S.S. Sekhon, Member (T)
1. Pig Iron is manufactured by the appellant manufacturer (hereinafter referred to KFIL) on conversion basis on account of M/s. Mukund Limited, Ginigera (hereinafter referred to as ML) and M/s. Kalyani Steels Limited, Ginigera (hereinafter referred to as KSL) and cleared to ML which at ML, was used in manufacture of down stream steel products including the Pig Iron of KSL). Pig Iron was never cleared from KSIL to KSL though sometimes it was cleared not to ML but to outside independent customers on account of KSL. The Raw Material for manufacture of Pig Iron was however supplied by ML or KSL as the case may be. Only ‘conversion charges’ were being recovered by KSIL. Entire Excise Duty was being discharged on certain values declared by KSIL by adopting the comparable prices of allegedly similar goods manufactured by M/s. SAIL, Vizag or M/s. Kirloskar Ferrous Industries Ltd. Bevinahalli with adjustments allegedly dependent upon the quality.
2. A notice was issued after conducting enquiries as it appeared:–
(i) KFIL were clearing the Pig Iron in solid form to independent customers, either on their own account or on account of KSL Ginigera during the period in question (3.8.98 to 25.1.2000). This fact was not disclosed to the department, till the investigation of valuation of Pig Iron (liquid and Solid) was taken up and facts detected by the Department.
(ii) KFIL were clearing the Pig iron in solid/liquid form in a manner not involving sale to ML, Ginegera/Kurla/Kalwae and KSL, Pune/Baramathi either on account of ML or on account of KSL Ginigera. The Pig iron in liquid form (hot metal) was cleared only to ML, Ginigera both on account of ML and on account of KSL Ginigera, in a manner not involving sale (conversion basis).
(iii) The assessable value adopted by KFIL for payment of duty on clearances in a manner not involving sale was always less than the assessable value adopted for their own clearances to customers in the open market on sale basis or the removals made by them directly to buyers in the open market on account of M/s. KSL, Ginigera (KSL).
(iv) The assessable value adopted for clearances to independent customers on sale basis on their account represents the normal price under Section 4(1)(a). Further, as deposed by Shri P.V.S. Chandrasekaram, DGM (Finance) in his statement dated 18.4.2000, as mentioned above, M/s. KFIL also directly cleared the goods to the customers of KSL, Ginigera at the advice of KSL, Ginigera. Duty on such consignments was always paid by M/s. KFIL at the purchase order prices of the customers of KSL, Ginigera. In such transactions, KSL Ginigera issued a commercial invoice in addition to their (KFIL’s) invoice. On a query regarding the value adopted for payment of duty on such clearances to parties like M/s. Shimoga Castings and M/s. Sharma Alloys etc., on account of KSL, Ginigera, Shri P.V.S. Chandrasekaram clarified that M/s. KFIL adopted the higher prices as paid by such customers of M/s. KSL in view of the various commercial considerations and the purchase order value placed on KSL Ginigera because it represents the normal price. He also added that for these transactions, the duty was paid by KFIL on such higher price in respect of goods manufactured by KFIL. As mentioned in SI. No. 6 above, M/s. KFIL, were not receiving any amount over and above the conversion charges from KSL even in relation to the aforesaid clearances directly to the customers of KSL and they also confirmed that they were not receiving the amounts as specified in Clauses (i), (ii) and (iii) of para 6 from M/s. KSL, Ginigera. It appeared that from April 1999 onwards, KFIL did not sell the goods to the independent customers on their own account though as afore-stated they cleared the goods to the independent customers on account of KSL and paid duty on the assessable values based on the prices actually paid by such independent customers of KSL. As from April 1999 onwards, Pig Iron was not sold by KFIL on their own account, it appeared that ‘normal price’ under Section 4(1)(a) for the said period was not ascertainable. Consequently, it appeared that assessable value for the said period could be determined under Section 4(1)(b) by determining the nearest ascertainable equivalent of the normal price by recourse to Rule 7 read with Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975. As the aforesaid situation for the period from April 1999 onwards was not specifically covered by Rules 4 to 6 of the said Valuation Rules, it appeared that the value of such goods was required to be determined according to the best of the proper officer’s judgment under Rule 7 of the said Rules and for this purpose, he may have regard, among other things, to any one or more of the methods provided in Rules 4 to 6 of the said Rules. Under Rule 6(b)(i), the assessable value could be based on the value of the comparable goods produced or manufactured by the assessee or by any other assessee. It appeared that the goods manufactured by KFIL themselves and cleared directly by them to the independent customers of M/s. KSL as aforementioned, were comparable goods as per the above provisions and the value of the said goods could be adopted for determination of the assessable value under Rule 7 read with Rule 6(b)(i) of the said Valuation Rules.
(v) The assessable value adopted for payment of duty on clearances of Pig Iron (both solid & liquid) in a manner not involving sale (e.g. to M.L. Ginigera/Kurla/Kalwe and K.S.L., Pune) was never based on the normal price at which the Pig Iron manufactured by KFIL,’ was ordinarily sold by them to the buyers in the open market on their account or on the price of comparable goods (manufactured by KFIL themselves) removed directly from KFIL to independent customers on account of KSL (Ginigera).
(vi) The assessee filed the price declaration in respect of clearances in a manner not involving sale, on 31.8.98, although such clearances had started prior to the said date (on 19.8.1998). Moreover, though the price declared under price declaration dt. 31.8.98, was claimed to be based on comparable prices of other manufacturers, the assessee did not produce any documentary evidence for the same either with the declaration filed under Rule 173C of Central Excise Rules, 1944 or during investigation. In his statement dated 19.2.2000, Shri P.V.S. Chandrasekharam, DGM (Finance) promised to submit the proof of such prices within a week’s time, but did not fulfil his promise. However, in his subsequent statement dated 18.4.2000, Shri P.V.S., Chandrasekharam, mentioned that there was no specific proof for such price declared on 31.8.98.
(vii) The assessee did not make any distinction between the solid & liquid Pig Iron in their price declaration. Further the assessee did not declare any grades of Pig iron in their price declaration which indicates that all Pig iron manufactured was of one single grade. Moreover, even in the write-up dated 17.9.1999 on the Pricing Methodology, Shri L. Bhaskar, Executive (Finance Taxation) stated that KFIL manufactures the basic grade of Pig Iron which was suitable for Steel making only. Hence it was apparent that the Pig Iron produced and cleared during the entire period in question was of one single grade.
(viii) Although the liquid Pig Iron (hot metal) had apparently higher intrinsic value than the solid Pig iron, inasmuch as the hot metal could be subjected to the steel making process as such without further reheating, as required in the case of solid Pig Iron, the Technical dissimilarities of solid and liquid Pig Iron cannot be quantified in monetary… [illegible] and for such reasons the price for both solid and liquid Pig iron was declared in common, as clarified by Shri P.V.S. Chandrasekharam DGM (F) of KFIL, Ginigera in his statement dated 18.4.2000.
(ix) The assessee did not reveal the details of clearances to the independent customers and of the direct clearances to the customers of KSL Ginigera to whom the clearances were effected directly from KFIL on account of KSL, Ginigera until such clearances on account of KSL (Ginigera) were detected by the department during investigation.
(x) The assessee did not file the declaration regarding marketing pattern, discount structure and such other particulars as required under Rule 173C(3A) of Central Excise Rules, 1944 until the investigation on valuation by the Department were under way. As apparent from the statement dated 18.4.2000 of Shri P.V.S. Chandrasekharam, the said declaration was filed only on 27.11.99 after the internal Audit Team visited and asked for the said declaration. (xi) The Pig iron in solid form which was produced during the initial period 6/98 and 7/98 out of the raw materials purchased by KFIL themselves and the solid Pig iron manufactured subsequently on conversion basis were all stored together as a single heap, and were sold to independent buyers as well as cleared to M.L., Ginigera and other allied customers like ML, Kalwe; KSL, Pune, out of the same heap of solid Pig iron. This was apparent from the statement dated 19.2.2000 of Shri P.V.S. Chandrasekharam. Thus it appeared that there was no distinction or differentiation in the grade/quality of solid Pig iron cleared to the independent customers and that delivered to other units in a manner not involving sale (conversion basis).
(xii) The assessee had not adopted the prices for sale to independent customers for the purposes of payment of duty on their clearances on conversion basis (not on sale basis), purportedly because the difference in value would not matter to them (as they received only the Conversion Charges) and the receiving Company (on conversion basis) would be eligible for availment of Modvat credit on Pig iron, as contended by Shri P.V.S. Chandrasekharam, DGM, Finance, of KFIL in his statement dated 19.2.2000. It, therefore, appeared that despite knowing the requirement of Central Excise Valuation laws, they acted contrary to it only because the observance of law did not confer any advantage to them.
(xiii) The assessee started paying duty on the normal price of Rs. 6,200=00 PMT (as existing at the relevant time) for clearance of Pig Iron (both solid and liquid) on sale to independent customers even in respect of clearances in a manner not involving sale (to aforesaid parties receiving goods on conversion basis) with effect from 11.1.2000 in accordance with the Central Excise Valuation Law. Shri P.V.S. Chandrasekharam, in his statement dated 18.4.2000, inter-alia, deposed that M/s. KFIL made their own clearances to M/s. Shimoga Castings on account of M/s. KSL (Ginigera) at the rate of Rs. 6,200=00 PMT and after considering various facts, they adopted the said price of Rs. 6,200=00 PMT in their declaration dated 11.1.2000.
(xiv) In view of the above, it appeared that the assessee were aware that Central Excise duty was payable on the normal price at which such goods were ordinarily sold to an independent buyer and once such price was ascertainable, deliveries of the similar goods in a manner not involving sale (to the parties receiving the goods on conversion basis) were also required to be valued on the basis of the same price for Central Excise purposes. However, they have claimed to have adopted a putative comparable price of goods manufactured by some other manufacturers even when the aforesaid normal price in respect of the goods manufactured by M/s. KFIL themselves was available up to March 1999. As indicated above, there is no evidence with regard to the so-called comparable price of some other manufacturers as adopted by them for payment of duty on clearances of Pig Iron on conversion basis. It appeared that even Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975, speaks of basing assessable value first on the comparable goods produced or manufactured by the assessee himself and only thereafter it refers to the comparable goods manufactured by any other assessee. It also appeared that the assessee had not precisely demonstrated as to how with reference to exact input-batch composition, actual properties of the goods manufactured and such other relevant factors the goods manufactured by other manufacturers were regarded by them as goods comparable to Pig Iron manufactured out of their own MBF. It also appeared that Section 4(1)(a) of Central Excise Act, 1944 uses the expression “such goods” which means not only the goods under assessment, but also other goods of the same class. It appeared that the same goods manufactured by an assessee may be cleared at different times in different lots and different consignments and the goods of each lot or consignment will be “such goods”. Apparently, similar goods manufactured by another assessee were not treatable as “such goods”. However, after the aforesaid investigation in the valuation matter, the assessee himself adopted the “normal price” at which such goods manufactured by them were ordinarily sold to the independent buyers, in respect of all their removals including those which did not involve sale and where goods were received by particular consignees on conversion basis. This was done by them with effect from 11.1.2000 as indicated above.
3. The Commissioner after considering the matter concluded that the other appellants were the officers in charge of day to day functioning and were party to the actual conversion of the irregularity and were liable for penalty when the Commissioner found that KFIL had illegally adopted Lower Assessable Values for the subject clearance on conversion basis to consignees later ML & KSL as compared to the values for clearance of goods on sale manufactured by KSIL on its own account to independent customers. This differential of duty was leviable. He therefore ordered:
(i) It is ordered that the normal price at which the assessee sold Pig Iron to independent customers on their own account till March 1999 and the value of comparable goods manufactured by the assessee and cleared directly to an independent buyer on account of M/s. KSL, Ginigera from April 1999 onwards, should be taken as the basis for assessable value for the clearances of Pig Iron in a manner not involving sale to M/s. ML, Ginigera/Kalwe/Kurla and M/s. KSL, Pune.
(ii) I confirm the demand and order recovery of the differential duty amounting to Rs. 1,24,32,358.00 (Rupees One Crore Twenty four Lakhs Thirty two thounsand Three hundred and Fifty eight only) for the period from 19.8.98 to 24.1.2000 from M/s. Kalyani Ferrous Industries Ltd. Ginigera under Section 11A(2) of the Central Excise Act, 1944 read with proviso to Section 11A(1) thereof. The aforesaid amount excludes Rs. 1,86,728.00 which as per discussion above are found to be wrongly worked out and included in the total demand as proposed in Show Cause Notice.
(iii) I impose a penalty of Rs. 1,24,32,358.00 (Rupees One Crore Twenty Four lakhs Thirty Two Thousand Three Hundred and Fifty Eight Only ) on M/s. KFIL, Ginigera under Section 11AC of the Central Excise Act, 1944 read with Rule 173Q(1) of the Central Excise Rules, 1944.
(iv) I further order recovery of interest from M/s. KFIL in relation to the aforesaid demand, in terms of Section 11AB of the Central Excise Act, 1944. In the above context, a reference is invited to the first and second proviso to Section 11AC as introduced vide Section 99 of Finance Act, 2000 where under the amount of penalty liable to be paid by the notice shall be 25% of the duty determined provided other conditions laid down in such amended Section 11AC are fulfilled.
(v) I impose a penalty of Rs. 5 Lakhs each (Rupees five Lakhs only) separately on Shri Vijay Sharma, Chief Executive Officer, Shri G.R. Warty, Vice President (Finance), Shri P.V.S. Chandrasekharam, DGM (Finance) and Shri L. Bhaskar, Executive (Finance) of M/s. KFIL, Ginigera under Rule 209A of the Central Excise Rules, 1944.
The present appeals are against this order.
4. We have heard both sides and considered the matter and find:
(a) Learned SDR for Revenue while supporting the order has contended–
The appellant manufactured pig iron for Mukand Ltd. and Kalyani Steel out of raw material supplied by them, and was paid conversion charges.The appellant adopted an assessable value claimed to be “comparable market price”, said to be based on prices charged by other manufacturer for similar goods. The basis of this value was unsubstantiated. (para 27 of the order)
The department proposed to adopt the value of identical goods cleared from the appellant’s factory as the assessable value after the goods manufactured as job work for Mukand Ltd. and Kalyani Steels.The Commissioner confirmed this proposal, holding that
Section 4(1)(a) speaks of the value of ‘such goods’ as the assessable value of goods cleared from the factory. (para 24 of the order)
This method of valuation is upheld by the CEGAT in the case of India Carbon Ltd. . The Supreme Court upheld the principle enunciated in the above cited case of India Carbon Ltd., in the order passed on the party’s appeal against the same order. The Court remanded the matter only to ascertain the veracity of the party’s claim that the goods manufactured on job work basis were different from the goods manufactured out of purchased material. This case is reported in 1999(105) ELT 257.
The submissions regarding limitation were also counted in paras 40 to 44 and 48 to 61 of the order.
(a) The issues regarding comparability of value of liquid iron and solid iron have been discussed in para 38 of the order. In any case the assessee had declared the same value for both, and are estopped from arguing now that the values are different.
Further arguments: The Supreme Court in the case of Ujagar Prints 1989(39) ELT 493 has not decided the issue which is to be decided in the present case. The issue before the Court in the case of Ujagar Prints was whether the trader’s profit should be included in the value of goods manufactured for a trader on job work basis. The court held that it should not be included. A situation of whether the value of comparable goods manufactured by same manufacturer should or should not be taken as the assessable value for such goods was not before the Court, as there were no such comparable goods in that case.
The Supreme Court in the case of Daichi Karkaria 1999(65) SCC 354 (SC) (fifth head note) has laid down that value under the Valuation Rules has ordinarily to be determined under Rule 4 and 5. “Rule 6 comes into play when the value of the excisable goods under assessment cannot be so determined.” Therefore Rule 4, i.e., the value of “such goods sold by the assessee for delivery at any other time” should be applied in this case before going to the cost construction method under Rule 8. The same principle was enunciated by this Bench in the case of Polyhydron Pvt. Ltd. , which held that value should be determined by going through the Valuation Rules seriatum. In view of this factual and legal position the order of the Commissioner has correctly held that pig iron manufactured on job work basis should be assessed to duty on the value of such goods cleared for sale from the factory of the manufacturer.”
(b) The learned Advocate on the other hand while stressing on the time bar aspect relied on the Constitution Bench decision of Ujagar Prints clarificatory order in Ujagar Prints case 1989 (39) ELT 493 (SC) and the Catena of case law from Kandivali Metals to Banswara Syntex Ltd. 1999(34) RLT 7 (CEGAT) and under Final order No. 50 & 51/2002 Bangalore CEGAT in the case of Loharu Steel Industries Ltd., wherein the Tribunal has held that the valuation in case of such ‘job work’ manufacturers should be ruled by the formula of Ujagar Prints clarificatory order. In reply to the SDR submissions, he also relied specifically upon that the case of 1999(105) ELT 257 (SC) has been specifically considered by Tribunal and not followed in by Tribunal and Kandivali Metals case has been affirmed by Supreme Court 1998 (97) ELT 499 (SC), to rebut the logic and attempt of the learned SDR to go through the Valuation Rules and uphold the application of Rule on comparable goods.
(c) In view of the decision in the case of Commissioner of C. Excise, Indore v. M.P. Vener & Plywood (P) Ltd., wherein having considered the Supreme Court decision in India Carbon Ltd. 1999 (105) ELT 259 (SC), the Tribunal ordered the determination of the Valuations in that case not under Rule 6(b)(ii), as per the Ujagar Prints case of Apex Court. We would also consider the valuation in this case is required to be concluded on the basis of Costing Data as per the Ujagar Prints case and not as per the Sale Price of goods sold on account of KSL by KFIL to other independent buyers, since such prices would include, an element of Traders Profits which cannot be included in the assessable values to be determined on ‘job work’ goods as per clarificatory orders of the Supreme Court in the Ujagar Prints case.
(d) Considering the suppression, we find that since we are remanding the matter back to the adjudicator to determine the valuation as per Ujagar Prints case, the question of suppression should be left open to both sides along with the determination of penalty and its quantum under Section 11AC and Rule 209A, which has to consider the quantum of duty, if any, short levied and the facts of the case
5. In view of our findings, the order is set aside and appeals allowed for denovo consideration.