ORDER
Date of hearing 27.11.91
P.K. Kapoor, Member
1. This is an appeal against the order dated 21.1.1991 passed by the Collector (Appeals) Ahmedabad.
2. Briefly stated the facts of the case are that the respondents are engaged in the manufacture of various types of Dyes and Dye Intermediates. They were served with 6 show cause notices under Section 11A for the period December 1987 to April 1990 seeking recovery of a sum of Rs. 3,14,70,136.64 on the grounds that they had failed to pay the proper Central Excise duty by not including the element of Modvat Credit availed on the inputs in the value of their final products. The aforesaid demands were confirmed by the Assistant Collector by his Order dated 29.6.1990. The respondents being aggrieved by the order passed by the Assistant Collector filed an appeal before the Collector (Appeals), Ahmedabad. In the impugned Order dated 20.12.1990 the Collector (Appeals) set aside the Order passed by the Assistant Collector on the grounds that having regard to the relevant provisions of the law there could be no justification to include the Modvat Credit availed on the inputs by the assessees in the assessable value of his final products. Against the Order passed by the Collector (Appeals), the Collector has come up in appeal before us.
3. On behalf of the Revenue, the learned SDR Shri. V.K. Jain appeared before us. He contended that in terms of Section 4 of the Central Excises and Salt Act, Central Excise duty has to be levied on the normal price of the goods which would include the cost of production, overheads and other expenses including return on capital. He added that the cost of raw materials which has to form a part of the normal price of the goods has to be inclusive of the duty attracted on the raw materials. He contended that by deducting the duty paid on the raw materials purchased from other parties, the respondents had misdeclared the assessable value of their final products.
He referred to the decisions of the Supreme Court in the case of Ujagar Prints and Empire Industries Ltd. and reiterated his stand that the taxes paid on raw materials and components being a part of the cost of the raw materials and components it was not permissible for the respondents to deduct the Modvat Credit taken by them on raw materials from their manufacturing cost.
4. On behalf of the respondents the learned Advocate Shri Raj Darak stated that the Collector (Appeals) had correctly held that in terms of Section 4(1)(a) of the Central Excises and Salt Act, 1944 as long as there is no allegation that the manufacturer and his wholesale dealer are related persons, the assessable value of the goods has to be wholesale price of the goods. He stated that in the case of his clients, the wholesale price as existing and declared was duly approved by the Department had to be accepted as the assessable value since there was no allegation that the buyers of the appellants were related persons. In this regard he placed reliance on the decision of the Hon’ble Supreme Court in the case of Indian Oxygen Ltd. v. Collector of Central Excise . He added that there was no justification whatsoever to include the Modvat Credit availed by the appellants in the assessable value of their final product. The learned Counsel stated that the issue involved in the case had been settled by the Tribunal’s Order in the case of Collector of Central Excise v. Incab. Industries wherein it had been held that ‘Modvat’ was only a benefit available to the manufacturer to utilise the duty paid on inputs for the payment of duty on the final product but it does not directly affect or reduce the assessable value. On these grounds he pleaded for the rejection of the appeal.
5. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the short point that arises for consideration in this case is whether the Modvat Credit availed by the respondents on the raw materials used as inputs would form a part of the assessable value of their final products. We find that the matter is fully covered in the respondents favor by the decision of the Tribunal in the case of Collector of Central Excise v. Incab Industries , wherein it was held that Modvat Credit results in reduction in the cost of the final product to the extent of the credit but it does not automatically reduce the assessable value which is to be determined in accordance with Section 4 of the Act. Paragraphs 16 & 17 of the said decision being relevant are reproduced below:
16. From a perusal of the rules referred to above it is clear that Modvat is a scheme under which the manufacturer is allowed to utilise that duty paid on inputs, by deducting the same from the duty payable on the final product subject to following the procedure under the rules. It is only a benefit available to the manufacturer to utilise the duty paid on the inputs for payment of duty on the final product subject to the following the procedure under the rules. It does not directly effect or reduce the assessable value automatically. It is no doubt true that it will result in reduction in the cost of final product to the extent of the credit, but it does not automatically reduce the assessable value which is to be determined in accordance with Section 4. The assessable value has to be determined in accordance with Section 4 of the Act and Section 4 only and Modvat credit has no direct impact on the assessable value.
17. As stated in the earlier paragraphs the benefit under Modvat is given to avail the credit of duty paid on the inputs while paying duty on the final product. It has and it cannot have any effect on the assessable value which is to be determined in accordance with Section 4 of the Act. Further, the assessable value is to be determined in accordance with the provisions of the Act, and the Modvat Credit is provided by the rules and the rules cannot have any overriding effect on the provisions of the Act.
7. In the respondents’ case the wholesale price as declared was ascertainable and it was also approved by the Department. Further there was no allegation that the appellants and their customer were related persons. Under these circumstances we are inclined to agree with the Collector (Appeals) that there was no justification whatsoever to include the Modvat Credit availed by the respondents in the assessable value of the final product.
8. In view of the foregoing, the appeal is rejected.