ORDER
P.G. Chacko, Member (J)
1. There are two appeals before us, one by the assessee and the other by the Department. The assessee, during the material period, was engaged in the manufacture of detergents. During the period between January 1995 to October 1997, they did not include two elements in the assessable value of the detergents supplied to Hindustan Lever Ltd. One of these elements was the loading charges relating to the loading of the goods at the assessee’s factory gate. These charges were borne by the buyer. The other element, which was not included in the assessable value of the goods, was the remuneration received by two employees of the buyer (HLL) for their quality control activity performed in the assessee’s factory. After including these elements also in the assessable value of the goods, the original authority raised a demand of differential duty on the assessee, amounting to Rs. 1,70,277/-. As the assessee had not disclosed to the department the fact that they had not included the above elements in the assessable value of the goods, the larger period of limitation was invoked for demanding this duty on the basis of ‘suppression of facts’ found against the assessee. The original authority also imposed equal amount of penalty on the assessee under Section 11AC of the Central Excise Act on the ground of contravention of provisions of the Central Excise Rules, 1944. The authority also denied input-duty credit of over Rs. 3.6 lakhs and capital goods credit of over Rs. 2.9 lakhs also to the party for the aforesaid period. In the appeal preferred by the assessee against the Dy. Commissioner’s order, Id. Commissioner (Appellants) allowed input duty credit to them but sustained the demand of duty on them after upholding the valuation done by the lower authority. As regards capital goods credit, Id. Commissioner (Appeals) observed that the assessee had not contested its disallowance. As regards the penalty, the lower appellate authority allowed the assessee’s appeal partly. It was noted that it was not correct to impose penalty equal to the entire amount of the duty demanded for the aforesaid period under Section 11AC of the Act inasmuch as the said provision of law was not in existence prior to 28-9-96. Ld. Commissioner (Appeals) sustained the Section 11AC penalty to the extent of an amount equal to the duty demanded for the period from 28-9-96 to October 1997. The penalty of Rs. 1 lakh imposed on the assessee by the original authority under Rule 173Q was reduced to Rs. 50,000/- The Revenue’s appeal is against the dropping of a part of the penalty imposed under Section 11AC. After hearing both sides, we quickly dismiss this appeal of the Department inasmuch as it is settled law that no penalty can be imposed under a given provision of law for any period prior to the date on which the said provision was introduced. Section 11AC was enacted with effect from 28-9-96 without any retrospective effect and, therefore, no such penalty could have been imposed on the assessee for the period prior to the said date as rightly held by the Commissioner (Appeals). Hence appeal No.E/769/99 stands dismissed.
2. In the assessee’s appeal, the main challenge is against the demand of differential duty. The Id. Counsel submits that neither the salary of HLL’s employees nor the loading charges was liable to be included in the assessable value of the goods cleared by the assessee to M/s. Hindustan Lever Ltd. during the period of dispute. Id. SDR opposes this claim on the strength of the findings recorded in the impugned order.
3. After considering the submissions, we find that two employees of Hindustan Lever Limited (buyer) were permanently stationed in the assessee’s factory and were checking the quality of the goods (to be supplied to their employer/Hindustan Lever Ltd.) on a day-to-day basis during the period of dispute. As rightly observed by the Id. Commissioner (Appeals), the activity of these employees of Hindustan Lever Limited was in the nature of enhancing the value of the goods and making it marketable. Without such quality check and control, the goods would not have been acceptable to the buyer. In other words, the activity performed by the above employees of the HLL was an integral part of the testing of the assessee’s product, an element very much includible in the assessable value of the goods. As regards loading charges, it is found that, though these were borne by the buyer, these were incurred in connection with the loading of the goods in the assessee’s factory. Such expenses have been held to be includible in the assessable value of the goods cleared from the factory, by a series of decisions of the apex Court, vide UOI v. Bombay Tyre International 1983 (14) E.L.T. 893 (SC). Hence the valuation done, and the demand of duty raised, by the lower authorities are quite in order.
4. Another challenge in the assessee’s appeal is against the residuary penalty under Section 11AC. In terms of the impugned order, there is a penalty on the assessee which is equal to the amount of duty demanded from them for the period from 28-9-96 to October, 97. Ld. Counsel has questioned the reasonableness of this penalty. It is submitted that, in the facts and circumstances of the case, the maximum penalty prescribed under Section 11AC cannot be imposed on the party. It is also submitted that entire amount of duty had been paid by the assessee prior to the issuance of show-cause notice. In such facts and circumstances, no penalty was imposable under Section 11AC as held in a line of decisions of the apex Court and this Tribunal. Hence the residuary penalty on the assessee under Section 11AC is vacated.
5. The next challenge is against the penalty of Rs. 50,000/- imposed under Rule 173Q. This penalty also cannot be sustained on account of the fact that the entire amount of capital goods credit had been reversed by the party prior to issuance of the Show-cause notice. Hence this penalty is also vacated.
6. In the result, we allow the assessee’s appeal only to the extent of setting aside the penalties imposed by the lower appellate authority. Ordered accordingly.
(Order dictated and pronounced in open Court)