Commissioner of Central Excise, Allahabad v. M/s. Somaiya Organics (India) Ltd.

_»_ \ > _-(_ ... A # COMMNR. OF CENTRAL EXCISE, ALLAHABAD _v._ # MIS. SOMAIY A ORGANICS (INDIA) LTD. NOVEMBER 12, 2007 B [DR. ARIJIT PASAYAT AND D.K .• JAIN,JJ.] t "" _Central Excise Act, 1944-s. 4 (1) (b)-EthylAlcohol Denatured (SDS)-Used for manufacture of specified products by the other_ c _[manufacturing unit ] of[the ][assessee-Excise ][duty ][on-Payment ] of[on ] costing basis in terms of r. 6 (b)(i) of Valuation Rules, by the assesseeRevenue demanding on the basis of 6 (b)(i) at the highest price at which SDS was sold by other manufacturers on a particular dateCEGAT_setting aside the levy holding that adoption of highest price_ D _[not ][correct-On ][appeal, held: CEGATwas required to determine the ] appropriate price-Since it was not determined, matter remitted for fresh consideration-Central Excise Valuation Rules, 1975-r. 6 (b) (i) and (ii)._ Respondent-assessee was having two manufacturing units. E One was distillery where they used to manufacture Ethyl AlcoholDenatured (SDS). The stock of SDS was transferred to their other unit i.e. a chemical factory for manufacture of specified chemicals. They were paying excise duty at the time of transferring the stock ofSDS to their other unit and MODVAT credit of the duty paid F was availed in the other unit (chemical factory). The value had been arrived at by the assessee for the purpose of Section 4 (1) (b) of Central Excise Act, 1944, on costing basis in terms of Rule 6 (b) (ii) of Central Excise Valuation Rules, ·1975 during the relevant period. Show Cause Notice was issued to the assessee, alleging G that assessable value was to be fixed in terms of Rule 6 (b) (i) and not under 6 (b) (ii) and it was proposed to fix the assessable value on the basis of the highest price at which SDS was sold by other manufacturers on particular dates. Differential duty was demanded. Commissioner of Central Excise confirmed the demand. 1068 H "' --( )... .. ,, _..>_ ~- F -\ COMMNR. OF CENTRAL EXCISE, ALLAHABAD _v. MIS._ 1069 SOMAIY A ORGANICS (INDIA) LTD . Appeal of the assessee was allowed by Customs, Excise and Gold[A ] (Control) Appellate tribunal (CEGAT) holding that the Department adopting the highest price was unsustainable in law. Hence the present appeal. Partly allowing the appeal and remitting the matter, the Court B _-+_ HELD: CEGAT appears to have taken the stand that one day high price cannot be applied even though Rule 6(b) (i) may apply. CEGAT bad come to the conclusion that no principle has been formulated and expressly no reason has been given. The stress is on nearly ascertainable equivalent as the expression 'ascertainable' .c means ascertained. There may be different rates for .different periods. There may be cases where even for the periods the highest and the average prices may be taken. CEGAT has not determined what would be the appropriate price. By merely discarding the price fixed by the assessing authority the issue does not get solved. What D was required to be seen is as to whether there was any ascertainable price and on what basis it can be ascertained. Even for a period, th~ highest or the average can be taken. That has to be done on the basis of the judicial discretion of the assessing officer which can also be decided by the appellate authority by finding out whether there is E any rationale in the fixation done. In that view of the matter, the approach of the CEGAT is not legally tenable. [Paras 9 and 10] [1073-F, G; 1074-A, C, D, E] ).. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4975 of 2002. From the final Order No. 71/2002-A dated 20.2.2002 of The Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi in Appeal No. E/467/2001-A. Nagender Rai, Aruna Gupta and B.K. Prasad for the Appellant. G V. Lakshmi Kumaran, AR. Madhav Rao, Tarun Jain, Monish Panda and Rajesh Kumar for the Respondent. The Judgment of the Court was delivered by H 1070 SUPREME COURT REPORTS [2007] 11 S.C.R. A **DR. ARIJIT** PASAYAT, **J.** 1. Challenge in this appeal is to the judgment of the Customs, Excise, and Gold (Control) Appellate Tribunal, New Delhi (in short the 'CEGAT') allowing the appeal filed by the respondents (hereinafter referred to as the 'assessee'). Before the CEGAT challenge was to the order passed by the Commissioner of Central Excise, B Allahabad. 2. Factual background in a nutshell is as follows: The respondents are having two manufacturing units- a distillery at Captainganj and a chemical factory at Barabanki. In their distillery the C respondents manufacture Ethyl Alcohol-Denatured (for short 'SDS'). The stock of SDS is transferred to their Barabanki unit where it is wholly consumed in the manufacture of specified chemicals. Under the order of the adjudicating authority the differential duty demand of Rs.14,89,61,104.00 was confirmed on the entire quantity of SDS D transferred from Captainganj unit to Barabanki unit during the period from April 1994 to December 1999. Aggrieved by the above, the assessee filed the appeal before CEGA T. Show cause notices were issued for different periods as follows: - E .S.No. Show cause notice No. - Dt. Period Differential du!)'. 1. C.No.VI(MP) Demand(l2) ADJ April, 94 Rs.14,59,49, 158.65 -1 i6/98/3149 dt.26.3.99 to Feb., 99 - -SCN No.12/Commnr.-AUD- F - 99/26.3.99 -1 2. C.No.20 CE/Somaiya/SBZ/99 March, 99 to Rs.25,12,528/- _1550_ dt. 31.8.99 July, 99 3. C.No.20-CE/Somaiya/SBZ/61 August, 99 to Rs.4,99,417/dt. 18.1.2000 Dec, 99 G 3. Excise duty was levied on SDS for industrial consumption w.e.f. 1.3 .94. The respondents were paying excise duty at the time of transferring the stock of SDS to their Barabanki unit and modvat credit of the duty paid was availed in the Barabanki unit. The assessable value had been ~ H ## COMMNR.OFCENTRALEXCISE,ALLAHABADv. MIS. 1071 SOMAIYAORGANICS(INDIA)LTD. [PASAYAT,J.] arrived at by the respondents on costing basis in terms of Rule 6(b)(ii) of A the Central Excise Valuation Rules, 1975 (in short 'Valuation Rules') during the relevant period. In the show cause notice, it was alleged that the assessable value has to be fixed in tenns of Rule 6(b)(i) and not under Rule 6(b )(ii). It was then proposed to fix the assessable value on the basis of the price at which SDS was sold by the following manufacturers for B different years:- ~' --<., |the Central Excise Valuation Rules, 1975 (in short 'Valuation Rules') duringCentral Excise Valuation Rules, 1975 (in short 'Valuation Rules') duringExcise Valuation Rules, 1975 (in short 'Valuation Rules') duringValuation Rules, 1975 (in short 'Valuation Rules') duringRules, 1975 (in short 'Valuation Rules') during1975 (in short 'Valuation Rules') during(in short 'Valuation Rules') duringshort 'Valuation Rules') during'Valuation Rules') duringRules') duringduring<br>the relevant period. In the show cause notice,the show cause notice,show cause notice,it was alleged that thewas alleged that thealleged that thethe<br>assessable value has to be fixed in tenns of Rule 6(b)(i) and not undervalue has to be fixed in tenns of Rule 6(b)(i) and not underhas to be fixed in tenns of Rule 6(b)(i) and not underto be fixed in tenns of Rule 6(b)(i) and not underbe fixed in tenns of Rule 6(b)(i) and not underfixed in tenns of Rule 6(b)(i) and not underin tenns of Rule 6(b)(i) and not undertenns of Rule 6(b)(i) and not underof Rule 6(b)(i) and not underRule 6(b)(i) and not under6(b)(i) and not underand not undernot underunder<br>Rule 6(b )(ii). It was then proposed to fix the assessable value on the basis6(b )(ii). It was then proposed to fix the assessable value on the basis)(ii). It was then proposed to fix the assessable value on the basisIt was then proposed to fix the assessable value on the basiswas then proposed to fix the assessable value on the basisthen proposed to fix the assessable value on the basisproposed to fix the assessable value on the basisto fix the assessable value on the basisfix the assessable value on the basisthe assessable value on the basisassessable value on the basisvalue on the basison the basisthe basisbasis<br>of the price at which SDS was sold by the following manufacturers forthe price at which SDS was sold by the following manufacturers forprice at which SDS was sold by the following manufacturers forat which SDS was sold by the following manufacturers forwhich SDS was sold by the following manufacturers forSDS was sold by the following manufacturers forwas sold by the following manufacturers forsold by the following manufacturers forby the following manufacturers forthe following manufacturers forfollowing manufacturers formanufacturers forfor<br>different years:-years:-|B| |---|---| |Period<br>Othermanufacturers<br>Applicabledate<br>Value|| |Messrs<br>perltr./Bl.|| |1994-95<br>SarayaDistillery<br>13.6.1994<br>Rs.20.00|c| |Gorakhpur|| |1995-96<br>-do-<br>20.6.1995<br>Rs.12.90|| |1996-97<br>-do-<br>10.3.1997<br>Rs.14.00|| |i997-98<br>-do-<br>20.11.1997<br>Rs.14.75|D| |4/98to|| |2/99<br>KisanSahkariChini|| |Mills,Ghosi<br>1.12.1998<br>Rs.15.50|| |_3199_to|E| |7/99<br>-do-<br>20.3.1999<br>Rs.14.25|| |8/99to|| |12/99<br>-do-<br>_10199_<br>Rs.14.25|| |4.Thereafter,bya corrigendumdated14.1.2000salepricefixed<br>atRs.14.25wascorrectedasRs.15/-.Onthisbasis,thedifferentialduty|F| |demand,asmentioned,wasmade.Therespondents contended before|| |theadjudicatingauthoritythattheentirequantityofSDSmanufacturedat|| |its distilleryisbeing consumedatBarabankiunitformanufactureof|| |specified articles. Molasses whichisthe major raw materialfor<br>manufactureofSDSwasobtainedbytherespondentsatcontrolledrate|G| |intenns oftheprovisionofU.P.MolassesControlOrder,1964butother|| |distilleriesmanufacturingEthylAlcoholfornon-specifiedpurposeshadto|| |purchase molassesatmarketdetem1inedprices.Therefore,therecould|| |benocomparison between the costofproductionofSDSbythe|H| H 1072 SUPREME COURT REPORTS [2007] 11 S.C.R. -'\' - A respondents and Mis. Saraiya Distillery, one of the manufacturers whose selling price had been relied upon in the show cause notice. Respondents determined the assessable value of SOS for the purpose of Section 4(1 )(b) of the Central Excise Act, 1944 (in short the 'Act') on costing basis as it had no sale of SOS. The cost fixation was undertaken annually on the - B basis of the previous year's Balance Sheet for determining the value and discharge duty since the Balance Sheets are finalised only in the month of September for the year ending on 31st March. On receipt of the finalised Balance Sheet in September, the value determined on the basis of the earlier Balance Sheet was being revised. If the revision was upward, - c differential duty was discharged on the increased value. The price declarations filed effective from 1.3.1994 along with the questionnaire was approved by the Central Excise authorities. With effect from 1.4.1994, when Rule 173C of the Central Excise Rules, 1944 (in short the 'Rules') was amended the respondents filed the declarations under Rule 173C also. D 5. The actual value on which the respondents cleared SOS during the period in question is as under: 1994-95 Rs.5.85 per ltr. 1995-96 Rs.5.50 per ltr. E 1996-97 Rs.5.50 per ltr. 4/97 to 11/97 Rs.8.30 per ltr. 12/97 to 11/97 Rs.12.41 per ltr. F 4/98 to _3199_ Rs.13.52 per ltr. _4199_ to 7/99 Rs.17.43 per ltr. - 8/99 to 12/99 Rs.17.43 per ltr. G 6. The respondents further contended that proposal in the show cause notice to fix the assessable value on the basis of the highest price at which one of the manufacturers sold SOS on particular date is totally illegal. It was further contended that for the period from April 1999 to December 1999 the respondents had paid on a higher assessable value H than what was proposed in the show cause notice. l11erefore, there is no >-- ~ """"' -[• ] COMMNR. OF CENTRAL EXCISE, ALLAHABAD _v. MIS._ 1073 SOMAIYA ORGANICS (INDIA) LTD. [PASA YAT, J.] basis for demanding differential duty during this period. The adjudicating A authority did not accept the contentions raised by the respondents. The Commissioner of Central Excise, therefore, confirmed the differential duty demand of Rs. 14,89,61,104/- and imposed penalty amount equal to' the duty demand by invoking Section 1 lAC B 7. Considering the rival submissions CEGA T held as follows: "There is no reason given by the Revenue as to on what basis the highest price of particular day in each year was taken into consideration for the purpose of fixing the assessable value in the case of the SDS cleared by the appellant. Choice of the highest c price on a particular day will not satisfy the requirement of nearest ascertainable equivalent. Section 4(1 )(b) provides that "where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may D be prescribed". Therefore, even when clause (i) of sub-rule (b) of Rule 6 is applied, the endeavour must be to determine nearest ascertainable equivalent. We have no hesitation to hold that such an exercise has not been done in the present case. The department adopting the highest price is unsustainable in law". E 8. It is to be noted that while revenue relies on Rule 6(b)(i) of Valuation Rules the assessee relies on Rule 6(b )(ii). Section 4(1 )(a) of the Act is applicable when the buyer is not a related person. Section 4( 1 )(b)) relates to a case where the price is not ascertainable. 9. Stand of the appellant is that comparable price is available because[F ] there were two units at Captainganj and Barabanki. The assessee tried to make a distinction by submitting that the product was captively consumed. CEGA T appears to have taken the stand that one day high price cannot be applied even though Rule 6(b )(i) may apply. There is no G dispute relating to the period from April 1999 to December 1999. For the period from April 1994 to February, 1999 the same was covered by a show cause notice dated 26.3.1999 and for the period March 1999 it is covered by a show cause notice dated 31.8.1999. CEGAT had come to the conclusion that no principle has been fommlated and expressly no H 1074 SUPREME COURT REPORTS [2007] 11 S.C.R. A reason has been given. The stress is on nearly ascertainable equivalent as the expression 'ascertainable' means ascertained. There may be different rates for different periods. There may be cases where even for the periods the highest and the average prices may be taken. The proviso to Rule 6 (b) (i) is relevant: B "on the value of the comparable goods produced or manufactured by the assessee or by any other assessee: Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him c reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods" 10. It appears that the CEGAT has not determined what would be the appropriate price. By merely discarding the price fixed by the assessing D authority the issue does not get solved. What was required to be seen is as to whether there was any ascertainable price and on what basis it can be ascertained. Even for a period the highest or the average can be taken. That has to be done on the basis of the judicial discretion of the assessing officer which can also be decided by the appellate authority by finding E out whether there is any rationale in the fixation done. In that view of the matter, the approach of the CEGAT is not legally tenable. We set aside the order ofCEGAT and remit to CESTAT, which has come in place of CEGAT, for fresh consideration. --4, F 11. The appeal is allowed to the aforesaid extent. There will be no order as to costs. K.K.T. Appeal Partly allowed. **.** ..