Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  Missing seized records must be considered while testing ITC claim; duplicate GST demands ordered corrected: Delhi High Court. *  GST appeal can’t be rejected without addressing taxpayer’s grounds: Allahabad High Court. *  Surplus IGST credit can offset CGST, SGST shortfall: GSTAT. *  GST refund can’t be denied when cancelled airfares are returned with tax: GSTAT. *  3 Hearing notices issued within 2 minutes: Gujarat High Court flags portal flaw, seeks report. *  GSTR-9, GSTR-9C filing for FY 2025-26 enabled; pending GSTR-1 and GSTR-3B must be filed first. *  Dupattas are exempt fabrics, can’t be taxed as fibres at 4%: Madras High Court. *  Full transitional credit allowed on capital goods received after GST rollout: GSTAT denies Rs. 6.99 lakh export duty credit. *  GST return mismatch alone can’t justify fraud proceedings: GSTAT orders fresh adjudication under section 73. *  Supplier found non-existent later can’t alone justify input tax credit denial: GSTAT. *  GST interest stops once tax reaches government account, can’t run until return filing: GSTAT. *  Cancelled flat booking- GST refund can’t be denied without excluding COVID period from limitation: GSTAT. *  India notifies rules of origin for India–New Zealand FTA. *  Incomplete E-bike kits classifiable as complete vehicles, but not eligible for CKD duty concession: CESTAT. *  Same GST rate on main input and output can’t by itself bar inverted duty refund: GSTAT. *  Unjust enrichment doesn’t apply to customs refunds from assessments finalised before July 13, 2006: Gujarat High Court. *  CENVAT credit can’t be denied solely because plant And machinery are embedded in earth: Karnataka High Court. *  DFIA exports ineligible for RoDTEP benefits; customs directs repayment with applicable interest. *  Second E-Way bill alone doesn’t prove another supply: GSTAT. *  Bail denied in Rs. 1.19 crore fake GST refund case over risk of accused absconding again: Punjab and Haryana High Court. *  GST registration can be restored after revocation deadline if outstanding dues are paid: Gauhati High Court. *  Multiple GST proceedings over same suppliers: Calcutta High Court directs dept. to share findings for adjudication. *  E-Governance portal services not OIDAR, fixed deposit interest not taxable: CESTAT. *  Rs. 500 Stamp duty required on authority letters for CAs, CMA and GST practitioners in Pune GST division.  *  Rs. 1.10 crore GST refund must be paid in cash after business closure: Allahabad High Court. *  Godown rent attracts 18% GST even when used exclusively for exempt agricultural warehousing: AAR. *  GST portal launches "Multi-State Registration" facility: one master TRN for registration applications across multiple States/UTs. *  RoDTEP scheme extended till 31st December, 2026.  *  Mere disagreement with order can’t override Rs. 20 lakh appeal limit: GSTAT. *  Customs interest can’t be backdated before confiscation liability is determined; nearly 8 year period excluded: Delhi High Court.
Subject News *  GST summons: anticipatory bail maintainable without arrest order, but relief denied in evasion case: Allahabad High Court. *  GST Appeal can’t be decided without hearing taxpayer’s objections to fresh evidence: Allahabad High Court. *  GST ITC can’t be reversed merely because supplier grants discount without reducing tax liability: GSTAT. *  Mere quoting of GST provision is not a valid charge: GSTAT quashes ITC denial. *  Personal hearing mandatory before adverse GST order, even without taxpayer’s request: Rajasthan High Court. *  Parallel bail pleas without full disclosure amount to abuse of process Rs. 43.08 crore GST case sent for fresh hearing: Supreme Court. *  GST refund based on unchallenged advance ruling can’t be recovered using later circular: GSTAT. *  Payment of GST alone doesn’t end interest and penalty liability when tax and interest remain unpaid beyond 30 days of notice: GSTAT. *  GST demand over builders’ 80% procurement rule requires reasoned adjudication: GSTAT. *  Eligible ITC doesn’t automatically entitle taxpayers to compensation cess refund on domestic sales: GSTAT. *  GST confiscation order passed before reply deadline invalid: GSTAT. *  GST interest can’t be retained after tax refund on delayed export receipts: Punjab & Haryana High Court. *  GST appeal can’t be dismissed over pre-deposit shortfall without opportunity To respond: Bombay High Court. *  DGGI SCN can’t be challenged before reply and adjudication:Chhattisgarh High Court. *  GST input tax credit can’t be denied solely due to supplier’s retrospective registration cancellation: GSTAT. *  GST notice must explain fraud allegations; merely repeating section 74 Is not enough:  Himachal Pradesh High Court. *  Audit detection alone can’t justify GST fraud penalty; specific suppression must be proved: GSTAT. *  GST order uploaded only under ‘Additional Notices’ tab without separate intimation set aside: Calcutta High Court. *  Service Tax appeal can’t be rejected for missing pre-deposit proof when payment is already recorded: CESTAT. *  SGST dept. can’t hear appeal against CGST order: Calcutta High Court. *  Mere dispatch of tax order can’t prove service or make appeal time-barred: CESTAT. *  Dealer incentives can’t be taxed merely on ledger entries: CESTAT. *  DGFT orders quashed for failure to supply DRI letter relied upon in SCN: Bombay High Court. *  GST penalty u/s 122(1A) can’t apply to Pre-2021 transactions; unregistered beneficiaries also covered: Delhi High Court. *  Expired E-way bill caused by wrong PIN code can’t justify GST penalty without intent to evade tax: GSTAT. *  Used railway rails can’t be taxed as track material without proof they are fit for reuse: CESTAT. *  Earlier DGGI notice doesn’t bar separate GST demand on different issue: Delhi High Court. *  ITC dispute involves no question of law: GSTAT directs appeal to Vice-President. *  Earlier DGGI notice doesn’t bar separate GST demand On different issue: Delhi High Court. *  No E-way bill required for interstate goods movement in november 2017: GSTAT quashes detention and penalty.  

Comments

Print   |    |  Comment

PJ/Case Laws/2012-13/1253

Rule 9 is applicable only when the 100% sale is to related person only.



Case: -OSWAL WOOLLEN MILLS LTD. V/S COMMISSIONER OF C. EX., LUDHIANA
 
Citation: - 2012(282) E.L.T. 547 (Tri.-Del.)
 
 
Brief Facts: - The appellants are engaged in manufacture of woollen yarn, acrylic yarn, grey manmade yarn and woollen fabric, acrylic blankets etc. which are excisable items. The period of dispute is w.e.f. July 2000 to 31- 3-2001. The appellant served upon with a show cause notice that during the aforesaid period they manufacture and cleared aforesaid goods to their own unit, and related parties besides other unrelated buyers at the same price. The appellant paid excise duty as per the transaction value in terms of Rule 4 of Central Excise Valuation Rules 2000, whereas the Department was of the view that the appellant ought to have paid excise duty in terms of Rule 8 and 9 of Central Excise Valuation Rules and on that premise the duty demand was confirmed.
 
Appellant’s Contention: - The appellant contended that the order has been passed on the assumption that all the sales and clearances were to the own unit on related parties, which is against the facts. In support of this contention, he has drawn attention to the show cause notice wherein it is specifically noted that the appellant unit is manufacturing woollen yarn, acrylic yarn, grey manmade yarn and woollen fabric, acrylic blankets which are being used captively as well as sold to the independent buyers and to its other units and other related persons. He further drawn attention to Rule 4 of Central Excise Valuation Rules, 2000 and submitted that since the goods manufactured by them was supplied to related and unrelated buyers, they has rightly value those goods for the purpose of excise duty as per transaction value, which was common to all the buyers. Further he submits that Rule 8 and 9 of Valuation Rules are not applicable as those rules are applicable in the cases where the goods cleared are used captively or are cleared to related parties only. Thus, it is contended that they has correctly paid the excise duty in terms of Rule 4, as such, the impugned order arising the excise duty in terms of Rule 8 and 9 of Valuation Rules is not sustainable.
 
 
Respondent’s Contention: - The respondent submits that it is a case in which the supplies were made only to the related parties or for captive use by the appellant, as such, the Adjudicating Authority as well as Commissioner (Appeals) have rightly invoked Rule 8 and 9 and confirmed the demand. In support of his contention, he relied upon the judgments of the Tribunal in the case of BOC India Ltd. v. CCE, Jamshedpur reported in 2004 (168) E.L.T. 478 (Tri.-Kolkata) and Ucal Machine Tools Ltd. v. CCE, Chennai reported in 2008 (223) E.L.T. 647 (Tri. - Chennai).
 
Reasoning of Judgment: - The CESTAT held that the show cause notice issued by the Department assumes importance, wherein it is categorically stated that during the period under show cause notice the appellant cleared manufactured goods to related as well as unrelated persons. By going through the order of Adjudicating Authority as also the Appellate Authority it is concluded that the appellants during the relevant period were supplying goods only to the related parties, but they have not given any reason or basis for the aforesaid conclusion. Therefore, in view of the admission of the Department in the show cause notice, it is not possible to accept the contention that the goods were supplied only to the related parties. Having concluded that the appellant has cleared goods to related as well as unrelated buyers, the question which arises is whether the appellant has correctly paid excise duty in terms of Rule 4 of the Central Excise Valuation Rules or Rule 8 and 9 of the aforesaid rules are applicable for the purpose of valuation, as claimed by the respondent. On reading of the provision of Rule 4, 8 & 9 of the Valuation Rules, it is apparent that Rule 4 is the general Rule for valuation of the excisable goods which provides that for the purpose of excise duty, the value of the goods cleared/sold by the assessee shall be the transaction value i.e. the price at which the goods are sold to the buyer. Rule 8 and 9 are in the nature of exception to Rule 4, which deals with the transactions between the assessee and the related party or the transaction in which the assessee resorts to clearance of goods to unrelated buyers through a related party. Since in the instant case, the assessee had cleared goods on the same price to the related as well as unrelated parties, Rule 4 is applicable. Thus, it is concluded that the assessee had rightly paid excise duty based upon Rule 4 of Central Excise (Valuation) Rules, 2000 and the Adjudicating Authority as also the Appellate Authority have gone wrong in applying Rule 8 and 9 of Valuation Rules to confirm the duty demand upon the appellant.
 
 
Respondent’s Contention:-The repairing, reconditioning, servicing etc. does not amount to manufacture. Recoating and rubberlining process carried out on old and used rolls does not amount to manufacture. In order to be ‘manufacture’ the important fact must be that on completion of the process the resultant product was manufactured. Merely because some processes were applied ‘and some changes were brought about on the original material, it cannot be said that the manufactured product is liable to excise duty.
There is no transformation under a distinct character or use. The goods remain the same and have the same characteristics as before. Galvanising is nothing but the iron sheet article is coated with zinc to prevent its oxidisation and improve its utility and does not constitute manufacture. Subsequent processing of goods does not amount to manufacture of excisable goods as they were originally manufactured except that they were processed. In a case reported in 1979 E.L.T. J 593, it was held that retreating of tyres was not excisable. In another case reported in 1977 E.L.T. J 67, it was held that mere application of gum on one side paper does not convert the paper into a new commodity. In an another case wherein it was held that dipping stainless steel scraps in sulphuric acid and rolling them to remove unevenness did not make the new strips. A case reported in 1977 E.L.T. J 81 that reconditioning of old bearings was not manufacture. It is a process similar to repairing. On the basis of this law as laid down by the various Hon’ble High Courts, the process did not result in manufacture. It was mere repair to the old and used roller and re-lining of tanks, vessels and pipes. There was no transformation and no new and different article emerged out of the process having a distinctive name, character or use.
He also cited a decision given by the Special Bench of this Tribunal titled Saran Engineering Co. Ltd., Bihar v. C.C.E. reported in 1984 (4) ETR 382 in support of his contention that the process of repairs, replacement and overhaul is done to impart additional life and strength. Liability to duty under Item 68 arises only when goods are manufactured in a factory. According to him servicing, repairing or remaking of goods which are already in use without involving manufacture of new article would not constitute manufacture for the purposes of Item 68.
In the case of rubber rolls no new article emerges out and it continues to be the same. According to him, when the roll is sent for recoating or reconditioning it goes as rubber roll and it remain as rubber roll. Manufacture must bring into existence an entirely new article. The article should be new and different article and it must emerge having a distinctive name, character or use. In the case of rubber rolls received for recoating neither new article comes out nor any different article emerges out as in the case of tyres which remains as tyres. It comes as tyres and it goes as tyres even after retreating. According to him, reconditioning of bolts, reconditioning of metal containers and roller bearings are not considered under the purview of Excise Act as manufacturing. The Collector (Appeals) has correctly appreciated the facts and law while holding that recoating or re-rubberlining, does not bring into existence goods of different taxable description and as such it would not amount to manufacture and no duty is payable for the same. The review show cause notice is based on wrong and incorrect facts and therefore, it be set aside and the appeal be rejected.
 
 
 
Reasoning of Judgement:-For manufacturing rubber rollers, process of rubber coating is most essential. Without this process no rubber roller comes into existence. It is a process of manufacture of Rubber Rollers. Without coating of rubber on blank roller, it cannot be used as a rubber roller nor we can call a blank roller as a Rubber Roller. Both these products are distinct and different articles. The process of rubber coating on metal roller cannot be said to be repairing of the old rolled, which is the same the process of rubber coating on blank roller. Even otherwise, in the case of P.C. Cheriyan v. Mst. Barfi Devi (1979 E,L.T. J593) the Hon’ble Supreme Court observed in para 11 at page 596 that in the Excise Act, the term ‘manufacture’ has been given an extended meaning by including in it ‘repairs’ also. ‘Manufacture’ includes any process incidental or ancillary to the completion of a manufactured product. Whether a ‘process’ is a manufacturing process or not, the Hon’ble Supreme Court laid down that the broad test for determining is whether it brings out a complete transformation for the old components so as to produce a commercially different article or commodity. The essence of manufacture is change of one object to another for the purpose of making it marketable. For the purpose of ascertaining whether it is a different article or not, one has to consider whether the thing made has a distinctive identity for commercial purposes.
In this case, rubber coating of the old and used roller is scraped out from the roller. Then a Chemical Bond i.e. adhesive material is applied on the roller. It is allowed to dry for some time. A second coat of bonding solution is applied. The coated roller is then placed in a chamber vessel for vulcanising. After vulcanising, the roller is subjected to grinding and polishing and after this process Rubber Roller comes into existence which is commercially a different article and hence it is a process of manufacture as laid down in section 2(f) of the Central Excises and Salt Act, 1944. The decisions cited by the appellants do not advance the case of the appellants in the present circumstances of the case. In the case of P.C. Cheriyan v. Mst. Barfi Devi (supra), on which the respondents put much reliance, the Hon’ble Supreme Court observed that in the Excise Act the term ‘manufacture’ has been given an extended meaning by including in it repairs also. The retreading of old tyres was not found to be a manufacturing process but it was on account of the fact that after retreading there was not a complete transformation of the old component so as to produce a commercially different article. The tyre remains a tyre after retreading. In this case after rubber coating on the metal roll a different article comes into existence which is commercially known Rubber Roller and hence it is a process of ‘manufacture’ as laid down in section 2(f) of the Central Excises and Salt Act, 1944. The various decisions cited the respondents that reconditioning, remaking, reprocessing does not amount to manufacture are not applicable in the present case.

Decision: - Appeal allowed.
 
Comment:- Rule 8 and Rule 9 are applicable when the goods are sold except or through related person i.e. they are sold only to related parties. When the goods are also sold to unrelated parties then this provision is not applicable. The price of unrelated buyer will be taken for arriving at assessable value.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com