2005 (98) ECC 39 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench -- Chennai

Shri P.G. Chacko, Member (J) and Shri Jeet Ram Kait, Member (T)

Chem Fab Alkalis Ltd.

Versus

CCE, Trichy

Appeal No. E/1326/2000

[Arising out of Order-in-Original No. 6/96 dated 20.6.96 passed by the Commissioner of Customs & Central Excise, Trichy]

Final Order No. 574/2004, dt. 13.7.2004, Certified on 20.7.2004

Demand and Penalty (C. Excise)

Limitation -- Suppression of facts -- The department was well aware of the manner in which the appellants were determining the assessable value of the Caustic Soda Lye, cleared for captive consumption. Assessee's letter in clear and unambiguous terms, wrote to the Assistant Collector that they were switching over from Rule 6(b)(ii) to Rule 6(b)(i) in the valuation of Caustic Soda Lye cleared for captive consumption -- Disclosed the assessable value of the captively consumed Caustic Soda Lye to the Department for purposes of Rule 6(b)(i). SCN issued 11 months after detection. Hence Larger period not invocable under Section 11A(1) of CEA.

Appeal allowed

PRESENT :

Smt. L. Mythili, Advocate for the appellant.

Smt. R. Bhagya Devi, SDR for the respondent.

Case Cited :

Universal Glass Ltd. v. CCE, Meerut, 2000 (124) ELT 457..................................... [Para 2]

Per : P.G. Chacko (Oral)

The appellants are engaged in the manufacture of `Bleach Liquor' (final product), which is produced by the chlorination of Caustic Soda Lye, which is an intermediate product in the manufacture of Bleach Liquor (Sodium hypochlorite). During the relevant period, Bleach Liquor was exempt from payment of duty and consequently the appellants were liable to pay duty on Caustic Soda Lye, which they had captively consumed in the manufacture of Bleach Liquor. During such period, they had cleared a part of their Caustic Soda Lye production, for home consumption also. About 75% of such clearance was made to M/s. SIV Industries at a price (Rs. 6,534 per M.T.) agreed between them. The rest of the clearances for home consumption were to other buyers at other rates agreed between the appellants and the buyers. Initially, for the purpose of paying duty on the Caustic Soda Lye cleared for captive consumption, the appellants were determining the assessable value of the goods by the Cost Construction Method in terms of Rule 6 (b)(ii) of the Central Excise Valuation Rules, 1975. On 16.11.1994, they sent a letter to the Assistant Collector of Central Excise stating that they had paid duty on the goods on the basis of the cost of its production and requesting that they be allowed to pay duty on the goods on the basis of the price at which they were selling similar goods to M/s. SIV Industries. The assessable value determined in the Cost Construction Method was Rs. 4,678 per MT, whereas the price at which similar goods was supplied to M/s SIV Industries was Rs. 6,534 per MT. The appellants also mentioned in their letter that they had just paid the differential duty on the goods upto 15.11.1994. The appellants, thus, shifted from Rule 6(b)(ii) to Rule 6 (b)(i) for the purpose of valuation of the captively consumed Caustic Soda Lye. The department, however, was not agreeable to this. In a show-cause notice dated 21.10.1995, they worked out the amount of duty (Rs. 4,93,487) on the Caustic Soda Lye cleared for captive consumption from Mar.' 94 to Mar.'95 by the Cost Construction Method in terms of Rule 6(b)(ii) of the Excise Valuation Rules. The department demanded this duty from the assessee by invoking the extended period of limitation under the proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944 and also proposed to penalise them. The demand of duty and the proposal for penalty were contested. The Commissioner, who adjudicated the dispute, confirmed the demand of duty against the assessee and imposed on them a penalty of Rs. 40,000. Hence, this appeal.

2. Heard both sides and considered their submissions. Under Rule 6(b)(i) of the Central Excise Valuation Rules, where excisable goods are captively consumed in the manufacture of other articles, the value of such goods shall be based on the value of comparable goods manufactured by the assessee or by any other assessee. As per Rule 6(b)(ii), valuation of the captively consumed goods be done on the basis of the cost of its production, only if the value cannot be determined under Rule 6(b)(i) as noted by this Tribunal in the case of Universal Glass Ltd. v. CCE, Meerut, 2000 (124) ELT 457 cited by Ld. counsel. In the instant case, there is no dispute regarding the fact that the Caustic Soda Lye cleared by the appellants for home consumption was "comparable goods" for the Caustic Soda Lye cleared for captive consumption. The dispute is whether the price charged to SIV Industries on the Caustic Soda Lye sold to them can be the basis for the valuation of the goods to be assessed. The lower authority has rejected the said price, holding that a price fixed by negotiation between the assessee and the buyer is not a "normal price" to be adopted as basis for the Valuation of similar goods captively consumed by the assessee. Ld. Commissioner apparently did not press into service the proviso to Rule 6(b)(i) which authorised the proper officer to make adjustments to the value of the comparable goods after taking all relevant factors into consideration so as to obtain a value for the goods to be assessed. The price charged to SIV Industries by the appellants was a price agreed to between the parties. That was Rs. 6,534 per MT for a minimum quantity of 6000 MTs per annum. The appellants had sold 401.342 MTs of Caustic Soda Lye to another customer (M/s. Pondicherry Papers) at the agreed price of Rs. 9,280.85 per MT. The difference between these unit prices was mainly attributable to the difference in quantity-based discounts given to the two buyers. This and other relevant factors should have been considered by the adjudicating authority for making adjustments to the price of the comparable goods so as to arrive at a value for the goods to be assessed. It was certainly possible for the Commissioner to do this under Rule 6(b)(i) and hence there was no question of going in for the Cost Construction Method under Rule 6(b)(ii). Ld. Commissioner took the view that adjustments in terms of Rule 6(b)(i) were not possible in respect of prices of comparable goods sold by the assessee to independent buyers under independent sale contracts. We are unable to endorse this view as what Rule 6(b)(i) requires is a price of comparable goods. The rule does not debar a negotiated-and-agreed price of comparable goods from being subjected to adjustments for arriving at a value for the goods captively consumed by the assessee.

3. We find that the appellants have a stronger case on limitation. The demand of duty on Caustic Soda Lye captively consumed by them during March 1994 -- March 1995 was raised in a show-cause notice (dated 21.10.1995) issued after the normal period of limitation. The notice invoked the larger period of limitation on the ground of alleged suppression of assessable value of the above goods with intent to evade payment of appropriate duty thereon. But the facts on record do not seem to support the allegation of suppression. Atleast, since May 1994, it was known to the department that the appellants were clearing Caustice Soda Lye for both captive consumption and home consumption and that the clearances for captive consumption were valued in the Cost Construction Method in terms of Rule 6(b)(ii). In May 1994, the appellants had filed a price list for Caustic Soda Lye capitvely consumed, adopting the Cost Construction Method, supported by a Certificate from their Chartered Accountant. The assessable value determined by the said method under Rule 6(b)(i) worked out to Rs. 4,638 per MT. The department examined the price list and raised an objection that certain overheads had not been taken into account. The department's queries were answered by their Chartered Accountant in Jan.'95. Meanwhile, the appellants, in their letter dated 16.11.1994, informed the Assistant Collector of Central Excise that similar goods were being supplied to M/s. SIV Industries at Rs. 6,534 per MT and this price could be adopted as basis of valuation of the captively consumed goods in terms of Rule 6(b)(i). The appellants also wrote a similar letter to the Central Excise Range Officer on 30.12.1994. In May `95, the appellants submitted Profit & Loss Account and Balance Sheet and furnished other information as required by the Range Officer in this connection. They also furnished the Purchase Order of M/s. SIV Industries to the authorities. These facts, stated in the memo of appeal, have not been disputed. Going by these facts, we find that the department was well aware of the manner in which the appellants were determining the assessable value of the Caustic Soda Lye cleared for captive consumption. In their letter dated 16.11.1994, the appellants, in clear and unambiguous terms, wrote to the Assistant Collector that they were switching over from Rule 6(b)(ii) to Rule 6(b)(i) in the valuation of Caustic Soda Lye cleared for captive consumption. The text of the letter reads as under:

"As you are kindly aware, we are using Caustic Soda Lye in the Manufacture of Sodium Hypochlorite. Since Sodium Hypochlorite is exempted from payment of duty. We are paying Excise Duty on Caustic Soda Captively Consumed in our factory.

For arriving at the assessable value of Caustic Soda and for calculating Excise Duty. We have arrived at the cost of production following the rules laid down in Central Excise Valuation Rules 1975 (Rule 6). We have been paying Duty based on this valuation. However, we understand that when the similar goods are sold, the value of such comparable market price should be taken as Assessable Value. We are selling similar 33% Caustic Soda Lye to M/s. SIV Industries Ltd., who are consuming 50% of our Caustic Soda production. We are supplying Caustic Soda Lye to them at Rs. 6,534 (Rupees six thousand five hundred and thirty four only) pmt ex. works.

In view of this, we request you to kindly ignore the price adopted by us as per Valuation Rules and permit us to pay the basis on the market price we are supplying to our major customer. M/s. SIV Industries Ltd. We have recalculated the duty payable for the differential amount upto November 15, 1994 and today we have debited our PLA for Rs. 1,74,235.00 vide entry No. 1213 dated 16.11.1994. We are enclosing our details of working for arriving at the value.

We request you to kindly take note of the same."

The above letter disclosed the assessable value of the captively consumed Caustic Soda Lye to the Department for purposes of Rule 6(b)(i). All the facts relevant to valuation under this rule were furnished in the letter.

4. Even thereafter, the department took about 11 months to issue the show-cause notice (dated 21.10.1995) demanding duty on the goods cleared for captive consumption during Mar.'94 to Mar.'95. The entire demand is beyond the normal period of 6 months. The larger period prescribed under the proviso to Section 11A(1) is not invocable in this case for want of suppression of facts by the assessee. The demand of duty is time-barred.

5. In the result, we set aside the demand of duty and, consequentially, vacate the penalty imposed on the appellants. The impugned order stands set aside. The appeal is allowed.

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