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Excise duty under Rule 6 of CER (Rule 57CC of erstwhile CER)
– Stock transfer to be treated as sale
Facts
The assessee was engaged in manufacture of paper falling
under Chapter 48 of the Central Excise Tariff. It was availing the benefit of
MODVAT scheme under Rule 57A of the erstwhile Central Excise Rules, 1944. The
assessee was also manufacturing pulp falling under Chapter 47 of the Central
Excise Tariff, which was chargeable to ‘nil’ rate of duty. The said pulp was
captively consumed at assessee’s sister unit at Ashti and such clearances were
made on payment of duty at the rate of 8% of the cost price of such pulp in
terms of Rule 6(b)(ii) of the erstwhile Central Excise (Valuation) Rules,
1975.
Issue
The Department contended that the assessee should have
taken into account 8% of the selling price of pulp sold by the assessee’s
sister unit in other states for reversal of MODVAT Credit on inputs on which
credit was taken by applying Rule 6(b)(i) of the erstwhile Central Excise
(Valuation) Rules, 1975. The Department moved Supreme Court challenging the
rationale behind Hon’ble Tribunal’s decision that in the case of ‘stock
transfer’ there is no ‘sale’ and therefore, Rule 57CC was not applicable
Held
The Hon’ble Supreme Court concluded that the amount equal
to 8% of the value of exempted goods at the time of removal of goods from the
factory in terms Rule 57CC of the erstwhile Central Excise Rules, 1944 brought
in applicability of section 4 of the Central Excise Act, 1944 and the
erstwhile Central Excise (Valuation) Rules, 1975. Section 4(1)(a) equated
‘value’ to the ‘normal price’ which in turn referred to goods being ordinarily
sold in the course of wholesale trade. In other words, normal price, which in
turn referred to goods being ordinarily sold in the course of wholesale trade
at the time of removal, constituted the basis of the assessable value. Rule
57CC proceeds on the basis that the manufacturer has taken credit of the
specified duty on ‘common inputs’ which needs to be reversed at eight per cent
and therefore, the manufacturer needs to debit an amount equal to eight per
cent of the price of the exempted final product charged for the sale of such
goods. This amount is a presumptive sum calculated at eight per cent of the
price charged. The rate of eight per cent is the measure to calculate the
presumptive sum. The Apex Court while delivering the judgment, agreed with a
similar view taken by C.B.E.C in its Circular bearing No. B-42/1/96-TRU.
(CCE vs. Ballarpur Industries Ltd., 2007(215) ELT 489 (SC)
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Excise valuation – Assessee entitled to benefit of trade
discount even when no uniform pattern followed while offering discounts
Facts
The appellant had four factories located at four different
places, with its registered office at Coimbatore. It manufactures compressors,
pumps, service-station equipments, etc. and offered a trade discount varying
from 10% to 45% on different products to its customers as a part of its ‘sales
pattern’. A small percentage of such clearances were also made through its
depots.
Issue
Whether the appellant will be entitled to the benefit of
trade discount in valuation of its clearances in view of the fact that no
uniform pattern was followed while offering such discounts.
Held
The Hon’ble Supreme Court observed that, since the benefit
of trade discount of 20% was extended to majority of its dealers, it satisfied
the test of ‘normal practice of wholesale trade’ as laid down in case of
Kirloskar Brothers Ltd. vs. CCE reported in 2005(181) ELT 299. In view of the
above, the Apex Court was inclined to grant a relief of trade discount of 20%
to the appellant while valuing its clearances in terms of section 4(1)(a) of
the Central Excise Act, 1944.
[Elgi Equipments Ltd. vs. CCE, Coimbatore, 2007 (215) ELT
348 (SC)]
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Refund – Unjust enrichment
Facts
The assessee company was engaged in manufacture of such
products as Dranex and Flush Kleen Powder amongst others. The assessee claimed
a refund of excise duty paid under protest, under section 11B of the Central
Excise Act, 1944. The assessee produced its books of account along with a
certificate of Chartered Accountant in support of its contention that the bar
on unjust enrichment and the presumption that the incidence of duty has been
passed on to the buyer is not attracted in its case.
Issue
The Revenue sought to deny the refund on a premise that the
assessee has failed to adduce any tangible evidence in order to substantiate
its claim that the excess burden of duty was indeed not passed on to the
buyer.
Held
The Hon’ble Madras High Court was pleased to uphold the
findings of the Hon’ble Tribunal wherein it had categorically observed that
the fact that the assessee was showing the impugned amount as ‘receivable from
the government’ in its balance sheet coupled with the Chartered Accountant’s
certificate to the effect that no duty burden was indeed passed on, are
sufficient enough to avoid the bar on unjust enrichment. The decision of the
Hon’ble Tribunal was based on the judgment of the Apex Court in case of Pride
Foramer vs. CCE reported in 2006(200) ELT 259. Thus, the Hon’ble Madras High
Court dismissed the Revenue’s appeal and upheld the assessee’s refund claim.
[CCE, Chennai vs. Saralee Household & Bodycare India (P)
Ltd., 2007 (216) ELT 685 (Mad)]
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Credit not to be reversed on capital goods cleared to EOU
Facts
The appellant purchased capital goods on payment of duty
and after availing Cenvat credit thereon supplied the same to 100% E.O.U.
against CT-3 which was issued by jurisdictional Central Excise Officer under
Notification No. 22/03-CE. The impugned supply of capital goods was made
without reversal of the Cenvat credit availed thereon.
Issue
The Revenue sought to reverse the Cenvat credit availed on
the impugned capital goods in terms of Rule 3(4) of the Cenvat Credit Rules,
2004 on a premise that, for all removals of capital goods or inputs, the
credit has to be reversed inasmuch as there is no linking provision to allow
exemption against supply under CT-3 certificate.
Held
The Hon’ble Tribunal held that the purpose of the said Rule
3(4) of the said Rules is to recover the amount equal to the credit availed by
a manufacturer, when an assessee removes the capital goods from its factory.
Rule 3(5) of the said Rules also makes it clear that the amount paid under
sub-rule (4) of Rule 3, is available as Cenvat credit as if it was a duty
paid. Both sub-rules read together make it obvious that if the appellant
reversed the credit, the 100% E.O.U. would have been eligible to take a credit
in respect of capital goods. However, the Notification No. 22/03-C.E.
subsequently allows a 100% E.O.U. to procure capital goods without payment of
duty against CT-3 Certificate. Since a combined reading of both the sub-rules
makes it clear that what is sought to be reversed is in the nature of duty and
the same duty is exempted under the Notification for specific cases, such as
supply to 100% E.O.U., a liberal approach to interpreting the legal provisions
is required, so that such removal from capital goods to eligible 100% E.O.U.
need not be subjected to payment of duty in view of specific exemption
available and hence, appellant is not required to reverse the Cenvat credit
availed on capital goods supplied to a 100% E.O.U. against CT-3.
[Manaksia Ltd. vs. CCE, Kolkata, 2007 (216) ELT 231 (CESTAT-
Kol)]
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Cenvat on inputs used for repairs not admissible
Facts
The appellant claimed credit on the inputs used in the
repairs of the goods manufactured by them and cleared on payment of duty.
Issue
Whether Cenvat Credit would be admissible on inputs used in
the repair of the goods cleared on payment of duty.
Held
It was not in dispute that the inputs were indeed used in
repairs of the goods manufactured by the appellant and cleared on payment of
duty. In above view of the matter, Hon’ble Tribunal was of the opinion that,
since it is a well settled law that repair is not a manufacturing activity and
the credit can be availed only in respect of the inputs which are used in
manufacture of excisable goods and hence, no credit can be taken on impugned
inputs used in repairs.
[Markfed HDPE Sacks Plant vs. CCE, 2007 (217) ELT 32 (CESTAT-Del)]
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Excise Valuation – Sales promotion expenses and
transportation cost
Facts
The appellant was engaged in manufacture of multi utility
passenger vehicles which were cleared at its factory gate and sent to dealer’s
premises for sale therefrom to ultimate customers. The appellant did not
include the cost of transportation and transit insurance incurred in
transporting its product from its factory to dealer’s premises.
The dealers indulged in such sales promotion activities as
gifting gold coins, watches, etc to ultimate customers as well as advertising
the vehicles manufactured by the appellant. The expenditure incurred by the
dealer with regard to aforesaid activities was reimbursed to the extent of 50%
by the appellant. The appellant did not include aforesaid sales promotion
expenditure incurred by its dealer in assessable value of its final products.
Issue
The Department sought to include the cost of transportation
and transit insurance incurred by the appellant, in transporting its product
from its factory to dealer’s premises, on the pretext that it was not
separately shown in the invoices in respect of each consignment in terms of
Rule 5 of the Central Excise (Valuation) Rules, 2000.
The Department also sought to include sales promotion
expenses incurred by the dealers in assessable value of the impugned product
on the pretext that it was in nature of an additional consideration flowing
from the dealers.
Held
The Hon’ble Tribunal upheld the plea of the appellant for
non-inclusion of the expenses incurred on insurance and transportation of the
goods from factory gate to dealer’s premises based on an Apex Court’s decision
in case of Indian Oxygen Ltd. reported in 1988(36) ELT 723 wherein it was
categorically held that when the value for sale at factory gate was available
that value will be value relevant for assessment of excise duty.
Similarly, It was held that the sales promotion expenses
incurred by the dealers are not includible in assessable value of the impugned
product, since it were incurred for the mutual benefit of dealers as well as
the manufacturer. In this regard, the Hon’ble Tribunal relied on the judgments
in case of CCE vs. Gangadharam Appliances Ltd reported in
2007-TIOL-372-CESTAT-MAD and Philips India Ltd. vs. CCE reported in 1997(91)
ELT 540(SC).
[Toyota Kirloskar Motors Ltd. Vs. CCE, 2007 (217) ELT 104 (CESTAT-Chennai)]
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Reclassification at the time of clearance from warehouse
and interest on warehoused goods
Facts
The appellants had imported and warehoused in their private
customs bonded warehouse 4121 packages of Air Separation Plant (ASP) and
design documents. These had been classified under heading 8419.60 and duty
assessed accordingly. The appellants had cleared four parcels of the goods
under the cover of ex-bond bills of entry declaring the aforementioned value
and description leaving nine packages comprising parts of ASP and design
documents. The duty due on the uncleared goods was paid on expiry of
warehousing period including the extension thereof, based on the
aforementioned rate, valuation and classification.
Issues
1. Whether the goods can be reclassified under a different
tariff heading at the time of their clearance from the warehouse.
2. The applicability and period of interest on the duty
payable on warehoused goods that remained uncleared beyond the normal period
and the extension allowed by the authorities.
Held
1. The Hon’ble Tribunal relied on the decision in case of
VBC Industries Ltd vs. CC reported in 2003(156) ELT 872 to hold that the
classification of goods on assessment of the into-bond bill of entry cannot be
altered subsequently, unless there was a misdeclaration of classification
initially or a change in the wording of relevant entry.
2. On the levy of interest, it was held that the
non-removal of warehoused goods, at the expiration of the warehousing period,
is dealt with as if the goods are removed improperly; hence, such goods would
be assessed to duty as if they were cleared on the date following the
expiration of warehousing period. Accordingly, interest is payable on the duty
payable at the time of clearance of warehoused goods, for the delay in payment
of the duty.
[Southern Iron & Steel Co. Ltd. vs. CC, 2007 (215) ELT 236
(CESTAT-Chennai)]