ORDER
U.L. Bhat, J. (President)
1. This Appeal is directed against Order-in-Original No. 60/89, dated 8-11-1989 passed by the Additional Collector of Central Excise, Vadodara confiscating 600 kgs. tread rubber though allowing redemption on payment of fine of Rs. 4,000/-, confirming demand of Rs. 5,88,962/- and imposing penalty of Rs. 25,000/- on the appellant.
2. Appellant, engaged in the manufacture of ‘Tread Rubber’ commenced production in March 1986 without taking out Central Excise licence and without conforming to Central Excise procedures and cleared the goods during the period 22-4-1986 to 6-8-1986 without payment of central excise duty. Central Excise Officers visited the premises on 13-8-1986, discovered the above irregularities, seized 600 kgs. of the finished product available in the factory and started investigation. Deputy Collector, Central Excise, issued show cause notice dated 21-10-1986 recording the above facts and alleging contravention of various rules by reason of fraud, wilful mis-statement of facts, suppression of facts with intent to evade duty, proposing demand of duty not paid under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excise Act, 1944, proposing confiscation and imposition of penalty. Though the appellant resisted the notice contending that he was under the honest belief that where the value of clearances during the year in question would not exceed Rs. 15 lacs, Central Excise procedures were not to be followed and central excise duty was not to be paid on account of small scale exemption as he was informed so by the Chartered Accountant and there was no intention to evade duty nor deliberate mis-statement or suppression of facts. Alternatively he contended that in case duty is payable, deductions on account of central excise duty, sales tax and certain other elements were to be given. He also pleaded for grant of Modvat credit in respect of the duty paid on the inputs.
3. This notice was followed by another show cause notice dated 28-7-1988 issued by the Additional Collector specifically invoking the larger period of limitation under the proviso to Section 11A of the Act. This notice was also resisted by the appellant.
4. Overruling the above contentions, the Additional Collector confirmed the various proposals in the show cause notices as indicated above.
5. The following contentions were raised on behalf of the appellant:
(1) the first show cause notice issued was a nullity;
(2) the second show cause notice issued was barred by time;
(3) price realised by the appellant has to be regarded as cum-duty price and assessable value; determined;
(4) amounts payable as central excise duty and sales tax should bededucted while arriving at the assessable value;
(5) Modvat credit should be available to the appellant; and
(6) amount of penalty imposed is excessive.
6. The period covered by the show cause notice is from 22-4-1986 to 6-8-1986. The first show cause notice was issued by the Deputy Collector on 21-10-1986. This notice was within the period of six months prescribed in Section 11A(1) of the Act and did not refer to the proviso thereto. Deputy Collector of Central Excise, being a Central Excise Officer, was fully competent to issue such a notice. At the relevant time, only officers of the grade of Collector or Additional Collector, Central Excise could have invoked the larger period of limitation of five years under the proviso to Section 11A(1) of the Act. According to the appellant, the first show cause notice though within the period of six months, should on account of allegation of mis-statement and suppression be treated as notice issued under the proviso to Section 11A(1) of the Act by an officer who had no jurisdiction to issue such notice and must be treated a nullity. He placed reliance on the decision of Jayant Vitamins Ltd. -1996 (81) E.L.T. 421 (Tribunal). This decision no doubt supports the contention of the appellant. In that case also show cause notice was issued within a period of six months but purported to invoke the proviso to Section 11A(1) of the Act by alleging wilful mis-statement and suppression of facts. The Tribunal held that the notice invoking the proviso issued by an officer other than Collector was without jurisdiction. This decision was rendered without taking notice of the decision of a Division Bench of the High Court of Karnataka in Ralectronics Limited -1993 (67) E.L.T. 810 (Kar. H.C.).
7. In Ralectronics Limited show cause notice was issued within a period of three months by the Superintendent of Central Excise. The notice contained allegation of suppression of material facts with intent to evade duty. The assessee filed writ petition challenging the show cause notices purportedly issued under the proviso to Section 11A(1) of the Act by an incompetent officer as without jurisdiction. It was contended by the Department that the unnecessary averments regarding suppression of facts should be treated as withdrawn since the notice was issued within the period of six months by an officer competent to do so. This contention was resisted on behalf of the assessee by contending that amendment or deletion cannot be made so as to bring the notice within the jurisdiction of a Central Excise officer. The High Court of Karnataka held that there was no justification to refuse permission to delete the offending words from the show cause notice and to proceed with the show cause notice without those words. Department was permitted to proceed with the show cause notice without the offending words. We find that this judgment was challenged by the assessee before the Supreme Court in S.L.P. (C) No. 15388/92. The S.L.P. was dismissed as seen in 1993 (45) ECR15J.
8. The first show cause notice was within the period of six months of the disputed period issued by an officer competent to do so. In order to propose demand under Section 11A(1) of the Act, it was quite unnecessary for him to use the language which he did, namely, mis-statement of facts and suppression of facts and the like. When an authority empowered to exercise jurisdiction on the existence of certain conditions, purports to exercise such jurisdiction, the mere fact that the source of jurisdiction is not mentioned or is mentioned erroneously cannot affect the jurisdiction. As a matter of fact, the notice did not invoke the proviso to Section 11A(1) of the Act. Deputy Collector had the jurisdiction to issue show cause notice under Section 11A of the Act proposing demand of duty not paid. The Deputy Collector, in the instant case, did so. The fact that an unnecessary averment, namely, suppression of fact or mis-statement of fact was made will not affect his jurisdiction and the act of proposing demand under Section 11A on his part was fully within his jurisdiction and the same cannot be affected by the presence of words which were not necessary and require to be treated as capable of being ignored. A defect like this, in our opinion, cannot be regarded as going to the root of the matter unless the assessee has been irreparably prejudiced on that account. We see no reason to hold that the assessee in this case was so prejudiced on account of such unnecessary language used in the averments made.
9. In the case of Jayant Vitamins Ltd. also, show cause notice was issued by the Superintendent within the period of six months but invoking the proviso to Section 11A(1) of the Act but it was not argued before the Bench that the notice was within the scope of his jurisdiction notwithstanding the presence of certain extraneous averments. The aspects referred to above also were not urged before the Bench. A decision can be regarded as an authority only for the aspect decided and for an aspect not urged and decided. The impact of the decision of the High Court of Karnataka was also not considered. In these circumstances, we hold that the first show cause notice was not a nullity and capable of being treated as a notice issued by a competent officer under the main provision in Section 11A(1) of the Act.
10. It is next contended that the second show cause notice issued by the Additional Collector was barred by time. The notice was issued evidently because the first show cause notice contained averments which could attract the proviso. As we have pointed out, these averments were quite unnecessary and notwithstanding the presence of those averments the notice must be treated as valid. The second show cause notice also makes it clear that it was in continuation of the first show cause notice. Dealing with the averments in the notice, namely, suppression of material facts with intent to evade duty, the defence of the appellant is that he was not aware of the requirements of law and was misguided by the Chartered Accountant into believing that the Central Excise procedures would not be attracted since there was exemption in respect of clearances of the value up to Rs. 15. lacs. That there was no such exemption available is not in dispute. The question is whether the appellant had such bona fide belief which misled him into not confirming to Central Excise procedures and not paying duty. The only averment in this behalf relates to the advice given by the Chartered Accountant. It is significant to note that neither an affidavit nor letter of the Chartered Accountant was produced before the lower authorities or even before us in support of the plea that such advice was given by the Chartered Accountant. In these circumstances, allegations attracting the proviso to Section 11A and contained in the second show cause notice must be accepted as correct, even assuming that the case cannot rest entirely on the first show cause notice.
11. Appellant collected price from buyers and did not pay central excise duty. The entire price so collected has been treated by the lower authorities as assessable value without seriously considering the contention of the appellant that the price collected must be regarded as cum-duty price since duty was not collected separately from the buyers. According to the Department, the stand taken by them is correct. Both sides have relied on certain decisions in this behalf.
12. Earliest of the decisions placed before us is that of a 3-Member Bench in Auto Industries – 1995 (76) E.L.T. 325 (Tribunal). In that case, the appellant enjoyed the benefit of small scale exemption. The Tribunal held that small scale exemption was not available since clearances were required to be clubbed with clearances of another concern. The contention that the sale price should be treated as cum-duty price since the appellant had not collected anything over and above sale price, was rejected on the ground that goods were cleared as exempted goods, no duty was being collected and paid. The same view was taken by another Bench of the Tribunal in Ramaraju Surgical Cotton Mills – 1996 (82) E.L.T. 86 (Tribunal) on the ground that incidence of excise duty was not made clear in the invoices. Both these decisions were followed in the case of Standard Pencils Pvt. Ltd. – 1996 (86 ) E.L.T. 245 (Tribunal).
13. Our attention was invited to three other decisions of the Tribunal taking a different view. In Geep Industrial Syndicate Ltd. – 1995 (80) E.L.T. 341 (Tribunal), a Bench of the Tribunal held that excise duty payable on goods has to be deducted from the assessable value, whether such excise duty had been collected actually or not from the customers, on a consideration of the requirement in Section 4(4)(d)(ii) of the Central Excise Act. Apparently, the earlier decisions were not placed before the Bench. The same view was taken in Pawan Tyres (P) Ltd. – 1997 (19) RLT 66 (Tribunal) relying on the observation of the Supreme Court in Bata India Ltd. – 1996 (84) E.L.T. 164 (S.C.). Another Bench of the Tribunal took the same view in Ajanta Dyeing – 1997 (20) RLT 848 (Tribunal) following the decision in Geep Industrial Syndicate – 1995 (80) E.L.T. 341.
14. In Bata India Ltd. – 1996 (84) E.L.T. 164, the Supreme Court was considering the effect of exemption provision on the price per pair of footwear. The Court observed that Section 4 deals with valuation of excisable goods where the duty of excise is chargeable with reference to value, it has nothing to do with the rate of duty. Sub-clause (ii) of clause (d) of Section 4 lays down that “value will not include the amount of duty of excise, if any, payable on such goods”. This is a rule of valuation. The amount of duty of excise payable will depend on such valuation. The amount of excise duty payable has been explained to be the effective duty of excise payable on such goods, and not the duty of excise calculated in the manner laid down in Schedule I only. Regard must be had to any relief or abatement of duty given by an statutory notification or order”. The Court observed as follows :
“Unless it is shown by the manufacturer that the price of the goods includes an amount of excise duty payable by him, no question of exclusion of the duty element from the price for determination of value under Section 4(4)(d)(ii) will arise”.
15. In Alembic Glass Industries Ltd. – 1992 (61) E.L.T. 193 (Kar. H.C.) it was held that only the amount of actual duty payable could be deducted from the total wholesale price charged and collected from the buyers. As per second part of the Explanation to Section 4(4)(d)(ii) effective rate of duty has to be deducted not only from the normal price but also from any amount charged and collected as excise duty but subsequently refunded, if the benefit of refund has not be passed on to the buyers. This decision has been approved by the Supreme Court in Pravara Pulp & Paper Mills -1997 (96) E.L.T. 497 (S.C.).
16. We may examine the provisions of Section 4(4)(d)(ii) in the light of the above decision of the Supreme Court.
17. “Value” in relation to any excisable goods
“(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale”.
What is deductible under the above provision is the duty of excise, sales tax and other taxes, if any, payable. The proviso does not contemplate deduction of amount of excise duty, sales tax and other taxes actually paid. Taxes may be paid in advance or immediately or in future depending on the situation existing in each case. The assumption in three of the decisions of the Tribunal, namely, Auto Industries – 1995 (76) E.L.T. 325 (Tribunal), Ramaraju Surgical Cotton Mills -1996 (82) E.L.T. 86 (Tribunal) and Standard Pencils Pvt. Ltd. -1996 (86) E.L.T. 245 (Tribunal) was that the duty of excise should have been actually paid, which is not the language used in the statutory provision. When the statutory provision refers to duty of excise or sales tax payable the same cannot be understood as meaning duty of excise or sales tax actually paid. Ordinarily entire duty payable is paid at the time of clearance and is required to be so paid. Subsequently either the Department or the assessee may reaslise that duty paid was either short or excess. Such contingencies can be taken care of by initiating action either under Section 11A or Section 11B of the Act. Even in the case of refund it has to be after re-determination of assessable value as indicated by the High Court of Karnataka in the case of Alembic Glass Industries Ltd. (supra). We see no reason why the same principle is not to be followed under Section 11A. This decision has clearly emphasised that duty (effective) is to be deducted from the wholesale price which is the normal price collected from the buyers. Burden of excise duty is ordinarily passed on to the buyers and such duty element is collected in addition to the price. This situation is taken care of by Section 4(4)(d)(ii) of the Act by requiring that the element of excise duty has to be deducted in order to arrive at the assessable value. This understanding is in accordance with the decisions of the Supreme Court and High Court of Karnataka referred to above. In these circumstances, we are bound to follow the interpretation given by the Supreme Court and the High Court of Karnataka in the aforesaid decisions and not to follow the decisions of the Tribunal taking a contrary view. Department’s case is not that over and above the price collected by the appellant from the buyers element of excise duty has been collected, excise duty was not collected by the appellant since there was no intention to pay duty. In the present case, duty was paid though under protest before the show cause notice was issued. While, determining the assessable value for the purpose of show cause notice, element of duty should have been deducted in arriving at the assessable value. Even in cases where payment has not actually been made though duty is payable, the same is deductible in terms of the specific language used in Section 4(4)(d)(ii) of the Act. Duty is payable whether actually paid or not. The State should take all steps to collect whenever it is not paid. Duty payable has to be deducted in determining the assessable value though manufacturer had not collected duty from the buyers and had no intention to pay duty. The entire price collected by the manufacturer from the buyer has to be treated as cum-duty price and assessable value arrived at by deducting the duty element. The matter has to go back for the purpose of re-determination of assessable value on this basis.
18. Appellant’s claim for deduction of the element of sales tax in arriving at the assessable value was rejected by the Additional Collector on the ground that sales tax was not uniformly collected from the buyers. Some invoices showed value of the goods, some other showed value less sales tax and the like. Our attention has been invited to eligibility certificate issued by General Manager, District Industrial Centre, Godhra and certificate issued by the Assistant Commissioner of Sales Tax, Baroda. The certificate refers to eligibility of the appellant for incentive as per GR dated 27-8-1980 and GR INC/1580/1766/PPD. The certificate also indicates the limit in respect of tax payable on sales of manufactured goods from 22-4-1986 to 23-2-1993. The recovery will start after 12 years from 22-4-1998 and will be in six equal instalments. The facility of deferment is also referred to in the second certificate. Evidently these documents were not before the adjudicating authority. Here again, the question of sales tax “actually paid” and “payable” will arise for consideration and what we have indicated regarding “excise duty payable” will apply also to “sales tax payable”. This aspect also has to be considered afresh.
19. The claim of the appellant for benefit of Modvat credit has been rejected on the ground that formalities prescribed in Rule 57G of the Central Excise Rules had not been followed. This is a case where no Central Excise procedure was followed and no duty was paid. We are at the stage of demand of duty not paid. In a similar situation the Tribunal has held that Modvat credit cannot be denied on the ground of non-filing of declaration and non-maintenance of RG 23A account where liability is fastened in respect of past period. See Vivek Re-rolling Mills -1994 (73) E.L.T. 660 (Tribunal). In the view taken by the Additional Collector, the question of eligibility was not examined. We hold that the benefit of Modvat credit cannot be denied to the appellant on account of non-adherence to the prescribed procedures, if the appellant is otherwise eligible for the same. This matter has to be re-examined by the adjudicating authority.
20. The last contention urged is that the quantum of penalty is excessive. It is stated that in the case of Venus Paper Mills Ltd. – 1990 (50) E.L.T. 410 (Tribunal), the Tribunal reduced the penalty to an amount more or less equal to 25% of the demand and the appeal filed by the assessee before the Supreme Court has been dismissed.
This decision does not lay down a general proposition of invariable application in regard to quantification. Quantification has to be made not only on consideration of the quantum of demand but also on consideration of other relevant circumstances. Since we are remanding the case for the purpose of re-determination of assessable value, it is only appropriate that the quantum of penalty also is re-determined.
21. In the result, we set aside the impugned order and remand the case to the jurisdictional adjudicating authority for decision afresh in accordance with law and in the light of the finding and observations in this order and after giving the appellant opportunity of personal hearing.
