[Order per : V.K. Agrawal, Member (T)]. - The common issue involved in all these five appeals, arising out of two impugned orders, passed by the Commissioner, Central Excise, is about the valuation of the products manufactured by the Appellant Companies under Section 4 of the Central Excise Act, and classification of certain products under the Schedule to the Central Excise Tariff Act.
2.1 Shri V. Lakshmikumaran, learned Advocate, submitted that M/s. India Thermit Corporation Ltd. (In short I.T.C.L.) manufacture Thermit portions and Thermit welding of equipments; that their main product, Thermit portion is used in jointing of Rails by Indian Railways; that Thermit portion is cleared by them by two methods :
| (i) | Outright sale to Railway | - Around 20% of the production |
| (ii) | Used in the rail jointing work by I.T.C.L. on contract basis | - 80% of the production |
2.2 He, further, mentioned that the demand of Central Excise duty has been confirmed for the period from January, 1994 to 12-9-1996 and penalties have been imposed by the Adjudicating Authority on the ground that the price at which the Thermit portion and dry moulds were sold by them to Railways was much higher than the price adopted for the goods cleared for self use and the highest price paid by the Railways on sale of Thermit portion and dry moulds nearest to the date of each clearance for self use should be adopted for determining the assessable value; that the Department had taken the invoice price of Thermit portion cleared for sale to the Railways and the invoice price for self use on day to day basis; that most of the comparative figures are for the small quantity sold at higher price; that if the highest of the price for bulk sale to Railways is taken as comparative price, no differential duty will be payable by them at all; that, further, they had incurred freight of Rs. 50/- per Thermit portion and if this transport charge is reduced from the price charged by them, the price declared by them for self use will be comparable to the price at which Thermit portion was being sold to the Railways in bulk. He, further, mentioned that the Superintendent, Central Excise had issued a show cause notice dated 27-11-1995 to them for demanding differential duty on the ground that Thermit portions and dry moulds were cleared for self use at prices less than the normal price; that another show cause notice dated 30-1-96 was issued by the Assistant Commissioner for demanding Central Excise duty on the same grounds; that further notices dated 4-3-96, 29-3-96, 23-4-96 and 3-6-96 were also issued to them; that the Assistant Commissioner, under Adjudication Order No. 14/96, dated 26-2-96, referred to purchase Order dated 5-5-95 of the Railways and had adopted price for Thermit portion of 60 kg at Rs. 264/- and for 52 kg at Rs. 230/-; that no review application has been filed against the said order; that he based his order on the reasoning that the Thermit portion cleared for self use should be valued on the basis of prices quoted by the Railways in their bulk order and not on the basis of individual invoices; that on similar basis further Adjudication orders dated 26-1-96 and 31-1-97 were also passed by the Assistant Commissioner; that the impugned order overlaps with the earlier Adjudication Orders in respect of the period from 7-3-1995 to 31-3-1995; that there cannot be a second proceedings raising the demand for this period.
3. The learned Counsel also mentioned that there was no under valuation in respect of dry moulds used captively; that the Assistant Commissioner had earlier issued show cause notices demanding differential duty for the period from May, 1995 to May, 1996 on similar grounds; that at that time they had produced copies of the orders placed by Railways to third parties at Rs. 23/- and Rs. 26.35; that they had paid differential duty adopting Rs. 25/- as the normal price after which the Department did not press for any higher demand; that thereafter they were paying duty on this value for clearance of dry moulds for self use. He, further, mentioned that soon after the period of dispute, M/s. Asiatic Thermics Ltd., a subsidiary of I.T.C.L., received a bulk order for supply of 15,000 dry moulds to Railways at Rs. 24.60 per pair inclusive of excise duty, sales tax and freight.
4. Regarding classification, the learned Counsel mentioned that he is not pressing the appeal. However, for the purpose of time limit he would like to mention that they had filed declarations under Rule 173B of the Central Excise Rules under the same Heading for which they got the approval under the earlier procedure; that they had declared Heading 84.79 for Thermit Welding of equipment which was approved by the competent authority during the period from 25-12-87 to 23-7-96 that as such there was no default on their part and their was no intention of suppressing any information for any reason; that dry moulds were classified by them under Heading 84.79 whereas the Department had classified them under Chapter 68 of the Schedule to the Central Excise Tariff Act; that the sand from which the dry mould is manufactured cannot fall under any of the description given in Heading 68.07 that is “Stones, Plastic, Cement, Asbestos, Mica or similar materials not else where specified or included”; that there is a specific description “Moulds for Metal” under Heading 84.80 and as the dry moulds are used for molten metal, these are covered under Heading 84.80.
5. Finally, the learned Counsel submitted that the demand is time barred as the Department was fully aware of the operation of the Appellants and there was no suppression of facts; that classification lists were duly approved by the Department; that show cause notices were issued between 3-11-1995 and 3-6-96 demanding differential duty on Thermit portions and dry moulds on the ground that these were cleared for self use at prices less than the normal price which were finally adjudicated by the Assistant Commissioner demanding duty by adopting the value based on purchase order dated 5-5-95 of Central Railway which was for bulk supply of the Thermit portion; that extended period is available only when there is allegation in the show cause notice of mis-statement, suppression of facts, etc.; that in the notice there is no specific evidence for the allegation of any such misconduct; that they were under the bona fide impression that the procedure followed for classification and valuation was proper as excise authorities had visited their factory many times and gone through the records. He relied on the decision in the case of Padmini Products v. C.C.E. - (S.C.). He also submitted that penalty under Section 11AC of the Central Excise Act cannot be imposed as the said provision came into effect from 28-9-96 only; that it has not been indicated in the impugned order as how much penalty has been levied under each of the Rule 9(2), Rule 226 and Rule 173Q of the Central Excise Rules as the ingredients of default and the extent of penalty that can be imposed under each of these Rules are different.
6. The learned Advocate, submitted, in respect of Appeal Nos. E/895-96/2000B that M/s. Asiatic Thermics Ltd. (A.T.L.) manufacture dry moulds and thermit welding equipments classifiable under Heading 84.79 of the Central Excise Tariff; that the Adjudicating Authority under the impugned Order No. 2/2000, dated 28-2-2000, has given the findings that A.T.L. and I.T.C.L. are related persons; A.T.L. has been incurring packing charges and loading and unloading charges which were not collected by A.T.L. from I.T.C.L.; the normal price of the goods sold by A.T.L. to I.T.C.L. should be deemed to be the price at which these are ordinarily sold by I.T.C.L./A.T.L. to the Railways; dry mould, thimble moulding sand are classifiable under sub-heading 6807.90, Thermit welding equipment is classifiable under sub-heading 8485.90 and Railguard, mould box and mould shoe are classifiable under sub-heading 7326.90 of Central Excise Tariff. The learned Counsel, further, submitted that the Supreme Court has held in Calcutta Chromotype Ltd. v. C.C.E. - (S.C.) that the transaction price will not be the normal price for the purpose of valuation if the buyer is a related person and the price is not the sole consideration for sale; that both conditions must co-exist so that the price at which the manufactured goods are sold by the assessee to the buyer is taken as the value for the purpose of assessment of duty of excise; that even if A.T.L. and I.T.C.L. are related persons, there is no material evidence that the transaction between them was not at arm’s length; that the dry moulds manufactured by A.T.L. were always supplied to I.T.C.L. in naked condition as no packing material was used; that A.T.L. has entered into a contract for selling dry moulds at Rs. 24.60 per pair and the same had been charged from I.T.C.L.; that in letter dated 22-1-96, M/s. I.T.C.L. had explained the breakup of Rs. 50/- being charged by them for dry moulds per pair according to which it included cost of bought out packing, freight inward/outward and breakage. He also mentioned that demand is hit by time limit as extended period for demanding duty is not available to the Revenue; that it has been held by the Tribunal in the case of Bharat Heavy Electricals Ltd. v. C.C.E., Meerut, 1997 (18) RLT 573 that extended time limit is not invocable as demand is based on documents filed with RT-12 returns. Reliance has also been placed on Final Order No. A/1198/97-NB, dated 23-12-97 in the case of Tony Electronics Ltd. v. C.C.E, Meerut, wherein it was held that no charge of suppression of facts warranting the extended period of limitation could be sustained where the allegation of suppression and misdeclaration was based entirely on the entries in the Appellant’s Form IV Register for the relevant period. He also submitted that penalty cannot be imposed under Rule 209A of the Central Excise Rules on the officials of the Company; that the Revenue must establish mens rea on their part and the fact that they were aware that the goods were liable for confiscation.
7. Countering the arguments Shri K.K. Goel, learned SDR, reiterated the findings as contained in the impugned orders and submitted that the various price lists filed by I.T.C.L. pertained to the period prior to the demand period; that the Price declaration dated 9-2-96 was filed only for the supply of Thermit portions to the Northern Railways; that there is no evidence regarding submission of any price declaration in respect of goods cleared for self use for rail jointing at site; that the price of the goods cleared by I.T.C.L. under system I, i.e. for out right sale to Indian Railways was much higher than the price adopted by them for the goods cleared under system II for self-consumption; that the prices adopted for clearances under system II were not approved by the Department and as such differential duty is payable by them on account of under valuation of the product. He, further, submitted that the declaration given by I.T.C.L. in classification lists/declaration/was (i) Thermit Welding equipments as per list attached and (ii) Thermit Welding equipment parts, and spares as per list attached; that full description of the product was not given inasmuch the substance/material out of which these were manufactured was not mentioned and accordingly I.T.C.L. wilfully mis-represented and mis-stated the facts and suppressed the vital facts with intent to evade duty and as such extended time limit is invocable. The learned SDR also relied upon the decision of the Larger Bench of the Tribunal in the case of Saurashtra Chemicals v. Collector of Customs, (T) - wherein it was held that carbon rings and carbon seals for use as spare parts in turbo sets and compressors were classifiable under Heading 68.01 and not under Heading 84.65 of the Customs Tariff Act.
8. In respect of Appeals filed by M/s. A.T.L. & Others, the learned SDR submitted that A.T.L. is the subsidiary Company of I.T.C.L. which owns 98% of the shares of A.T.L.; that goods manufactured by A.T.L. enter the stream of trade for the first time when these goods were sold by I.T.C.L. to Railways; that A.T.L. had not to face marketing problem and equally I.T.C.L. thrusted the responsibility on A.T.L. to arrange bulk supplies of dry moulds. He, further, submitted that though there was a condition in purchase order for charging loading and unloading charges at 15 paise per carton which was never charged; that A.T.L. had been making payment on regular basis to the contractors; that A.T.L. had also been paying loading and unloading charges in respect of goods received from other units namely M.E. and S.N.G., owned by close relations of M.D. of I.T.C.L.; that thus I.T.C.L. was monetarily being benefited; that on the other hand test of raw material was conducted by I.T.C.L. without any charge which shows that A.T.L. had interest in the business of I.T.C.L.; that I.T.C.L. had been catering to the needs of A.T.L. pertaining to labour and technical/non-technical services by providing the same through their own labour/staff; that A.T.L. were using I.T.C.L. equipments for drying the silica sand and they were storing finished goods in the shed of I.T.C.L. without any charge; that the A.T.L. had been incurring an additional expenditure of Rs. 2.05 per pair on the packing of dry mould which was not included in the Assessable value nor was paid separately by I.T.C.L.; that there is no co-relation between the sale bills and the despatches on one hand and the payments made by I.T.C.L.. He thus contended that both I.T.C.L. and A.T.L. are so closely associated with each other that they have mutual interest in the business of each other and accordingly the price at which I.T.C.L. sells the goods to Railways should be taken as assessable value; he also mentioned that as all these facts were suppressed from the Department and A.T.L. mis-stated the facts, extended period of limitation is invocable; that penalty under Rule 209A of the Central Excise Rules is imposable as Shri R.S. Maheshwari, Director of A.T.L. since 10-5-95 he was engaged in the entire affairs of the Company, as deposed by Shri V.K. Maheshwari, Production Manager, in his statement dated 12-9-96; that Shri Alok Nagory was exercising control over A.T.L. through R.S. Maheshwari; that day-to-day problems were brought to his knowledge by the workers of A.T.L. and as such he was responsible for the affairs of A.T.L.
9. In reply, the learned Counsel mentioned that M/s. A.T.L. have submitted a certificate dated 7-2-95 of Cost Accountant according to which the cost of the dry mould was Rs. 18.88 p; that duty was being paid at assessable value of Rs. 25/-; that no suppression can be alleged on the basis of statutory records; that penalty under Section 11AC cannot be imposed as the period involved is prior to the said section coming into effect; that penalty under Rule 209A can be imposed on the officials of the company only if it can be shown that they were aware of the facts that goods were liable for confiscation; that there should be a proposal for confiscation of goods in the show cause notice; that as they had complied with the direction of the Department, there cannot be any penalty imposable on them.
10. We have considered the submissions of both the sides. As far as classification of various goods is concerned, the learned Counsel for the Appellants has mentioned that the Appellants are not pressing the appeals in this regard except in the case of moulds and on the question of demand being time barred. Accordingly the classification of the products except dry mould is upheld, being not contested. Revenue has classified the moulds under Heading 68.07 claimed the classification under 84.79 or alternatively under 84.80 of the Tariff. We agree with the learned Advocate that the moulds are classifiable under Heading No. 84.80 as this Heading applies to moulding patterns, moulds for metal (other than ingot moulds), metal carbides, glass, mineral materials, rubber or plastics. As per Explanatory Notes of H.S.N., Heading 84.80 covers all moulds (whether or not hinged, and whether used by hand or in process or moulding machines) which are of a kind used for moulding metal and metal carbides, glass, rubber or plastics into blanks or finished articles. Further Heading 68.07 is a residuary entry as it applies to “All other articles of stone, plaster, cement, asbestos, mica or of similar materials, not elsewhere specified or included.” While explaining the scope of Heading 68.15 in H.S.N. which is also residuary heading, it is mentioned in the Explanatory Notes that “this Heading covers articles of stone or of other mineral substances, not covered by the earlier headings of this Chapter and not included elsewhere in the Nomenclature.” Accordingly, the moulds are classifiable under Heading 84.80 of the Tariff.
11. Regarding valuation of the products manufactured by M/s. India Thermit Corporation Ltd., We find substance in the submissions of the learned Advocate that the highest of the prices for bulk sale to Railways is comparative price and the Department cannot take prices for the small quantities sold to Railways for assessing the products used captively. There is no effective rebuttal of the submission made by the learned Advocate that if transport charge is deducted from the price charged by the Appellants, the price declared by them for captive use would be comparable to the price at which Thermit portion was being sold to the Railways in bulk. Further as the valuation aspect has been considered and adjudicated upon by the Assistant Commissioner under various Adjudication Orders and some of the period is overlapping. We agree with the learned Counsel that there cannot be a second proceedings raising demand for the said period. Similarly in case of moulds, the Appellants have adopted the price of Rs. 25/- and they have produced a copy of purchase order of Railways with M/s. Asiatic Thermics Ltd. for bulk supply of moulds @ Rs. 24.60 p. in July, 1997. Accordingly, we do not find any under valuation in the present matter. Coming to the question of invocability of extended period of limitation for demanding duty we observe that the classification lists were filed by M/s. I.T.C.L. giving full description and these were approved from time to time. Under their letter dated 27-3-79 they had submitted details of the raw materials used and the manufacturing process to the Department. The finding of the Commissioner that, in case any product is likely to attract another Heading of the Tariff, it is imperative on the part of the assessee to make a clear mention of the substance of raw material, applies in our view, more to the Departmental officers who are required to approve the classification lists after examining and verifying the same. It is imperative on their part, in such a situation, to enquire about substance/material out of which the product is made and other further details.
12. The last issue to be decided is whether M/s. I.T.C.L. and A.T.L. are related persons. The various reasons advanced by the Adjudicating Authority in the impugned order to held that there is mutuality of interest between the two companies are not sufficient to hold the same. It is settled law that a buyer would not become a related person merely because all the goods are sold to a particular person unless the price charged to them is based on extra commercial consideration. Further merely because a company is a subsidiary company, this fact would not make it a related person unless it is established that each has interest in the business of other. Further the learned Advocate showed that the price at which A.T.L. were selling the moulds to Railways, the same price has been charged by them from I.T.C.L., The learned Advocate has also referred to I.T.C.L.’s letter dated 22-1-1996 in which they have explained that Rs. 50/- was being charged by them from Railways as it included the cost of packing, freight and 10% extra for breakage whereas in the case of supply from A.T.L. no such expenses are being incurred. No substantial evidence has been brought on record by the Revenue to prove that A.T.L. was supplying the moulds to I.T.C.L. after packing the same. The Appellants, on the other hand, have contended that during the search of their premises (A.T.L.’s premise) dry moulds in packed condition were not found in their premises. We are, thus, of the view that the Revenue has not been successful in establishing the charge of undervaluation of the goods by M/s. A.T.L., accordingly no demand of duty can be made from them on this count. In these circumstances no penalty is also imposable on any of the Appellants.
13. All the appeals are disposed of in the above terms.