Aurangabad Electricals (P) Ltd. vs CCE & Customs

Aurangabad Electricals (P) Ltd. ......Appellant

Versus

The Commissioner of Central Excise and Customs, Aurangabad ......Respondent

WITH

CIVIL APPEAL NOS.2420 OF 2006, 2693 OF 2006 AND 2691 OF 2006

JUDGMENT

H.L. Dattu, J.

1) In this batch of civil appeals, the appellants have challenged the

common order passed by the Customs, Excise and Service Tax

Appellate Tribunal, West Zonal Bench at Mumbai in Appeal

No.A/2287-2290/WZB/MUM/2005/C-III/EB dated 20.12.2005.

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2) By consent of the learned counsel, we have taken Civil Appeal

No.2694 of 2006 as the lead case.

3) M/s. Aurangabad Electricals Ltd. (for short `M/s. Aurangabad

EL') are appellants in this civil appeal. They are engaged in the

manufacture of Motor Vehicle Parts namely `Magneto

Assembly' in their factory at Aurangabad. For manufacture of

their final product, viz. Magneto Assembly, they purchase some

of the inputs, namely, `Pick-up Coil', com bush, charging coil

etc. from M/s. Bajaj Auto Ltd. (for short `M/s. Bajaj') on which

appropriate duty is paid by M/s. Bajaj. The appellants had

submitted price declarations applicable to Magneto Assembly,

which were accepted by the department.

4) The main issue involved in these appeals is the valuation of

Magneto Assemblies cleared by the appellants - M/s.

Aurangabad EL to M/s. Bajaj and consequent short payment of

duty thereon on account of not taking into account the total

landed cost of the inputs supplied by M/s. Bajaj.

5) The Commissioner, Central Excise and Customs, Aurangabad

(for short `the Commissioner'), issued a show cause notice

dated 27.04.2001, inter-alia alleging that the appellants have

2 undervalued the Magneto Assemblies supplied to M/s. Bajaj

during the period from April 1996 to December 2000.

Accordingly, the appellant, M/s. Bajaj, Mr. Anil Mali, CEO of

M/s. Aurangabad EL and Mr. Ranjit Gupta, Vice-President

(Materials) of M/s. Bajaj were called upon to show cause as to

why the differential duty specified in the notice should not be

demanded and recovered under Section 11A of the Central

Excise Act, 1944 (for short `the Act') and why interest and

penalty should not be imposed under Sections 11AB and 11AC

of the Act. The show cause notice was also issued to Mr. Anil

Mali, Chief Executive Officer of the appellant, M/s. Bajaj and

Mr. Ranjit Gupta of M/s Bajaj were asked to show cause as to

why penalty should not be imposed under Rule 209 A of the

Central Excise Rules, 1944 (for short `the Rules').

6) The appellants had replied the show cause notice, inter-alia,

contending that they have not undervalued their final products

namely, Magneto Assembly, since the same are cleared in

wholesale trade in accordance with proviso (i) to Section

4(1)(a) of the Act. They had also contended that they had

cleared the Magneto Assemblies in accordance with approved

3 price declarations and finalization of RT 12 return assessment.

Therefore, show cause notice and the demands raised were

barred by limitation under Section 11A(1) of the Act. The co-

noticee, more or less on the same lines as the appellants, had

objected to the show cause notice and had further submitted

that the department has not produced any proof that the co-

noticee was anyway connected with the alleged under-valuation

of inputs which were cleared by M/s. Bajaj on payment of

appropriate duty and it was also contended that the entire notice

was based on assumption and presumption and, therefore, it

could not be established that the co-noticee was concerned with

the exercisable goods which he knew or had reason to believe

were liable for confiscation. It was further contended that since

there was no undervaluation of excisable goods, no penalty

could be imposed by invoking Rule 209A of the Rules.

7) After adjudication, the Adjudicating Commissioner passed an

Order-in-Original No.04/CEX/2002 dated 25.01.2002, inter-alia

holding that the inputs supplied to appellants by M/s. Bajaj

were under-valued, and consequently, Magneto Assemblies

supplied to M/s. Bajaj have been under-valued leading to

4 evasion of duty. It was also held that M/s. Bajaj was incurring

expenditure on account of freight/insurance, loading/unloading

and handling charges etc. which, along with profit margins, had

not been included in the landed cost of the inputs supplied to

appellants. Further, M/s. Bajaj were supplying

drawings/designs/specifications free of cost to appellants and

upto 20% of the production cost of goods manufactured which

were sold back to M/s. Bajaj, was being incurred by M/s. Bajaj.

The Adjudicating Commissioner, accordingly, confirmed the

differential duty demand of `84,27,889/- under Section 11A(2)

of the Act read with Rule 9(2) of the Rules, and penalty of

`69,72,104/- under Section 11AC of the Act. The Adjudicating

Commissioner also imposed a penalty of `5,00,000/- on M/s.

Bajaj, as well as personal penalty of `50,000/- on Mr.Ranjit

Gupta, Vice-President of M/s. Bajaj and `25,000/- on Mr. A.R.

Mali, Chief Executive Officer of M/s. Aurangabad EL, under

Rule 209A of the Rules. The Adjudicating Commissioner also

directed the Deputy Commissioner, Central Excise,

Aurangabad II division to quantify the interest payable under

Section 11AB of the Act and issue appropriate demand notice.

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8) The appellants and other co-noticees, being aggrieved by the

aforesaid order, preferred appeals before the Customs, Excise

and Gold (Control) Appellate Tribunal (for short `the Tribunal')

under Section 35B of the Act. The Tribunal, by its order dated

20.12.2005 has remanded the matter to the Adjudicating

Commissioner for re-computation of excise duty to be levied in

the light of the decision of this Court in the case of CCE, Pune

v. Dai Ichi Karkaria Ltd., 1999 (84) ECR 4 (SC). In so far as

the penalties imposed on the appellants, the Tribunal being of

the view that the same is excessive, has reduced the penalty

from `69,72,104/- to `10 lakhs, and in so far as the penalties

imposed on M/s. Bajaj and the other two appellants, the

Tribunal has confirmed the same.

9) We have heard Mr. Joseph Vellapally, learned senior counsel

for the appellants and Mr. V. Shekhar, learned senior counsel

for the Revenue. We do not propose to notice the submissions

made by the learned senior counsel in view of the final order

that we intend to pass in these appeals.

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10) The main allegation against the appellants in the show cause

notice issued was that the appellants are the manufacturers of

Magneto Assemblies and are receiving inputs from M/s. Bajaj,

which is the primary consumer of their goods at under-valued

landed cost by not including the element of landed cost of

inputs incurred on account of Sales Tax, Octroi, Freight,

Insurance, loading, unloading and handling charges. The

appellants are further undervaluing the clearances effected by

them to M/s. Bajaj since the appellants are already receiving the

price compensation in terms of inputs at reduced landed cost

and thereby they are aiding each other for mutual business

interest so that the production cost by both of them kept at

minimum and central excise duty is discharged at a lower value.

11) The learned senior counsel for the assessee would submit that

the adjudicating commissioner and the Tribunal has non-suited

the appellants mainly on the ground that the appellants and M/s.

Bajaj have neither supplied the details of final product and the

landed cost of the material supplied during investigation nor in

their reply to the show cause notice. It is also observed that the

appellants did not produce any material/data as to actual

7 expenses incurred on account of freight, loading, unloading

charges, profit margin etc. The learned senior counsel would

submit that the appellants could have supported their defence

pleaded in their objections filed to the show cause notice by

producing relevant documents including the certificate issued

by its chartered accountant but due to unavoidable and

unforeseen circumstances, they could not produce the same. It

is submitted that this lapse should not be put against the

appellants and non-suit them only on this ground. In support of

his submission, he would draw our attention to the Certificate

issued by the Chartered Accountant in respect of valuation of

normal price of Magneto Assemblies manufactured and sold by

M/s. Aurangabad EL to M/s Bajaj in wholesale, which was in

support of costing. The said Certificate issued by Mukund

Mankar and Co., Chartered Accountant, points out freight

charges incurred by M/s. Aurangabad EL for getting material

from Bajaj to M/s. Aurangabad EL, as well as loading and

unloading charges, consumables overheads and profit. If such

payment was made, then the whole premises on which show

cause notice issued pales into insignificance. The appellant had

8 produced the Certificate along with the other papers filed before

the Tribunal, may be after the appeals were heard and reserved

for judgment. In the normal course, we would not have

accepted either the submission of the learned senior counsel or

we would have taken note of the Certificate. Keeping in view

the well settled principles laid down by this Court that

technicalities should not defeat rendering of complete justice to

a litigant, we think it appropriate to remand the matter to the

Tribunal to verify and consider whether the Certificate which is

already placed on record by the appellant, would assist them in

support of their defence.

12) In view of the above, we allow these appeals and set aside the

order passed by the Tribunal and remand the matter back to the

Tribunal to look into the certificate issued by Mukund Mankar

and Co., Chartered Accountant and to determine if M/s.

Aurangabad EL had actually incurred the freight charges,

loading and unloading charges, consumable overheads profit

etc. and whether in the light of this, any of the orders made by

the Adjudicating Authority would stand. Since we are

remanding the matter for fresh disposal, we also permit both the

9 parties to urge such contentions which are available to them,

including the submissions made before us. In the facts and

circumstances of the case, parties are directed to bear their own

costs.

.................................J. [ D.K. JAIN ]

.................................J. [ H.L. DATTU ] New Delhi, November 12, 2010.

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