COMMNR. OF CENTRAL EXCISE, ALLAHABAD v. M-S. SOMAIYA ORGANICS (INDIA) LTD

Citation: [2007] 11 S.C.R. 1068

Court: Supreme Court of India

Bench: ARIJIT PASAYAT, D.K. JAIN

Case summary

COMMNR. OF CENTRAL EXCISE, ALLAHABAD v. M-S. SOMAIYA ORGANICS (INDIA) LTD.pdf

Judgment text

» I-- \ -( ... COMMNR. OF CENTRAL EXCISE, ALLAHABAD v. MIS. SOMAIYA ORGANICS (INDIA) LTD. NOVEMBER 12, 2007 [DR. ARIJIT PASAYAT AND D. K. •JAIN,JJ. ] t "" Central Excise Act, 1944-s. 4 (1) (b)-EthylAlcohol Denatured (SDS)-Used for manufacture ofspecified products by the other manufacturing unit ofthe assessee-Excise duty on-Payment ofon costing basis in terms ofr. 6 (b)(i) ofValuation Rules, by the assessee- Revenue demanding on the basis of 6 (b)(i) at the highest price at which SDS was sold by other manufacturers on a particular date- CEGAT_setting aside the levy holding that adoption ofhighestprice not correct-On appeal, held: CEGATwas requiredto determine the appropriate price-Since it was not determined, matter remittedfor "' fresh consideration-Central Excise Valuation Rules, 1975-r. 6 (b) (i) and (ii). Respondent-assessee was having two manufacturing units. One was distillery where they used to manufacture Ethyl Alcohol- Denatured (SDS).

The stock ofSDS was transferred to their other unit i. e. a chemical factory for manufacture ofspecified chemicals. They were paying excise duty at the time oftransferring the stock ofSDS to their other unit and MODVAT credit of the duty paid was availed in the other unit (chemical factory). The value had been .. --( arrived at by the assessee for the purpose of Section 4 (1) (b) of Central Excise Act, 1944, on costing basis in terms ofRule 6 (b) (ii) of Central Excise Valuation Rules, ·1975 during the relevant period. Show Cause Notice was issued to the assessee, alleging that assessable value was to be fixed in terms ofRule 6 (b) (i) and not under 6 (b) (ii) and it was proposed to fix the assessable value )... on the basis of the highest price at which SDS was sold by other manufacturers on particular dates. Differential duty was demanded. Commissioner ofCentral Excise confirmed the demand. ,, SOMAIYAORGANICS (INDIA) LTD. ..

> Appeal of the assessee was allowed by Customs, Excise and Gold (Control) Appellate tribunal (CEGAT) holding that the Department adopting the highest price was unsustainable in law. Hence the present appeal. Partly allowing the appeal and remitting the matter, the Court -+ HELD: CEGAT appears to have taken the stand that one day high price cannot be applied even though Rule 6(b) (i) may apply. CEGAT bad 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' . c means ascertained. There may be different rates for . different periods. There may be cases where even for the periods the highest and the average prices may be taken. 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.

What ~was required to be seen is as to whether there was any ascertainable price and on what basis it can be ascertained. Even for a period, th~ 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 ofthe CEGAT is not legally tenable. [Paras 9 and 10] [1073-F, G; 1074-A, C, D, E] CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4975 of ).. 2002. From the final Order No. 71/2002-A dated 20. 2. 2002 of The Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi in Appeal No. E/467/2001-A. Nagender Rai, Aruna Gupta and B. K. Prasad for the Appellant. -\ V. Lakshmi Kumaran, AR. Madhav Rao, Tarun Jain, Monish Panda and Rajesh Kumar for the Respondent. The Judgment ofthe Court was delivered by DR. ARIJIT PASAYAT, J. 1.

Challenge in this appeal is to the judgment ofthe 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 ofCentral Excise, Allahabad. 2. Factual background in a nutshell is as follows: The respondents are having two manufacturing units- a distillery at Captainganj and a chemical factory at Barabanki. In 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 ofspecified 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.

Aggrieved by the above, the assessee filed the appeal before CEGAT. Show cause notices were issued for different periods as follows: . S. No. Show cause notice No. Dt. Period Differential du! )'. 1. C. No. VI(MP) Demand(l2) ADJ April, 94 Rs. 14,59,49,158. 65 -1 i6/98/3149 dt. 26. 3. 99 to Feb. , 99 -SCN No. 12/Commnr. -AUD- 99/26. 3. 99 -1 2. C. No. 20 CE/Somaiya/SBZ/99 March, 99 to Rs. 25,12,528/- 1550 dt. 31. 8. 99 July, 99 3. C. No. 20-CE/Somaiya/SBZ/61 August, 99 to Rs. 4,99,417/dt. 18. 1. 2000 Dec, 99 3. Excise duty was levied on SDS for industrial consumption w. e. f. ~ 1. 3. 94. The respondents were paying excise duty at the time oftransferring the stock of SDS to their Barabanki unit and modvat credit ofthe duty paid was availed in the Barabanki unit. The assessable value had been COMMNR. OFCENTRALEXCISE,ALLAHABADv. MIS. 1071 SOMAIYAORGANICS(INDIA)LTD. [PASAYAT,J.

] arrived at by the respondents on costing basis in terms ofRule 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 tenns ofRule 6(b)(i) and not under Rule 6(b)(ii). It was then proposed to fix the assessable value on the basis ofthe 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 i997-98 -do- 20. 11. 1997 Rs. 14. 75 4/98 to 2/99 Kisan Sahkari Chini Mills, Ghosi 1. 12. 1998 Rs. 15. 50 3199 to 7/99 -do- 20. 3. 1999 Rs. 14. 25 8/99 to 12/99 -do- 10199 Rs. 14. 25 4. 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 ofSDS 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 -- -- 9. Stand ofthe 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)(i) 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 fommlated 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 periods. There 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: "on the value of the comparable goods produced or manufactured by the assessee or by any other assessee: Provided 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, ifany, in the material characteristics of the goods to be assessed and ofthe comparable goods" 10. It appears that the CEGAT has not determined what would be the appropriate price.

By merely discarding the price fixed by the assessing D authority the issue does not get solved. What was required to be seen is --4, as to whether there was any ascertainable price and on what basis it can be ascertained. Even for a period the highest or the average can be taken. That has to be done on the basis ofthe judicial discretion ofthe 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 ofthe matter, the approach ofthe CEGAT is not legally tenable. We set aside the order ofCEGAT and remit to CESTAT, which has come in place of CEGAT, for fresh consideration. 11. The appeal is allowed to the aforesaid extent. There will be no order as to costs. K. K. T. Appeal Partly allowed. ....