projects where duty
drawbacks are received as deemed exports. A question was raised whether the
duty drawback is an indirect flow of consideration from the buyer to the
assessee. The question was bisected as (i) whether the duty drawback flows
from the buyer to the assessee, (ii) whether it is an additional
consideration for sale. A view was expressed in the opinion of the Id. ASG
that since the State Government/state Electricity Board and the Central
Government are distinct and separate entities under the law, the extra
consideration does not flow from the buyer to the assessee. It was further
pointed that the duty drawbacks that are given, are as incentives, in
pursuance of the international tender. They are not in respect of trade
transactions. Therefore, it cannot be said to flow as a consideration,
whether direct or indirect, in respect of a sale made by the assessee to a
buyer."
The appellants
appeal was allowed and Commissioner’s order was set aside.
[Sterlite
Industries (1) Ltd vs. CCE, Vapi 189 ELT 329 (Tri-Mumbai)]
