Ifgl Refractories Ltd. v. Commissioner Of C. Ex., Bhubaneswar-Ii

[Order per : Archana Wadhwa, Member (J)]. - Vide the impugned order, duty of Rs. 2,63,82,647.00 has been confirmed against the appellant and an equivalent amount of penalty has been imposed under the provision of Section 11AC, apart from confirming interest under Section 11AB.

2. Briefly stated the facts of the case are as follows -

2.2  The appellants manufactured casting refractories such as Monoblock Stopper, Submerged Nozzles, Tundish Nozzles etc. The subject matter of the instant appeal relates to the refractories sold by the appellant to M/s. Visakhapatnam Steel Plant (in short VSP) during the period from September 1993 to December 1995. The said refractories were sold pursuant to four purchase orders dated 9-9-1993, 11-7-1994, 24-2-1995 and 16-5-1995. All the said supplies were under “Duty Exemption Scheme” contained in Chapter VII of the Export and Import Policy 1992-97 (in short the Import Policy) and were made in discharge of the export obligations cast upon the appellant under Advance Intermediate Licenses (in short AILs) issued to it by the Licensing Authorities of the Govt. of India. Under para 121(a) of the Import Policy, all the said supplies affected by the appellant against the said licenses issued under the Duty Exemption Scheme were “Deemed Exports”.

2.3 The first order entered by the applicants with the VSP was on 5-5-1992, whereas particular price was contracted and the goods were supplied at that price. There is no dispute about the supplies made under the said order. Thereafter, the applicants entered into four more orders with VSP wherein the price contracted between the two was reduced on account of the circumstances as explained by the Advocate. He elaborated that the advance licences held for import of refractories were surrendered by VSP and against the same, advance intermediate licences were issued in favour of the applicants for import of its inputs. Against each of these licences issued to the appellants, they were placed under an export obligation for supply of refractories to VSP on deemed export basis. Against these licences, the appellants imported, on its own, raw-materials and cleared the same without payment of duty and used the same in the manufacture of the refractories which were ultimately supplied to VSP on payment of central excise duty and sales tax. The appellants lodged their claim with DGFT for refund of the terminal excise duty for which certificates were regularly issued by the local central excise authorities.

2.4 The dispute which arose between the appellants and the Department was that the benefit derived by the appellants under the advance intermediate licences issued to them for surrender of licences by VSP, is additional consideration towards the value of the goods. As this additional consideration is not measurable in terms of quantum, the adjudicating authority has discarded the contracted price between the two and has adopted the price at which the refractories were first supplied to VSP under first contract.

3. Shri S.K. Bagaria, ld. Advocate appearing for the appellant assailed the impugned order of the Commissioner on merits as also on limitation. He submits that VSP is a Govt. of India Enterprise and is not related to the appellant in any way whatsoever directly or indirectly. The agreed price and other terms and conditions are always invariably mentioned in the contract with VSP. All goods under the contract concerned are sold by charging the agreed price. Supply at agreed price, no other amount whatsoever was received or receivable by the appellant from M/s. VSP towards consideration for sale of the goods inasmuch as the sales are always on principal to principal basis. He submits the Commissioner’s reasoning is that the price of the goods sold under duty exemption scheme cannot be treated as sole consideration for sale and advanced intermediate licence has to be treated as an additional consideration. He also observed that under the provisions of the import policy, the appellant was entitled to get refund of terminal excise duty. Thus the amount of central excise paid by the appellant was liable to be included in the assessable value. The Commissioner has also held that the central sales tax paid by the appellant and realized from VSP was also to be treated as additional consideration. He submits that sale of goods under duty exemption scheme contained in the import policy and sale of goods in ordinary course in indigenous market are two different classes of transactions and the buyers of the said two categories are two different classes of buyers. Elaborating on his arguments he submits that the orders were procured by the appellants against global tender and during the process of international competition. He submits that the advanced intermediate licences issued in favour of the appellant carried with it an export obligation which was required to be discharged by the appellant by supplying the refractories manufactured by it to VSP. Selling prices to such buyers as deemed exports cannot simply be compared with selling prices normal for the local market. In any case he submits that by no stretch of imagination advanced intermediate licences issued to the appellants can be treated as additional consideration in terms of the Central Excise (Valuation) Rules, 1975. The said licences were issued by the statutory authorities in accordance with the statutory provisions contained in para 55 of the Import Policy. It is only that by raising all these advanced licences the appellant availed exemption from customs duty on imported inputs, which brought down the total cost of the final product and made it possible for the appellant to procure the orders at a lower rate by competing internationally. Rule 5 of the Valuation Rules only applies where price is not the sole consideration and any additional consideration is flowing directly or indirectly from the buyer to the assessees. He submits that import of customs free inputs cannot be considered as an additional consideration flowing from M/s. VSP to the appellant. He has similarly advanced arguments on the quantification of the so called additional consideration.

4. As regards the Commissioner’s finding that central excise duty or the central sales tax paid by the appellant was liable to be included in the assessable value, he submits that the said finding is erroneous. Admittedly the goods were cleared on payment of duties which are liable to be deducted from the price in terms of Section 4(4)(d)(ii) of the Central Excise Act, 1944. He submits that the refund of terminal excise duty on deemed export is a matter relating to the import policy and had nothing to it with the provisions of 1944 Act. Under the import policy, benefits are allowed by Ministry of Commerce after taking into consideration various relevant factors relating to international trade. Similar arguments were advanced in respect of sales tax deduction.

5. Shri Bagaria also submitted that the notice in question having been issued on 21-1-1997 for the period September 1993 to December 1995 was barred by limitation. The Commissioner’s finding that RT-12 returns were being assessed provisionally and the same were finally assessed on 30-10-1996, is factually incorrect. He drew our attention to the various evidences placed on record to this effect. Similarly imposition of 100% mandatory penalty under Section 11AC and demand of interest under Section 11AB was also challenged by the appellant.

6. Shri R.N. Das, ld. Sr. Advocate along with Smt. U. Dutta Sen, ld. Advocate appeared for the Revenue. It was contended that the appellant is beneficiary of the licences issued to them in lieu of the surrendered licences of VSP. The value entered into by the appellant with VSP in respect of their earlier contract was higher. Subsequently it was lower on account of the fact that the appellant had not paid the customs duty on the inputs imported by them under the said licences. In these circumstances Shri Das supported the order of the Commissioner that the said licences have to be treated as additional consideration and justified the order enhancing the assessable value.

7. As regards limitation, Shri Das submitted that there is a clear observation made by the Commissioner that the assessments were provisional which were finalized only in the year 1996. The evidence now placed by the appellant cannot be appreciated by him and the same being in contradiction to the observation made by the adjudicating authority and relatable to factual position, can only be verified at the original level.

8. We have considered the submissions made from both the sides. We find that the issue involved in the present appeal is as to whether the import of raw materials by the appellants and the clearances of the same without payment of customs duty, in lieu of the licences surrendered by VSP, which ultimately led to reduction in the cost of the final product, can be considered as an additional consideration towards the value of the goods. We find that the ld. Advocate has relied upon a number of earlier decisions of the Tribunal. Though we find that none of the said decisions so relied upon directly relate to the situation as is present in the instant case, none the less the ratio of the earlier decisions can be adopted as a guiding factor for deciding the disputed issue.

8.2 In the case of Mazagon Dock Ltd. v. CCE - (Tri.) = 2000 (37) RLT 110, subsidy to the extent of 30% of the price received from Central Govt. and ONGC to whom the goods were supplied was held not to be a consideration flowing from ONGC to the appellant towards the price for the goods.

8.3 In the case of Universal Wires & Indus. v. CCE - duty drawback received by the appellant in respect of the deemed exports was held not to be includible in the assessable value inasmuch as duty draw back- was allowed under a separate scheme having its own separate considerations for giving such incentive.

8.4 In the case of Swathi Cables & Conductors (P) Ltd. v. CCE - (Tri.) = 1997 (23) RLT 741, under a scheme of the state Govt., the amount of sales tax paid by some categories of SSI unit was being credited by the state govt. to ‘tax for Growth Fund’. Thereafter equivalent amount was paid by the state govt. to the District Magistrate of Kerala Financial Corporation towards discharged loans taken by the assessee. The department’s view that the sales tax initially paid by the assessee and re-imbursed to them was not to be deducted from the assessable value was not accepted by the Tribunal.

8.5 In the case of Assam Asbestos Ltd. v. CCE - (Tri.) = 1997 (22) RLT 27 and in the case of Andaman Timber Indus. Ltd.- 1998 (26) RLT 383, transport subsidy was held as not excludible from the actual cost of transportation, while deducting the same from the assessable value of the goods.

8.6 Similarly Andhra Pradesh High Court in the case of Fertiliser Corpn. Ltd. v. CTO - 1991 (83) STC 129 and in the case of State of Andhra Pradesh v. Ranka Cables (P) Ltd. - 1990 (78) STC 111 has held that the subsidy received from the Central Govt. cannot be held to be includible in the taxable turnover and the re-imbursement of excise duty by the Central Govt. under the supplementary cash assistance scheme cannot be held to be on behalf of the buyer.

8.7 In the case of Natraj Organics Ltd. v. Asstt. Commr. - 1995 (96) STC 261, the Hon’ble Allahabad High Court has held that subsidy received from the Central Govt. is not an amount received by way of sale price and cannot be included in the turnover.

9. The ratio of all the above discussed judgments is to the effect that benefit received under an altogether different scheme promulgated by the Govt. cannot be considered to be a part of total sale value of the goods or the total sale turnover. In the instant case the appellant have availed the benefit from the customs duty under the advanced intermediate licences issued to them by the statutory authorities in accordance with the relevant provisions of the import policy. Such benefits are under the duty exemption scheme and have to be treated as statutory benefits allowed by the statutory authorities. The same can never be placed upon the platform of ‘additional consideration’ flowing to the manufacturer from the buyer, directly or indirectly. It has so happened that because of the benefit of the customs duty in terms of the said advanced licences, the appellants have been able to import the inputs without corresponding payment of customs duty which has resulted in lower cost of their final product. As the appellants could afford to sell their goods at a lower price they have offered the same to VSP, which was accepted by them and the contracts finalised. In these circumstances it cannot be said that any additional consideration has flown from VSP to the appellant, which is a condition essential for discarding the contract price between the buyer and the seller. At this stage we can also take note of the Hon’ble Supreme Court’s judgment in the case of Dai Ichi Karkaria - (S.C.) wherein the benefit of the Modvat credit of duty paid on the inputs has 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 purposes of payment of duty. Taking the clue from the above decision of the Hon’ble Supreme Court we hold that the benefit derived by the appellant under DEEC scheme cannot be considered to be an additional consideration towards the value of the goods flowing from M/s. VSP when there is no dispute about the contract and the actual price charged by the appellant in terms of the said contract.

10. Similarly we hold that there was no justification for not giving the deduction on account of Central Excise duty and the Central Sales Tax on the ground that in terms of the import policy, appellant was to get refund of terminal excise duty on deemed exports. The said benefit conferred upon the appellant relates to the import policy and cannot be associated with the determination of assessable value under the provision of Section 4 of the act, which clearly mandates deduction of excise duty and central sale tax paid by the appellants. Accordingly we hold that the demand of duty confirmed against the appellant is not sustainable.

11. As the appeal has been allowed on merits, the point of limitation urged by the ld. Advocate remains only of academic interest. As such no opinions are being expressed about the same.

12. As the appeal has been allowed there is no warrant for imposition of penalty or confirmation of interest against the appellant.

13. In view of the foregoing we set aside the impugned order and allow the appeal with consequential relief to the appellants.