Citation Codes

Equivalent Citations

citation codes

Case Number

Tax Appeal Nos. 823 and 824-825 of 2013

Judges

HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR
HONOURABLE MS. JUSTICE SONIA GOKANI

Acts

CENTRAL EXCISE ACT 1944
Rule 8 read with Rule 9 of the Central Excise Valuation Rules, 2000.3.
SECTION 4 A CENTRAL EXCISE ACT 1944
provisions of Rule 8 of the Valuation Rules
provision of Rule 8 of the Valuation Rules
Rule 4 of the Central Excise Rules, 2000
provision of Rule 8 of Valuation Rules
SECTION 94 FINANCE ACT 2000
Rule 8 of the Valuation Rules.
Rule 8 of the said Rules,
provisions of Rule 4
provisions of Rule 8
INCOME TAX ACT 1961

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Judicial Summary — Tax Appeal No. 823 of 2013 (Order by Sonia Gokani, J.)

Factual and Procedural Background

This opinion arises from a group of Tax Appeals referred under Section 35G of the Central Excise Act, 1944; the facts of Tax Appeal No. 823 of 2013 were treated as representative. The respondent is a cement manufacturer who pays central excise duty on cement cleared by them. The Revenue believed that certain clearances made by the respondent to their own units were undervalued by applying Rule 8 read with Rule 9 of the Central Excise Valuation Rules, 2000.

Following investigation, a show cause notice dated 9-11-2009 was issued (demanding duty for the period March 2008 to May 2009). The adjudicating authority confirmed demands, interest and penalties in Order-in-Original Nos. referenced in the record. On appeal, the CESTAT observed that the show cause notice included the period within one year prior to its date and, having regard to the respondent's regular monthly returns filed from March 2008 and the respondent's claim of following the Board circular dated 1-7-2002 (Circular No. 643/34/2002-CX), held that the demand in the show cause notice was barred by limitation for that earlier period.

The Revenue raised in these Tax Appeals two substantial questions of law concerning (1) the correctness of the Tribunal's setting aside of duty demand prior to one year of the show cause notice as barred by limitation, and (2) whether the Tribunal was justified in holding that differential duty demanded on clearances made from an NCMU unit was without jurisdiction.

Legal Issues Presented

Whether, in the facts and circumstances of the case, the Tribunal was correct in setting aside the demand of duty prior to the period of one year from the date of issuance of the show cause notice dated 9-11-2009 as being hit by limitation?
Whether, in the facts and circumstances of the case, the Tribunal was justifiable in holding the differential duty demanded and confirmed by C.C.E., Bhavnagar, on clearances made from an N.C.M.U. unit without jurisdiction (referring to specified Orders-in-Original)?

Arguments of the Parties

Revenue's Arguments

The Revenue asserted that undervaluation of clearances to the respondent's own units justified invoking the extended period of limitation (i.e., that the undervaluation was a deliberate act warranting extended limitation).
The Revenue contested the Tribunal's limitation finding and the Tribunal's view on the appropriate valuation rule to be applied for transfers to related units.

Respondent (Assessee)'s Arguments

The respondent relied on Board Circular No. 643/34/2002-CX dated 1-7-2002 and advanced a bona fide belief that that circular governed valuation for captive consumption and transfers to sister units.
The respondent emphasized that regular monthly returns had been filed from March 2008 onwards (and accepted by authorities), arguing that there was no deliberate suppression of information that would permit invocation of extended limitation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ispat Industries Ltd. v. Commissioner of C.Ex., Raigad — 2007 (209) E.L.T. 185 (Tri.-LB)	Held that the provisions of Rule 8 of the Valuation Rules will not apply where some part of production is cleared to independent buyers; Rule 4 is to be preferred over Rule 8 when both could be applicable.	The Tribunal relied on this Larger Bench decision to conclude that Rule 8 did not apply in the present facts (because part production was sold to independent buyers at a higher value), and the court agreed that this reasoning supports disallowing an extended period of limitation for earlier periods.
Commissioner of Customs, Calcutta v. Indian Oil Corporation Ltd. — MANU/SC/0142/2004 : 2004 (165) E.L.T. 257 (S.C.)	Held that although a circular is not binding on a Court or an assessee, the Revenue cannot raise a contention contrary to a binding circular issued by the Board; while the circular remains in operation, the Revenue is bound by it.	The court invoked this principle to support the proposition that the Board circular (which guided valuation practice) was binding on the department while it remained in operation, thus fortifying the respondent's reliance on the circular.
Coaltar Chemicals Manufacturing Co. v. Union of India — MANU/SC/1013/2003 : 2003 (158) E.L.T. 402 (S.C.)	Held that when saddling a manufacturer with liability, the key question is whether there was a deliberate act of suppression of information known to the manufacturer; such a fact must be established in each case.	The court used this authority to support the view that extended limitation (which often hinges on deliberate suppression) could not be invoked absent evidence of deliberate suppression by the assessee/respondent.

Court's Reasoning and Analysis

The court analyzed the matter by focusing on (a) the applicable valuation law and administrative guidance, and (b) the factual matrix concerning returns and conduct of the respondent.

First, the court examined Board Circular No. 643/34/2002-CX dated 1-7-2002 which provided clarifications on valuation rules for captive consumption and transfers to sister units when the new Valuation Rules came into effect on 1-7-2000. The circular specified that, for captive consumption in one's own factory, valuation was to be determined as per Rule 8 of the Valuation Rules (assessable value assumed at 115% of cost of production), and that goods partly sold would be assessed on transaction value.

Second, the court applied the Larger Bench decision in Ispat Industries (Tri.-LB) which had held that Rule 8 will not apply where some part of production is cleared to independent buyers, and that Rule 4 should be preferred when both rules could be applicable because it leads to a determination more consistent with Section 4 of the Central Excise Act. The present record admitted sales of loose cement to independent buyers at values higher than the valuation adopted for transfers to the respondent's own units.

Third, the court considered the factual finding that regular monthly returns were filed by the respondent from March 2008 onwards and were accepted by the authorities. Coupled with the respondent's bona fide reliance on the Board circular (which governed the field until clarified by the Larger Bench), the court found no established deliberate suppression of information that would justify extending limitation.

The court also relied on the precedents (Indian Oil and Coaltar) to conclude both that the department was bound by the Board circular while it operated and that liability based on alleged suppression requires proof of deliberate conduct. Taking these legal propositions together with the facts (sales to independent buyers at higher values; accepted returns), the court agreed with the Tribunal's conclusion that demands prior to one year from the show-cause notice were hit by limitation and could not be sustained under an extended limitation theory.

Holding and Implications

Holding: The Tax Appeals are dismissed; the court agreed with the C.E.S.T.A.T.'s conclusion that the demand of duty prior to the period of one year from the date of the show cause notice dated 9-11-2009 was barred by limitation, and that the Tribunal's legal answers (including reliance on the Larger Bench decision on application of Rule 8) were correct.

Implications:

The direct effect is that the differential duty demand for periods prior to one year of the show cause notice was set aside as being barred by limitation; the Tax Appeals filed by the Revenue are dismissed.
The court's order rests on applying existing authorities (Board circular; Larger Bench in Ispat; Supreme Court authorities) to the record facts and does not purport to lay down a new precedent beyond applying those authorities to the present case.

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Commissioner Of C. Ex. v. Ultratech Cement Pvt. Ltd.

ORDER

Sonia Gokani, J.

1. Since common questions of law arise in the present group of Tax Appeals, the facts given in Tax Appeal No. 823 of 2013 are considered for deciding the issues. Following are the substantial questions of law raised by the Revenue in the present Tax Appeal referred to in Section 35G of the Central Excise Act, 1944 (hereinafter referred to as "the Act) for our consideration:-

(1) Whether in the facts and circumstances of the case, the Tribunal was correct in setting aside the demand of duty prior to the period of one year from the date of issuance of show cause notice dated 9-11-2009 as being hit by limitation?

(2) Whether in the facts and circumstances of the case, the Tribunal was justifiable in holding the differential duty demanded and confirmed by C.C.E., Bhavnagar, as an adjudicating authority, on clearances made from N.C.M.U. unit without jurisdiction vide Order-in-Original Nos. 1 to 4/BVR/Commissioner/2011, dated 22-3-2011, Order-in-Original No. 39/BVR/Commissioner/2011, dated 21-9-2011 and Order-in-Original No. 3/BVR/Commissioner/2012, dated 1-2-2012?

2. Brief facts arising in Tax Appeal No. 823 of 2013 are as follows:-

2.1 The respondent authority is manufacturer of cement discharging the central excise duty on the cement cleared by them. Revenue believed that in the clearances effected by the appellant to their own units, the respondent had undervalued the clearances by resorting to valuation under Rule 8 read with Rule 9 of the Central Excise Valuation Rules, 2000.

3. On due investigation, the show cause notice had been issued. The adjudicating authority in order-in-original confirmed the demand in respect of four show cause notices and had levied the interest and penalty.

4. This was when carried to the Customs, Excise & Service Tax Appellate Tribunal ("C.E.S.T.A.T." for short), it had noticed that the show cause notice dated 9-11-2009 demanded the duty liability for the period from March, 2008 to May, 2009, which included the period of one year prior to the date of issuance of the show cause notice. Considering the fact that the respondent had filed regular monthly returns from March, 2008 onwards and also considering the plea of the respondent that guided by their bona fide belief that the Board circular dated 1-7-2000 shall apply, the demand raised vide show cause notice dated 9-11-2009 was held to be barred by limitation.

5. Therefore, the present appeals proposing the aforementioned questions of law.

6. We have heard learned counsel Mr. Y.N. Ravani for the Revenue and learned counsel Mr. Anand Nainawati for the respondent assessee who have fervently supported the rival claims of respective parties. The short question of controversy would be whether the appellant can be subjected to the rigors of extended period of limitation because of undervaluation of alleged clearance to their units, terming the same as deliberate act of undervaluation when in fact the appellant followed the circular of the department, which otherwise is binding to the department, itself.

7. At the outset, Circular No. 643/34/2002-CX., dated 1-7-2002 is to be referred to and relevant portion of the same requires to be reproduced hereunder:-

8. This circular was introduced for providing clarifications in respect of various challenges and issues which arose when the new Valuation Rules came into effect from 1-7-2000. Clause 5 of the said circular addressed the issue as to how the captive consumption of manufacture of goods is required to be evaluated which also includes transfer of the same to sister concern or to the units of another factory of same company for further use in the manufacture of goods.

9. This circular specifies that in case of the captive consumption in one's own factory, the valuation would be done as per Rule 8 of the Valuation Rules. It should mean that the assessable value of the goods to be assumed at 115% of the cost of production of the goods. And, if the same goods are partly sold by the assessee and partly consumed captively, the goods sold would be assessed on the basis of transaction value.

10. Details of Section 4, which speaks of the transaction value after substitution by Section 94 of the Finance Act, 2000, has come into effect from 1-7-2000, which runs as follows:-

4. (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -

a. in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;

b. in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.

11. Details of Rule 8, at this stage, may not be necessary to be reproduced.

12. In the instant case, the Tribunal has relied on the decision of Larger Bench in the case of Ispat Industries Ltd. v. Commissioner of C.Ex., Raigad reported in 2007 (209) E.L.T. 185 (Tri.-LB.) where it is held that if the transfer of part of production is to another plant of the same assessee and balance production is sold to independent buyers, the provision of Rule 8 of Valuation Rules will not apply. In this decision, the issue that was before the Larger Bench was "Whether assessable value in respect of the goods which are transferred to another plant of the same is required to be determined as per Rule 4 of the Central Excise Rules, 2000 (as claimed by the appellant) or as per Rule 8 of the said Rules, (as claimed by the Revenue) in a case where the same goods are also sold to the independent buyers?" the Tribunal answered the said reference in the following manner:-

9. In view of what we have observed above, we answer the reference in the following terms:

(a) The provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers;

(b) the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reasons that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.

13. It could be noticed from the material on the record that the Larger Bench had concluded that the provision of Rule 8 of the Valuation Rules would not apply in a case where some part of the production of goods were cleared to the independent buyers. Admittedly, in the instant case, there is a sale of loose cement to the independent buyers at a value higher than arrived at by the respondent for the discharge of the duty liability of the cement. Noticing the fact that regular monthly returns were being filed by the respondent from March, 2008 onwards, which were accepted by the authorities without any murmur, while fixing the higher value at which the sale was made to the independent buyers being the assessable value of goods transferred to another plant, extended period of limitation was not sustained by the Tribunal.

14. The respondent had sought to depend upon the Board's circular which had binding effect till the decision of Larger Bench in case of Ispat Industries Ltd. v. Commissioner of C.Ex., Raigad (supra) and also urged further that the extended period of limitation would not be available to the department in wake of undisputed facts.

15. Catena of decisions categorically hold that the circulars issued by C.B.E. & C. under Section 37B of the Central Excise Act or by C.B.D. & T. under the Income-tax Act, 1961 primarily on the basis of the statutory provisions, to give uniformity across the country in levying of tax and duty, would be binding on the department.

16. Apex Court in the case of Commissioner of Customs, Calcutta v. Indian Oil Corporation ltd. reported in MANU/SC/0142/2004 : 2004 (165) E.L.T. 257 (S.C.) held that although a circular is not binding on a Court or on an assessee, Revenue cannot raise contention contrary to binding circular by Board and till the circular remains in operation, Revenue is bound by it and cannot be allowed to plea that it is not valid nor that it is contrary to the terms of statute. So as not to burden this order other decisions on the very point are not discussed.

17. In the case of Coaltar Chemicals Manufacturing Co. v. Union of India reported in MANU/SC/1013/2003 : 2003 (158) E.L.T. 402 (S.C), the Apex Court has held that the manufacturer or the producer whenever is to be saddled with any liability, the question that would arise is as to whether there was any deliberate act of suppression of the information, which the manufacturer knew otherwise and in every case that question of fact needs to be established.

18. Thus on both the counts, firstly that there came a decision explaining and clearing the doubts as to in what manner the valuation requires to be done in the event of captive consumption of goods as also in case of goods transferred to sister concern or to another factory of the same assessee and till then, board circular governed the field. And, also because from March, 2008 onwards. On regular basis, the monthly returns have been filed by the assessee respondent indicating all possible details. Thus, the Tribunal rightly turned down the demand of duty prior to the period of one year from the date of issuance of show cause notice dated 9-11-2009, holding the same to have been hit by the law of limitation.

19. In the instant case, we are in complete agreement with the findings of C.E.S.T.A.T., which rightly has concluded from the gamut of facts and evidence that all the materials were available with the Department, which could have been questioned and at no point of time any issue was raised questioning any credential of the respondent with regard to such transfer, the extended period of limitation in the demand notice could not have been sustained. Question of law is appropriately answered by the Tribunal. Tax Appeals, resultantly, deserve no consideration further and the same are dismissed.

Commissioner Of C. Ex. v. Ultratech Cement Pvt. Ltd.

Judicial Summary — Tax Appeal No. 823 of 2013 (Order by Sonia Gokani, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revenue's Arguments

Respondent (Assessee)'s Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of C. Ex. v. Ultratech Cement Pvt. Ltd.

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