ORDER
Lajja Ram, Member (T)
1. This is an appeal filed by M/s. Simac (Group) (I) Pvt. Ltd., against the Order-in-Review dated 15-10-1982, passed by the Collector of Central Excise, Bombay.
2. The Supdt. of Central Excise Range VII, Bombay Division X, Thane, issued a show cause notice on 11-6-1976 to M/s. Simac (Group) India (P) Ltd. (hereinafter referred to as ‘Simac’ or the ‘appellants’), alleging that they have violated the provisions of proviso (iv) of Notification No. 120/75-C.E., dated 30-4-1975, and that the exemption granted under that Notification No. 120/75-C.E., was not applicable in their case.
3. The appellants were engaged in the manufacture of hand knitting machines, falling under Item No. 68 of the erstwhile Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the ‘Tariff’). They were selling their bulk of the production in the home market to M/s. Singer Sewing Machine Company (hereinafter referred to as ‘Singer’), under an agreement, and Singer in turn were selling those goods to other dealers/customers. The appellants had opted for ad valorem assessment in respect of their goods, under exemption Notification No. 120/75-C.E., dated 30-4-1975 vide their declaration dated 30-8-1975.
4. Simac were asked to show cause as to why they should not be asked to file their price lists in Part IV as required under Section 4(l)(a) proviso (iii) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the ‘Act’), on the basis of the prices charged by Singer, from their customers.
5. The appellants denied that Singer were their related person and submitted that their goods were sold by them to other buyers also. A good part of their production was exported, and Singer had no concern whatsoever with such exports. They added that they were selling their machines to Singer after negotiating the prices for different orders.
6. The Assistant Collector of Central Excise, Thane Div. I wrote a letter to the appellants on 3-1-1979 to the effect that he had come to a conclusion that Singer were not acting as their distributors and that the prices charged by them to Singer were acceptable as assessable value.
7. In exercise of the powers vested under Sub-section (2) of Section 35A of the Act, the Collector of Central Excise, Bombay II called for and examined the records relating to the proceedings in which the order dated 3-1-1979 of the Assistant Collector of Central Excise, Thane, Div. I had been passed, and on going through that order and the investigations made in this behalf by the officers of Central Excise Anti-Evasion Unit DRI Bombay, came to a tentative view that the aforesaid order and its application not only to the particular model of the knitting machine viz. DX 2000 specified in the show cause notice dated 11-6-1976 but also to all such other models sold to Singer, was not correct, proper and legal. A show cause notice was issued on 24-12-1979 to Simac for the period 1-4-1975 to 30-9-1979, wherein provisions of Rules 10(1), 173Q, 173PP(3) and 173C of the Central Excise Rules, 1944 (hereinafter referred to as the ‘Rules’) were invoked, and they were asked to show cause as to why their goods should not be assessed to duty under Section 4 of the Act on the prices at which they were sold by Singer, and accordingly a demand of Central Excise duty for Rs. 18,55,570.69 was made.
8. Under his order No. V(V. Cell)30-11 /79 dated 15-10-1982, the Collector of Central Excise, Bombay II observed that the invoice prices of Simac were influenced by commercial, financial and other relationship by contract or otherwise and that therefore condition No. (IV) of the proviso to Notification No. 120/75-C.E., dated 30-4-1975, was not fulfilled. He came to a finding that Simac had wrongly availed of the exemption under Notification No. 120/75-C.E., and their clearances should have been effected only after due approval of the normal price in terms of Section 4 of the Act by filing appropriate price lists as required under Rule 173C of the Rules.
9. The appellants had approached the Bombay High Court, and under their order dated 1-4-1993 the Hon. Bombay High Court had directed this Tribunal to decide the present appeal preferably within a period of 6 months from that date. An uncertified copy of this order of the Bombay High Court was filed under an unsigned letter dt. 20-7-1993 by the counsel for the appellants. Immediately the matter was listed for hearing on 24-8-1993. On that date nobody appeared on behalf of the appellant; however, under his letter dt. 20-8-1993, the counsel for the appellants had filed a certified copy of the orders of the Bombay High Court, which was received in the Registry on 23-8-1993. The matter was listed for hearing on 3-9-1993. Again on 3-9-1993 nobody appeared on behalf of the appellant. The Consultant for the appellants vide letter dt. 30-8-1993 had made a request for adjournment on the ground that he will be going on a personal visit to Hongkong/Singapore up to 10-9-1993. Very reluctantly the matter was adjourned to 14-9-1993 when Shri A.S. Sunder Rajan, Consultant appeared for the appellant. The respondents were represented by Smt. C.G. Lai, SDR.
10.1 Sh. A.S. Sunder Rajan, the learned Consultant traced the history of the case and the developments regarding excisability of their goods, the provisions of law and the action taken by the Deptt. from time to time. He submitted that in the review show cause notice the Collector of Central Excise had gone beyond the purview of Section 35A of the Act and that he had taken cognisance of the subsequent investigations. Before the Asstt. Collector of Central Excise, there was a dispute about only one of the model of the machine while in the review show cause notice, the Collr. has gone beyond the records. Whereas in the original show cause notice no penal provisions were invoked, the Collector in the review proceedings not only extended the area of enquiry but also alleged new contraventions and also invoked penal provisions. In support of his arguments, the learned Consultant relied upon the following decisions:
(1) 1992 (62) E.L.T. 337 (Tribunal) – Sr. Magnetics Ltd. v. Collector of Customs.
(2) 1985 (19) E.L.T. 148 (Tribunal) – Military Dairy Farm v. Collector of Central Excise.
10.2 The learned Consultant submitted that it was not open to the Collector to go for fresh evidence/new points. There has been a denial of principles of natural justice as the witnesses whose testimony has been relied upon, were not cross-examined. There was no mutuality of interest between Simac and Singer. Singer could not be considered as related person of Simac. Reliance in this connection was placed on the following decisions :
(1) 1983 (12) E.L.T. 869 (SC) – Union of India v. Bombay Tyres International – only a distributor who is a relative of the assessee is covered by the definition of related person in Section 4(4)(c) of the Act – para B(v).
(2) 1983 (14) E.L.T. 1896 (SC) – UOI v. Bombay Tyres International (para 44) – provisions regarding ‘related person’ show a sufficiently restricted basis for employing the legal fiction.
(3) 1984 (17) E.L.T. 323 (SC) – UOI v. Atic Industries Ltd. (para 5) -for applicability of the definition of related person, the assessee and the person alleged to be a related person must have interest direct or indirect in the business of each other.
(4) 1986 (23) E.L.T. 8 (SC) – Moped India Ltd. v. Asstt. Collector of Central Excise (para 5) – dealer cannot be treated as related person, not being a relative of the manufacturer.
10.3 The learned Consultant further submitted that the department had extended the benefit of Notification No. 120/75-C.E., and it was not open to them to withdraw that exemption available under the said notification. In this connection the learned Consultant relied upon the Tribunal decision in the case of Facit Asia Ltd. v. Collector of Central Excise -1985 (21) E.L.T. 711 (Tri.), in which it has been held that the distributors could not be treated as related persons when the delivery of the goods was not influenced by any commercial, financial or other relationship.
11.1 Smt. C.G. Lai, the learned SDR stated that the provisions of Section 35A of the Act were very wide and it is open to the Collector while exercising powers under that Section to take into account, the additional evidence. In this connection she referred to the Tribunal decision in the case of Bell Punch India v. Collector of Central Excise -1983 (14) E.L.T. 2374 (Tri.) (para 15), wherein it has been held that the revision or review could take into consideration the material which may be outside the record for purposes of finding out the correctness of the order under review and that additional enquiry could be conducted and taken into consideration. She also mentioned that the Collector was well within his powers to review the order of the Asstt. Collector, and to hold further enquiry or directing such enquiry to be held by the appropriate authority, and to invoke penal provisions. In this connection she relied upon the following decisions:
(1) 1973 (88) UR 323 (SC) – Smt. Taradevi v. Commissioner of Income Tax.
(2) 1968 (67) ITR 84 (SC) – Smt. Ram Pyari v. Commissioner of Income Tax.
11.2 She also relied upon the following decisions :
(1) AIR 1968 SC 843 – Swastik Oil Mills v. CiT – while exercising revisionary powers the authority is entitled to hold an enquiry or direct an enquiry to be held, and for that purpose, admit additional material.
(2) 1988 (38) E.L.T. 96 (Tri.) – Nuchem Plastics v. CCE – Collector in exercise of his power under Section 35A can revoke or revise Asstt. Collector’s order (para 28).
11.3 She pleaded that Collector was empowered to issue a fresh show cause notice, and in this connection referred to the Tribunal decision in the case of Sr. Magnetics Ltd. v. CC – 1992 (62) E.L.T. 377 (Tri.). There was no request for cross-examination of witnesses in reply to the show cause,notice and that cross-examination has to depend on the facts and circumstances of the case. In this connection she referred to the following decisions:
(1) K. Balan v. Govt. of India -1982 (10) E.L.T. 386 (Mad.) – The right to cross-examination is not necessarily a part of reasonable opportunity, and depends upon the facts and circumstances of each case.
(2) A.K. Kraipak v. UOI – AIR 1970 SC 150 – what particular rule of natural justice will apply in a given case will depend upon various factors.
11.4 The Tribunal in the case of G. Sridhar v. CC -1992 (43) ECR 95 (Tri.), have held that the denial of cross examination did not render the order of the lower authority bad and that the cross examination is not always indispensable. The decision in the case of Sr. Magnetics Ltd. -1992 (62) E.L.T. 377 relied upon by the appellant’s counsel was misplaced as that case related to Section 129 of the Customs Act, 1962 which contained provisions relating to appeal. Similarly the ratio of the Military Dairy Farm case – 1985 (19) E.L.T. 148 relied upon by the appellants has been overruled by the Allahabad High Court jn the case of Triveni Sheet Glass Works Ltd. v. CCE, reported in 1991 (54) E.L.T. 44 (All.). In that decision, the Allahabad High Court had observed that the limitation period of five years in cases of fraud etc. under proviso to-Section 11A(1) of the Act was to be read into Section 35A(3)(b) of the Act, in case of order levying or enhancing the duty. As regards Notification No. 120/75-C.E., she submitted that the benefit of the notification could be withdrawn in case the conditions subject to which exemption under that notification was available, had been violated. She submitted that in the present case there was evidence that the transactions between Simac and Singer were influenced by their relationship, and as such the benefit was correctly denied. She referred that the decision in the case of Fadt Asia -1985 (21) E.L.T. 711 relied upon by the appellant really supported the case of the department.
12. In reply the learned Consultant referred to the decision in the case of State of Kerala v. KM. Cheria Abdulla & Co. -1965 (16) STC 875, and submitted that it was not open to the Collector to rely on additional evidence. He again reiterated that the reviewing authority could not go beyond the purview of the order reviewed. As regards cross-examination he submitted that it was incumbent upon the Collector to offer cross-examination of the witnesses whose statements were relied upon by the department.
13. Written submissions were received from the learned SDR on 23-9-1993, and from the learned Consultant on 24-9-1993.
14. We have carefully gone through the facts and circumstances of the case and the submissions made by the learned Consultant on behalf of the appellants and by the learned SDR on behalf of the respondent. Written submissions filed by the learned SDR and -the learned Consultant have also been gone through.
15. The main issue for our consideration in this case is whether the appellants were eligible for availing of the exemption under Notification No. 120/75-CE., dated 30-4-1975, under which the Central Excise duty could be calculated on the basis of the invoice price, charged by the manufacturer for the sale of the goods, falling under Item No. 68 of the Tariff. Exemption Notification No. 120/75-C.E., dt. 30-4-1975 is extracted below:
In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), cleared from the factory of manufacture, on sale, from so much of the duty of excise leviable thereon as is in excess of the duty calculated on the basis of the invoice price (excluding duty and local taxes, if any, included in such price) charged by the manufacturer for the sale of such goods:
Provided that the aforesaid exemption shall be admissible only if :-
(i) the manufacturer files with the Superintendent of Central Excise having jurisdiction a written declaration to the effect that he opts to avail of the said exemption;
(ii) the manufacturer avails of the said exemption uniformly in respect of all goods, sold by him, which fall under the Item aforesaid;
(iii) the manufacturer certifies that the price referred to in the invoice represents the price actually charged by him for the relevant sale and that the price is the sole consideration for the sale;
(iv) the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods;
(v) no part of the proceeds of the subsequent sale, or disposal of such goods accrues either directly or indirectly to or for the benefit of the manufacturer or any person associated in business with him:
Provided further that a manufacturer shall be entitled to withdraw his option referred to in clause (i) of the preceding proviso after giving to the Superintendent of Central Excise having jurisdiction a prior notice in writing of at least 7 days and where the manufacturer has withdrawn his option he shall, unless otherwise directed by the Central Board of Excise & Customs, be precluded from availing of the aforesaid exemption during the remaining period of the relevant financial year.
16. Notification No. 120/75-C.E. was issued by the Central Govt. in exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944. Sub-rule (1) of Rule 8 provided exemption to the excisable goods from the whole or any part of the duty leviable on such goods subject to such conditions as may be specified in the notification. The rule stipulated that the whole or part of the duty otherwise leviable could be exempted under a notification, issued under that Rule 8 of the Rules.
17. Item No. 68 of the Tariff was introduced in the Central Excise Tariff as a part of the 1975 budget. It covered all other goods not elsewhere specified. It marked a new concept in the field of indirect taxation in the country. While earlier Central Excise duties were levied on identified commodities, it was for the first time that Central Excise duty was levied on residuary items, not specified under any other item of the Tariff, and for such unspecified goods, a specific Tariff entry was carved out. Initially the rate of Excise duty on goods falling under that Tariff Item Number 68 was only 1 per cent ad valorem. In view of the special nature of the levy, a number of relaxations/exemptions specifically applicable to the goods falling under that tariff item, and to the manufacturers producing such goods, were provided. With a view to soften the impact of the ad valorem levy on the newly introduced item with 1 per cent duty of excise, and to avoid the rigours of determining the Central Excise duty in terms of valuation provisions under Section 4 of the Act, within a few days of the introduction of the levy, exemption Notification No. 120/75-C.E. was issued. Under that notification, in place of determining the assessable value under Section 4 of the Act, the assessments could be made on the basis of the invoice prices, subject to the conditions as laid down under that notification. It is seen that the Notification No. 120/75-C.E. exempted “so much of the duty of excise as is in excess of the duty calculated on the basis of invoice prices.”
18. In the case before us, the goods had been cleared for the purpose of excise levy on the invoice value. For the purposes of Section 4 of the Act, the value could be in excess of the invoice value, but it was this excess which was exempted under Notification 120/75-C.E. It was inherent in the scheme of that exemption notification that the invoice value may not be the full commercial price of the goods.
19. M/s. Simac were engaged in the manufacture of hand knitting machines since 1963. Earlier they were engaged in the trading activities since 1956. Prior to 1-3-1975 hand knitting machines were not excisable. The hand knitting machines were assembled out of indigenous and imported components. It was a new venture in the country. Potential customers were scattered in different parts of the country. Sale involved dealing with individual customers and needed elaborate infrastructural facilities for the user of these machines. M/s. Singer were a multinational company and for various house-hold products they had already an elaborate sale net work. M/s. Simac and M/s. Singer had entered into an agreement on 9-8-1963 for the purchase and sale of these machines manufactured by Simac, by Singer in India and Afganistan. Exports were made directly by Simac without any intervention by Singer. The prices charged by Singer from their customers were higher than the prices paid by them, to Simac. Some advance was also collected by Singer from their customers at the time of booking of the order. As Singer had to make arrangements for transport, distribution, storage and sale of machines in different parts of the country, they had imposed some conditions on the direct disposal of goods within the country by Simac. They also involved themselves in other respects/aspects of the manufacturing such as colour scheme, packing, finishing, import, quality control, inspection etc. The distributorship agreement with Singer was said to have been terminated w.e.f. 3-1-1975, but it appears that informal arrangements for selling their machines through Singer remained till 1-10-1979 when Simac started marketing their machines directly through their own dealers. Thus when Simac filed their declaration under Notification No. 120/75-C.E., on 30-8-1975, they had no formal distribution-ship agreement with Singer. Their R.T. 12 returns submitted upto 31-12-1975 were said to have been accepted by the deptt.
20. As regards advance payments by Singer to Simac, it was submitted by the appellants that as per normal commercial practice, these payments were towards pending orders with Simac and with a view to expedite despatches. In 1976 Simac were facing financial difficulties, and in their own interest Singer extended help to Simac on ad hoc basis, towards anticipated supplies, to meet their specific needs. The advances were adjusted when machines were supplied to Singer. The prices negotiated were in no way influenced by these advance payments. Expenses towards air freight also were on commercial considerations with a view to expedite supplies against pending orders from the customers with Singer.
21. The nature of relationship between Simac and Singer, Singer’s interest in the sale of Simac products, Simac’s dependence on Singer for finances, sale, marketing etc., exceeded the normal area of a buyer and the seller and would have made the prices tainted, but for the exemption Notification No. 120/75-C.E. While for the purposes of determining assessable value under Section 4 of the Act, the prices charged by Simac for supplies to Singer may not constitute the normal price – but in the case before us we are concerned with the assessment not on assessable value but on invoice price.
22. The C.C.E. Bombay II vide his order in revision, in paras 7,8 & 9 has come to a finding that the invoice prices of Simac were influenced by commercial and other relationship with Singer and therefore Simac were not entitled to the exemption under Notification No. 120/75-C.E., dt. 30-4-1975 in respect of the hand knitting machines.
23. In the case of machine model G.C. 5001 it was observed that it was sold to Singer by Gupta Engg. Works, their sister concern. On this basis it has been concluded that there was no sale by Simac to Gupta Engg. Works and thus an essential condition of Notification No. 120/75-C.E. was violated. It does not appear to be correct. There was no basis to come to a finding that simply because Gupta Engg. Works sold machines to Singer and Gupta Engg. Works were a sister concern of Simac, there could be no sale by Simac to Gupta Engg. Works.
24. We have seen that the involvement of Singer in the activities of Simac was more than that of a normal buyer. For the purposes of Section 4 of the Act it could amount to a favoured buyer, but for Notification No. 120/75-C.E., the same criteria could not apply.
25. Clause (IV) of the proviso to Notification No. 120/75-C.E. imported the requirements that the invoice price should reflect a transaction at arm’s length. The very purpose of the exemption notification was to relieve the manufacturer from bearing the burden of the duty on such part of the assessable value as did not reflect the value of his services.
26. Reliance has been placed by the Collector in paras 7, 8 and 9 of his order in review on the statement of Shri L.N. Gupta to conclude that Simac and Singer were related persons, and the transactions were not at arm’s length. It has been noted that:
(1) the goods were packed in cartons sealed with Singer seals.
(2) quality control inspectors of Singer were permanently posted in the factory of Simac.
(3) Orders received by Simac were directed to Singer.
(4) Goods were manufactured according to the directions and specifications of Singer.
(5) Singer had given interest free advances to Simac.
27. None of these conditions appear sufficient to deny the benefit of Notification No. 120/75-C.E. to Simac.
28. It has been further alleged that Simac were not free to sell their goods in open market. Simac had submitted that a good part of their production was exported for which Singer had no role to play. There were some sales to outside customers also. They have further added mat for commercial considerations they were selling the bulk of their production to Singer. Prices were determined on commercial considerations and were increased from time to time. They had placed their own conditions on Singer, and help and assistance by Singer was a part of these conditions. They have stated that all transactions were on principal to principal basis and there was nothing extra-commercial in their dealings with Singer. As between Simac and Singer there were no written agreements or letter appointing Singer as distributors. There were no conditions of sales or arrangements which were binding on the parties and could be enforced against each other. The informal arrangements were to ensure regular and smooth production and sale of the goods.
29. The relationship was created by the sale of goods between Simac and Singer, and no evidence has been brought on record as in what way the invoice prices were influenced by such a relationship, and as to what extent Simac’s sale prices as such could not be the prices for Section 4 of the Act.
30. There was no allegation to the effect that any part of the proceeds of the subsequent sale by Singer accrued directly or indirectly to the benefit of Simac.
31. The Hon. Supreme Court in the case of CCE v. Neoli Sugar Factory -1993 AIR SCW (para 12) had observed that while the several clauses in the notification must be read together, harmonised and reasonably understood, the underlying object and purpose of the notification could not be ignored.
32. The Tribunal in para 7(B) of their decision in the case of Bombay Latex and Dispersions Pvt. Ltd. v. CCE -1985 (19) E.L.T. 527 (Trib.), had observed as under:
* * * * * * * 33. They held in para 7(h) as under : * * * * * * * 34. In the concurring decision by the Vice President in para 19 has been observed as under: * * * * * * * 35. The Hon. Supreme Court in the case of Taxmaco v. CCE -1992 AIR SCW 2020 in Para 8 have observed as under :
“On a consideration of the matter we are afraid the Tribunal fell into an error in its understanding of the notification. The Notification posits and predicates the possibility that the “invoice value” could be lesser than the “assessable value” and, taking into account the need to mitigate the hardship on the manufacturer of being called upon to pay duty on the value in excess of the invoice value, seeks to exempt the manufacturer from payment of duty “in excess of the duty calculated on the basis of the “invoice price”. There is no dispute in this case that the invoice price represented the value of the wagons, less the value of the “wheel-sets” supplied by the Railways. The invoice price could not be required to include the value of the “wheel-sets”. But the “assessable value” would take into account the full commercial value including that of the “wheel-sets”. It is in order to mitigate the hardship that may arise by requiring the manufacturer to pay duty on this difference in such cases that the Notification No. 120/75 came to be promulgated. There is nothing in Cl. (iv) which enjoins upon the appellant to include the value of the “wheel-sets”. The contract between the parties does not also require this. The way in which the Tribunal looked at the notification is neither good sense nor good law. Such construction would make the Notification and the exemption contemplated thereunder meaningless. The need for the exemption arose in view of the fact that “assessable value” was higher than the “invoice value”. Requiring the former and the latter to be the same as something compelled by Cl. (iv) is really to construe the notification against itself.”
36. Accordingly we find that the benefit of exemption Notification No. 120/75-CE., dt. 30-4-1975 could not be denied to M/s. Simac in the fact and circumstances of this case.
37. Accordingly, M/s. Simac were eligible for the exemption under Notification No. 120/75-CE., dt. 30-4-1975, and the order in review by the Collector of Central Excise, Bombay II to that extent is not correct.
38. As on the main ground of the applicability of Notification No. 120/75-CE. the appeal filed by M/s. Simac merits acceptance, we do not consider it necessary to deal with the various other issues which have been agitated by them before us.
39. As a result the appeal is allowed and the impugned order is set aside with consequential relief to the appellants, if any.