Vs. Commissioner of Central Excise, Aurangabad  Insc 5 (4
Variava, Dr. Ar. Lakshmanan & S.H. Kapadia Kapadia, J.
is an appeal under section 35L(b) of Central Excise Act, 1944, preferred by the
assessee, against the judgment and order dated 16.2.1999 passed by the Customs,
Excise & Gold (Control) Appellate Tribunal, West Regional Bench at Mumbai,
confirming the demand made by the department for short-levy amounting to
Rs.18,34,464/- together with a penalty of Rs.2 lacs.
short question which arises for determination in this appeal is whether the
department was justified, on facts and circumstances of the case, in invoking
the extended period of limitation under the proviso to section 11A(1) of the
Central Excise Act, 1944 (hereinafter referred to for the sake of brevity as
"the 1944 Act").
appellant, M.K. Kotecha, proprietor of M/s Tapi R.C.C. Pipe Product, M/s Bamnod
Cement Pipe Product and M/s Sakri Cement Pipe Product, is a manufacturer of
R.C.C. pipes and collars falling under Chapter Heading 6807.00. During the
period April, 1990 to June, 1992, he cleared RCC pipes and collars to various
Societies under the Lift Irrigation Scheme, by declaring that the RCC pipes and
collars were not sold but were captively consumed in the projects undertaken by
him under the works contract.
he filed the price list together with the annexure thereto giving following
particulars:- PRICE LIST Sl. No Excisable Goods Descrip- tion Tariff Classi- fication
Comparable goods if known to Assessee Descrip- tion Tariff Classifi -cation
Assessable Value As Unit of Sale Pipe Collar Difference if any in material
characteristics of the goods & assessment of comparable goods Value of the
Goods in Col.2 classified and approved Pipe Collar Value of the Goods in Col.2
as approved by the proper officer Remarks 1 2 3 4 5 6 7 8 9 10 11 RCC Pipe
& Collar 6807.00 No. Size in mm. & class 1 1200 mm NP3 " - - 2838
- 2838 - 2 1000 " " 2060 - 2060 - 3 900 " " 1674 - 1674 - 4
800 " " 1378 - 1378 - 5 750 " " 1282 - 1282 - 6 700 "
" 1175 - 1175 - 7 600 " " 941 - 941 - 8 500 " " 686 -
686 - 9 450 " " 598 - 598 - 10 400 " " 549 - 549 - 11 350
" " 447 - 447 - 12 300 " " 394 - 394 - 13 750 mm NP 2
" 1211 121 1211 121 14 700 " " 1153 115 1153 115 15 600 "
" 908 91 908 91 16 500 " " 635 64 635 64 17 450 " "
517 52 517 52 18 400 " " 459 46 459 46 19 350 " " 359 36
359 36 20 300 " " 278 28 278 28 The last 'questionnaire' is
applicable to this Pricelist.
declare that particulars herein furnished are complete & true to the best
of my/our knowledge & belief.
Signature of Assessee ANNEXURE PRICE (COSTING DETAILS) OF R.C.C. PIPES & COLLARS
: EFFECTIVE FROM 6.5.1989: PIPE LENGTH: 2.5 MTRS.
of Pipe Class Steel Rs.
& Metal Rs.
vision Charges Rs.
about 10% Rs.
of Pipe Rs.
of Collar Rs.
mm NP3 1584 642 159 61 75 59 2580 258 2838 - 2 1000 " " 1125 466 101
59 75 47 1873 187 2060 - 3 900 " " 836 424 81 59 75 47 1522 152 1674
- 4 800 " " 677 340 77 53 66 40 1253 125 1378 - 5 750 " "
640 330 55 45 60 35 1165 116 1282 - 6 700 " " 568 310 50 45 60 35
1068 107 1175 - 7 600 " " 446 235 47 42 50 35 855 86 941 - 8 500
" " 317 183 44 26 33 21 624 62 686 - 9 450 " " 285 158 35
20 30 16 644 64 598 - 10 400 " " 258 147 29 20 29 16 499 50 549 - 11
350 " " 200 140 21 9 26 10 406 41 447 - 12 300 " " 182 119
18 8 22 9 358 38 394 - 13 750 " P2 575 326 50 35 70 45 1101 110 1211 121
14 700 " " 556 307 47 30 66 42 1048 105 1153 115 15 600 " "
432 229 33 23 66 42 825 83 908 91 16 500 " " 307 162 23 21 38 26 577
58 635 64 17 450 " " 250 133 18 16 33 20 470 47 517 52 18 400 "
" 244 102 17 11 27 16 417 42 459 46 19 350 " " 183 82 14 8 23 16
326 33 359 36 20 300 " " 127 72 11 7 22 14 253 25 278 28 RCC Pipe of
Class NP3 does not require collar in our L.T. Scheme.
of each collar = 10% of Pipe Cost i.e. one pipe mouse of length 2.5 mm = 12
is to certify that the above cost of each pipe & collar is correctly
calculated and the particulars herein furnished are true & fully stated to
the best of my knowledge & belief.
Signature of Assessee On 19.8.1994, the Collector of Central Excise, Aurangabad
issued show-cause notice to the appellant under section 11A(1) of the 1944 Act
alleging clearance of RCC pipes and collars to various Societies for their
projects under the Lift Irrigation Scheme, during the period April 1990 to June
1992, by declaring their prices at the lower rates, by filing the price list in
part VI(b) proforma, on the ground, that, the prices of comparable goods were
not available and the goods cleared were not for sale but were for captive
consumption. However, according to the show- cause notice, the contract price
agreed upon by and between the parties indicated complete break-up of the
charges, including the prices of RCC pipes & collars, consequently, it was
alleged that the appellant had undervalued the prices of RCC pipes &
collars by mis- declaring to the department that comparable prices were not
available. Accordingly, the department called upon the appellant to show cause
why differential duty of Rs.18,34,464/- should not be recovered under section
11A(1) and why for the period 1st April, 1990
to June, 1992, penalty under rule 173-C should not be imposed.
reply dated 27.1.1995 to the show-cause notice, the appellant submitted that
the RCC pipes and collars were not marketed but used in the Lift Irrigation
Scheme; the appellant denied that the contract awarded indicated the break-up
of the charges, including the prices of RCC pipes and collars; that in any
event, these prices were lower than the prices of comparable goods and that the
comparable prices were not available. It was submitted that contract awarded to
the appellant indicated the price for the project comprising of cost of
material and cost for joining of RCC pipes/collars besides job of excavation
and, therefore, the appellant had invoked part VI(b) proforma supported by a
certificate from his Chartered Accountant. It was further submitted that
alleged comparable prices given by DSR and MSSIDC were not taken into account
at the time of giving of tender; that independent costing was done and that the
rates tendered covered the entire job work, hence, prices of comparable goods
did not exist. It was further submitted that the RCC pipes and collars,
manufactured by the appellant, were not sold as the appellant had undertaken a
project on turnkey basis and hence, there was no sale, and, therefore, the
appellant had filed the price list in part VI(b) proforma on cost basis,
particularly, because there was no separate contract for sale of RCC pipes and
collars. It was further submitted that the RCC pipes and collars were not sold
but were used in the project and, therefore, the valuation of such pipes and
collars was done on the cost basis.
order dated 22.5.1995, the Collector came to the conclusion that the appellant
was supplying pipes and collars to various Lift Irrigation Schemes; that in the
project reports, the valuation data of such pipes and collars was available
which was made known to the appellant at the time of negotiations and that
there was substantial difference between the rates quoted by the appellant and
the rates quoted in the project reports. It was held, that, the appellant had
misled the department by declaring that RCC pipes and collars were captively
consumed when he knew that part VI(b) speaks of consumption in the production
of other articles. According to the Collector, the said pipes and collars were
manufactured by the appellant in his factory and cleared therefrom. It was
further held that the appellant had filed a consolidated tender giving costs
estimates which included costs of material, labour, supervision etc.; that these
estimates were based on the pricing of collars and pipes in the project reports
and, therefore, the Collector confirmed the demand in terms of the show-cause
notice. The Collector further found that the Maharashtra State Sewerage and
Water Board had made the rate analysis and had arrived at the value of the RCC
pipes; that the said Board was a Government agency; that it was in the business
of civil construction and, therefore, had a fairly good idea of the standard
value of the RCC pipes. The Collector further found that Tenders Scales were
drawn by the contractor on the above price guidelines of the Board.
Collector observed that the RCC pipes and collars were standardized products
and that what was true of the pricing by the Board was also applicable to the
rate contract price given by the Director of Industries. In the circumstances,
it was held, that comparative prices were known to the appellant. Accordingly,
the demand was made on above grounds for Rs.18,34,464/- with penalty of Rs.2 lacs.
by the Order of the Collector, the assessee preferred appeal to the Tribunal
which has been dismissed.
this civil appeal.
questions arise for determination in this appeal, namely, whether the
department was right in invoking rule 7 of Central Excise (Valuation) Rules,
1975 and whether on facts, the Collector was right in holding that the
appellant had wilfully misdeclared to the department that prices of comparable
goods were not available and that the goods cleared were not for sale but for
present case, the department has invoked the proviso to section 11A(1) of the
1944 Act seeking to recover duty by invoking the extended period on account of wilful
misstatement and suppression of facts resulting in short-levy of duty.
case of Collector of Central Excise, Hyderabad v. M/s Chemphar Drugs & Liniments, Hyderabad reported in [(1989) 2
SCC 127], it has been held, that, in order to constitute wilful misstatement,
some positive act other than inaction, omission or failure on the part of the
manufacturer or conscious and deliberate withholding of information when the
manufacturer knew otherwise, is required to be established before he is saddled
with the liability. Whether in a particular set of facts and circumstances,
there was wilful misstatement or suppression is a question of fact.
case of Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay reported in [1995 Suppl.
SCC 462], it has been held, that, in order to constitute suppression under the
proviso to section 11A(1), there should be facts showing that correct
information was not deliberately disclosed in order to escape from liability to
pay duty. Mere omission is not a deliberate act.
case of Cosmic Dye Chemical v. Collector of Central Excise, Bombay reported in [1995 (75) ELT 721], it
has been held by this Court that the word "wilful" qualifies the
words "misstatement or suppression of facts" in the proviso.
the word "wilful" precedes the word "misstatement". The
word "wilful" means intention to evade. In the circumstances, it was
held that the department has to establish the intention to evade duty in order
to come within the expression "wilful misstatement or suppression of
facts" as mentioned in the proviso to section 11A(1).
facts, the basic question which arises for determination is whether the
appellant knew of the comparability of his goods with those of other
manufacturers and whether the appellant had misled the department by declaring
that the RCC pipes and collars were captively consumed, particularly, when the
appellant as a contractor had drawn the Tenders Scales on the basis of pricing
guidelines of Maharashtra State Sewerage and Water Board.
VIIA of the Central Excise Rules, 1944 refers to removal of excisable goods on
determination of duty by producers and manufacturers. Rule 173-C prescribes a
procedure regarding valuation of goods assessable ad valorem.
rule 173-C (1), every assessee who produces, manufactures or warehouses goods,
which are chargeable with duty at a rate dependent on the value of the goods,
and clears such goods, shall declare the value under section 4 of the Act in
the sale invoice, invoice-cum-challan or like documents used by him for sale or
removal of goods. Under clause (iv) of the second proviso to rule 173C, where
an assessee removes such goods, in any manner, which does not involve sale,
shall file, with the proper officer, a declaration in the prescribed form.
for determination of value under section 4 read as under:
VI. For excisable goods not for sale but for use or consumption by the assessee/related
person for production or manufacture of other articles (cf. Rule 6 of the
Central Excise (Valuation) Rules, 1975].
particulars of comparable goods are known Excisable Goods Descrip -tion Tariff Classi-
fication Comparable goods, if known to Assessee Descrip -tion Taziff Classi- ficatio
n Assessable value Rs.
of sale Difference if any in material characteristics of the goods under
assessment & comparable goods Value of the Goods in Col.1 claimed for
approval Value of the Goods in Col.1 claimed for approval Remarks 1 2 3 4 5 6 7
8 9 10 (b) If particulars of comparable goods are not known Excisable Goods Descrip
-tion Tariff Classi- fication Cost of production or manufacture, supported by
detailed calculations, on a separate sheet how the cost has been worked out.
Profits that would have been normally earned by the assessee on sale of such
goods and the basis thereof.
Claimed for approval Value approved Remarks 1 2 3 4 5 6 7 8 The above
price-list proforma is prepared in terms of rule 6 of Central Excise
(Valuation) Rules, 1975. We quote hereinbelow the entire rules 6 and 7 as the
same is relevant for deciding this case.
6. If the value of the excisable goods under assessment cannot be determined
under rule 4 or rule 5, and
where such goods are sold by the assessee in retail, the value shall be based
on the retail price of such goods reduced by such amount as is necessary and
reasonable in the opinion of the proper officer to arrive at the price at which
the assessee would have sold such goods in the course of wholesale trade to a
person other than a related person:
that in determining the amount of reduction, due regard shall be had to the
nature of the excisable goods, the trade practice in that commodity and other
the excisable goods are not sold by the assessee but are used or consumed by
him or on his behalf in the production or manufacture of other articles, the
value shall be based-
the value of the comparable goods produced or manufactured by the assessee or
by any other assessee:
that in determining the value under this sub-clause, the proper officer shall
make such adjustments as appear to him reasonable, taking into consideration
all relevant factors and, in particular, the difference, if any, in the
material characteristics of the goods to be assessed and of the comparable
if the value cannot be determined under sub-clause (i), on the cost of
production or manufacture including profits, if any, which the assessee would
have normally earned on the sale of such goods;
where the assessee so arranges that the excisable goods are generally not sold
by him in the course of wholesale trade except to or through a related person
and the value cannot be determined under clause (iii) of the proviso to clause
(a) of sub-section (1) of section 4 of the Act, the value of the goods so sold
shall be determined-
a case where the assessee sells the goods to a related person who sells such
goods in retail, in the manner specified in clause (a) of this rule;
in a case where a related person does not sell the goods but uses or consumes
such goods in the production or manufacture of other articles, in the manner
specified in clause (b) of this rule;
in a case where a related person sells the goods in the course of wholesale
trade to buyers, other than dealers and related persons, and the class to which
such buyers belong is known at the time of removal, on the basis of the price
at which the goods are ordinarily sold by the related person to such class of
7. If the value of excisable goods cannot be determined under the foregoing
rules, the proper officer shall determine the value of such goods according to
the best of his judgment, and for this purpose he may have regard, among other
things, to any one or more of the methods provided for in the foregoing rules."
On reading rule 6(b) of the said Valuation Rules, it is clear that the said
rule applies to excisable goods, not sold by the assessee but used or consumed
by him in the production or manufacture of some other articles. Rule 6(b)
refers to valuation of goods which are captively consumed by the assessee. It
is in two parts. Under rule 6(b)(i), the assessable value of goods captively
consumed is determined on the price at which similar goods are sold by the assessee
and by other manufacturers, subject to adjustment. On the other hand, under
rule 6(b)(ii), the assessable value is determined on the basis of aggregate
cost of raw materials, manufacturing cost and profit margin, if any. In short,
under rule 6(b)(i) of the Valuation Rules, 1975, the value of goods captively
consumed was the value of comparable goods produced by the assessee or any
other manufacturer. In the absence of such a valuation, the assessable value
had to be done under rule 6(b)(ii) on the basis of cost of production,
including the profits which the assessee would normally earn on the sale of
such goods [See: Gwalior Rayon Manufacturing (Weaving) Company v. Union of
India & Others reported in [1982 ELT 844 (MP)].
enquiry, learned counsel appearing on behalf of the appellant produced before
us the Price List proforma alongwith the annexure. We have reproduced the
relevant portion of the Price List proforma submitted by the appellant to the
department in this case. Although, the appellant contended before the
department that the prices of comparable goods in the present case was not
known to him, the appellant filed the price list under part VI(a) of the price
list proforma. However, the annexure to the price list indicates that the
appellant had mischievously priced the said RCC pipes/collars on cost basis
without estimating the profits. The Price List proforma in part VI(b) refers to
cases where comparable prices are not available and consequently, the
determination of assessable value was required to be done on the basis of the
total cost. The particulars required to be given by the assessee under part VI(a)
are different from the particulars under part VI(b) of proforma price list.
Under part VI(a), the particulars are required to be given in respect of
excisable goods not for sale but for captive consumption on the footing that
the assessee is aware of comparable prices. In that respect, he is required to
give assessable value of the comparable goods under part VI(a).
under part VI(a), the assessee is required to give particulars of the
difference, if any, in the material characteristics of the goods under
assessment and comparable goods. On the other hand, in cases falling under part
VI(b), the assessee is required to furnish particulars of cost of production or
manufacture on a separate sheet, annexed to the price list.
3rd and the 4th column of part VI(b) refers to computation of assessable value
of goods based on the aggregate cost, together with the profits that would
normally accrue to the assessee. [See: Column (5) of Part VI(b)].
this case, the appellant worked out the prices on total cost and used it as the
basis of valuation in support of part VI(a) price list proforma. This hybrid
system was adopted by the appellant, though not permissible, to mislead the department.
circumstances, we are satisfied that the appellant had wilfully misdeclared the
prices at the lower rate and consequently, the department was right in invoking
the extended period of limitation under the proviso to section 11A(1).
in the present case, the appellant submitted before the Collector that he had
undertaken a composite contract (project) and, therefore, the prices of
comparable goods were not available. However, as found by the Collector on
evidence, the RCC pipes and collars were manufactured by the three units of the
appellant. The contract price agreed upon was based on complete break-up of the
charges including the prices of the RCC pipes and collars. The said pipes were
manufactured in the factory of the appellant. They were cleared therefrom. The
pricing of RCC pipes and collars was indicated in the project reports. They
were based on the pricing guidelines fixed by Maharashtra State Sewerage and
Water Board. The said Board had made rate analysis to arrive at the value of
the RCC pipes and collars. Therefore, the appellant knew of the comparability
of his goods with those of other manufacturers. Hence, the Collector was right
in coming to the conclusion that the appellant had wilfully misstated and
suppressed the facts in order to mislead the department.
the department was right in invoking the larger period for demand of duty under
the proviso to section 11A(1).
on facts, we find that rules 1 to 6 of the Valuation Rules, 1975 had no
application. As stated above, rule 6(b) was applicable to captive consumption.
In this case, rule 6(b) was not attracted. Therefore, the department was right
in making best judgment assessment under the aforestated rule 7 of the
Valuation Rules, 1975.
case of United Glass v. Collector of Central Excise reported in [1995 (75) ELT
209], this Court held that rule 7 of the Valuation Rules, 1975 was in the
nature of a residuary rule, applicable only when valuation cannot be decided
under other rules. In the present case, the department was, therefore, right in
invoking rule 7.
C.N. Sree Kumar, learned counsel for the appellant submitted that since the
classification lists and the price list were earlier approved, subsequently
found to be erroneous or defective, reclassification and liability to pay duty
would commence only from the date of show-cause notice and not for the period
prior thereto. He further submitted that the omission to enter correct prices
in the price list did not amount to contravention of rule 173-C. In support, he
relied upon several authorities.
case of Universal Cables Ltd., Satna v. Union of India & Others reported in
[1977 (1) ELT page J.92], on which reliance was placed on behalf of the
appellant, it was held that omission to enter correct price in the price list
was not a contravention of rule 173-C within the meaning of rule 173Q.
on facts, the High Court found that the assessee had filed a list in the proper
form and in the manner prescribed under rule 173-C showing the price of the
goods and, therefore, there was no contravention of that rule. In the present
case, as stated above, there is a contravention of rule 6(b) of the Valuation
Rules, 1975 read with part VI(a) of the price list proforma. Hence, the
judgment in the case of Universal Cables Ltd.(supra) is not applicable to the
case of Collector of Central Excise, Baroda v. Cotspun Limited reported in [1999 (113) ELT 353], this Court held
that the word "short-levy" in section 11A(1) will not apply to cases
where excise duty was levied on the basis of approved classification list.
Learned counsel for the appellant heavily relied upon on this authority. In our
view, the said judgment has no application to the present case for two reasons:
firstly, the basis of the said judgment is obliterated in view of the Amendment
Act No.10 of 2000 by which the expression "short- levy" has been
redefined to include levy resulting from mistaken approval granted to the
classification list. The validity of this amendment has been upheld in a recent
judgment of this Court in the case of ITW Signode India Ltd. v. Collector of
Central Excise reported in [(2004) 3 SCC 48], to which one of us [Dr. AR. Lakshmanan,
J.] was a party.
the decision in Cotspun Limited's (supra) was confined to interpretation of the
word "short-levy" in section 11A(1). That judgment was not concerned
with the proviso to section 11A(1). In fact, vide para 67 of the judgment of
this Court in ITW Signode India Ltd. (supra), it has been observed that the
extended period of limitation under the proviso can be invoked in cases of
positive acts of fraud, collusion, wilful misstatement or suppression of fact
on the part of the assessee and that such a positive act must be in
contradistinction to mere inaction. The present case is not a case of simple
omission. It is a case of wilful misstatement leading to under-estimation of
value of goods cleared by the appellant. In the circumstances, we do not find
any merit in this appeal.
concluding, we may point out that under the show-cause notice, the department
had alleged that the appellant had collected extra amount to the tune of Rs.21,74,963/-
in the guise of central excise duty over and above the duty actually paid to
the department. The Collector found that the appellant had collected the said
amount under the guise of central excise duty from his clients, who were billed
for full quantum of duty paid whereas under the relevant notification, the
appellant had paid duty at nil rate or at lower rate. Despite this finding, the
Collector came to the conclusion that the said finding was based on
presumptions and not on evidence and consequently, the Collector dropped the
demand for Rs.21,74,963/- made under section 11-D as not capable of being
substantiated. Surprisingly, no appeal was preferred by the department to the
Tribunal in respect of the demand for Rs.21,74,963/-. Even the Collector did
not make further enquiries to substantiate such demand. We are conscious of the
rising revenue deficit. In several matters, we find slippages of revenue on
such counts. Therefore, we expect, Mr. Mohan Parasaran, Additional Solicitor
General, to bring our present judgment and order to the notice of the Finance
the aforestated reasons, we do not find any infirmity in the judgment of the
Tribunal dated 16.2.1999 passed in Appeal No.E/776-V/95-Bombay, and,
accordingly, the appeal stands dismissed, with no order as to costs.