Commissioner Of Central Excise,Pune vs Hindustan National Glass & Inds. Ltd.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1829 OF 2008

Commissioner of Central Excise, Appellant(s) Pune

Versus

Hindustan National Glass and Respondent(s) Industries Limited

O R D E R

Dipak Misra, J.

A show cause notice under F. No. Prev/CEX/AEI/OBL/

141/99/797 dated 16th August, 2002, was issued to M/s. Owens

Brockway (I) Pvt. Ltd., the predecessor-company of the

respondent which is presently known as Hindustan National

Glass and Industries Limited, by the Commissioner of Central

Excise, Pune-I, alleging that the manufacturing company was

not adding the additional consideration received from the

customers in the form of advance and, therefore, the

notional interest accrued thereon is to be added to the sale Signature Not Verified price, for such non-addition had resulted in depression of Digitally signed by Sanjay Kumar Date: 2016.01.21 17:07:02 IST Reason: the assessable value of the goods, namely, the bottles

manufactured by the respondent-assessee. CA 1829/2008 2

2. In the show cause notice, it was mentioned that the

assessee had short paid the duty on its products, that is,

printed glass bottles, by under-valuing the same at the time

of clearance from its factory inasmuch as it did not add

“additional consideration” received from M/s. Coca Cola

India and M/s. Pepsico India Holdings Pvt. Ltd. The show

cause notice referred to the statement of the Manager

(Sales) of the Company from which it was discernible that

the respondent-assessee had received 90% advance from M/s.

Coca Cola India and 100% advance from M/s. Pepsico India

Holdings Pvt. Ltd. for the goods and it was giving 3-4%

discount to the said Companies.

3. After the reply to the show cause was received, the

adjudicating authority passed an order on 28th November,

2003, making a demand of Rs. 33,91,934,00/- under Section

11A(1) of the Central Excise Act, 1944 (for short “the Act”)

being the duty payable on the additional consideration

received by the assessee from the customers in the form of

notional interest accrued on advance payments and also

imposed penalty for the same amount under Section 11AC of

the Act. Apart from that, the adjudicating authority

confirmed certain other demands.

4. Being grieved by the aforesaid order of the

adjudicating authority, the respondent-assessee preferred an CA 1829/2008 3

appeal before the Customs, Excise and Service Tax Appellate

Tribunal, West Zonal Bench, Mumbai (for short, 'the

tribunal'). Initially, the matter was heard by two Members

consisting of Member (Judicial) and Member (Technical). The

Member (Technical) came to hold that the revenue had not

been able to discharge the onus by adducing cogent material

evidence that the advances obtained from a buyer had really

been instrumental in depression of the price. Learned

Member further opined that there was no nexus of interest

with the price and hence, the demand was not acceptable and

consequently, no penalty could be levied.

5. The Member (Judicial) adverted to the order passed

by the Commissioner wherein the statement of the Manager

(Sales) had been adumbrated in detail, referred to the other

documents that had been put-forth by the revenue before the

adjudicating authority and in course of discussion adverted

to the principle stated in Commissioner of Central Excise,

New Delhi vs. Hero Honda Motors Ltd.1 and opined as

follows:

“In view of the above decision, I am of the opinion that the matter needs to be remanded to the Commissioner for fresh examination in the light of the observation made by the Hon'ble Supreme Court in the case of Hero Honda Motors Ltd. vs. CCE referred supra and after examining the entire aspect of the use of the advances, income generated from the said advances, their contribution of the pricing structure and their 1 (2005) 4 SCC 182 CA 1829/2008 4

reflection in the Balance-sheet or the Annual Reports of the appellants, and the deployment of the funds so received by them, as I agree with the learned brother Shri Sekhon that onus to prove so is on the Revenue. However, the appellants would be at liberty to produce relevant evidences before the adjudicating authority in support of their contention that the interest accrued on such advances have not in any way resulted in depreciation of the price. All other issues are left open for the appellants to address before the adjudicating authority.”

6. As there was difference of opinion, the matter was

referred to the third Member and the third Member, who was a

Judicial Member, vide order dated 29th August, 2007,

cogitated on the concept of assessable value under the Act,

the concept of two prices and eventually opined that the

decisions in Hero Honda Motors Ltd. (supra) and Metal Box

India Ltd. vs. Collector of Central Excise, Madras2 are

not applicable to the case at hand and accordingly concurred

with the opinion expressed by the Member (Technical).

Hence, the revenue is before this Court in appeal.

7. We have heard Mr. Yashank Adhyaru, learned senior

counsel for the appellant-revenue and Mr. Aarohi Bhalla,

learned counsel for the respondent-assessee.

8. On a scrutiny of the factual score, it is noticeable

that the respondent-assessee had obtained certain advance

sums from some companies/users to supply the bottles and on

that count it had granted 3-4 per cent discount. Though the 2 (1995) 2 SCC 90 CA 1829/2008 5

quantum had not been stated precisely, yet it has been found

as a matter of fact that M/s. Coca Cola India and M/s.

Pepsico India Holdings Pvt. Ltd. had given advances for 90%

and 100% respectively for their purchases.

9. In Metal Box India Ltd. (supra), the Court while

dealing with the transaction between the appellant therein

and M/s. Ponds (I) Ltd., who was a whole-sale buyer of the

appellant's goods, had accepted the view of the tribunal and

expressed thus:

“On the facts on record, therefore, it must be held that the Tribunal was perfectly justified in taking the view that charging a separate price for the metal containers supplied to M/s Ponds (I) Limited could not stand justified under Section 4(1)(a) proviso and, therefore, to that separate price charged from the Ponds (I) Limited, the extent of benefit obtained by the assessee on interest-free loan was required to be reloaded by hiking the price charged from M/s.

Ponds (I) Limited to that extent. Contention 2 also, therefore, fails and is rejected.”

10. In Hero Honda Motors Ltd. (supra), the question

that arose for determination is whether receipt of advance

and the income accruing thereon, had gone towards the

depreciation of the sale price. In that context, the Court

opined that there is conspectus of decisions which clearly

establish that inclusion of notional interest in the

assessable value or wholesale price will depend upon the

facts of each case. The three-Judge Bench adverted to the CA 1829/2008 6

facts of the case, the agreement existing between the

parties and the lower price at which the respondent-assessee

therein had sold the motor-cycles and after analysing the

factual matrix opined as follows:

“For the above reasons, we hold that the tribunal has disposed of the appeal before it in a most perfunctory manner without going into any figures at all but by merely on the statement made by counsel and on the basis of material which appears to have been produced first time before the tribunal. We, therefore, set aside the order of the tribunal and remand the matter back to the tribunal. The tribunal will consider in detail, if necessary, by taking the help of a Cost Accountant and after looking into the accounts of the respondent whether or not the advances or any part thereof have been used in the working capital and whether or not the advances received by the respondent and/or the interest earned thereon have been used in the working capital and/or whether it has the effect of reducing the price of the motorcycle. The tribunal to so decide on the material which was placed before the Commissioner and not to allow any additional documents/materials to be filed before it. None of our observations made herein shall bind the tribunal to which this case is remitted.”

11. In the case at hand, the Member (Judicial) has

remitted the matter to the competent authority to deal with

it afresh in the light of the decision rendered in Hero

Honda Motors Ltd. (supra).

12. Mr. Aarohi Bhalla, learned counsel for the

respondent-assessee would submit that when no evidence was

adduced by the revenue at any point of time and the law is

settled that the onus is on the revenue to establish that CA 1829/2008 7

there has been depression of assessable value, the majority

view of the tribunal cannot be found fault with.

13. Mr. Yashank Adhyaru, learned senior counsel

appearing for the appellant-revenue would submit that the

documents were produced before the adjudicating authority as

well as the tribunal to show the nature of advance and the

manner of transaction from which it is demonstrable that

there has been depression of the assessable value.

14. On a perusal of the order passed by the

Commissioner, it is seen that observations have been made on

certain aspects and inferences have been drawn. It cannot be

said that no material was produced by the revenue. The

concerned Commissioner has taken note of the statement made

by the Manager (Sales) of the assessee-Company. An aspect

raised relates to percentage of total sales made to two

companies, but the core issue is whether there was a

depression of the sale price on account of receipt of

advance. In the case of Metal Box India Ltd. (supra), the

facts were extremely clear as there was an agreement that

M/s. Ponds (I) Ltd. had given 50% advance with a stipulation

that it would purchase 90% of the manufactured goods. It

was a case where a separate price was charged. In the case

of Hero Honda Motors Ltd. (supra), the facts, as we

perceive, were not clear and, therefore, there was a remit. CA 1829/2008 8

Be it noted, sale price agreed between two competing parties

may get depressed, when substantial and huge advances are

periodically extended and given with the objective and

purpose that the sale price paid or charged would be

lowered, to set off the consideration paid by grant of

advances. There should be a connect and link between the

two i.e. the money advanced it should be established was a

consideration paid which could form the basis for depression

of sale price. Evidence and material to establish the said

factual matrix has to be uncovered and brought on record to

connect and link the sale price paid on paper and the

“other” consideration, not gratis, but by way of interest

free advances.

15. In our considered opinion, in the present case,

there has to be application of mind by the tribunal regard

being had to the amount of money paid by purchasers, namely,

M/s. Coca Cola India and M/s. Pepsico India Holdings Pvt.

Ltd. and what is the effect of the sales made to the two

companies in percentile terms, whether this had the effect

of depressing the sale price. The onus would be on the

revenue. That being the thrust of the matter, liberty is

granted to the revenue to produce the documents in this

regard to discharge the onus. As we are remitting the

matter, we may note one submission of the

respondent-assessee. It is urged by the learned counsel CA 1829/2008 9

that when the entire activities were within the knowledge of

the excise authorities, penalty is not leviable. Needless

to emphasize, the tribunal shall advert to the said

submission, if required, in the ultimate eventuate, in

proper perspective.

16. In the result, the appeal is allowed, the order

passed by the tribunal is set aside and the matter is

remitted to the tribunal for fresh disposal keeping in view

the observations made herein-above. We may hasten to

clarify that we have not expressed any opinion on any of the

aspects. There shall be no order as to costs.

......................J. (Dipak Misra)

......................J. (N.V. Ramana)

New Delhi;

January 14, 2016.

CA 1829/2008 10

ITEM NO.103 COURT NO.4 SECTION III

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No.1829 of 2008

COMMISSIONER OF CENTRAL EXCISE, PUNE Appellant(s)

VERSUS

HINDUSTAN NATIONAL GLASS & INDS. LTD. Respondent(s)

(With office report)

Date : 14/01/2016 This appeal was called on for hearing today.

CORAM :

HON'BLE MR. JUSTICE DIPAK MISRA HON'BLE MR. JUSTICE N.V. RAMANA

For Appellant(s) Mr. Yashank Adhyaru, Sr. Adv.

Ms. Nisha Bagchi, Adv.

Mr. A.K. Srivastava, Adv.

Ms. Pooja Sharma, Adv.

Mr. B. Krishna Prasad, AOR

For Respondent(s) Mr. Aarohi Bhalla, Adv.

Mr. Ankit Singh, Adv.

Ms. Sujata Kurdukar, AOR

UPON hearing the counsel the Court made the following O R D E R

The appeal is allowed in terms of the signed reportable order.

(Chetan Kumar) (H.S. Parasher) Court Master Court Master

(Signed reportable order is placed on the file)