Products Ltd Vs. Commnr. of Central Excise, Mumbai  Insc 732 (12 July 2007)
Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA
(With Civil Appeal No.7098 of 2005) Dr. ARIJIT PASAYAT, J.
1. Challenge in these appeals is to the orders passed by the Customs, Excise
and Gold (Control) Appellate Tribunal, West Regional Bench at Mumbai (in short
the 'CEGAT') and Customs, Excise and Service Tax Appellate Tribunal, West Zonal
Bench at Mumbai (in short the 'CESTAT').
2. As common points are involved, they are taken up together for disposal.
3. So far as Appeal Nos.5317-5318/2002 are concerned they relate to order
passed by CEGAT in Appeal No.E/566/02- Bom. Appeal No.5318 of 2002 relates to
rejection of the application for rectification filed. Appeal No.7098 of 2005
relates to Appeal No.E/3617/04-MUM. For convenience the factual position in
Civil Appeal Nos.5317-18 is noted:
4. Paper Products Ltd. the appellant was engaged in the manufacture of
printed flexible packaging laminates and pouches. The printing of these goods
is done by means of printing cylinders. These cylinders were being manufactured
by Helio Gravure, Thane, a division of Paper Products Ltd. The Department
investigation led it to believe that the charges for making printing cylinders
were recovered by the appellant separately from the buyers of that product and
did not include these charges in the assessable value of the laminates pouches
etc. Notice dated 1.2.1994 was issued demanding duty of Rs.43.59 lakhs which
was alleged to have been short levied. The Collector passed orders in December
1994 confirming the demand and imposed penalty. The assessee challenged the
order to the Tribunal. The Tribunal in its order reported in Paper Products
Ltd. v. Collector of Central Excise, Bombay (1999 (110) ELT 671) held that the
charges that were paid for printing cylinders were includible in the value of
the pouches and other such goods. It also held with regard to the service
charges that the appellant recovered from its buyers "the activity for
which the charges recovered must be regarded as an activity essential to enable
the appellant to print the laminated cartons which are the appellant's final
products and in this view also, the charges collected would be part of the
assessable value." The Tribunal also noted that the appellant before it
"had no case before the Adjudicating Authority that the cost of cylinders
had been amortized to any extent" by the appellant. A further contention
was raised before the Tribunal that duty chargeable on the finished product
during a substantial part of the disputed period was nil either on account of
the order of the Board dated 5.5.1999 or exemption notification 49/87 dated
1.3.1987. The Tribunal noted that those contentions had not been raised before
the adjudicating authority observed that these stands would require factual
investigation and felt that the controversy should be decided by the
adjudicating authority and, therefore, remanded the case to the adjudicating
authority for deciding on the two issues what is the correct rate of duty
chargeable and correct amount of differential duty payable and the correct
amount of penalty imposable. The Commissioner passed orders with regard to the
remand proceedings by order dated 31.10.2001.
The said order was challenged before CEGAT.
5. In his order, the Commissioner took the stand that the order of the
Tribunal, and the order passed by the bench on a subsequent application for
rectification of mistake in that order, made it clear that the question of
amortization was not to be considered by him in the remand proceedings. He
examined the applicability of notification 49/87 and the order of the Board
dated 5.5.1989 and found that neither of them would apply. The assessee had not
been shown fulfillment of the condition subject to which the exemption of
notification 49/87 was available and the circular of the Board did not relate
to the disputed period.
6. The contention of the counsel for the appellant before CEGAT was that the
Commissioner should have taken into account the plea that the casting had been
amortized. He relied upon the decision of the Tribunal in Flex Industries Ltd.
v. Commissioner of Central Excise, Meerut (1997 (91) ELT 120). According to
CEGAT, that was not of any assistance to the appellant. The decision of the
Tribunal which remanded the matter was clear and specific as to the terms of
the remand. The Tribunal noted in paragraph 6 that the stand now taken before
it, that the cost of the cylinder had been amortized in the price of the
packing material was totally contradictory to the stand taken before the
adjudicating authority, in the absence of any material placed before him to
support the present stand. It said "in these circumstances, it follows
that the amount collected under separate invoices represented, as admitted
before the Adjudicating Authority, a part of the cost of printing
cylinder". While it noted in paragraph 8 in accordance with the view taken
in Flex Industries case (supra) that the cost of Cylinder must be reflected in
the assessable value of the final product over a considerable period by
amortizing the most, it stressed again that the appellant before it had no case
before the adjudicating authority and the costing of cylinder had been
amortized. It specifically stated in paragraph 12 the matter was being remanded
to the adjudicating authority for passing a fresh order after deciding the two
aspect, what is the correct rate of duty, if any, chargeable, the correct
amount of differential duty, if any payable, and the correct amount of penalty.
7. The CEGAT found that the terms of remand were specific.
The order of remand so far as relevant reads as follows:
"The last contention urged is that during a substantial part of the
disputed period, duty chargeable on the finished products of the appellant was
nil rate of duty either on account of Board order, dated 5.5.1989 or on account
of exemption Notification No.49/87, dated 1.3.1987. These contentions have not
been raised before the Adjudicating Authority who, therefore, did not have the
opportunity to apply his mind in this regard. Though these contentions have not
been raised before the lower authority, we are inclined to grant the appellant
permission to raise these contentions at this stage. Consideration of these
contentions would require reference to the approved classification lists and
the description of the goods covered by the Board's order and the notification
and also require factual investigation. In this view, this controversy should
be decided by the Adjudicating Authority."
8. Learned counsel for the appellant submitted that the remand was an open
one and not a limited one. Therefore, the view expressed is not correct. It was
submitted that the penalties imposed were higher.
9. Learned counsel for the respondents supported the impugned orders.
10. A bare reading of para 10 makes the position clear that it only related
to the particular plea and no other plea which was covered by para 8. The scope
of limited remand has been highlighted by this Court in Mohan Lal v. Anandibai
(AIR 1971 SC 2177). It was observed at para 9 as follows:
"9. Lastly, counsel urged that now the suit has been remanded to the
trial Court for reconsidering the plea of res judicata, the appellant should
have been given an opportunity to amend the written statement so as to include
pleadings in respect of the fraudulent nature and antedating of the gift deed
Ext. P-3. These questions having been decided by the High Court could not
appropriately be made the subject-matter of a fresh trial. Further, as pointed
out by the High Court, any suit on such pleas is already time- barred and it
would be unfair to the plaintiff- respondents to allow these pleas to be raised
by amendment of the written statement at this late stage. In the order, the
High Court has stated that the judgments and decrees and findings of both the
lower courts were being set aside and the case was being remanded to the trial
Court for a fresh decision on merits with advertence to the remarks in the
judgment of the High Court. It was argued by learned counsel that, in making
this order, the High Court has set aside all findings recorded on all issues by
the trial Court and the first appellate Court. This is not a correct
interpretation of the order. Obviously, in directing that findings of both
courts are set aside, the High Court was referring to the points which the High
Court considered and on which the High Court differed from the lower courts.
Findings on other issues, which the High Court was not called upon to consider,
cannot be deemed to be set aside by this order. Similarly, in permitting
amendments, the High Court has given liberty to the present appellant to amend
his written statement by setting out all the requisite particulars and details
of his plea of res judicata, and has added that the trial Court may also
consider his prayer for allowing any other amendments. On the face of it, those
other amendments, which could be allowed, must relate to this very plea of res
judicata. It cannot be interpreted as giving liberty to the appellant to raise
any new pleas altogether which were not raised at the initial stage. The other
amendments have to be those which are consequential to the amendment in respect
of the plea of res judicata."
11. Above being the position, there is no merit in these appeals which are
dismissed, so far as levy of duty is concerned. However, considering the
factual scenario the penalty is reduced to Rs.5 lakhs from Rs.10 lakhs.
12. So far as appeal No.7098 of 2005 is concerned, the primary stand is that
the Commissioner at Hyderabad has accepted the stand of the assessee-appellant.
But it appears in the instant case the admitted position was that there is a
separate charge. CESTAT's order makes the position clear. The relevant portion
of CESTAT order reads as follows:
ii) With reference to show cause notice dated 23.6.1994, the reply vide
letter dated 26 July 1994 (Page 159). It was stated that the printing cylinders
are manufactured by them in their factory i.e. M/S. Hello Gravure out of
different materials and are incorporated with their various customers' motifs
or designs. The printing cylinders cannot be considered as an input of flexible
packaging laminate and its value cannot be included in the value of the
flexible packaging laminate.
iii) In respect of show cause notice dated 5.10.1994 vide their letter dated
14.11.1994 (Page 164) it was stated that the charges for making printed
cylinders are collected by them for M/s. Helio Gravure to whom these charges
accrue and are shown in their books.
They cannot obviously collect these charges in their invoices as these
charges do not form part of cost of flexible packaging but they are part of
cost of printing cylinders. They further stated the costs for artwork design
and development of cylinders, which were reimbursed to them by their customers
and accrue in the books of M/s. Helio and are incurred by their customers and
not by them and therefore these costs are not to be included in the
xx xx xx xx vi) In respect of show cause notice dated 8.9.1995, vide reply
dated 26th September, 1995 (Page 173) they submitted that cost of making
printed cylinder is divided into two types of costing:
a) Cylinder per se, which is made of metal i.e. copper, is the property of
M/s Helio Gravure. The cost of the metal cylinder is amortized in the flexible
packaging laminate products.
b) Amortization is also done for the Artwork and the design work that are
incorporated in the Cylinder."
13. It is to be noted that the Commissioner had adjudicated 23 show cause
notices covering the period from 7.9.1993 to 31.3.2000. Earlier these notices
were adjudicated vide Order in Original No.31/2001 Commr.M VI dated 3.10.2001
against which Appeal No.E/568/02 Mum was filed. The appeal was disposed of by
the CEGAT with the following observations:
"The counsel of the appellant contends that identical issue, the
inclusion in the cost of manufacture of finished goods i.e. printed plastic
sheets, the cost of cylinders and a part recovery from the buyers, has already
been considered by the Tribunal in Flex Industries that the Commissioner has
not considered the cost sheets duly attested by the cost accountant, which was
produced in support of its contention. We have seen copies of these cost
sheets. While the Commissioner has concluded in his order that no evidence of
amortization was furnished before him, it appears that he has not considered
these cost sheets. We therefore propose to remand the matter to him for this
purpose. In this process, the appellant shall be entitled to address the
Commissioner on the issues raised in the notices and advance arguments in
The department is also at liberty to advance submissions before the
Commissioner. The Commissioner shall thereafter pass orders on the issues
raised in the notices in accordance with law."
14. The stand seems to be that separate charge was made after Flex
Industries case. The finding of CESTAT is to the following effect:
"From the perusal of various replies to the show cause notice submitted
by the appellant, as pointed out by the Jt. CDR, it is apparent that the
appellant has changed its stand from time to time. At times a plea has been
taken these charges are not includible due to the fact these are reimbursed by
the customers being the printing cylinder cost, and at times plea has been
taken that those charges are not towards cost of the cylinders but for
maintenance of printing cylinder."
15. That being so, the demand as levied does not suffer from any infirmity.
But so far as penalty under Rule 173Q is concerned the same appears to be on
the higher side.
Considering the background facts the quantum of penalty is reduced from Rs.1
crore to Rs.50 lakhs.
16. The appeals are disposed of accordingly.