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PHOENIX INTERNATIONAL LTD v. NOIDA

CESTAT

Jan 6, 2020

Judgment

Subsequent
References

CaseIQ

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Administrative Summary: Customs, Excise & Service Tax Appellate Tribunal, Allahabad — Final Order No. 70011/2020

Factual and Procedural Background

This appeal arises from Order-in-Appeal No. NOI-EXCUS-001-APP-1374-17-18 dated 30/10/2017 passed by the Commissioner (Appeals), Central Tax Commissionerate, Noida. The appellant is M/s Phoenix International Ltd., a manufacturer of "Reebok" brand shoes falling under Chapter Subheading No. 6401.11 of the schedule to the Central Excise Tariff Act, 1985. The appellant paid Central Excise duty and did not avail benefits under the Modvat scheme.

For clearances made during August 1996 to December 1996 the appellant was served a show cause notice dated 21/02/1997. That show cause notice referenced an earlier Customs show cause dated 01/07/1996 which alleged undervaluation of various imported raw materials. The Customs notice purportedly led to an enhanced assessable value for the appellant's clearances — from the declared Rs. 28,99,988 to Rs. 2,31,55,267 — and a consequential demand of differential Central Excise duty of Rs. 30,38,292 (15% ad valorem) in respect of 9,215 pairs of shoes.

The appellant contested the demand before the original adjudicating authority, contending, among other things, that the Customs re-assessment of already-assessed imports was impermissible and that extended period of limitation could not be invoked. The original adjudicating authority confirmed the demand and interest. The Commissioner (Appeals) upheld that confirmation. The appellant then appealed to this Tribunal.

Legal Issues Presented

Whether the revenue could re-determine the assessable value of the appellant's clearances for August–December 1996 on the basis of the Customs proceedings when the show cause notice did not allege that the sale price declared by the appellant was not the sole consideration, that there was flow back of consideration, or that sales were not at arm's length.
Whether the Supreme Court decision in M/s Ujagar Prints & Others (1988 (19) ECR 578 (SC)) applied to justify re-determination of assessable value in the facts of this case.
Whether the extended period of limitation was invokable given the absence of allegations of suppression or misstatement in the show cause notice dated 21/02/1997.

Arguments of the Parties

Appellant's Arguments

The appellant argued that there were no allegations in the show cause notice that (a) the assessable value declared for the shoes was not the sole consideration; (b) there was any flow back of consideration from buyers to the appellant; or (c) the assessable value was below cost of production such that it should be rejected.
The appellant submitted that the Customs show cause dated 01/07/1996 could not be used to re-determine the assessable value of the shoes cleared by the appellant during August–December 1996, particularly because the CIF values of 52 different models in that Customs notice could not be adopted for the specific 9,215 pairs at issue.
The appellant relied on tribunal and Supreme Court authority (including M/s Guru Nanak Refrigeration Corporation, affirmed by the Supreme Court) to contend that where there are no allegations of non-arm's-length transactions, flow back, or non-sole consideration, the revenue cannot reject a declared sale price even if it is lower than cost of production.
The appellant relied on M/s Priya Blue Industries Ltd. to contend that reassessment of already-assessed imports by Customs was impermissible; and argued that extended limitation could not be invoked as there was no allegation of suppression or misstatement.

Revenue's Arguments

The authorised representative for the revenue supported the impugned order of the lower authorities (the original adjudicating authority and the Commissioner (Appeals)).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
M/s Ujagar Prints & Others v. Union of India, 1988 (19) ECR 578 (SC)	Used by revenue (as stated in the show cause) to assert that where the cost of raw material is increased, the assessable value of manufactured goods should be enhanced.	The Tribunal held this precedent inapplicable on the facts because Ujagar Prints involved a manufacturer under a contract to return manufactured goods to the supplier of raw material; in the present case the appellant was not required to return goods to suppliers. Therefore the Ujagar Prints ruling could not be used to justify re-determination of assessable value here.
M/s Priya Blue Industries Ltd. v. Commissioner of Central Excise, reported at 2004 (172) ELT 145 (SC)	Relied upon by the appellant to contend that re-assessment of already-assessed imports by Customs is impermissible and that extended limitation is not invokable without allegation of suppression/misstatement.	The appellant relied on this ruling before the authorities; the Tribunal recorded the reliance as part of the appellant's challenge to the Customs re-determination and extended period invocation. The Tribunal's decision focused on other precedents and facts but acknowledged the appellant's reliance on Priya Blue.
M/s Guru Nanak Refrigeration Corporation v. Commissioner of Central Excise, New Delhi, 1996 (81) ELT 290 (T) (affirmed by the Supreme Court as 2013 (153) ELT 249 (SC))	Establishes that the value for excise levy is the price at which goods are sold by the assessee to a buyer at arm's length; absent allegations of non-sole consideration, flow back, or non-arm's-length dealings, revenue cannot reject the declared price even if it is lower than cost of manufacture.	The Tribunal applied this principle directly. It reproduced the relevant paragraph of that decision, relied upon its reasoning, and found that since there were no allegations in the show cause notice of non-sole consideration, flow back, or non-arm's-length sales, the revenue could not reject the appellant's declared price. This precedent formed the central basis for setting aside the impugned order.
Union of India & Others v. Bombay Tyre International Ltd., reported 1983 (14) E.L.T. 1896 (referenced in Guru Nanak decision)	Explains that the value of an excisable article should be taken as the price at which it is sold by the assessee to a buyer at arm's length in wholesale trade at the time and place of removal; where not sold in wholesale trade, value is determined by the price an article of like kind/quality is capable of being sold for in wholesale trade.	The Tribunal reproduced the quoted paragraph from this authority (as it appeared in the Guru Nanak decision) and used its articulation of the valuation principle to support the conclusion that declared sale price should stand absent allegations to the contrary.

Court's Reasoning and Analysis

The Tribunal proceeded by examining the show cause notice and the record to determine whether the revenue had valid grounds to re-determine the assessable value of the appellant's clearances for August–December 1996.

First, the Tribunal noted the appellant's factual and legal contentions: the show cause notice did not allege that the declared sale price was not the sole consideration, did not allege flow back of consideration from buyers to the appellant, and did not allege that the declared price was not available (i.e., the goods were in fact sold at the declared price). The appellant also contended that the Customs show cause could not be used to re-determine value for excise of the specific clearances in question, and relied upon prior tribunal and Supreme Court rulings.

Second, the Tribunal relied heavily on the precedent in M/s Guru Nanak Refrigeration Corporation (and the Supreme Court authority it endorses) which articulates that excise value is ordinarily the price at which goods are sold at arm's length, and that absent allegations that price was not the sole consideration, sales were not at arm's length, or there was flow back of money, revenue cannot reject the declared price merely because it is lower than the cost of production or raw material cost.

Third, the Tribunal examined the applicability of the Ujagar Prints decision invoked in the show cause notice. It distinguished Ujagar Prints on its facts — there, the manufacturer was under a contractual obligation to return manufactured goods to the supplier of raw material, a factual matrix that supported a different valuation approach. Since the appellant in the present case had no obligation to return goods to suppliers after manufacture, Ujagar Prints was held inapplicable.

Based on these reasoned comparisons to precedent and the absence of specific allegations in the show cause notice undermining the declared sale price, the Tribunal concluded there were no justified grounds to hold that the appellant had undervalued its clearances for the period in question.

Holding and Implications

APPEAL ALLOWED; the impugned order is set aside.

Consequences for the parties: The Tribunal allowed the appeal and set aside the orders of the lower authorities (the original adjudicating authority and the Commissioner (Appeals)). The appellant is entitled to consequential relief "as per law" (as stated by the Tribunal).

Broader implications: The opinion applies existing authority (including the Tribunal's earlier decision in Guru Nanak, affirmed by the Supreme Court) to reaffirm that, in the absence of allegations of non-sole consideration, flow back, or non-arm's-length dealings, revenue cannot reject a declared sale price even if it is less than cost. The judgment distinguishes Ujagar Prints on factual grounds. The opinion does not purport to create a novel legal precedent beyond applying and distinguishing established authorities.

Pronounced in open court: 06 January 2020. Coram: Archana Wadhwa (Member Judicial) and Anil G. Shakkarwar (Member Technical).

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CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

ALLAHABAD

REGIONAL BENCH - COURT No. I

Excise Appeal No.70096 of 2018-[DB]

(Arising out of Order-in-Appeal No.NOI-EXCUS-001-APP-1374-17-18 dated 30/10/2017 passed by Commissioner (Appeals) Central Tax Commissionerate, Noida)

M/s Phoenix International Ltd. …..Appellant

(A-4, Sector-5, Noida)

VERSUS

Commissioner of Central Excise, ….Respondent

(Noida-I)

APPEARANCE:

Shri Jitin Singhal & Shri Pravesh Bahuguna, Advocates for the Appellant Shri Santosh Kumar Agarwal, Authorised Representative for the Respondent

CORAM: HON'BLE SMT. ARCHANA WADHWA, MEMBER (JUDICIAL) HON'BLE MR. ANIL G. SHAKKARWAR, MEMBER (TECHNICAL)

FINAL ORDER NO-70011 / 2020

DATE OF HEARING : 29 November, 2019

DATE OF PRONOUNCEMENT : 06 January, 2020

PER: ANIL G. SHAKKARWAR

Above stated appeal is arising out of Order-in-Appeal No.NOI-EXCUS-001-APP-1374-17-18 dated 30/10/2017 passed by Commissioner (Appeals) Central Tax Commissionerate, Noida.

2. Brief facts of the case are that the appellants were manufacturer of 'Reebok' brand shoes falling under Chapter Subheading No.6401.11 of schedule to Central Excise Tariff Act,

1985. They were paying Central Excise duty and were not availing any benefit of Modvat scheme. For the clearances made during the period from August, 1996 to December, 1996 appellant were issued with a show cause notice dated 21.02.1997. It was stated in the said show cause notice that appellant were issued with another show cause notice under Customs Act, which was issued on 01.07.1996 and through the said show cause notice various raw materials imported by the appellants were alleged to be undervalued on their import into India and differential Customs duty of Rs.34,430/- and CVD of Rs.15,493/- was demanded. It was further stated in the show cause notice dated 21.02.2019 that in terms of Hon'ble Supreme Court's judgment in the case of M/s Ujagar Prints & Others Vs Union of India reported at 1988 (19) ECR 578 (SC) since the cost of the material used by the appellant was enhanced the assessable value of the goods manufactured by the appellant during the aforesaid period should be enhanced to Rs.2,31,55,267/- against the actual value of clearance of Rs.28,99,988/-. Therefore, on the differential value of clearance of 9215 pairs of shoes differential Central Excise duty payable @ 15% advelorum working out to Rs.30,38,292/- was demandable from the appellant. Therefore, through the said show cause notice dated 21.02.1997 appellant were called upon to show cause, as to why differential Central Excise duty amounting to Rs.30,38,292/- should not be demanded from the appellant. The appellant contested before the Original Adjudicating Authority that when the raw materials were imported their assessments

were carried out by Customs Department and duties were collected and raw materials were cleared on payment of Customs duty at relevant time. Therefore, the said show cause notice issued by the Customs Authorities on 01.07.1996 was amounting to re-assessment of the goods already imported and the same was not permissible under law. For the said contention they relied on the ruling by Hon'ble Supreme Court in the case of M/s Priya Blue Industries Ltd. Vs Commissioner of Central Excise reported at 2004 (172) ELT 145 (SC). They further contended that extended period of limitation was not invokable in the facts of the present case as there was no allegation about the suppression or misstatement in the show cause notice dated 21.02.1997. The Original Adjudicating Authority confirmed the demand and ordered to pay the appropriate interest on the confirmed amount. Aggrieved by the said order, appellant preferred appeal before Commissioner (Appeals). Learned Commissioner (Appeals) did not interfere with the order passed by the Original Adjudicating Authority and rejected the appeal filed by the appellant. Aggrieved by the said order, appellant is before this Tribunal.

3. Heard Shri Jitin Singhal and Shri Pravesh Bahuguna learned Advocates appearing for the appellant. They have submitted that there were no allegations in the subject show cause notice that the assessable value on shoes manufactured and cleared by the appellant during the period of show cause notice was not the sole consideration and there were no allegations that there was any flow back of consideration to the

appellant. Further, there were no allegations in the show cause notice that the assessable value was below the cost of production. They further submitted that because of both the above stated reasons there cannot be any reason to reject the assessable value declared by the appellant as held by this Tribunal in the case of M/s Guru Nanak Refrigeration Corporation Vs Commissioner of Central Excise, New Delhi reported as 1996

(81) ELT 290 (T) which was affirmed by Hon'ble Supreme Court as reported as 2013 (153) ELT 249 (SC). They further submitted that no reliance can be placed on show cause notice dated 01.07.1996 issued by Customs Authorities to re-determine the assessable value of 'Reebok' brand shoes manufactured and cleared by the appellant during the relevant period because CIF value of 52 different models of 'Reebok' brand shoes which were forming part of show cause notice dated 01.07.1996 cannot be adopted for the purpose of determining assessable value of 9215 pairs of shoes manufactured and cleared by the appellant during the period from August, 1996 to December, 1996.

4. Heard Shri Santosh Kumar Agarwal learned Authorised Representative appearing for Revenue. He has supported the impugned order.

5. Having considered the submissions from both the sides and on perusal of record, we note that through the proceedings revenue is attempting to re-determine the assessable value of goods cleared by the appellant during the period from August, 1996 to December, 1996. The appellant has submitted that there were no allegations in the show cause notice that the price at

which the goods were sold by the appellant to the buyers was not the sole consideration and they have also submitted that there were no allegations that there was any flow back of consideration from the buyers of the appellant. They have further relied on this Tribunal's decision in the case of M/s Guru Nanak Refrigeration Corporation (supra) which was affirmed by Hon'ble Supreme Court. For the sake of ready reference, we reproduce para-7 of the said Final Order of this Tribunal in the case of M/s Guru Nanak Refrigeration Corporation (supra) as bellow:-

"7. In the case of Union of India & Others v. Bombay Tyre International Ltd. etc., the Hon'ble Supreme Court in para 25 reported in 1983 (14) E.L.T. 1896 of their order held :

"25. Accordingly, we hold that pursuant to the old S. 4(a) the value of an excisable article for the purpose of the excise levy should be taken to be the price at which the excisable article is sold by the assessee to a buyer at arm's length in the course of wholesale trade at the time and place or removal. Where, however, the excisable article is not sold by the assessee in wholesale trade but, for example, is consumed by the assessee in his own industry the case is one where under the old S. 4(a) the value must be determined as the price at which the excisable article or an article of the like kind and quality is capable of being sold in wholesale trade at the time and place of removal."

From the above rulings in para 25 of the order, we find that the value of excisable article for purpose of excise levy should be taken to be the price at which the excisable article was sold by the assessee to a buyer at arm's length in the course of wholesale trade at the time and place of removal. In the instant case, we find that there is no allegation that there was no price at which the goods were being sold by the assessee to a buyer. We also observe that there was no allegation that the price was not the sole consideration or the dealings between the assessee and the buyers were not at arm's length. There is no allegation that there was a flowback of the money from the buyer to the assessee. Having regard to these factors and examining the price in the instant case, we find that there was no reason to reject the price simply because it was less than the cost of manufacture of raw material,

manufacturing cost and the manufacturing profit. Having regard to these rulings of the Hon'ble Supreme Court, we uphold the contentions of the appellants that the price declared by them was a correct price. In the result, the impugned order is set aside and the appeal is allowed." It is clear from the precedent decision of this Tribunal affirmed by Hon'ble Supreme Court of India that if there are no allegations that there was no price at which the goods were sold by the appellant and if there are no allegations that the price was not the sole consideration for the sale and if there were no allegations that the buyers were not at arm's length and if there are no allegations that there was flow back of money from the buyers to the assessee then revenue cannot reject the price declared by the appellant. We find that in the present case there were no allegations that the price of the goods was not available. In fact the goods were cleared by the appellant during the relevant period with total assessable value of Rs.28,99,988/- as stated in the show cause notice. We also note that there were no allegations in the show cause notice that price was not sole consideration for sale and there were no allegations that there was any flow back of money from the buyers to the appellant. Therefore, we hold that there are no grounds for holding that the appellants have undervalued there clearances during the period from August, 1996 to December, 1996. We, further, note that Hon'ble Supreme Court's ruling in the case of M/s Ujagar Prints & Others is not applicable in the present case because in the case of M/s Ujagar Prints & Others, M/s Ujagar Prints was manufacturer and was under contract to return the manufactured goods to the supplier of raw material. In the

present case the appellant is not required to return the goods after manufacture to suppliers of raw material. Therefore, the ruling by Hon'ble Supreme Court in the case of M/s Ujagar Prints & Others is not applicable to the facts of the present case. We, therefore, do not find any merit in the allegations raised in the said show cause notice dated 21.02.1997.

6. We, therefore, set aside the impugned order and allow the appeal. Appellant shall be entitled for consequential relief, as per law.

(Pronounced in open court on-06 January, 2020)

(Archana Wadhwa) Member (Judicial) (Anil G. Shakkarwar) Member (Technical)

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