Cce, Chennai-Ii vs M/S. Sundaram Dynacast Ltd

(Arising out of Order-in-Appeal No. 77/2003 (M-II) dated 06.08.2003, passed by the Commissioner of Central Excise (Appeals), Chennai).

CCE, Chennai-II : Appellant

Vs.

M/s. Sundaram Dynacast Ltd. : Respondent

Appearance

Ms. Indira Sisupal, AC (AR) For the applicant

Shri M.Kannan, Adv., For the respondent

CORAM

Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member

FINAL ORDER No. 41137 / 2015

Date of Hearing/Decision: 02.09.2015

Per: R. Periasami

The present Revenue appeal is against the OIA dated 6.8.2003, passed by the Commissioner (Appeals) and this Tribunal in final order No. 1666/ 2009 dated 10.11.2009 dismissed the revenue appeal.

Consequent to the Honble High Court of Madras Order dated 12.03.2015 in CMA No. 1633/2010, filed by the Revenue, the appeal is taken up for denovo consideration, wherein the Tribunals final order was set aside accordingly. As the Honble High Court of Madras discussed the history of the case from SCN to final stage, it is appropriate we reproduce the same as under:-

This Civil Miscellaneous Appeal filed under Section 35G of the Central Excise Act, 1944 challenging the order dated 10-11-2009 made in Final Order No. 1666 of 2009 on the file of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), South Zonal Bench, Chennai was admitted by this Court on the following substantial questions of law :

1. In the facts and circumstances of the case, whether the 2nd respondent can accept the incorrect statement given by the ld. Counsel?

2. Why the value as per Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 should not be considered for the valuation of the impugned goods for demanding duty?

2.?The brief facts of the case are as follows :

The first respondent/assessee is engaged in the business of manufacturing excisable goods falling under Chapters 79, 84, 85, 90, 91 and 96 of the CETA, 1985. On verification of documents maintained by the assessee during the period from 1994-95 to 1997-98, more particularly debit notes raised by the assessee, it was found that amounts realised through debit notes were relevant to preparatory work charges including design, drawings and development charges for dies and tools that were used in the manufacture of various excisable goods manufactured and supplied by them. Alleging that the assessee had not declared the correct assessable value, show cause notice was issued raising the following allegations :

Further verification conducted revealed that M/s. SDL are realizing certain amounts towards manufacture and supply of excisable goods as per purchase orders issued by various customers from time to time. Over and above such purchase orders, M/s. SDL have also entered into agreements with various customers for compensation against design, drawing and development charges of dies and tools used for goods manufactured and supplied by them. Certain such agreements also relates to design, drawing and development charges of dies and tools required for manufacture and supply of goods contracted between them. A cross verification of the invoices raised by M/s. SDL along with relevant purchase orders shows that M/s. SDL have discharged duty liability only on the cost of material contracted, without including the design, drawing and development charges realized from the customers.

Whereas it appears that design, drawing and development activities are directly relevant to the manufacture and supply of goods. Therefore, any charge representing design, drawing, development of product shall form part of the manufacturing cost and manufacturing profit of a product. The said activities are related directly to the manufacture and supply of goods. Hence it appears that the money value of such activities should form part and parcel of the value of the goods manufactured and supplied. Similarly, the financial compensation for design, drawing, development of tools and dies extended by the customer for manufacture and supply of goods, appears to have a direct influence on the contracted price entered into between M/s. SDL and their customers.

In view of the above facts, it appears that the prices adopted for the purpose of levy of excise duty by SDL are not the sole consideration and hence the base price cannot be determined under Section 4(1)(a) of Central Excise Act, 1944. Thus the price of excisable goods for the purpose of levy of excise has to be ascertained under Section 4(l)(b) read with Rule 5 of Central Excise (Valuation) Rules, 1975. Therefore, an amount of Rs. 63,77,776/- realised towards design, drawing and development charges are required to be included in the price of the goods for the purpose of determining assessable value. The goods under reference falling under various chapters during the relevant period are liable to duty at the rate of 15% adv. Hence the differential duty payable on the additional amount realised by M/s. SDL works to be BED Rs. 9,56,666.40.

Consequently, the show cause notice proposed to demand duty as follows :

Now. therefore, M/s. SDL are hereby called upon to show cause to the Additional Commissioner of Central Excise (P&V), Chennai-II Commissionerate No. 473, M.H.U. Complex, Nandhanam, Chennai-35 within 30 days from the date of receipt of this show cause notice as to why

(1) the differential duty amount of Rs. 9,56,666.40 detailed in Annexure A to this notice should not be demanded under proviso to Section 11A(1) of Central Excise Act, 1944;

(2) a penalty should not be imposed under Section 11AC and under Rule 173Q of Central Excise Rules, 1944;

(3) Interest on delayed payment of duty should not be demanded under section 11AB of Central Excise Act, 1944.

3.?Thereafter, the case was adjudicated by the jurisdictional Assistant Commissioner, who held that the Chartered Engineers certificate filed by the first respondent/assessee could not be accepted in view of certain discrepancy. He further held that since the assessee could not establish the pro-rata amortization cost per piece through a legally sustainable manner, the entire cost of moulds has to be taken for the purpose of demanding duty. The relevant portion of the order of the Adjudicating Authority reads as follows :

In the circumstances, I hold the view that since M/s. SDL could not establish the pro-rata amortization cost per piece through a legally sustainable manner, the entire cost of moulds are required to be amortized.

4.?Accordingly, the Adjudicating Authority confirmed the demand together with interest and penalty.

5.?Aggrieved by the same, the assessee preferred an appeal before the Commissioner (Appeals), who came to hold that the dispute between the Department and the assessee centers around the Chartered Engineers certificate and even if the Chartered Engineers certificate has to be rejected, there should be other information available on record. He further held that if there were some discrepancy in the Chartered Engineers certificate, the same could not be rejected in its entirety. He placed reliance on the decision of the Gujarat High Court in the case of Mangal Textile Mills Pvt. Ltd. v. Union of India [2004 (171) E.L.T. 160 (Guj.)] and came to hold that the adjudication proceeds on the basis to demand duty on the moulds without taking into consideration the amortization of cost of moulds. For better clarity, the relevant portion of the order of the Commissioner (Appeals) reads as follows :

Further I agree that there is no possibility to demand duty on moulds, when the issue is regarding amortization of cost of moulds and inclusion of such amortization cost on the value of components. When the proceedings is for demanding duty on components, the order demands duty on the value of moulds. This totally unacceptable. Therefore, the impugned order is set aside. However, the department may again proceed against the appellant, if it is found that they have not correctly amortized the value of moulds and included such amortized cost on the components cleared during the disputed period.

6.?Not satisfied with the order of the Commissioner (Appeals), the Department went on appeal before the Tribunal. The Tribunal, took note of the submission of the learned counsel appeared for the assessee held as follows :

3.?Shri M. Kannan, ld. Counsel appearing for the respondents states that the respondents are not challenging the inclusion of amortised cost of mould in the value of the components and further states that the actual amortised cost has been so included for the relevant period.

4.?In view of the fact that amortized cost of the mould has been included in the value of the components for the relevant period as stated by the ld. Counsel for the respondents, we see no reason to interfere with the impugned order passed by the lower appellate authority. Consequently, the departments appeal is dismissed. The cross objection filed by the respondent is also disposed off.

7.?As against the above said order of the Tribunal, the present appeal has been filed by the Department.

8.?Heard learned Standing Counsel appearing for the Revenue and perused the materials placed before this Court.

9.?We find that this appeal was admitted by this Court on two issues. The primary issue that arise for consideration is whether the Tribunal could pass an order based on the statement made by the learned counsel for the respondent/assessee that the actual amortised cost has been included in the value of the components during the relevant period, which is not supported by any material. It is seen that the Tribunal has merely recorded the statement made by the learned counsel for the assessee and dismissed the appeal filed by the Department. In this view of the matter, the findings of the Tribunal appears to be based on conjectures and surmises. Even though the Tribunal has accepted the findings of the Commissioner (Appeals), proceeded on a wrong premise and recorded a new and undecided fact at the instance of the counsel for the assessee to dismiss the appeal filed by the Department.

10.?We, therefore, of the view that the order passed by the Tribunal is not in consonance with the proceedings in issue or material available on record. Accordingly, this appeal deserves to be remanded back to the Tribunal for fresh consideration.

Accordingly the appeal was restored to its original number and taken up for denovo consideration.

2. Heard Both sides.

3. The Ld. AR reiterates the grounds of appeal filed by the Revenue and submits that the Commissioner (Appeals) allowed the assessees appeal entirely on different grounds that the department has demanded the duly on Moulds. He relied on the adjudication order dated 07.10.2012, where the adjudicating authority has demanded differential duty on the components. The appellants received various amounts from their customers through debit notes and the same was not disclosed to the department. The amounts received by the respondent varies from design, drawing and development charges for dies and tools that were used in the manufacture of various excisable goods. Whereas the Commissioner (Appeals) has set aside the order on the ground that the appellants were already amortized the value of moulds and included such amortized cost on the components cleared during the disputed period.

3. On the other hand, the Ld. Advocate submits that as per the Annexure A to the SCN, an amount of Rs.63,77,776/- received from various customers for the period 1995-98 relates to design, drawing and development charges for dies and tools. He further submits that before issue of SCN they have paid the differential duty on the amortized value. He submits that a sum of Rs. 1,24,509/- was paid for the period April, 1995 to June, 1998 vide TR-6 challan dated 21.06.1998. He further submits a copy of the affidavit of Shri K. Seethapathy, Chartered Engineer, enclosing the certificate of value of captive consumption of moulds and dies used in the manufacture of final products. He further submits that they have also paid differential duty for the subsequent period July, 1998 to March,2001 and 2001-02. Duty has been demanded for the total components manufactured during the period 1995-2002, which is supported by the Chartered Engineers certificate. The adjudicating authority has only rejected the certificate as it is undated. In support of that, the Ld. Advocate has filed affidavit of Chartered Engineer regarding authentication of the certificate He relied on Boards Circular No. 170/4/96 dated 23.06.1996 and on the following decisions in support of his contentions:

1. Kirloskar Ferrous Indus. Ltd. Vs. CCE, Belgaum 2005 (189) ELT 474 (Tri.-Bang.)

2. CCE, Madras Vs. Shardlow India Ltd.

1999(110) ELT 772 (Tribunal)

4. We have carefully considered the submission by both the sides and the directions of the Honble High Court of Madras Order dated 12.03.2015. Revenue was in appeal against the impugned order on the ground that the adjudicating authority has already amortized the value with the cost of moulds and then only demanded differential duty on the components by adding the amount received through debit notes. Revenue also contended that duty was not demanded on the moulds. On perusal of the annexure to the SCN, we find that an amount of Rs. 63,77,776/- was received from various manufacturers pertains towards design, drawing and development charges for dies and tools that are used in the manufacture of excisable goods manufactured and supplied by them. The original demand was made on the ground that this amount was not included in the cost of the components. We find that the adjudicating authority in his order has not considered the chartered engineers certificate on the ground that the certificate was undated. On perusal of the chartered engineers affidavit dated 06.12.2002, we find that he affirmed the certificate originally issued before the adjudicating authority.

On perusal of the affidavit certificate and the work sheet, we find that the entire amount received from various customers as per annexure to SCN are from various manufacturers for manufacture of components relates to development of dies and tools. The appellants paid the differential duty of Rs. 1,24,509/- dated 21.06.1998 and Rs. 1,73,716/- dated 02.04.2001 and Rs. 11,414/- for the period 1998 -2001 and an amount of Rs. 18,728/- for the period 2001-2002. The entire amount of Rs.63,77.776/- of which the duty demand relates to designing of dies and tools charges on which the appellants have paid the differential duty for the year 1998-2001 before the issue of first SCN. We do not find any evidence and moreover it is clearly certified by the chartered engineer in his affidavit dated 06.12.2002 confirmed the number of components that could be manufactured from the moulds and dies. We hold that the respondents are liable for payment of differential duty of Rs.1,24,509/- on the components on the amortized value for the year April 95 to June 1998. Since the respondents already paid the differential amount, the same is liable for appropriation.

The Order in Appeal is set aside to the extent of dropping of demand of Rs.1,24,509/-. Since, the respondents already paid the differential duty before issue of the SCN, the penalty is waived. Accordingly, the revenue appeal is partly allowed.

(Order dictated and pronounced in the open Court)

(P.K. CHOUDHARY) (R. PERIASAMI) JUDICIAL MEMBER TECHNICAL MEMBER

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