ORDER
C.N.B. Nair, Member (T)
1. Both these appeals are directed against Order-in-Original No. 14/2000, dated 5-5-2000 passed by Commissioner, Central Excise, Jaipur. The Order-in-original had demanded a duty of over Rs. 50 Lakhs from the appellant/manufacturer M/s. Gwalior Polypipes Ltd. The order inter alia has also imposed penalty on the manufacturer as well as Shri S.P. Sahu (the second appellant) who is the Director of the appellant/manufacturer. As both the appeals are directed against the same order, we consider it convenient to consider both the appeals together. Accordingly, this common order disposes of both the appeals.
2. The dispute is in regard to valuation of PVC corgated pipes manufactured by the assessee and supplied for Rajasthan Agricultural Drainage Project (RAJAD). The project itself was for reducing solidity of soil in certain parts of Rajasthan. This project was funded by Canadian International Development Agency. In terms of the Canadian assistance agreement to which Government of Rajasthan and Government of India were parties, the Canadian International Development Agency financed the purchase of the machinery for the manufacture of pipes by paying the cost of the machinery to the Canada supplier. Thus, the appellant, manufactures procurement of machinery worth over Rs. 4 crores was financed by the Canadian International Development Agency. That financing was without any interest. However, finance so of advance the manufacturer was adjusted from the price payable by the Rajasthan Agricultural Drainage Project to the manufacturer. The price of the pipes were fixed through contract.
3. The present dispute relate to alleged undervaluation of pipes and consequent short payment of duty by the appellant on pipes cleared during the period 21-2-1994 to 31-3-1997. The impugned order has held as under with regard to valuation of the pipes.
“I find that an amount of Rs. 4,03,37,317/- was paid by CIDA on 21-2-94 to Canadian machine supplier & the said machine/equipment were consigned to party’s premises at Kota for manufacture & supply of pipes as per the contracted price to RAJAD, Govt. of Rajasthan. Contrary to the party’s contention, it has to be appreciated that if CIDA had not advanced interest free huge amount of Rs. 4,03,37,317/- for imported plant/equipment’s which was consigned & commissioned in the party’s premises, the party would have been required to borrow these amounts from banks/financial institutions etc. for purchase of the machines and interest payable would have enriched the cost of manufacture & consequently the sale price of the goods. In the circumstances the price charged by the party from RAJAD cannot be normal price on account of extraneous reason, namely at zero rate of interest by not adding notional interest on advances the party had depressed the value of goods. Accordingly notional value of interest has rightly been loaded in the assessable value & Central Excise duty has been appropriately demanded & is recoverable from the party. The same view was held by the Hon’ble Apex Court in the case of Metal box India Ltd. v. CCE, Madras in Civil Appeal No. 215-16 of 1989 decided on 10-1-1995 1995 (75) E.L.T. 449 (S.C.).
4. It is made clear by the aforesaid portion of the Order-in-Original that the Revenue’s contention is that a notionally interest, which would be equal to the interest normal payable on the capital invested on the machinery should be added to the contract price of the pipes while fixing assessable value of those pipes for the purpose of levying Central Excise Duty. The order holds that to the extent of non-inclusion of interest of capital invested on machinery, the price of the pipes remains depressed. This conclusion is sought to be supported by another factor that the appellants were selling pipes to Rajasthan Agricultural Drainage Project at Rs. 258/- per meter while the rate to the Haryana Government was higher at Rs. 332.38 per meter.
5. The appellant’s contentions against enhancement of assessable value by making an addition towards notional interest on the finance received from Canadian International Development Agency are that the sale of pipes to Rajasthan Agricultural Drainage Project to Haryana was at contracted rates. The rate to Rajasthan Agricultural Drainage Project is not a depressed rate. That the appellant have received interest free finance for the import of the machinery is altogether irrelevant for the valuation of the pipes. The financing was not by the buyer of the pipes and third party assistance for setting up the plant is not a relevant factor for the assessment of the goods. It is entirely up to the Canadian International Development Agency to decide as to which projects to assist and on what terms. There is nothing in the Central Excise law on valuation warranting an investigation by the Central Excise Authorities as to how the manufacturer raised his capital and whether those terms were concessional or not. That the party would have been required to borrow the amounts from Banks/financial institutions for purchase of machines and interest would have been payable in the event of such financing is also altogether irrelevant for assessment of the goods. In any event, since the loan is not from the buyer it has no nexus with the price fixed. The appellants have also submitted that there are several factors affecting businesses like subsidies by Governmental and other authorities. However, such benefits are not to be added to the price of the goods for fixing assessable value.
6. With regard to difference in the prices to Rajasthan Agricultural Drainage Project and the Haryana Government, it was explained that the differences were quite justified on purely commercial considerations. The price for the supplies to the Rajasthan Agricultural Drainage Project was agreed to in 1992, while the contract with the Haryana Govt. was in 1997. The price had to go up on account of revision in the cost of materials etc. Further, the price to the Haryana Govt. was inclusive of taxes. While the price to the Rajasthan Agricultural Drainage Project was exclusive of taxes. While the total difference was only Rs. 79/-, Central Excise Duty at 25% alone accounted for Rs. 66/-amount of the price. Further, the sale to Rajasthan Agricultural Drainage Project was treated as deemed export and several concessions like, drawback SIL were available to the assessee in addition to the price. It was, therefore, contended that the difference in price remains fully justified on purely commercial considerations.
7. Learned DR submitted that the manufacture of the pipes in question was in terms of an agreement which covered the financing of machinery also. The Rajasthan Government, the buyer of the goods, was also a party to this agreement. He submitted that in the facts of this case, the price charged by the assessee from the Rajasthan Agricultural Drainage Project cannot be treated as normal value of the goods. The price is a depressed price on account of free capital and sufficient addition towards the cost of the free capital is to be made to the price to make it a normal commercial price.
8. The demand in the present case is purely on the ground that “had it not been for the Canadian assistance the party would have been required to borrow this amount from Banks/financial institutions etc. for purchase of the machines and interests payable would have enriched the cost of manufacture and consequential sale price of the goods”. We are unable to find a legal basis for such a ground. Projects raise finance in several ways. Some purely commercial while others may be at concessional rates. There is no provision in the Central Excise Act or in the Rules permitting a scrutiny of the financing of a project as to see whether the same has been done on a purely commercial basis and to make additions while fixing assessable value so as to include in the assessable value the notional gains of assessees from concessional financing. How a project is financed is between the project promoters and the parties involved in financing. This has no relevance for the valuation of the goods produced for the purpose of Central Excise Duty, particularly when the financing is by international aid agencies. The contrary would amount to charging foreign aid to excise duty.
7. We also do not find the price in the present case to be a deliberately lowered or depressed price. An examination of the difference between the prices to the two State Governments brings it out clearly. The total price difference is Rs. 77/- per mtr. Central Excise Duty alone accounts for Rs. 66/-. Further, apart from the fact that the contracts are a few years apart, the sales are also in entirely different context. Sale to the Rajasthan Govt. is a deemed export and that fiction entitles the assessee to several benefits. Taking into account those benefits if the assessee has quoted a lower price, that cannot be taken as non-commercial transaction. For this reason also we do not find the revised valuation adopted and the duty demand tenable.
8. In view of the above findings, duty demand fails and is set aside. Penalties cannot survive in the absence of duty demand. They are also set aside. Thus, both the appeals are allowed and the impugned order is set aside in its entirety.