Valuation of Goods cleared to Sister concern & Other unit

Case: GRASIM INDUSTRIES LTD VS COMMISSIONER OF CENTRAL EXCISE

Citation: 2011 (269) ELT 514 (Tri-Del)

Issue:- Valuation – clearance of goods to sister concern & other unit not on the basis of clearances made by assessee to independent buyers - Assessable value determined on the basis of purchase of goods by sister concern from independent buyers – whether sustainable.

Extended period of Limitation – cannot be invoked when the facts were already known to the Department – no suppression of facts.

Brief Facts:- Appellant-company have two factories at Nagda (MP) - a chemical division where various chemicals namely Caustic Soda lye, Liquid Chlorine, etc. were manufactured which are chargeable to Central Excise Duty under Chapter 28 of the Central Excise Tariff and Fibre Division where the viscose fibre is manufactured. They have a factory at Kumara Pattanam, Harihar and they also have sister concerns - M/s. Birla Cellulosic, Kosamba and M/s. Vikram Ispat at Alibagh.

Dispute involved in this case is in respect of value of Caustic Soda lye cleared by the chemical division of Appellant at Nagda to their Fibre Division at Nagda and to their factory at Harihar and also to the factories of their sister companies at Kosamba and Alibagh during April 1998 to June 2000. Clearances were for captive consumption.

During this period, as per the provisions of Rule 6 (b) of the Central Excise (Valuation) Rules, 1975, where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf for the production or manufacture of other articles, value would be based on the value of comparable goods produced or manufactured by the assessee or by any other assessee, as adjusted after taking into consideration all the relevant factors, including the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods and if the value of such captively consumed goods could not be determined in this manner, the same was to be determined on the basis of cost of production or manufacture including profit, if any, which the assessee would have normally earned on the sale of such goods.

According to Department, M/s. Grasim Industries (Fibre Division) Nagda, M/s. Grasim Industries, Harihar, M/s. Birla Cellulosic, Kosamba and M/s. Vikram Ispat, Alibagh are the related units of the Appellant i.e. M/s. Grasim Industries, (Chemical Division), Nagda and since these related units were using the Caustic Soda lye received from the Appellant for captive consumption for use in the manufacture of other excisable goods, the assessable value of Caustic Soda lye should have been determined under Rule 6(b)(i) of the Valuation Rules, 1975.

On clearances of Caustic Soda to Fibre Division, appellant with the approval of the Jurisdictional Assistant Commissioner were paying excise duty on the average price of clearances of Caustic Soda lye to independent buyers during the previous month.

However, during audit of appellant unit in 2000, it was found that during April 1998 to June 2000 period, the assessable value of Caustic Soda in respect of clearances to the factories at Harihar, Kosamba and Alibagh was not based on average value of clearances to independent buyers during the previous month and that the duty had been paid on much lower value, which appeared to have been determined arbitrarily. The average price to independent buyers for the previous month had been adopted only in respect of clearances to the Fibre Division of the appellant company at Nagda and in respect of clearances of Caustic Soda lye to the factories at Harihar, Kosamba and Alibagh, the price adopted was the average price during the respective month at those places, which did not appear to be correct. Department was of the view that when in respect of clearances of Caustic Soda lye for captive consumption to the Fibre division at Nagda, the assessable value, with the approval of the Assistant Commissioner, was being determined on the basis of average price of sale to independent buyers during the previous month and duty was being paid on this value only, there was no justification for the appellant to adopt lower assessable values in respect of clearances of Caustic Soda lye to the units at Harihar, Kosamba and Alibagh. It also appeared that the fact regarding adoption of lower assessable value in respect of clearances of Caustic Soda lye to the factories at Harihar, Kosamba and Alibagh was never disclosed by the appellant unit to the Department. On this basis show cause notice was issued to the appellant unit for recovery of allegedly short paid duty along with interest in respect of clearances of Caustic Soda lye to the factories at Harihar, Kosamba and Alibagh during the period from April 1998 to 30th June 2000; and also proposed imposition of penalty under Section 11AC of Central Excise Act, 1944 as well as under Rule 173Q of Central Excise Rules, 1944.

The Commissioner confirmed the demand with interest and imposed penalty of equal amount under Section 11AC of Central Excise Act.

Against order of the Commissioner, present appeal has been filed before the Tribunal.

Appellant’s Contention:- Appellant pleaded that they were clearing Caustic Soda lye to their Staple Fibre Division at Nagda and other factories at Kosamba, Harihar and Alibagh, that in respect of clearances made to staple fibre division at Nagda, the appellant were paying duty on the basis of average selling price of Caustic Soda lye to independent buyers during the previous month and this practice was being followed with the approval of the Jurisdictional Assistant Commissioner since 1983- 1984, that in respect of clearances of Caustic Soda lye for the units at Harihar, Kosamba and Alibagh, the appellant unit was discharging duty liability on the basis of price at which such Caustic Soda lye was being purchased by receiving units from other unrelated buyers, that is the average price of Caustic Soda lye at those places and not the average selling price of Caustic Soda lye to independent buyers by the appellant during the preceding month, that this practice was being followed by the appellant company since beginning and from time to time the necessary price declarations under Rule 173Q of the Central Excise Rules, 1944 had also been made, that in respect of clearances by appellant of the Caustic Soda lye to the units at Harihar, Kosamba and Alibagh, the determination of value on the basis of purchase price of same goods by those units was the correct method as the value under Rule 6(b)(i) can be based on the selling price of the comparable goods of other manufacturers also, that when the recipient units at Harihar, Kosamba and Alibagh were purchasing comparable goods from unrelated manufacturers, it would be appropriate to adopt the average purchase price of the comparable goods at Harihar, Kosamba and Alibagh, rather than the Appellant unit's selling price of the goods at Nagda to independent buyers, that in any case, demand is time barred as the department of aware of this practice, that this is clear from the letter dated 20th December 1995 addressed by the Range Superintendent to the appellant company wherein it was mentioned that scrutiny of sale invoices and price declarations of Caustic Soda lye reveals that appellant were removing Caustic Soda lye to their sister concerns at Harihar and Alibagh at arbitrarily low price, whereas the same product is being removed to their local sister concern (Fibre division) at much higher rate on the basis of selling price of the sales to independent buyers during the previous month and the appellant were asked to explain the reasons for such difference in the assessable value of the goods cleared for captive consumption to different units, that from this letter of the department, it is clear that the prices of removal of Caustic Soda lye to the factories at Harihar, Kosamba and Alibagh had been declared to the department and the department was aware of the fact that the assessable value of Caustic Soda lye in respect of clearances to Harihar, Kosamba and Alibagh is lower than the assessable value adopted in respect of clearances to the fibre division at Nagda, that in addition to this, the appellant company had declared the prices of supply of Caustic Soda lye to their fibre division at Nagda and also to the factories at Harihar, Kosamba and Alibagh in the RT-12 returns filed for the months of April 1998, April 1999 and June 2000 and in these RT-12 returns though the invoices had not been enclosed alongwith the returns, in-voices-wise worksheets showing the quantity, value and duty involved of the clearances made on day-to-day basis has been enclosed, that in view of this, the appellant cannot be accused of suppression of relevant information with intend to avail to payment of duty and, therefore, neither the longer limitation period under proviso to Section 11A(1) would be available to the department nor penalty under Section 11AC would be attracted

Respondent’s Contention:- Revenue pleaded that during the disputed period, as per provisions of Rule 6(b)(i) of the Valuation Rules, in respect of clearances for captive consumption the assessable value of goods was to be determined on the basis of price of comparable goods manufactured by the assessee and only if comparable goods are not manufactured by the assessee, the price of comparable goods manufactured by other units could be adopted, that in this case the chemical division of ppellant had a number of sales of Caustic Soda lye to unconnected buyers and, therefore, in respect of clearances of Caustic Soda lye to their fibre division at Nagda, the practice of determining assessable value on the basis of average sale price to independent buyers during the previous month had been rightly adopted, that having adopted this valuation practice for determining the assessable value of the clearances for captive consumption of Caustic Soda lye to fibre division at Nagda, there was absolutely no justification for the appellant to adopt a different and lower assessable value in respect of clearances of same goods - Caustic Soda lye to the unit at Harihar, Alibagh and Kosamba, based on the purchase price at which the receiving units were purchasing the comparable goods from other buyers, that the practice adopted by the appellant is without the support of the law and contrary to the provisions of Rule 6(b)(i) of the Valuation Rules, that self assessment procedure had been introduced since March 1994 and no price declarations were filed by the appellant during the period of dispute, that even if the wrong practice adopted by the appellant came to notice of the department in 1995 and the Range Superintendent wrote a letter to the appellant company seeking their clarification, it is not known as to whether any clarification was given by the appellant, that in any case, during the period of dispute, no price declarations had been filed and there was no information from the assessee that in respect of their clearances of Caustic Soda lye to the units at Harihar, Kosamba and Alibagh, they were adopting a lower assessable value based on the average purchase price of the Caustic Soda lye by the receiving units from other buyers, that the appellant, therefore, are guilty of suppression of relevant information and, hence, longer limitation period under proviso to Section 11A(1) and penal provisions of Section 11AC have been correctly invoked.

Reasoning of Judgment:- With regard to duty in respect of clearances of Caustic Soda lye to the said units on value determined on the basis of average purchase price of Caustic Soda lye by these units from other buyers being correct and permitted under the provisions of Section 4 of the Central Excise Act, 1944 read with Central Excise Valuation Rules, 1975, the Tribunal perused the various provisions of Valuation Rules.

It was noted that in this case Appellant in addition to clearances of Caustic Soda lye to their fibre division at Nagda and to the sister concerns, was also clearing Caustic Soda lye to independent buyers. It was noted that it is for this reason only that the Jurisdictional Assistant Commissioner vide his letter dated 9-1-97 had allowed Appellant to clear Caustic Soda lye to its fibre division at Nagda at the average sale price to independent buyers for the previous month. If this is treated as the price determined under Rule 4 of the Valuation Rules, 1975, the same price would apply in respect of clearances to the units of M/s. Grasirn Industries Harihar, M/s. Birla Cellulosic, Kosamba and M/s. Vikram lspat, Alibagh.

It was held that Rule 6 of the Valuation Rules, as such, has no application to this case and hence the appellant's plea that Rule 6(b)(i) permits the determination of the assessable value on the basis of price of the comparable goods of any other assessee is without any basis. Accordingly, it was held that there was absolutely no justification for determining assessable value in respect of clearances of Caustic Soda lye to M/s. Birla Cellulosic Kosamba, M/s. Grasim Industries Ltd., Harihar and M/s. Vikram Ispat, Alibagh on the basis of average purchase price of Caustic Soda lye by these units.

The Tribunal, therefore, upheld the Commissioner's finding that there is the short payment of duty by appellant in respect of clearances of Caustic Soda lye to M/s Birla Cellulosic, Kosamba, M/s. Grasim Industries Ltd., Harihar and M/s. Vikram Ispat, Alibagh.

With regard to question of limitation, the Tribunal noted that Departmental Letter dated 20.12.1995 of Supreintendent, Central Excise, Range-I, Nagda made it clear that price declarations, as well as sales invoices of Caustic Soda Ilye in respect of the clearances to the fibre dividion at Nagda and to the sister concerns had been furnished to the department and from their scrutiny the Department had come to know about the assessable value to these units was lesser than to independent buyers. From perusal of RT-12 return it is clear that appellant had furnished all the details and had also submitted invoices alongwith the RT-12 return which gave the details of the clearances to their fibre division at Nagda and also to the factories of M/s. Birla Cellulosic, Kosamba, M/s. Grasim Industries, Harihar and M/s. Vikram Ispat, Alibagh. Thus, it was held that department's allegation with the appellant have suppressed the relevant facts from the department is not sustainable.

It was further held that the Supreme Court in the case of Continental Foundation IL Venture v. CCE, Chandigarh-I [2007 (216) E.L.T. 177 (S.C.)] with regard to scope of the term "suppression" used in proviso to Section 11A(1) of the Central Excise Act, 1944 has held that “…When the facts are known to both Final parties, omission by one party to do what he might have done would not render it suppression…”. In Para 12, it was observed that “..there cannot be suppression or mis-statement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11A. Mis-statement of fact must be willful”.

The Tribunal also relied upon the judgment of the Supreme Court in case of CCE v. Chemphar Drugs & Liniments [1989 (40) E.L.T. 276 (S.C.)] wherein it was held that something positive other than mere inaction or failure on the part of manufacture or producer or conscious and deliberate withholding of information when the manufacturer knew otherwise, is required before he is saddled with the liability invoking longer limitation period.

Accordinglt, the Tribunal found that in view of the facts disclosed in this case, there is hardly any ground for invoking extended period. It was held that while on merits, the duty demand would be sustainable, extended period for recovery of short paid duty under proviso to Section 11A(1) of Central Excise Act is not available to the department and as such the entire duty demand is time barred. It was held that the impugned order confirming duty demand and imposing penalty under Rolling Section 11AC is not sustainable and the same is set aside.

Decision:- Appeal allowed.

Comment:- In this decision, it is clearly held that when the facts are known to both the parties then extended period of limitation cannot be invoked. There cannot be any willful suppression in that case. When the invoices were given to the department then it was clearly in knowledge of the department and allegation of willful suppression cannot be invoked against the assessee.

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PJ/Case Laws/2011-12/1336

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