Commnr. of Central
Excise, Tamil Nadu Vs. M/S. Southern Structurals Ltd.  INSC 1318 (6
SUPREME COURT OF
INDIA RECORD OF PROCEEDINGS CIVIL APPEAL NO.180 OF 2003 COMMISSIONER OF CENTRAL
EXCISE, TAMIL NADU Appellant (s) VERSUS M/S. SOUTHERN STRUCTURALS LTD.
Respondent(s) [With Appln. for ex-parte stay and with office report] Date:
06/08/2008 This Appeal was called on for hearing today.
HON'BLE MR. JUSTICE
ASHOK BHAN HON'BLE MR. JUSTICE J.M. PANCHAL For Appellant (s) Mr. V. Shekhar,
Mr. Gaurav Agrawal,
Mr. Rahul Kaushik,
Adv. for Mr. P. Parmeswaran, Adv.
For Respondent (s)
Mr. S.K. Bagaria, Sr. Adv.
Mr. K.K. Mani, Adv.
Mr. C.K.R. Lenin
UPON hearing counsel
the Court made the following ORDER The civil appeal is dismissed in terms of
the signed non-reportable judgment.
(Kanwal Singh) Court Master Assistant Registrar [Signed non-reportable judgment
is placed on the file] /NON-REPORTABLE/ IN THE SUPREME COURT OF INDIA CIVIL
APPELLATE JURISDICTION CIVIL APPEAL NO.180 OF 2003 Commissioner of Central
Excise, Tamil Nadu .....Appellant Versus M/s. Southern Structurals Ltd.
ASHOK BHAN, J.
company is an undertaking wholly owned by the Government of Tamil Nadu. It is
engaged in the manufacture of railway wagons and conveyor systems falling under
Heading 8605.50 and 8428.00 respectively of the Schedule to Central Excise
Tariff Act, 1985.
Upon verification of
their accounts, it was noticed on 16th July 1998 that the respondent had
entered into a contract, being Contract No.94/RS/PF&EC/954/3 dated
1.12.1994, with the Southern Railways for manufacture and supply of 106 wagons
of BTPGLN wagons for an amount of Rs.16,10,90,974/- which was inclusive of cost
of steel at Rs.6,65,833/- per wagon.
The cost of each
wagon worked out to Rs.15,29,724/- (6,55,833 + 8,63,891). The Railways supplied
free raw material worth Rs.7 lac per wagon. The respondent paid central excise
duty @ 15% ad valorem and cleared 21 wagons to their customer till 16th July
1998. It was also noticed that the respondent has adjusted the value mentioned
C.A.No.180/03 .... (contd.) -2- in the invoices against 50% of the advance
amount received from its customer. Respondent had also collected a sum of
Rs.2,400/- per wagon as by way of inspection charges. This amount allegedly was
not included in the assessable value. The total amount of advance received was
to the tune of Rs.10,29,80,192/-. The respondent also raised a bill being Bill
No.20 dated 4.6.1998 for escalation price for 19 wagons and the amount on this
account was Rs.18,81,036/- for which the amount of duty involved was
Rs.2,82,155/- which amount, it was alleged, had not been debited by the
respondent. According to the appellant, the respondent had suppressed the value
in the invoice with a view to enjoy the benefit of duty involved on
differential value. Proceedings were, therefore, initiated against the
respondent by issuance of Show Cause Notice No.98 of 1998 dated 28th September
1998 on the following charges :
"(a) that they
have undervalued the cost of wagons and conveyor parts cleared to Railways and
Neyveli Lignite Corporation (NLC) to the extent of interest accrued on advances
received from them and thus contravened Section 4 of the Act;
(b) that they have
valued the cost of wagon to the extent of inspection charges collected and
hence contravened Section 4 of the Act read with Rules 173Q, 9(1), 173F and
173G of the Rules; and (c) that they have not paid duty on the escalation
charges collected from the Railways thereby contravening Section 4 with Rules
173C, 9(1), 173F and 173GG."
by the said show cause notice, the respondent was called upon to show cause as
to why price of the wagons and other goods so suppressed and cleared to
Railways and NLC should not be re-determined; duty amounting to Rs.61,44,084/-
on the interest accrued on the advances received from Railways be not charged;
an amount of Rs.7,560/- being duty involved on the inspection charges collected
from Railways be not demanded; and an amount of Rs.2,82,155/- being duty
involved on the escalated price be not demanded and the said amount paid
subsequently by the respondent be not adjusted/appropriated against the above
duty liability and as to why penalty should not be imposed.
the two replies submitted by the respondent, the Commissioner of Central
Excise, vide order dated 29th December 2000, confirmed the demand
Rs.61,44,084/- towards the interest on advances invoking proviso to Section 11A
of the Central Excise Act, 1944 (for short, 'the Act'); the duty demand of
Rs.7,560/- towards inspection charges under the proviso to Section 11A of the
Act; duty demand of Rs.2,82,155/- involved on the escalation price of the
wagons under Section 11A of the Act and ordered that the said amount paid
subsequently be appropriated against this duty liability. The Commissioner also
imposed the penalty of Rs.20 Lac under Rule 173Q and Rs.34,18,250/- under
Section 11AC of the Act.
against the said order-in-original passed by the Commissioner, the respondent
preferred an appeal before the C.A.No.180/03 .... (contd.) -4- Customs, Excise
& Gold (Control) Appellate Tribunal (for short, 'the Tribunal'), Chennai.
The matter came up
before a two-member Bench of the Tribunal.
(Technical) held that so far as the interest on the advances received from the
Railways is concerned, it is an admitted position that the respondent has
adjusted the value mentioned in the invoice against 50% of the advance amount
received from the Railways and that the amount of advance was deposited into
the bank. Therefore, it can be logically concluded that the respondent has used
the said amount for repayment of loan and thus saved huge amount by way of
interest which would have been required to be paid to the bank on the loan
amount. Hence, he concluded that the interest on advance was includible in the
assessable value. He also held that the longer period of limitation could also
be invoked in this regard.
far as the second charge that the respondent has collected inspection charges
from the Railways, he held that the issue is covered by a decision of the
Tribunal in the case of Hindustan Gas & Industries Ltd. v. Commissioner of
Central Excise & Customs, Baroda reported in 2001(133) ELT 481 wherein it
was held that the cost of inspection would form part of the value. In this
case, the contract itself provided that the cost of testing at Government
expenses will be to the contractor's account. Therefore, the amount received
would be includible in the C.A.No.180/03 .... (contd.) -5- assessable value and
longer period of limitation was invocable. On this point also, he confirmed the
order of the Commissioner.
far as the invocation of longer period of limitation is concerned, relying upon
a decision of the Tribunal in the case of Nizam Sugar Factory v. Collector
1999(114) ELT 429 it was held that in case there is suppression etc. show cause
notice may be issued within five years from the relevant date. Therefore, he
held that longer period of limitation in respect of demand of duty was rightly
far as the charge of non-payment of differential duty on the escalation bill
for Rs.18,81,036/- raised by the respondent is concerned, the Member (T) agreed
with the Commissioner that as per the commercial practice, a pre-audit
commercial invoice dated 4.6.1998 for escalated price was raised by the
respondent for verification by Railways after which Rule 52A invoice was
raised on 24.7.1998 when excise duty was paid through PLA and that duty on the
price escalation was paid even before the receipt of the money from the Railways
and, therefore, there was no ground to attribute fraudulent intent on this
score. The duty on the escalated price was, however, liable to be paid and the
amount of Rs.2,82,155/- paid by the respondent was appropriated against this
liability thus upholding the finding of the Commissioner in this regard also.
respect of the penalty of Rs.20 Lac imposed by the Commissioner under Rule 173Q
the Member(T), on the facts and C.A.No.180/03 .... (contd.) -6- circumstances
of the case, particularly because the respondent is a State Government
Undertaking and the buyer is Indian Railways, reduced the amount of penalty to
Rs.1,20,000/-. Insofar as the penalty under Section 11AC is concerned it was
held that the limit of penalty imposable under Section 11AC equal to the duty
under Section 11AC is the maximum limit and it is not mandatory in each case
that maximum penalty should be imposed. Hence, he reduced the penalty from
Rs.34,18,250/- to Rs.11,50,000/-.
short, the Member (T) confirmed the order of the Commissioner except the
modification to the extent of reduction in the quantum of penalties.
(Judicial), however, disagreed with the Member (Technical) on the point as to
whether interest on advances should be included in the assessable value. He
held that in order to include the interest element, burden is on the Department
to prove that advances received had a direct nexus with the price inasmuch as
the price had been depressed.
Applying the decision
of this Court in the case of M/s. VST Industries v. Collector of Central
Excise, Hyderabad 1998(97) ELT 395, he held that the deposit or advance ought
to depress the price of the goods in order to include notional interest on such
advance in the assessable value and in this case the Department had failed to
show that the advance received had a nexus with the price fixed or the
depreciation thereof. Thus, on this point he set aside the order of the
Commissioner. C.A.No.180/03 .... (contd.) -7-
the point of inspection charges he held that these charges are to be paid by
the manufacturer and that the charges paid to any third party in addition to
the normal inspection would be includible in the assessable value. He agreed
with the Member (Technical) on this point.
the point of invocation of longer period of limitation, he held that the
Department had full knowledge of the price and the advances received by the
Assistant Commissioner in similar proceedings had noted in the Order-in-
original no.71/96 dated 15.10.1996 about the advances received by the
respondent and also held that the advances had no nexus with the contract and
had dropped the proceedings.
Therefore, it could
not be said that there was any suppression of facts. The ratio of Nizam Sugar
is not applicable to the facts of the present case. Consequently, longer period
of limitation could not be invoked.
there was difference of opinion between the two members, the following question
was referred to the third Member for determining the same :
"Whether the appeal
is required to be rejected in terms of the findings recorded by learned
Member(T) Shri Jeet Ram Kait by ordering that the penalty imposed under Rule
173Q is required to be reduced to Rs.1,20,000/- and penalty imposed under
Section 11AC is required to be reduced to Rs.11,50,000/-.
OR The appeal is
required to be allowed both on merits and on time bar in the light of judgments
noted by Member (Judicial) Shri S.L. Peeran in his order."
third Member being Member (Technical) agreed with the Member (Judicial) and
after referring to the similar issue decided by the Assistant Commissioner vide
order no.71/96 mentioned above, held that it could not be validly said that the
facts were suppressed. He, therefore, held that the demand was time barred.
the inspection charges he held that the same are includible in the assessable
value. Hence, he agreed with both the members on this point. He, therefore,
allowed the appeal on merits and held that the demand was time barred and set
aside the order of the Commissioner.
by a majority of 2:1, the appeal of the assessee was allowed.
the Department has come up in appeal before us.
is clear from the above that on the point of inclusion of inspection charges in
the assessable value, all the three members have given a common finding that
the said charges are to be includible in the assessable value. It is stated
that the assessee has not filed any appeal on this point. Thus, the order of
the Tribunal has attained finality in this regard.
far as the payment of differential duty on escalation bill is concerned, the
assessee in reply to the show cause notice has admitted its liability to pay
the said duty and the same has already been paid and pursuant to the finding of
the Commissioner, the same has been appropriated against this liability.
Tribunal has also recorded the same. There is no dispute on this point also.
far as the interest on advances received from the Railways is concerned, by a
majority of 2:1, it has been held that the advances received and the price were
in full knowledge of the Department which is clear from the order in original
no.71/96 dated 15.10.1996 wherein the Assistant Collector has noted about the
advances received and has also held that the advances received had no nexus
with the contract and dropped similar proceedings.
the majority view, the Tribunal has also held that since the facts regarding
receipt of advances were already in the knowledge of the Revenue it could not
be said that there was suppression of facts regarding advances received
warranting invocation of extended period of limitation. The finding regarding
limitation has not been specifically challenged by the Revenue in this appeal.
Even otherwise, we agree with the Tribunal that since the fact regarding
advances received was already in the knowledge of the Department and the
earlier similar proceedings initiated by the Department were dropped by the
Assistant Commissioner, the Revenue was not justified in invoking the extended
period of limitation.
We confirm the
finding of the Tribunal on the point of limitation and hold that the Revenue
was not justified in invoking the extended period of limitation. Insofar as the
under-valuation on account of advances received but not included in the
assessable value is concerned, suffice would it be to say that the point is
concluded against the Revenue and C.A.No.180/03 .... (contd.) - 10 - in favour
of the assessee by a judgment of this Court in the case of Commissioner of
Central Excise, Mumbai III v. ISPL Industries Ltd. (2003) 5 SCC 113 in which it
has been held as under :
"It is clear
that the mere fact of making an interest-free advance by a buyer to the
manufacturer, by itself will not be a sufficient ground to reload the
assessable value with notional interest. It would be necessary for the Revenue
to show that such advance has influenced in the lowering of the price and that
it is not depicting the normal price of the goods. There may be different
reasons for taking advances, as indicated above in the earlier part of this
judgment. Learned counsel for the appellant submits that all that the Revenue
has to show is that interest-free advance has been made by the buyer to the
manufacturer which would lead to a presumption that it is to the advantage of
the manufacturer having influenced the fixation of price as well. We, however,
fail to appreciate the submission made on behalf of the Revenue for drawing a
presumption that fixation of price is influenced by such an advance. In this
connection, we may refer to the Board's circular of 1998 quoted earlier, clause
(iii) of which clearly provides that if there is no difference in the selling
price for both categories of the wholesale buyers and there is also 'no proof'
that on account of advance deposits taken from some buyers, the price charged
from all buyers has been reduced, then the element of notional interest on
advance deposits, cannot be added. Obviously, where there are two prices, one
for those who have made the advance and the other who have not, it would
require no further proof of the lower price having been influenced by the
interest-free advance made by the buyer. But otherwise it would require proof
and the proof for the purposes of holding that interest-free advance has
influenced the price would obviously be provided by the Revenue. There is no
scope for any such presumption as canvassed on behalf of the appellant. We find
the same position to be continued in the later amendment in the Rules of 2003
referred to above. As in Illustration 2, it talks of evidence to show that
interest-free advance has resulted in lowering of the prices.
circulars and the amendments in the Rules at the relevant time and subsequently
too, do not envisage of any presumption to be drawn by the mere fact of
interest-free advance by the buyer to the manufacturer. It C.A.No.180/03 ....
(contd.) - 11 - requires proof and evidence to show that fixation of price has
been influenced on the lower side by such a transaction of interest-free
opinion of the Tribunal is also in line with and in consonance with the
findings recorded by this Court.
the said judgment, a number of appeals have been disposed of by this Court.
find no merit in the appeal and the same is dismissed.
...........................J. [ASHOK BHAN]
...........................J. [J.M. PANCHAL]