V.K. Agrawal, Member (T)
1. The issue involved in this appeal, filed by M/s. Prabhat Zarda Factory (India) Ltd. is whether the demand of Central Excise duty is barred by limitation, and whether the demand of duty has been calculated in accordance with the law laid down by the Supreme Court in M.R.F. case ?
2. Shri K. Narasimhan, learned Advocate, submitted that the Appellants manufacture branded chewing tobacco; that the basic question as to interpretation of place of removal and admissibility of deduction of freight and insurance charges on sale from duty paid depot have been decided against them by the Larger Bench in their own case as ; that they have gone in appeal in the Supreme Court on the aspect of interpretation of place of removal; that the duty demanded under the impugned Order is for the period from 1.10.96 to 1.8.99 and the show cause notice was issued on 3.1.2001; that the Appellants when they made the initial declaration of assessable value derived from the All India Equalised cum-duty selling price had gone by the plain reading of the amended provision of Section 4(4)(b)(iii) of the Central Excise Act which made the duty paid Depot. Also place of removal of excisable goods; no amendment was made in the provision of Section 4(2) of the Act which lead to the belief that the judgment in the Bombay Tyre International case and M.R.F. case continued to apply in so far as the Section 4(2) was concerned; that on the same basis declaration of the assessable value had been made by them from time to time which remain continued for over 3 years; that during the relevant period several RT-12 Returns were filed and no objection was taken thereon although excise authorities were fully aware of the basis on which duty was being paid; that it was only on 30.9.99 a different view had emerged in the Adjudicating proceedings in the case of another company manufacturing branded tobacco products; that it was held therein that where the property in the goods sold continued to vest with the manufacturer till the delivery at the buyers end, the go-down of the transport agency would come within the purview of Sub-clause (3) of Section 4(4)(b); that consequently freight and insurance charges could not be deducted from the cum-duty price. The learned Advocate, further, submitted that the allegation for invoking extended period of limitation was on the basis that the appellants knowingly under-invoiced their goods by not including the freight and insurance charges in the assessable value with the intention to evade payment of duty of Central Excise. It was also alleged that the appellants willfully and intentionally suppressed the correct place of removal where the transaction of sale was completed with the intention to evade payment of duty; that these allegations were not supported by evidence of any kind; that no provision existed in proforma of price declaration for declaring place of removal; that while submitting the price declaration, the Appellants had written a letter dated 16.9.96 in which it was mentioned that the duty paid godown would be used as place of removal for dispatch of sale to the buyer on F.O.R. destination basis; that in view of these facts and consideration the allegation of suppression and mis-declaration with intent to evade payment of duty are totally unsustainable. The learned Advocate also referred to the Board's Circular No. 14/88-CX-l, dated 25.4.1988 wherein it was clarified, in consultation with the Law Ministry, that calculation of average freight/equalized freight on the basis of previous year actual transportation charges for the purpose of Section 4(2) is admissible provided the total expenses on transportation was claimed on such average did not finally exceed the actual expenses incurred on the transportation in the current year.
He also relied upon the decision in CCE v. Chemphar Drugs and Liniments Tamil Nadu Housing Board v. CCE, Madras
wherein it was held that the proviso to Section
11A(1) is in the nature of exception to the principle clause and therefore, its exercise is hanged on one hand with existence of suppression, fraud, collusion, etc. and on the other hand it should have been with intention to evade payment of duty. Reliance was also placed on the decision in the case of CCE v. HUM Ltd. 1995 (77) ELT 497 (SC) wherein it was held that inference of intention to evade payment of duty is not drawable automatically. The learned Advocate contended that there was no intent to evade payment of duty on their part as the concept of treating the place of removal was evolved only after 3 years of the amendment carried out in Section 4; that the calculation of the duty is totally incorrect as it had wrongly been presumed that the additions to be made to the assessable value are the actual freight incurred-in the delivery of the goods on F.O.R destination the contract price whereas they deducted only the All India Equalised quantum of freight and insurance charges appropriate for each of the individual removal on payment of duty; that the correct method of arriving at the differential duty would be to include in the first instance the assessable value from the gross cum-duty selling price buy (sic) [by] applying the formula applied by the Supreme Court in M.R.F. case; that for this calculation the permissible deduction would be only the local taxes such as Octroi included in the gross selling price as an equalized components and shown product-wise in the price declaration; that this would get the equalized freight and insurance charges automatically included in the selling price; that upon applying 50% rate of duty to the assessable value so calculated will yield the excise duty payable; that from the aggregate of duty so calculated for the entire disputed period, deduction has to be made of the duty actually paid by them so as to arrive at the final figure of the duty amount demandable; that according to the calculation made by them the duty demandable comes to Rs. 6,78,074 against Rs. 25,06,779 confirmed in the impugned Order. The learned Advocate mentioned that the working sheets were given to the Adjudicating Authority at the time of personal hearing but no notice has been taken of the same.
3. Countering the arguments Mrs. Neeta Lal Butalia, learned SDR, submitted that the demand confirmed in the impugned Order is not hit by time limit specified in Section 11A(1) of the Act as the Appellants had never disclosed to the Department about the sale of excisable goods being made at buyers premises; that the fact that the ownership of the goods was passed on to the buyers the destination was never disclosed to the department and was suppressed; that the letter dated 16.9.96 referred to the dispatches made from duty paid godown only; that the Commissioner has dealt with this letter in the impugned Order; that the Commissioner has given his finding to the effect that merely by submitting the price declaration they can not claim that they had declared their sale pattern to the department i.e. transferring of duty paid goods to the godown and thereafter delivery of said duty paid goods at the destination of buyer by bearing various expenses such as transportation and insurance charges incurred from the place of manufacturer to the godown and thereafter from the godown to the place of buyer; that the Appellants had claimed their place of removal as their duty paid godown instead of place of buyer where the goods were actually being delivered after incurring various expenses. The learned SDR, therefore, claimed that the facts were suppressed with intent to evade payment of duty. In reply the learned Advocate submitted that F.O.R. destination price means necessary implication that the appellants are incurring the transport expenses on their own account; that by this declaration it is apparent that the property remains vested with them; that in case there was any doubt the department should have sought clarification from them.
4. We have considered the submissions of both the sides. According to Section 4(4)(b), "place of removal" means:
(i) A factory or any other place or premises of production or manufacture of the excisable goods;
(ii) A warehouse, or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
(iii) A depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory and, from where, such goods are removed.
5. Clause (iii) to Section 4(4)(i) of the Act was inserted w.e.f. 28.9.96. It is apparent from the amended Sub-section that the place of removal will not only be the factory of manufacture or warehouse but also a depot, premises of consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory. The entire dispute in the present matter rested on the interpretation of expression "place of removal". The said issue stands decided by the Larger Bench of the Tribunal in the Appellants' own case -- CCE, Meerut-II v. Prabhat Zarda Factory Ltd. wherein it was held that where the ownership of the
excisable goods remained with the manufacturer upto the place of buyer from where the goods were delivered to the buyer, the place of removal for the purpose of Clause (iii) of Section 4(4)(b) of the Act would be the said place of delivery. In view of this settled position, the finding in the impugned Order to the effect that the deductions on account of freight and insurance charges claimed by the Appellants are not admissible is confirmed as the place of removal is the destination of the buyers only. We do not find any substance in their argument that the demand of duty is time barred as they had filed the price declaration and RT-12 Returns and no objection had been taken for three years by the Department. As there was a change in the definition of "place of removal" in the Act which made even any place, from where the excisable goods were to be sold after their clearance from the factory and, from where, such goods were removed, as place of removal, the Appellants were not eligible to claim deductions of expenses on account of freight and insurance from the assessable value. Their belief based on Sub-section (2) of Section 4 of the Act is without any reason as the provisions of the said sub-section expressly come into play only where the price of the excisable goods is not known at the place of removal and the price is determined with reference to the price for delivery at a place other than the place of removal. As in the present matter the price of the impugned goods is known at the place of removal, Sub-section (2) of Section 4 has no application and the question of deducting the cost of transportation from the place of removal to the place of delivery did not arise. According to the Revenue, the actual place of removal was not disclosed to the Department with which we are in agreement. The letter dated 6.10.98, relied upon by the learned Advocate, only mentioned that the goods were being removed/sent to buyers from their duty paid godowns at B-118, Industrial Area, G.T. Karnal Road, Delhi and the Annexure-II for F.O.R. Destination was being submitted. This letter does not disclose the fact that the place of removal of goods was at the destination of buyers. Accordingly the extended period of limitation is invokable in the present matter. However, we find force in the submissions of the learned Advocate that the duty has not been quantified correctly. It has been held by the Appellate Tribunal in the case of Sri Chakra Tyres Ltd. v. CCE, Madras that total duty proposed to be demanded shall have to be abated from the cum-duty price actually received and liable to be received as a consideration for sale of goods. The sale price realized by the Appellants has to be regarded as the entire price inclusive of excise duty and accordingly as per the provisions of Section 4(4)(d)(ii) of the Central Excise Act, the deduction on account of duty is to be made. Moreover, the Supreme Court laid down the method for computation of assessable value in a cum-duty price in the case of Government of India v. Madras Rubber Factory Ltd.
which is to be kept in consideration by the Adjudicating Authority. We accordingly remand the matter to the Adjudicating Authority for re-computing the duty in accordance with law. We also set aside the demand of penalty and interest imposed under the impugned Order as demand has to be recalculated. The Adjudicating Authority is, however, at liberty to impose penalty and demand interest after recalculating the demand, as deemed fit.
The Appeal is disposed of in these terms.