ORDER
A.C.C. Unni, Member (J)
1. In this appeal M/s. Super Steel Corporation have challenged the order of the Collector of Central Excise, Bombay-II, dated 6-3-1989. The issue relates to assessable value of the goods cleared from the appellants’ factory. By the impugned order, the Collector has confirmed a demand of duty of Rs. 12,46,951.85 apart from imposing a penalty of Rs. 2,50,000/- and a redemption fine of Rs. 1 lac.
2. The appellants who are a partnership firm are a small scale unit registered with the Directorate of Industries. They are engaged in the fabrication of pressure vessels, storage tankers of all types and LPG tankers. By a show cause notice dated 20-2-1987, the Collector called upon the appellants to show cause why Central Excise duty amounting to Rs. 12,46,951.85 should not be recovered from them and why penalty should not be imposed and why the land, building, plant, machinery, materials, etc. should not be confiscated under Rule 173Q on the ground of wilful suppression of facts, clearance of goods without filing proper and correct price lists, clearance of the goods without determining the appropriate Central Excise duty, clearance of goods without payment of Central Excise duty, by debiting the PLA account and other grounds. After considering the appellants’ reply and after hearing them, the Collector passed the impugned order.
3. Shri B.B. Gujral, learned Advocate along with Shri R.L. Bahl, learned Consultant appeared for the appellants. Shri K. Srivastava, learned SDR appeared for the Revenue.
4. The learned Advocate submitted that the appellants are engaged in three types of manufacturing activities, namely (a) as job workers for their customers for the manufacture of tankers, (b) fabrication of tankers on the basis of contract for various suppliers for which no material was supplied by the customers and (c) as original manufacturers of LPG tankers. The present dispute related to 218 LPG tankers fabricated by the appellants between May 1983 and March 1986. Out of these, 159 tankers were supplied to one customer, M/s. Kwality Fabricators and the balance 59 (according to the show cause notice, 60) tankers fabricated for other customers. The charge against the appellants was that they had manufactured and cleared 159 tankers for and on behalf of M/s. Kwality Fabricators by misdeclaring the prices in the price lists by showing only 10% as notional margin of profit instead of the actual quantum of profits. They had also not included in the assessable value the excess amount charged by M/s. Kwality Fabricators from their ultimate buyers as “service charges” etc. They had thereby knowingly and with intent to evade duty suppressed the assessable value and short-paid the excise duty on 159 tankers. Likewise, they had misdeclared the prices of another 59 tankers (60 tankers according to SCN) sold to other customers by determining the assessable value on the basis of costing by suppressing the actual price by showing their activities merely as job work. Further, they had also fabricated and cleared four fabricated items but had raised the bill in the name of M/s. Accurate Engineers, a partnership firm which existed only in paper and which had no manufacturing facility.
5. Learned Counsel submitted that 159 tankers were fabricated by appellants on job work basis for M/s. Kwality Fabricators out of raw materials supplied by M/s. Kwality Fabricators. Regarding clearance of 59 tankers in other cases also, the tankers were fabricated by the appellants from the raw materials supplied by the customers. Ld. Counsel explained that initially quotations were given by the appellants to the customers inclusive of cost of raw materials and job work charges. The customers advanced the entire amount to the appellants which was in fact paid by the customers’ bankers directly to the appellants by demand draft or crossed order, as per quotation. Since the said amounts were actually loans sanctioned by the respective banks to the appellants’ customers, the appellants had returned the cost of raw material to the customers by crossed pay order or by demand draft by returning the cost after retaining labour charges. This was done to enable the customers to procure raw materials on easy and cheaper terms. Price lists giving quotations indicating cost of raw materials separately duly certified by the buyers’ Chartered Accountants were also submitted by appellants to the Department which were duly approved by the Asstt. Collector and no objection had been taken by the Department for not adding notional margin for charging Central Excise duty on the notional profits of the appellants’ customers under Valuation Rules, 1975. The Id. Counsel further contended that the matter was adjudicated later on by the Asstt. Collector ex parte by order passed on 19-12-1984 and the appellants had thereafter agreed to pay Central Excise duty on 10% notional margin of profit of the appellants’ customers and the same were paid with retrospective effect from 1983. In regard to 159 tankers supplied to M/s. Kwality Fabricators during the period 1983 to 1985, the appellants contended that the same were fabricated on job work basis and for the said transactions, the price list showing the cost of raw materials, fabrication charges and 10% notional profit pursuant to the order of the Assistant Collector was approved by the Assistant Collector. The duty was also paid on the basis of assessable value as approved in the price list. It was contended that the appellants were not concerned with the price list at which LPG tankers were sold by M/s. Kwality Fabricators to their customers, nor were they-concerned with the other charges recovered by M/s. Kwality Fabricators from their customers. Since the goods were delivered by appellants to M/s. Kwality Fabricators at the appellants’ gate, the appellants denied the allegation of evasion of duty on the said tankers as baseless and untenable.
6. As regards the 59 tankers manufactured by the appellant out of materials received from other buyers of the tankers, the quotations included the cost of raw materials as well as the charges for fabrication and processing by the appellants. The said quotations submitted by the appellants’ buyers were through their bankers and the bankers gave cheques as loans advanced by them to their customers who are buyers of LPG tankers manufactured by the appellants on gross value basis which included the cost of raw materials and the appellants’ labour charges. The balance amount, if any, was returned by the appellants to the buyers after deducting job work/labour charges along with any balance of raw materials. The entire evidence relating to the said transactions was also submitted to the authorities.
7. On behalf of the appellants it was further contended that the statements relied on by the Collector in the impugned order did not substantiate the findings arrived at by the adjudicating authority. It was further contended that the appellants were not aware that M/s. Kwality Fabricators were selling the said tankers at a price higher than the figures indicated in the price list. The Id. Advocate for appellants, therefore, contended that the conclusion of the adjudicating authority that the appellants did not include in the assessable value the excess amount charged by M/s. Kwality Fabricators was incorrect as there was no evidence on record to show that the appellants were at any time aware that M/s. Kwality Fabricators were charging anything over and above the price charged by the appellants. The appellants further contended that they were neither aware nor concerned with the “service charges” received from the customers by M/s. Kwality Fabricators. Further, as job workers, the appellants were not concerned with post-clearance charges if any, taken by M/s. Kwality Fabricators. They were concerned only with the duty paid on raw materials.
8. As regards charge of misdeclaration of price of 59 tankers, the appellants’ case is that they had tendered sufficient evidence before the adjudicating authority to prove that out of gross value of the cheques received from the buyers of tankers, the appellants returned to their buyers, the cost of raw materials and had in the end, refunded even the amount remaining in balance after adjusting their labour charges, the cost of other raw materials supplied by them and 10% notional margin of profit by crossed orders/cheques. They had also by their letter dated 17-2-1989 addressed to the adjudicating authority submitted the complete list of 59 tankers sold to different parties annexing therewith invoices of various customers and also proof of refund of balance money after deducting labour charges, cost of certain small items and 10% notional margin of profit from the quotation value. They contended that it was open to the adjudicating authority to verify the evidence before arriving at any conclusion. They also submitted that there was a slight mistake in accounting the number of tankers in the show cause notice and in the adjudication order inasmuch as the total number of tankers cleared by the appellants were 218 and not 219.
9. Appellants had also raised the point of limitation and had denied any suppression of facts on their part with intent to evade duty.
10. Shri K. Srivastava, Id. SDR submitted that enquiries made by the Department about the manufacturing activities of the appellants showed that the appellants were showing their manufacturing activities merely as job works and were making a misdeclaration to the Department that the raw materials for fabricating the tankers were being supplied to them by their customers. Shri Parasnath R. Singh, Partner of M/s. Rajesh Roadlines, a buyer of such tankers, had in his statement clearly admitted that no raw materials were supplied by them and a clause to the said effect in their purchase order was incorporated therein at the instance of Shri Coelho, Managing Partner of the Appellant firm. Further, statement of Janardhan Munj, an employee of appellants showed that M/s. Accurate Engineers had no factory or workshop and the address shown by M/s. Accurate Engineers as their premises was only the residence address of the Managing Director of the appellants. The statements given by the Managing Partner of M/s. Kwality Fabricators, Shri S.K. Verma, also showed that they were also engaged in contract work for LPG tankers and they were getting tankers fabricated from the appellants after getting orders from the various customers. The scrutiny of the records M/s. Super Steels Corporation also clearly showed that they had wilfully mis-declared the price of 219 tankers which they had manufactured, with intent to evade payment of duty and they had also suppressed material facts in relation to the production of price on cost basis including 10% margin as notional profit.
11. We have considered the submissions and perused the records of the case. We find that there are three sets of charges against the appellants. The first charge against the appellants is that they had short paid duty to the tune of Rs. 12,46,951.85 in respect of the 219 tankers. The allegation is that they had deliberately suppressed the correct value of the tankers cleared by them and declared a lower assessable value with a view to evade payment of duty. The price shown by them in their sale to customers was different from the actual price at which M/s. Kwality Fabricators had sold the goods. According to the Department there was in fact no difference between the appellants and M/s. Kwality Fabricators inasmuch as the entire raw material charges were covered by advances from the banks and there was no actual supply of raw materials by M/s. Kwality Fabricators to the appellants. While the appellants showed a certain price in their price lists on the basis of costing including job work charges and 10% as notional margin M/s. Kwality Fabricators had sold the tankers at a price higher than the price declared by the appellants in their price list. In the statement given by Shri S.K. Verma, Proprietor of M/s. Kwality Fabricators, he had stated that the selling price of the appellants’ product to customers was in their price list. During the submissions before us, however, the learned Advocate for the appellants had submitted that the fact should not be lost sight of that the appellants and M/s. Kwality Fabricators were two different and independent legal entities. The appellants were engaged in the fabrication of tankers on job work basis. They had fabricated a number of tankers on job work basis for M/s. Kwality Fabricators on raw material supplied by M/s. Kwality Fabricators. They (M/s. Super Steels Corporation) had also filed the price list giving details of price of the raw materials, job work charges and 10% notional margin of profit. It was not their concern as to what price at which M/s. Kwality Fabricators had sold the goods to their customers and no liability can by fastened on the appellants merely for the reason that the price at which M/s. Kwality Fabricators sold the goods to their customers was higher. The second charge is in relation to fabrication of another 59 tankers sold to different customers, the appellants had explained that the customers themselves had supplied the raw materials though it was the customers’ bankers who had advanced the money to them on the basis of quotations. Whenever the customers decided to supply the raw materials they returned to their customers the money advanced after deducting processing charges. Whenever the raw materials had been supplied, the appellants had submitted the price list in advance to the different classes of buyers showing the cost of raw materials, fabricators charges and 10% notional margin of profit. The Department’s’ allegation is that in many cases, the tankers were dispatched directly by the appellants from their factory to the customers. In such cases, according to the Deptt. the only allowable deduction could be towards the cost of transport of such tankers from the factory of the appellants. The third charge is that they had raised bills in the name of a non-existent firm in relation to four items fabricated by the appellants.
12. As regards the demand of duty of Rs. 12,46,956.95 on the 219 tankers fabricated and supplied to M/s. Kwality Fabricators and others we find that the Department’s contention that the appellants had misdeclared the actual price by showing the price on cost basis including 10% margin of profit is based on the assumption that the appellants and M/s. Kwality Fabricators were in fact one and the same entity and the claim of the appellants that they were independent job workers were neither factually nor legally correct. We find that inasmuch as there is documentary evidence to show that appellants had returned the balance amount relating to the cost of raw material to the customers and the appellants had directly delivered the fabricated tankers to certain customers the Department’s case has come…towards the workers is an independent manufacturer as long as it is not shown that the job that is being executed was merely as hired labour. [CCE v. Print Origin, 1997 (90) E.L.T. 180 (T)]. In Ujagar Prints and Ors. v. Union of India 1988 (38) E.L.T. 535 (S.C.) the Apex Court had held that in the case of processors of grey fabrics (job workers), they become liable to pay excise duty not because they were owners of the goods but because they cause the ‘manufacture’ of goods. In its further clarificatory order reported in 1989 (39) E.L.T. 493 (S.C.), the Court had held that the assessable value of goods produced on job work basis would include the cost of material, processing charges and profit of processor but not Trader’s profit since the said charges would be post-manufacturing profit. Further, where the trader gives to the processor a declaration about the price at which he would be selling the processed goods in the market, such declared price would be considered the assessable value provided it included only the price at which the processed goods would leave the processor’s factory, plus the processor’s profit. In CCE v. Pharmasia Ltd. 1996 (63) ECR 380 the Tribunal had, following the said Apex Court rulings held that the assessable value of the goods manufactured by a job worker from the raw material supplied by the manufacturer would be only the sum total of the value of the raw material, the value of job work done, the manufacturing profit, and expenses on processing and not anything more. In the said case also the Tribunal had rejected the Department’s contention that the assessable value should be the value at which the manufacturer ultimately sold the product in the wholesale market. It was held that the assessable value would be the sum total of the value of the raw materials, the value of the job work, the manufacturing profit and expenses incurred by the processor for processing.
13. In the instant case we find that the appellants had carried out manufacturing work of 159 tankers for M/s. Kwality Fabricators and another 59 tankers for various other customers. It is not in dispute that the appellants had the facility for manufacturing of such tankers even as independent manufacturers. Appellants had included the cost of raw materials, fabrication charges and 10% notional profit in the price list of the tankers supplied to M/s. Kwality Fabricators and the other customers. There is nothing on record to show that the appellants were carrying out the work as hired labourers or that the relationship between the appellants and M/s. Kwality Fabricators/other customers were not on a principal to principal basis. Having regard to the legal position as laid down in the decided cases referred to above and the above factual position forging from the record, we do not find that the demand of Rs. 12,46,951.85 arrived at by the Department on the basis of other criteria can be sustained.
14. Having regard to the above discussion, we set aside the impugned order barring the part relating to penalty. We confirm the penalty in relation to the misdeclaration by appellants about fabrication of four items shown in the name of M/s. Accurate Engineers but reduce the quantum thereof to Rs. 50,000/- (Rs. Fifty thousand).
15. Subject to the above modification in the impugned order the appeal is allowed with consequential reliefs to the appellants.