of Central Excise, Allahabad Vs. M/S Somaiya Organics (India) Ltd  Insc 1124 (12 November 2007)
Arijit Pasayat & D.K. Jain
APPEAL NO. 4975 OF 2002 Dr. ARIJIT PASAYAT, J.
Challenge in this appeal is to the judgment of the Customs, Excise, and Gold
(Control) Appellate Tribunal, New Delhi (in short the 'CEGAT') allowing the
appeal filed by the respondents (hereinafter referred to as the 'assessee').
Before the CEGAT challenge was to the order passed by the Commissioner of
Central Excise, Allahabad.
Factual background in a nutshell is as follows:
respondents are having two manufacturing units- a distillery at Captainganj and
a chemical factory at Barabanki.
their distillery the respondents manufacture Ethyl Alcohol- Denatured (for
short 'SDS'). The stock of SDS is transferred to their Barabanki unit where it
is wholly consumed in the manufacture of specified chemicals. Under the order
of the adjudicating authority the differential duty demand of Rs.14,89,61,104.00
was confirmed on the entire quantity of SDS transferred from Captainganj unit
to Barabanki unit during the period from April 1994 to December 1999.
by the above, the assessee filed the appeal before CEGAT.
cause notices were issued for different periods as follows:
Show cause notice No. Dt. Period Differential duty
Demand(12) ADJ April, 94 Rs.14,59,49,158.65 -116/98/3149 dt.26.3.99 to Feb., 99
-SCN No.12/Commnr.-AUD- 99/26.3.99
C.No.20 CE/Somaiya/SBZ/99 March, 99 to Rs.25,12,528/- /550 dt. 31.8.99 July, 99
C.No.20-CE/Somaiya/SBZ/61 August, 99 to Rs.4,99,417/- dt. 18.1.2000 Dec, 99
Excise duty was levied on SDS for industrial consumption w.e.f. 1.3.94. The
respondents were paying excise duty at the time of transferring the stock of
SDS to their Barabanki unit and modvat credit of the duty paid was availed in
the Barabanki unit. The assessable value had been arrived at by the respondents
on costing basis in terms of Rule 6(b)(ii) of the Central Excise Valuation
Rules, 1975 (in short 'Valuation Rules') during the relevant period. In the
show cause notice, it was alleged that the assessable value has to be fixed in
terms of Rule 6(b)(i) and not under Rule 6(b)(ii). It was then proposed to fix
the assessable value on the basis of the price at which SDS was sold by the
following manufacturers for different years:- Period Other manufacturers
Applicable date Value Messrs per ltr./Bl. 1994-95 Saraya Distillery 13.6.1994
Rs.20.00 Gorakhpur 1995-96 -do- 20.6.1995 Rs.12.90 1996-97 -do- 10.3.1997
Rs.14.00 1997-98 -do- 20.11.1997 Rs.14.75 4/98 to 2/99 Kisan Sahkari Chini
Mills, Ghosi 1.12.1998 Rs.15.50 3/99 to 7/99 -do- 20.3.1999 Rs.14.25 8/99 to
12/99 -do- 10/99 Rs.14.25
Thereafter, by a corrigendum dated 14.1.2000 sale price fixed at Rs.14.25 was
corrected as Rs.15/-. On this basis, the differential duty demand, as
mentioned, was made. The respondents contended before the adjudicating
authority that the entire quantity of SDS manufactured at its distillery is
being consumed at Barabanki unit for manufacture of specified articles Molasses
which is the major raw material for manufacture of SDS was obtained by the
respondents at controlled rate in terms of the provision of U.P. Molasses
Control Order, 1964 but other distilleries manufacturing Ethyl Alcohol for
non-specified purposes had to purchase molasses at market determined prices.
Therefore, there could be no comparison between the cost of production of SDS
by the respondents and M/s. Saraiya Distillery, one of the manufacturers whose
selling price had been relied upon in the show cause notice. Respondents
determined the assessable value of SDS for the purpose of Section 4(1)(b) of
the Central Excise Act, 1944 (in short the 'Act') on costing basis as it had no
sale of SDS. The cost fixation was undertaken annually on the basis of the
previous year's Balance Sheet for determining the value and discharge duty
since the Balance Sheets are finalised only in the month of September for the
year ending on 31st March. On receipt of the finalised Balance Sheet in
September, the value determined on the basis of the earlier Balance Sheet was
being revised. If the revision was upward, differential duty was discharged on
the increased value. The price declarations filed effective from 1.3.1994 along
with the questionnaire was approved by the Central Excise authorities.
effect from 1.4.1994, when Rule 173C of the Central Excise Rules, 1944 (in
short the 'Rules') was amended the respondents filed the declarations under
Rule 173C also.
actual value on which the respondents cleared SDS during the period in question
is as under:
Rs.5.85 per ltr.
Rs.5.50 per ltr.
Rs.5.50 per ltr.
to 11/97 Rs.8.30 per ltr.
to 11/97 Rs.12.41 per ltr.
to 3/99 Rs.13.52 per ltr.
to 7/99 RS.17.43 per ltr.
to 12/99 Rs.17.43 per ltr.
respondents further contended that proposal in the show cause notice to fix the
assessable value on the basis of the highest price at which one of the
manufacturers sold SDS on particular date is totally illegal. It was further
contended that for the period from April 1999 to December 1999 the respondents
had paid on a higher assessable value than what was proposed in the show cause
notice. Therefore, there is no basis for demanding differential duty during
this period. The adjudicating authority did not accept the contentions raised
by the respondents. The Commissioner of Central Excise, therefore, confirmed
the differential duty demand of Rs. 14,89,61,104/- and imposed penalty amount
equal to the duty demand by invoking Section 11AC
Considering the rival submissions CEGAT held as follows:
is no reason given by the Revenue as to on what basis the highest price of
particular day in each year was taken into consideration for the purpose of
fixing the assessable value in the case of the SDS cleared by the appellant.
Choice of the highest price on a particular day will not satisfy the
requirement of nearest ascertainable equivalent. Section 4(1)(b) provides that "where
the normal price of such goods is not ascertainable for the reason, that such
goods are not sold or for any other reason, the nearest ascertainable
equivalent thereof determined in such manner as may be prescribed".
Therefore, even when clause (i) of sub-rule (b) of Rule 6 is applied, the endeavour
must be to determine nearest ascertainable equivalent. We have no hesitation to
hold that such an exercise has not been done n the present case. The department
adopting the highest price is unsustainable in law".
is to be noted that while revenue relies on Rule 6(b)(i) of Valuation Rules the
assessee relies on Rule 6(b)(ii). Section 4(1)(a) of the Act is applicable when
the buyer is not a related person. Section 4(1)(b)) relates to a case where the
price is not ascertainable.
Stand of the appellant is that comparable price is available because there were
two units at Captainganj and Barabanki. The assessee tried to make a
distinction by submitting that the product was captively consumed. CEGAT appears
to have taken the stand that one day high price cannot be applied even though
Rule 6(b) may apply. There is no dispute relating to the period from April 1999
to December 1999. For the period from April 1994 to February, 1999 the same was
covered by a show cause notice dated 26.3.1999 and for the period March 1999 it
is covered by a show cause notice dated 31.8.1999. CEGAT had come to the
conclusion that no principle has been formulated and expressly no reason has
been given. The stress is on nearly ascertainable equivalent as the expression
'ascertainable' means ascertained. There may be different rates for different
may be cases where even for the periods the highest and the average prices may
be taken. The proviso to Rule 6 (b) (i) is relevant:
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
appears that the CEGAT has not determined what would be the appropriate price.
By merely discarding the price fixed by the assessing authority the issue does
not get solved.
was required to be seen is as to whether there was any ascertainable price and
on what basis it can be ascertained.
for a period the highest or the average can be taken. That has to be done on
the basis of the judicial discretion of the assessing officer which can also be
decided by the appellate authority by finding out whether there is any
rationale in the fixation done. In that view of the matter, the approach of the
CEGAT is not legally tenable. We set aside the order of CEGAT and remit to
CESTAT, which has come in place of CEGAT, for fresh consideration.
The appeal is allowed to the aforesaid extent. There will be no order as to